No. 3 — January 26, 1996

Feature Article

COMPUTER USAGE IN JAPAN: REVOLUTION OR FASHION

Jon Choy

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Summary

Japanese firms have a well-deserved global reputation for manufacturing computers and peripheral equipment. Yet the personal computer revolution that several years ago began to surge throughout the United States only now may be building strength in Japanese offices, schools and homes. The spread of open standards for personal computer operating systems plus stiff competition from foreign PC makers intent on gaining a share of the Japanese market have combined to force dramatic declines in PC prices. This "price destruction" along with growing business and individual interest in accessing the Internet and the World Wide Web plus a greatly enlarged pool of sophisticated, relatively inexpensive software have sparked a boom in sales of personal computers for business and home.

While equipment makers and computer programmers are benefiting from this sales boom, the implication of all this new hardware and software for the competitiveness of Japanese companies and for the average Japanese citizen's quality of life still is an open question. Will the spread of PCs translate into higher corporate efficiency and a richer life? Or is having a PC on the desk or in the house just the latest Japanese fad?

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Computers In Japan: Produce Much, Use Little

Japanese companies have worked diligently over several decades to stake out important positions in the global market for computer systems, peripheral equipment and such components as integrated circuits. "Asian businessmen have proved they can make computers as well or better than anyone else," said one observer of the Asian computer market. "What they now need to do is learn to use them."1 Until recently several factors have limited popular acceptance of personal computers. (For a more complete look at the Japanese PC market, see JEI Report No. 6A, February 11, 1994.) These influences include:

  • The Japanese language is not as amenable to keyboard entry as English or other languages with a limited alphabet. In addition, computers need comparatively large amounts of memory and processing power to handle Japanese with any facility due to the several thousand kanji or ideographs borrowed from Chinese, plus two phonetic alphabets; these presented major problems until recently for computer hardware and software designers. Japan's computer makers emulated International Business Machines Corp., leading to an industry focus on building large or mainframe systems. Computers were isolated from users by Information Services departments, putting them out of sight and not easily accessible by most workers.
  • When personal computers became more widely available, Japanese executives for the most part scorned them as devices suitable only for secretaries or clerks. Consumers viewed PCs as curiosities or fancy video game machines.
  • Japan's PC market lacked open standards for operating systems and peripherals. Programs written for one maker's computers — for example, front-runner NEC Corp.'s — did not work quite right on another brand — say IBM's; this fragmented the market. Furthermore, users were locked into one system when they bought a brand, limiting pressure on manufacturers to compete on price.
  • The first generations of PCs, software and peripherals also were expensive because of high production costs. It was not long ago when a machine with 128 kilobytes of internal memory or a 20-megabyte hard disk drive cost thousands of dollars.

At the same time other factors prepared the Japanese for a PC boom:

  • The public generally has had a positive attitude toward adopting new technology. A popular Japanese perception is that the country had to import advanced foreign technology in order to catch up with the rest of the world.
  • Lacking significant natural resources, it is accepted universally in Japan that the country's prosperity rests on the backs of a skilled, knowledge-intensive labor force. Such highly educated workers should be adaptable to using computers.
  • As the economy rebuilt and prospered, increasingly greater emphasis was placed on high value-added products and services. Computers would come to be seen as vital tools in the campaign to produce better, more sophisticated products — and as a mark of an economy on an equal competitive footing with the United States.
  • Computers quickly were introduced into wide use in manufacturing. Computer-controlled machine tools and robotic assembly lines were part of Japan's formula for successfully building a world-class manufacturing sector.

