Xref: utzoo soc.culture.japan:4832 comp.software-eng:3906 Path: utzoo!utgpu!watserv1!watmath!att!rutgers!usc!zaphod.mps.ohio-state.edu!sol.ctr.columbia.edu!lll-winken!sun-barr!ccut!ascgw!fgw!flab!mojo From: mojo@flab.flab.fujitsu.co.jp (mojo) Newsgroups: soc.culture.japan,comp.software-eng Subject: Red Paper (Part I) Keywords: Japanese Computer Industry Message-ID: <8695@flab.flab.fujitsu.co.jp> Date: 10 Jul 90 11:11:33 GMT Followup-To: soc.culture.japan Organization: Fujitsu Laboratories Ltd., Kawasaki, Japan Lines: 316 Recently, a document called the "Red Paper" has been making quite a hit in Tokyo on CompuServe, and on the Japanese PC Network, NiftyServe. The "Red Paper" was written by Bill Totten, the President of K.K. Ashisuto, the largest distributor of independent software products in Japan. It discusses his reasons for believing that US software companies are about to lose their competitiveness in the Japanese software market, and perhaps, eventually, in the world market. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * RED PAPER$@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J ARE WE ABANDONING OUR COMPUTER INDUSTRY TO JAPAN? $@!!!!!!(J $@!!!!!!!!!!!!!!!!!!(J I call this a "red" paper because red is the color I most associate with danger. I believe that the United States is in danger of abandoning another vital industry to Japan. This is its computer industry, both computer hardware and computer software. Abandon. Surrender. Thrown away, not taken away. Not stolen. Not elbowed aside by artificial means, simply surrendered. I see the same pattern of abandonment and surrender now beginning in computers that has occurred before in such industries as motorcycles, automobiles, consumer electronics, office equipment and semiconductors. The first products American companies let go to competition are the low-end, inexpensive products. The first markets they let go are foreign markets. But surrendering the inexpensive products and foreign markets usually are their first steps down the relentless path toward losing the more lucrative products and their own home market. $@!!!!!!!!!!!!!!!!(J The danger to our computer industry is particularly life threatening, because computers are critically vital to U.S. industry in general. We are not talking about "Toys-R-Us"; we are talking about a critical, strategic industry. The danger comes from the way American computer manufacturers and software houses are running their businesses and treating their customers, not from any "targeting" of their industry or other conspiracy by the Japanese. This danger can be avoided only if American computer companies perceive the need to correct the way they are running their businesses and treating their customers. And, act on that life saving perception. Now, while there still is time. Blaming or bashing the Japanese will not help. Clyde Prestowitz, Jr., put it clearly in twelve words: "The U.S. doesn't have a Japan problem. It has a U.S. problem." I am an American citizen, and a permanent resident of Japan. I have lived in Japan for twenty-one years, since 1969. I co-founded and am the president of K.K. Ashisuto, a Japanese company that publishes computer software products and distributes them in Japan. We have 625 employees. Our revenues last year were nine billion yen, 95% from software products we imported from the United States. Our products range from the least expensive for the smallest personal computers to the most expensive for the largest corporate computers. From products selling for less than $100 to products selling for most of a million dollars. I see this danger because it affects my business, increasingly, every day. I am worried about it. As a businessman, I want to see a strong and competitive American economy. As an American citizen, I want to see a strong and competitive American economy. As a resident of Japan, I want to see a strong and competitive American economy. So does the world. $@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J This "red" paper is intended as a warning. It is organized as follows:$@!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!(J 1. It begins with some comments on "Japan bashing", because I believe there is too much of this. I also see too much "America bashing". To what useful end are either except to win elections and sell books and newspapers? They prevent us from seeing the real problems we need to talk about and solve, and they are poisoning our vital relationship with our most important ally. Terms like tilted and level "playing fields" presume opposing teams. The U.S. and Japan compete but are we not really on the same team? $@!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!!!!!!!!!(J 2. It discusses why I believe, from my own twenty years of business experience here, that Japan's market is an open market. $@!!!!(J 3. It describes monumental changes taking place in Japan that are forcing Japanese business executives and policy leaders to look more critically at the computer industry and demand more from it.$@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!(J 4. It discusses how the American-dominated computer industry has failed to satisfy crucial needs of its customers in particular and society in general.$@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!(J 5. It describes a Japanese computer industry that is $@!!!!(J emerging to satisfy crucial needs not being satisfied by the $@!!(J American-dominated computer industry. 6. It warns of the threat that this newly-emerging $@!!!!!!(J Japanese computer industry poses to the established, entrenched American-dominated computer industry. 