Xref: utzoo soc.culture.japan:4833 comp.software-eng:3907 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 II) Keywords: Japanese Software Industry Message-ID: <8696@flab.flab.fujitsu.co.jp> Date: 10 Jul 90 11:17:13 GMT Followup-To: soc.culture.japan Organization: Fujitsu Laboratories Ltd., Kawasaki, Japan Lines: 314 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 ARE WE ABANDONING OUR COMPUTER INDUSTRY TO JAPAN? Part II Japan's prosperity cannot continue if its economy continues to depend on mass production. But the United States's approach of abandoning manufacturing altogether will not work any better for Japan than it did for the United States. Japan's leaders do not want to repeat our failed approach of moving manufacturing off-shore to low-wage countries. Or our equally-failed "post-industrial" approach of trying to live off converting money from one form to another, selling one another advice, taking in one another's laundry or suing one another. Such a service economy merely moves wealth from one pocket to another; it does not produce new wealth. It does not enrichen its inhabitants. Japan must convert itself from an economy producing large quantities of a small variety of products to one that produces much smaller quantities of a much wider variety of products. This is an information-intensive economy. An economy that must capture and analyze information on which consumers want what products, when, where, why and how. It uses this information to decide what to produce, for whom, when to produce it, where to deliver it and how to sell it. It is an economy that needs a lot of timely information to fine-tune manufacturing and inventories so that small quantities of a wide variety of products can be manufactured as inexpensively as large quantities of a small variety of products have been manufactured in the past. An economy that demands that manufacturers, suppliers and distributors share and communicate information effectively and efficiently. This kind of information-intensive economy can compete successfully with low-wage manufacturers because it can provide products that better fit its customers' needs and desires at prices that are only slightly higher than mass-produced goods. NEED TO MODERNIZE OFFICES To convert successfully to such an economy, Japan must and will modernize its offices. It must and will increase the productivity and effectiveness of its office workers. Substantially. Quickly. It probably lags far beyond every industrialized nation in this. Japan must and will learn to run its offices as effectively and economically as it now runs its factories, warehouses and transportation systems. Today, 36 million of the 61 million persons employed in Japan work at desks. That is 60% of the workforce. But the productivity of office work is very low. Japan's factories, warehouses and transportation system are the most modern in the world. Its factories are powered by nuclear energy and the work increasingly is done by robots. Its warehouses are highly automated. Its goods are transported by super tankers, jet airplanes and 250 kilometer per hour "bullet trains". But its office workers use the same paper, pencils, erasers, scissors and paste that were popular in Charles Dickens' times. Japan's offices look and operate much the same as when its factories were powered by fast-running streams and its goods were delivered by slow-walking horses. For example, per-capita use of personal computers in Japan's offices is only one-half that in Western Europe and one-fourth that in the United States. Why? DOES THE COMPUTER INDUSTRY SERVE SOCIETY? Some leaders think the reason is that the computer industry is not serving the needs of society adequately. It is not providing computers that are powerful enough to satisfy the needs of Japan's offices, small enough to fit into those crowded offices, easy enough to apply to the needs of Japan's offices and office workers or priced low enough to use as widely as needed. These leaders remember that a major reason why Japan was able to accomplish its "economic miracle" of the past forty years is that its automobile, shipbuilding, heavy manufacturing and other industries were able to obtain high-quality materials and energy at low prices. Why? Because the suppliers of raw materials and energy viewed themselves as having a mission to serve society. To provide the foundations for Japan's economic rebirth. They sacrificed high profits to provide the best possible energy and materials at the lowest possible prices to Japan's manufacturers. These leaders are beginning to realize that Japan needs a similar contribution from the computer industry to modernize its offices and make the transition into an "information-intensive" society. But, to their dismay, they see an oligopolistic computer industry dominated by a small number of computer manufacturers whose avowed goals are to maximize their own market shares, revenues, profits, return on investment, stock prices and today's spendable wealth. These computer manufacturers explicitly base their executives' compensation on their success in attaining these goals. These computer manufacturers treat customers as tools to be used to achieve these goals. How? They invest massive resources in developing and promoting "proprietary" products that are intended to "lock in" their customers and "lock out" their competitors. They consider it normal business practice to restrict their customers' freedom of choice and sell their customers as much as they will buy at the highest prices they will tolerate. These proprietary computer systems have been so expensive to build that only a few computer manufacturers could afford to build them. Most potential competitors are "locked out". And users find it prohibitively expensive to convert from one proprietary system to another. They are "locked in". So this computer industry has few participants, and users have few choices. This results in a lack of competition that otherwise would stimulate suppliers to provide the innovative products that Japan's offices need at prices they can afford. This industry could be tolerated in Japan when Japan was able to compete successfully in mass production. But it can no longer be tolerated in Japan now that Japan must convert itself into an "information-intensive economy" producing a wider variety of products in smaller quantities. Japan needs manufacturers who will produce the tools needed to modernize, drastically and quickly, its offices and increase the productivity of its desk workers. At affordable prices. JAPAN'S ELECTRONICS INDUSTRY TO THE RESCUE Fortunately, for it, Japan has the world's best and largest consumer electronics industry. Hitachi, NEC, Toshiba, Oki, Sharp, Casio, Canon, Ricoh, Sony, Matsushita, Sanyo, Seiko, Nintendo and others provide the world's most innovative and highest-quality televisions, stereos, calculators, clocks, cameras, videos, games, facsimiles and other electronic tools and toys. And they sell them at the lowest prices -- optimum prices, an economist would say. Japan's electronics industry is the world's best and largest because it is the most competitive. It is competitive because it is based on standards rather than on proprietary products. Standards make it easy for new competitors to enter the industry and make it easy for customers to switch from one competitor's product to another. The competition stimulates new ideas for products and new ways to