Several relatively recent developments have gathered to shape the PC tsunami sweeping over Japan's computer market:

  • New generations of powerful microprocessors became widely available; these can handle the Japanese language with ease.
  • Open standards for operating systems were adopted. IBM Japan Ltd.'s DOS/V operating system was attractive to both computer makers and users. PC builders liked DOS/V's neutral, open standards. Computer users were attracted to DOS/V's ability to run the thousands of programs written for Microsoft Corp.'s MS-DOS, the predominant operating system in the United States and Europe. Even NEC, the dominant PC maker in Japan, has had to adopt DOS/V alongside its own proprietary standard.
  • Sophisticated applications software that made Japanese word processing simpler and faster became available at affordable prices, as did graphics and desktop publishing programs (see JEI Report No. 13A, May 1, 1994).
  • Friendlier user interfaces, such as Apple Computer Inc.'s Finder and Microsoft's Windows, made it easier to operate basic computer functions as well as the new, sophisticated applications.
  • Prices declined steeply for PC hardware and peripherals. Not only had the cost of components fallen sharply, but highly efficient foreign PC makers began crashing their way into the Japanese market in 1991 by slashing prices. Japanese PC manufacturers had to cut their suggested list prices. Moreover, retailers began engaging in discounting wars. Street prices for PCs in Japan now are nearly as low as in the United States. A basic 486-class model (without a monitor or a hard disk drive) made by NEC, for example, can be had for as little as ¥70,000 ($700 at ¥100=$1.00), 29 percent below NEC's already reasonable suggested price of ¥98,000 ($980).

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Forces Pumping Demand

Personal computers with the power to run sophisticated yet relatively inexpensive software that can be operated by people who do not have a computer sciences background, all at an affordable price, represent only one side of the market equation: the supply side. The most technically wonderful product will be a commercial failure if no one has a reason to buy it. Until recently PCs were not high on the shopping lists of Japanese companies and consumers. Outside of engineering, manufacturing and scientific circles, PCs were seen by many executives and consumers as tools for artists or as overpowered video game machines. Economic and cultural factors have shifted in recent years, however, reworking the popular Japanese image of networked PCs and powerful software into the "must-have" items of the 1990s.

Companies - Faced with rapidly changing markets and ever tougher domestic and international competitors, Japanese executives from a wide range of fields are looking with a newly appreciative eye at networked computers, sophisticated software and the Internet. Particularly as American, European and Asian rivals have rushed to embrace these technologies, which in Japan are grouped under the broad rubric of Information Technology, corporate planners have become concerned that their companies are falling behind in areas that not only yield immediate benefits but that will be crucial to leadership of future markets as well. The prolonged economic downturn, which began in early 1991, also has sharpened the eyes of Japanese executives, who now consider IT to be a critical competitive tool.

  • Restoring profitability. In their drive to boost the corporate bottom line in the face of the recession and stiffer foreign competition Japanese managers have focused on raising the productivity of white-collar workers (see JEI Report No. 27A, July 21, 1995). To achieve this goal firms have been both shedding excess employees and trying to help those who remain to work more efficiently. Corporate leaders see networked PCs as the primary means to achieve the latter goal. Executives expect IT at a minimum to lower operating costs (if nothing else because less paper will be consumed). They hope, however, that the new technology also will boost sales and output per worker as well as open new markets.
  • Regaining international competitiveness. Fattening up the bottom line is only one aspect of the benefits that Japanese managers say they expect from the integration of PCs and local area networks into their companies. Reducing product development cycles and costs through closer cooperation among development team members via networked computers is another expectation. Producing safer products or ones that are easier to manufacture also is on the plus list. Making existing and future production lines more flexible (able to handle several different products at once) and giving them longer useful lives (by ensuring that an existing production line physically can accommodate envisioned products) is yet another responsibility being placed on networked PCs.
  • Facilitating joint projects. As Japanese companies have increased their overseas activities, international joint projects are increasingly common. Communication and cooperation with others on projects over long distances can be facilitated in close to real time and typically at less cost than in the days before networks.

Individuals - For several years Japanese political and government leaders and other individuals have focused increasingly on improving the quality of life in Japan, as opposed to simply worrying about sustaining a high rate of overall economic growth. Enjoying the arts, traveling and pursuing personal interests have become part of the nation's lifestyle aspirations. At the same time, though, the prolonged economic slowdown has added greatly to Japanese concerns about job security. Three developments have raised these concerns to high levels: the erosion of the unwritten commitment to lifetime employment by leading Japanese corporations; the record rates of business failures among small companies; and the high level of unemployment among recent graduates from all types of schools. Even more than before, Japanese workers are focusing on learning whatever skills will give them the best career opportunities. Information technology is playing an increasingly large role in how Japanese both work and play.