7. Finally, it recommends actions that American computer manufacturers and software suppliers must take if they want to maintain their leading position in the world's markets. $@!!!!!!!!(J $@!!!!!!!!!!!!!!!!!!!!!!!!!!(JJAPAN BASHING$@!!!!!!!!!!(J The cover story of the April 2nd issue of Newsweek said that Japan thinks of America as a "Nation of Crybabies". In many ways, so do I. $@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!(J I think most American complaints about trade with Japan are wrong. Most complaints are from those who have failed here because they have not tried hard enough or smart enough. For example, Donald Kendall, the creator of today's Pepsico, complains that Japan's market is closed. Meanwhile Coca Cola $@!!(J sells 60% of all carbonated soft drinks sold in Japan. If Coca Cola does so well, why does Mr. Kendall blame Japan for Pepsi's lack of success there? $@!!!!!!!!!!!!(J Other complaints are from persons like Lee Iacocca of $@!!!!(J Chrysler whose real aim appears to be to reduce competition $@!!!!(J within the United States from Japanese companies. If Iacocca $@!!(J really wants to sell Chryslers in Japan, why does he not produce right-hand-drive vehicles? Japanese auto makers produce the $@!!(J cars they want to sell in Japan with right-hand steering wheels and the cars they want to sell in the United States with left-$@!!(J hand wheels. European auto makers, which sell 90% of the $@!!!!!!(J automobiles imported into Japan, make similar efforts. But Chrysler does not. And those successful European auto makers $@!!(J have built nationwide distribution and service networks in Japan, while Chrysler has not. That is part of the reason why Volkswagen-Audi, BMW and Mercedes Benz each sold more twice as many automobiles in Japan last year as our entire "Big Three" $@!!(J automakers combined. They each also sold more than thirty times as many cars in Japan as Chrysler last year. Even though $@!!!!!!(J Chrysler increased exports to Japan by 119.6% last year, twelve other companies each exported more than four times as many cars to Japan. Chrysler's playing field must be tilted by its own mirrors. $@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!(J Other complaints are from politicians who seem to see $@!!!!(J bashing of Japan as a good ploy to win elections. They seldom mention that Japan consistently buys more U.S. products than any other foreign nation save Canada. When they complain about $@!!!!(J agricultural trade, they usually do not mention that Japan buys nearly 70% of all the beef exported by the United States. Or $@!!(J that Japan is, by far, the biggest foreign market for American citrus fruit. $@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!(J And then there are the well-meaning bureaucrats and scholars who seem to believe, sincerely, that most American citizens are idiots not capable making their own decisions. These elitists want the government to decide what its citizens should buy from whom.$@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!!!!!!!!!!!!!(J Not all American complaints about trade with Japan are $@!!!!(J wrong. Some are accurate. Japan has its share of business $@!!!!(J persons who blame their own failures on others, or who try to use their government to prevent competition from abroad. Japan also has its share of politicians who are far more interested in winning elections than in truly serving their constituents. And it has its own elitist government officials who sincerely do not trust Japanese citizens to make their own decisions. These $@!!!!(J Japanese elitists, for example, once did not trust their baseball players to choose safe baseball bats. Nor trust Japanese snow to accept foreign skiis. And even today they do not trust housewives to choose between foreign and domestic rice. I believe much of the ugly talk about trade problems between the Japan and United States is irrelevant, because it will not help American companies sell their products in Japan or compete with Japanese companies outside Japan. And most of this "Japan bashing" is dangerous, because it deflects attention away from the real issues and problems that must be addressed and solved to sell successfully in Japan and to compete successfully with Japanese companies outside Japan. JAPAN'S MARKET IS OPEN. WIDE OPEN$@!!(J $@!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!!!!!!!(J Again, I am an American. I have lived in Japan since 1969. I co-founded K.K. Ashisuto, a Japanese corporation, in 1972 to publish and distribute software products in Japan. We do not $@!!(J write software. Rather, we publish and distribute software that others have written. We have done well. $@!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!!!!!!!(J We are, by far, the largest distributor of independent $@!!!!(J software products in Japan. By "independent" I mean independent of the hardware makers; products that run on various brands and sizes and models of computers. By "software products" I mean $@!!(J ready-made software that has been packaged for sale and use "as is" off the shelf. Like books and records. We sell about one- half of the independent software products sold for use on large computers in Japan. That is about 15% of all software products used on large computers in Japan. We have done so consistently for many years. Nearly all of Japan's major corporations use one or more of our products. So do numerous universities, government agencies and other large organizations. $@!!!!(J We began selling software products for personal computers only a few months ago, in September 1989. Our five products $@!!