manufacture them more efficiently. The competition makes the competitors stronger. Any company that can survive the fierce competition of Japan's electronics market has the Darwinian strength, will, drive and corporate character to compete successfully in any other market. Japan's consumer electronics companies first equipped Japan's homes, automobiles, wrists and pockets with innovative, high-quality electronic tools to lighten their workload and make their leisure time more enjoyable. Then they proceeded to equip the world's peoples with similar tools and toys. Now they are turning their attention to Japan's desks and offices. And they are doing so with standards pioneered in the United States. They began by producing personal computers that use Microsoft's MS-DOS software, which has become the world's standard for personal computers. Japanese electronics manufacturers have shrunk the size of personal computers to that of a notebook fitting easily on the small desks in Japan's crowded offices. And can be stored easily in a drawer when not being used. They have reduced the weight of these computers to about five pounds (2.5 kilograms) so office workers can carry them around easily, whether ten feet, ten miles or 10,000 miles. These are not scaled-down computers. They have the capacity and do the work of acre-size 1960s computers and strong-man "PCs" of the 1980s. Competition has driven the price of these personal computers down to under $1000. As a result, companies now can afford to buy them for all office workers. Schools can afford to buy them for their students. And individuals can buy their own. For example, 575 of our company's 625 employees have a book-size computer. Japanese electronics companies now dominate their domestic market for personal computers. And they have become the leading suppliers of laptop computers throughout the world. Japanese electronics manufacturers also have began supplying "workstations" for office workers who need more power than personal computers provide, and "servers" for groups of office workers who need to share both data and expensive equipment. Here again their products are based on a standard pioneered in the United States. AT&T's Unix, which rapidly is becoming the standard software throughout the world for workstations and servers. These personal computers, workstations and servers are beginning to revolutionize Japan's desks and offices. They are beginning to provide the office productivity that Japan needs to make the transition to an "information-intensive economy" producing smaller quantities of a wider variety of products as efficiently as lower-wage economies produce large quantities of a narrow variety of products. Japan's companies will, increasingly, transfer information work from proprietary computers to standard computers because the standard computers increasingly do more work for less money. And so will companies in other countries. American computer manufacturers are in danger of losing their worldwide market shares to Japan's electronics manufacturers. Not because the Japanese "targeted" this industry, but because Japan's economic health required better computers at lower prices. And because Japan's electronics manufacturers have chosen to provide "standard" computers that enhance competition and widen customers' range of choice instead of "proprietary" computers that "lock out" competitors and "lock in" customers. Because they consider "serving" customers the goal of business while the purveyors of proprietary products seem to consider "servicing" customers the best way to achieve their own goals, as Will Rogers used that term to describe banking services. PROPRIETARY VERSUS STANDARD SOFTWARE The difference between "proprietary" computer systems and "standard" or "open" computer systems lies in the software they use. Proprietary computers require their own unique (to them) software. This software either is developed and supplied by the manufacturer of the computer or is developed according to rules and specifications laid down by the computer manufacturer. This software usually runs only on that manufacturer's computers. Thus, buying a proprietary computer is equivalent to buying a stereo system that plays only its own unique audio tapes or CDs. Think how expensive stereo equipment would be if every stereo maker had to invest in recording all the music that could be played on its equipment instead of using the abundant supply of music available in standard formats. Not many stereo makers could afford this massive investment. Most of today's stereo makers would be "locked out" of the industry. The industry would have far fewer participants than it does today; it would be far less competitive than it is today. And suppose you had to replace all of your recorded music whenever you wanted to switch from one brand of stereo equipment to another. Your collection of records, tapes and CDs probably is worth much more than your stereo equipment. So you would not be inclined to switch. When "your" stereo maker raised prices for new models, add-ons or enhancements, you would find yourself trapped. "Locked-in". The stereo industry would be much less competitive than it is today, our range of choice would be much narrower and we would pay higher prices for less desirable products. As with stereos, most computer users' investment in software is much greater than the cost of the computers that run or "play" it. Often ten times greater. And the situation with proprietary computers is even worse than the stereo analogy. Why? Because manufacturers of proprietary computer systems often design them so that different proprietary software is required for differently priced models of its computers. Thus, software that runs on a $5,000,000 computer cannot be used on a $500,000 or $50,000 or $5,000 computer from the same maker. This prevents users from switching to new, lower-priced models that can handle the work previously doable only on much more expensive machines. Unless the user is willing to replace his existing software, which would be analogous to replacing your cassettes and CDs to switch to a lower-priced stereo. In other words, prohibitively expensive. This enables the computer manufacturers to maintain high profit margins in the face of rapidly falling prices by preventing their users from taking advantage of those rapidly falling prices. Nice folks, eh? Standard or "open" computer systems, by contrast, use software that adheres to widely-accepted standards. Software that runs on one brand or model of standard computer usually runs on many other brands and models. Like the recorded music we actually use on our stereo equipment. Makers of standard computers do not need to make heavy investments to create their own unique software. Therefore, many companies are able to participate in this industry. Competitors are not "locked out". Users can switch brands or models and still use the same software, so they switch more readily. They are not "locked in". As a result, the industry is as fiercly competitive as the stereo industry. And, like the stereo industry, this fierce competition results in rapid improvements in products at rapidly declining prices. Consumers' heaven. All of Japan's major consumer electronics manufacturers have begun making "standard" or "open" computer systems, personal computers that use Microsoft's standard MS-DOS software and workstations and servers that use AT&T's standard Unix software.