  • Education and training. Computer training courses are becoming mandatory for a growing number of Japanese workers. This is especially true for older workers who have had very little hands-on experience with computers. Younger Japanese who may have used computers in school are interested in building expertise in the use of specific programs or how to navigate the Internet and on-line services.
  • Work and telecommuting. Japanese have found it just as advantageous now to have a computer at home to do office work as American white-collar workers did in the 1980s. With the advent of lower-cost telephone services and the installation by companies of network servers capable of handling remote access terminals, telecommuting has become a much more practical option in Japan. Interest in telecommuting surged in the late 1980s when companies responded to skyrocketing rents for downtown office space by opening satellite offices in the suburbs. The recession snuffed out this reason to telecommute but created other, equally compelling ones. To cut personnel costs some companies increasingly have replaced full-time workers with part-time and contract employees; telecommuting for them often is an attractive option. Even regular employees have found that telecommuting can save time and transportation costs but still allow them to keep in close touch with coworkers or customers. Telecommuting's image also has been burnished by the perception that it saves natural resources (particularly energy) — a reflection of the growing environmental awareness in Japan. According to a mid-1995 government survey, about 20 major companies maintain satellite offices and around 100 are planning to allow telecommuting for their operations throughout Japan.2
  • Multimedia, the Internet and on-line services. As with their U.S. counterparts, consumers in Japan are beginning to explore what cyberspace options are available, what they can do and how these technologies and services might enrich or improve their lives. Multimedia, currently most often in the form of CD-ROMs and "virtual reality" forms of entertainment, has been tagged by business and government leaders as a vital future industry, even if no one is quite sure exactly what "multimedia" includes (see JEI Report No. 10A, March 19, 1993).

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Sales Boom

In a classic example of market economics sales multiply when the supply of a good — in this case PC hardware and software in Japan — grows cheaper due to less costly production and expanded competition and the demand for that good increases as a result of lower prices and nonprice factors (such as better quality and other details noted above). According to surveys by various firms or industry associations, sales of personal computers in Japan rose to between 3.2 million and 3.5 million units in 1994, a jump of 19 to 35 percent over the year before, depending on whose calculations are used (see JEI Report No. 12B, March 31, 1995). This appears merely to have been a warm-up sprint, as these same surveyors are estimating that PC sales hit between 5 million and 5.3 million units in 1995, a gain of 49 or 58 percent. Market leader NEC, for example, boosted its 1995 sales estimates from 1.5 million units to 2.5 million. Fujitsu, Ltd. tripled its 1995 sales outlook to 1.5 million machines.3

Corporate demand for network servers and LAN-related equipment is rising as fast as firms draw up their computerization plans. Also in high demand is telecommunications gear, such as high-speed modems, for connecting to on-line services and the Internet. Sales of peripheral equipment, particularly large-screen monitors, naturally are expanding as well.

On the software side Microsoft Japan Co., Ltd. introduced the Japanese version of Windows 95 in late November with much fanfare and well-planned marketing. The Japanese subsidiary of the U.S. software giant had racked up sales of as many as 1.5 million units of the graphical user interface by the end of December; for a full 12-month period the company projects sales of 5 million units. Interestingly, Japanese retailers began discounting the package just a few days after its release, unlike the situation in the United States where discounting has been minimal. Some vendors, for example, were charging owners of computers not already running the predecessor version, Windows 3.1, just ¥20,800 ($208) for the floppy disk-based version of the new operating system; that compared with Microsoft Japan's suggested retail price of ¥29,800 ($298). A CD-ROM upgrade from Windows 3.1 to Windows 95 could be had for ¥10,700 ($107) rather than the suggested ¥13,800 ($138).4 According to the Japanese press, Microsoft apparently gave the green light for retailers to discount as long as wholesale prices were unaffected. Microsoft Japan also has signed up many major equipment manufacturers to bundle its Windows NT server software with the manufacturer's hardware. Microsoft expects Windows NT to be the de facto server OS standard in Japan.