(J already are the 1st, 3rd, 7th, 9th and 10th leading sellers in Japan. Each is the unit sales leader in its category. The latest survey by The Computer magazine shows that we already have captured 24.1% of the market for PC software products. That is, nearly one out of every four units of personal computer software products sold in Japan is one we publish and distribute. Less than a year after entering this market! There was no genius, magic or mirror involved. We published, priced and offered products to fit this market. We did not thrust a take-it-or-leave-it product or exorbitant prices on the market, and we have not tried to extract excessive royalties from our dealers. Altogether, we sold over nine billion yen of software products in 1989. We imported 95% of those products from the $@!!(J United States. We currently have 625 employees. I have found Japan to be a wonderful place to live and a great place to sell American products. $@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!(J Japan is a difficult place to do business only if you do not want to bother learning its language. Or if you do not want to bother learning and adapting to its social and business customs. Or if you do not genuinely like the persons you deal with. Your customers, employees and suppliers. Or if you are unwilling to adapt your products to the market. Or provide the level of quality or service Japanese expect and demand and get. Or if you overcharge for your products. Or if you expect results before you have established your credibility. $@!!!!!!!!(J $@!!!!!!!!(J But so is any market in any country difficult under those self-created circumstances. $@!!!!!!!!(J We are selling American products successfully in Japan because I have mastered the Japanese language; we sell to our $@!!(J customers in the way they are accustomed; those customers are $@!!(J genuine friends; we adapt the products we import to the needs of the Japanese market; we provide the quality and service expected in Japan; and we price our products fairly. $@!!!!!!!!!!!!!!!!!!(J Our success began to come only after we invested nearly ten years establishing personal credibility and well over five years establishing the company's credibility. But the success has been well worth the investment. And the harvest continues. I think most others who have been successful in Japan have done the same things we have done. Both foreign and Japanese. $@!!(JThose who have failed in Japan have not done these things. There are Japanese losers as well foreign losers. We hear more from the losers because they cry and scream so loud. Or get their politicians to cry and scream for them. The winners usually are quiet because they have nothing to gain by telling their competitors about the great opportunities in Japan or teaching their competitors how to realize those opportunities. Does Macy tell Gimbel? Why should Coke tell Pepsi? What has BMW to gain by instructing Chrysler? $@!!!!!!!!(J Our experience is, by no means, unique. Robert C. $@!!!!(J Christopher's book entitled, "Second To None", provides an $@!!!!(J excellent compendium of many American business successes in Japan about which we hear too little. $@!!!!!!!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!!!!!!!(JCATACLYSMIC CHANGES$@!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J But Japan now is undergoing cataclysmic changes, and these are having profound impacts on our market and our business. I think these changes will have far-reaching effects on the world's computer industry, on trade relations between the United States and Japan and on the overall economic well-being of both countries. $@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(J The reason for these changes is that Japan's economy is at a critical juncture.$@!!!!!!!!!!!!!!!!!!(J $@!!!!!!!!!!!!!!!!!!!!!!(J Japan's economic growth and prosperity has been built on mass production. Japan has replaced the United States as the $@!!(J world's leading manufacturer of large volumes of high-quality $@!!(J products. Forty years ago the United States had the world's best manufacturing facilities and technology. It produced the world's highest quality products. Japan's manufacturing facilities had been devasted by the war, its technology was antiquated and its quality was so poor that "made in Japan" was synonymous with cheap, shoddy, inferior-quality merchandise. But the United States' wages were the world's highest, while Japan's were among the world's lowest. And the United States was more than happy to export its manufacturing equipment and technology to low-wage countries like Japan. $@!!!!!!!!(J The last forty years has shown what happens when a high- wage, high-quality country tries to compete with a low-wage, low-quality country in mass production when both have the same manufacturing facilities and technology. It loses. The low-wage country wins. Low wages enable it to capture the low end of markets where low prices beat high quality. Earnings in the low end of markets provide the funds to improve quality and move up and capture the portions of markets that demand higher quality and command higher prices. Just look at the what has happened to Japan's motorcycle, automobile, home electronics, office equipment and semiconductor industries. And what has happened to ours.$@!!!!!!!!!!!!!!!!!!!!(J This is how Japan overtook the United States in industrial and economic leadership. But Japan is as vulnerable today as the United States was forty years ago. For the same reasons. Although Japan now has the world's highest quality, and most advanced manufacturing facilities and technology, its wages are among the world's highest. And it is exporting its manufacturing facilities and technology to such low-wage economies as Korea, Taiwan, Hong Kong, Singapore and Thailand. And even-lower-wage economies like China and India.$@!!!!(J