On-line and Internet services also are benefiting from the PC sales boom. Subscriptions to on-line services are outstripping the providers' most optimistic projections, especially as these services add access to the Internet. The field of firms that specialize in providing access to the Internet and the World Wide Web also is burgeoning with many small firms jumping into the emerging market. As a result, estimates of the 1995 increase in the number of Japanese Internet addresses reach as high as 90 percent. Demand is skyrocketing for software that provides access to the Internet and that translates information found in English on the Net into Japanese. Not only are classes being offered that introduce and explain the Internet or that show users how to access the World Wide Web, but classes on "Internet English" are appearing as well.

Market watchers expect that the PC sales boom has quite a bit of steam still in it, even after two years of very strong growth. They point out that while many large corporations have announced plans to buy PCs for their entire office staff or all their sales personnel over the next few years and to link them via LANs, the multitude of Japan's smaller companies has yet to join the rush. The personal-use market may have even more room for growth. While PCs are estimated to be in about 40 percent of American homes, the penetration rate in Japan is estimated at just 10 percent.5 Moreover, education statistics indicate that computers still have made modest inroads into the schools. A recent Japanese government survey reported that 99 percent of senior and junior high schools in FY 1994 had an average of 47.4 and 22.4 PCs per institution, respectively, for all students in the school to use. Among elementary schools and schools serving handicapped children 77.7 percent and 97.2 percent, respectively, had PCs for student use. The survey also was critical of how the PCs were being used and of the lack of connections to on-line services and the Internet.

Demand for PCs, related equipment and software is so great, in fact, that many analysts expect shortages of components and systems to act as a ceiling on sales growth. Supplies of DRAM (dynamic random access memory) chips to run the memory-hungry Windows 95 operating system and various applications programs are in tight supply, as are key custom chips for CD-ROM drives. Shoppers are settling for hardware configurations that they consider less than ideal because of tight supplies. Even though chipmakers already have announced significant capacity expansion plans, most observers expect shortages to persist at least through 1996.

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Installation, Usage Examples

"Wonderful," an observer might think, "Japanese firms and households are buying PCs and related equipment at an astounding rate." But are they really using them? This early in the game the only indicators of computer usage are anecdotal stories in the Japanese press. While these articles may contain some hard facts, their tone and predictions may be suspect.

Corporate announcements of PC, electronic mail and LAN installations are becoming quite frequent in the Japanese press. Front and back office operations are both targets of the PC/LAN drive. Toyota Motor Corp., for example, plans to add 20,000 PCs by the end of this year to the 5,000 already installed so that all 25,000 of its clerical and technical staff will have their own computers.6 Japan's top trading companies all are installing networks of several thousand PCs for their managers; one already has reported a 30 percent drop in paper consumption as a result.7

Sales and service companies also are rushing into the computer age by equipping their staffs with desktop or portable computers. Dai-Ichi Kangyo Bank, Ltd. said at the beginning of 1995 that it planned to buy 5,000 handheld electronic organizers or personal digital assistants for its employees to take on sales calls. The PDAs will be loaded with customer information, loan rates and other product data. The devices will be used to tailor the bank's services to the customer's needs, then record the orders for transfer to the bank's central computers. Fuji Bank, Ltd. is implementing a similar system throughout its 360-branch network at a cost of about ¥1 billion ($10 million). Mitsubishi Bank, Ltd. undertook studies on whether to provide a mix of PDAs and laptop PCs to its sales staff.8 Nomura Securities Co., Ltd., Japan's biggest stockbroker, became the first domestic firm to begin installing a companywide PC network. By June of this year Nomura Securities expects to have 8,000 to 9,000 PCs, 500 to 600 servers and a LAN or a wide area network to link them at a total cost of ¥25 to ¥30 billion ($250 to $300 million). The goal is to wring ¥3 billion ($30 million) in savings each month from the use of the electronic mail/distributed data base system. Economies are expected from a one-third reduction in the number of existing mainframe computers, as well as less costly intrafirm messaging via e-mail. Also, fewer employees would be needed to handle information requests and data updates from sales persons, since they will have direct access to these functions via the network.9

E-mail is the most easily implemented and widely accepted use for PC networks. According to a survey by the Kyodo News agency, 83 of 100 leading companies across a spectrum of industries had adopted e-mail systems by March 1995. The remaining 17 companies said they were planning to introduce e-mail. In one example of e-mail's appeal the president of Tokyo Electric Power Co., Inc. "ordained that if his minions wish to send him a memo, they had better do it electronically;" he ordered 20,000 PCs and a LAN/WAN for TEPCO's managers.10 Besides reaping cost savings as mentioned above, e-mail systems usually are expected to enhance internal communications. The Kyodo News survey also revealed that a handful of Japanese executives are using e-mail to poll their employees' opinions directly, a sharp departure from traditional business practice (see below).

Two special forms of e-mail are being adopted by Japanese firms. Electronic Data Interchange is the de facto global standard for shipping and transport firms. Japanese shipping and freight companies that export or import goods all have fallen into line on EDI. Similarly, many Japanese manufacturing companies are racing to adopt CALS. Initially developed by the U.S. military, Computer-Aided Logistics Support was intended to replace paper forms and manuals in the gargantuan task of supplying American military forces and maintaining all the fighting hardware. CALS evolved into the Continuous Acquisition and Life-cycle Support system, as American manufacturers, particularly automotive and aerospace firms, broadened the standard electronic format to encompass the management and the exchange of data at all stages of the manufacturing process. Boeing Co.'s latest civilian jet transport, the 777, was designed and manufactured entirely on computers via CALS (maintenance also is CALS-based). The Big Three U.S. automakers agreed on a CALS standard for their industry, forcing parts and component suppliers to adopt the electronic format. In its latest iteration CALS has become Commerce At Light-Speed and is aimed at bringing a common electronic format to all forms of domestic and international commerce. Washington, Tokyo and Brussels (on behalf of the European Union) established CALS International in 1994 to set international CALS standards and promote its global use.

NEC is spending ¥30 billion ($300 million) to bring its internal information systems into compliance with CALS standards by 1998 and is urging its suppliers to do the same. Fujitsu initiated a CALS committee for software documentation and expects to have at least 40 of its 240 software subcontractors using CALS to process orders and settle bills in the near future.11 Some Japanese observers note, however, that Japanese firms most often are adopting CALS because they are asked to do so by foreign customers or partners, not because of CALS' intrinsic value. One reason CALS has flourished in the United States is that it often yields significant cost reductions (as high as 60 percent),12 but few analysts in Japan expect such spectacular results for Japanese firms. U.S. manufacturers' use of CALS brings together designers, engineers and manufacturing staff to work closely and concurrently on a project, creating a synergy that generates savings. This sort of close cooperation was adopted long ago in Japan, which implies that CALS may yield only a marginal improvement in manufacturing efficiency under these circumstances, analysts warn.

Faced with rapidly changing markets and the need to individualize services for each customer, Japanese corporations have been searching for approaches that could increase their flexibility and responsiveness. Forming a "virtual corporation" is one way that big and small Japanese companies alike are attacking this task. To meet the special demands of a customer, project directors assemble staff and resources with the necessary expertise from several departments/sections of a large firm or tie up with workers in other companies, linking each member of the project staff via a PC and a LAN or a WAN with information and documents shared through network servers.

The virtual corporation also has been adopted by corporate groups to overcome laws limiting the formation of holding companies in Japan. The instantaneous communications and shared data resources offered by networked PCs allow legally separate corporations to work closely together, simulating the operations of a single, larger corporate group. Small firms likewise are linking via PC networks to form virtual corporations that can compete with larger companies.

Schools and universities are not strangers to computers, either large or small. The Ministry of Education has worked diligently to put at least some PCs in every Japanese primary and secondary school as well as provide universities with high-performance computers. Yet, not until the introduction of LANs and WANs with large bandwidth links did higher education see intensive use of PCs and larger computers by noncomputer science students. The networks allow students located in different departments or institutions to work together on common projects. Tokyo University and five other national universities located around the country, for example, began exchanging earthquake shock wave data via the Internet in October 1994;13 this network provided real-time information on the Great Hanshin Earthquake that devastated the Kobe-Osaka area just three months later. University students and professors also have been leaders in opening Web sites and designing home pages on the Internet, welcoming the chance to get to know others professionally as well as socially.

Research laboratories also are getting connected to the Internet as well as more closely linked internally. As with the academic world, researchers long have used stand-alone PCs and other computers, but they are finding that networking computers amplifies their usefulness. Interestingly, the Japanese research community has resisted universal networking and sharing of data. Private and government research laboratories in Japan's two main research cities — Tsukuba, northeast of Tokyo, and Kansai Science City at the juncture of Osaka, Kyoto and Nara — have installed internal networks and, in some cases, directly linked several networks together. While e-mail exchanges via the Internet are common, data-sharing is more limited than is standard among U.S. researchers.

The Internet rapidly is becoming more than just a curiosity or a convenient means to exchange messages. Many companies and government agencies have established Web sites and home pages, offering product, policy or statistical information. The previously mentioned Kyodo News survey of 100 leading companies revealed that only six had no plans to use the Internet in some way. A great amount of uncertainty still exists among the surveyed companies about the Internet's commercial potential, however. While 38 companies responding to the poll expected the Internet to help raise the company's public recognition, only seven said that they thought the Internet actually would add to their bottom line. Some executives said that using the Internet was "a lesson in multimedia" and was "what the times require." Others were openly skeptical: "I really don't believe it will have much effect," one commented.14

One industry that is quite upbeat about the Internet is publishing and printing. Toppan Printing Co., Ltd., for example, is helping firms to use the Internet for marketing and public relations. Toppan's "Cyber Publishing Japan" currently showcases 11 firms and hopes to expand to 25. (The Internet address is http://www.toppan.co.jp/). Dai Nippon Printing Co., Ltd. also is rushing to help firms develop Internet catalogs and interactive shopping systems. Dai Nippon Printing actively has sought to exploit new publishing technologies as they have developed: CD-ROMs, high definition television and, now, multimedia. The advent of Information Technology has both potential and pitfalls from Dai Nippon's viewpoint. "We used to merely receive orders from our clients, but nowadays we have to actively make plans and proposals and provide ideas and information to keep them satisfied," said Yasuo Kubota, general manager of Dai Nippon Printing's division in charge of multimedia. He adds, however, that "one of the main problems is that it is very difficult to estimate how much profit we can make from the multimedia business."15 Japanese newspapers and magazines, which have offered limited, text-only electronic versions of front pages for more than 15 years, now are making available to the general public complete electronic editions as well. The Japan Newspaper and Publishers Association reported that at the end of August 1995 four national dailies, three regional papers and one news agency offered electronic versions via the Internet. The Kobe Shimbun, the association pointed out, was able to provide daily print and photograph information via the Internet even in the wake of the mid-January 1995 Great Hanshin Earthquake.16

Consumer services are blossoming on the Internet, particularly shopping services. Some are relatively sophisticated, giving users a virtual reality experience with products offered for sale. Software that helps customers design homes, both exterior and interior, for example, allows a user to "walk" around and through the electronically designed home. Some clothing firms, especially those using direct retailing, have systems that let customers mix and match outfits and accessories on-line, then order the ensemble with the stroke of a key.

The Internet also has become an outlet for such serious pursuits as finding employment and housing. With unemployment among recent high school and college graduates running at twice the national average, graduates are using their computer savvy to spread their résumés and track down job opportunities. Some employers seeking workers with specific talents or skills, particularly computer- or Internet-related know-how, have transferred their entire recruiting effort to the Internet. On such a firm's home page, for example, applicants can review corporate financial and general employment data as well as look at specific job openings. Applicants can transmit their résumés back to the company, arrange for a site visit and keep in contact with employment officers, all via the Internet.17

Japanese use of newly popular Internet cafés first began in the early summer of 1995 when the Internet was truly a novelty and an unknown; these cafés offer computers linked to the Internet along with refreshments in a casual atmosphere. Often located in trendy urban neighborhoods, the cafés charge both a flat fee for use of the computer plus a drink (¥2,000 or $20 at one Tokyo establishment) and a fee based on the amount of time spent on-line (often ¥1,000 or $10 an hour). The café staff tends to be well-versed in navigating the Internet and the World Wide Web, so that first-time Internet users can get assistance. As an example of one such establishment, Oz City in Shibuya-Ku's Jingumae neighborhood has a variety of computer-related services available in the six-story building. Among the offerings are: ESCOT's Grill & Bar on the first two floors, which sells American food and provides its own laptops; the D.U.G. Bar (for digital underground) on the third floor, which offers laptops and multimedia presentations; the Virtual Travel Theater on Four, where users sit in recliners that move in sync with the travelogue video displayed on a large-screen projection system; the Oz Club on Five, where clients can reserve tickets for local entertainment and plan vacation trips at touch-screen video kiosks; and the CyberNet Cafe on the top floor, where customers can adopt one of the many cyber personas (which often are rather bizarre-looking cartoon characters) that inhabit a virtual "Cyber Oz City" and then chat with each other via a custom network or browse the World Wide Web.

Although Internet café owners are enthusiastic about their business future (Oz City's owner, for example, plans to open branches in New York City and Singapore), outside observers are less certain. Some point out that previous cafés, which centered on such trends as telephones, televisions, music and video games, faded away as these technologies became widely available in the home.18

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Problems And Solutions

Japanese and foreign analysts who closely watch trends in computer usage in Japan agree that several problems must be addressed before Japanese companies and individuals can enjoy the maximum potential of networked PCs. Some of these deal with human attitudes and patterns of behavior and, thus, may take time to resolve. In other cases evolving technology appears to be forcing solutions.

  • Lack of computer training and familiarity with computers. This is a major problem for middle-aged and older workers who did not grow up with video games or computers. A recent survey by Fuji Research Institute revealed that only 20 percent of executives queried at 880 firms said that they could use computers — although this does not necessarily mean that they do use them. A recent article in The Japan Times put a human face on this situation, detailing the experiences of 10 executives attending a computer class titled "Intensive computer training from hell." Although the title was meant by the course teachers to be lighthearted, it turned out to be an apt description from the point of view of the students. With lines like a "quivering mass of nerves" and "glassy-eyed and white-knuckled," the article relays the executives' first encounters with a computer mouse and "user-friendly" software. While humorous, the article underscores the truth of the matter: older workers must become computer-savvy. "I have no choice," one executive reportedly "moaned," noting that his company was planning to buy him a PC.19
    Japanese companies are tackling the training and computer phobia issue head on, in some cases with the support of the government. As would be expected, firms that are introducing networked PCs on a wide basis are including training costs as part of the project's budget. Even companies just considering introducing networked PCs are laying the groundwork by requiring workers to attend training seminars. Sumitomo Bank, Ltd., for example, ordered all its employees to attend at least basic computer courses by the end of March 1995.20 Small and medium-sized firms can use special government grants and loans to help retrain or upgrade the skills levels of workers hurt by the prolonged recession; using these funds for computer training is an obvious option.
  • Lack of systems integrators. As big and small companies scramble to install PCs and networks, the dearth of technicians with the know-how to integrate different brands of hardware and software is apparent. This manpower shortage has been on the minds of various planners at the Ministry of International Trade and Industry for some time. MITI conducts an annual survey of data processing professionals, including systems integrators. Although the ministry has warned that the scarcity of systems integrators could hamper the rapid introduction of leading-edge technologies, no government authority implemented sufficiently concrete policies to address the situation early on. Many technical schools now offer courses and degrees in the field, but MITI officials expect the supply of properly trained systems integrators to lag behind demand for some time to come.
  • Installation of incompatible LAN systems. In the rush to install local and wide area networks neither government agencies nor businesses put compatibility with other LANs and WANs high on their list of system features. Without a widely accepted standard, even LANs installed within one organization often could not be linked with other networks. Two developments are expected to reduce this problem. First, government agencies are beginning to work together on LAN standards. MITI, in particular, is monitoring private-sector activity with an eye toward promoting standards. The other development involves rapidly widening access to the Internet. The Internet, with its own standards for e-mail, data and file transfers, is acting as a translator between incompatible networks.
  • Influence of bureaucratic office politics on information technology decisions. As hinted above, turf battles between and sometimes within ministries, agencies, departments and offices can foil the adoption of a single PC and LAN standard. In some cases a top-down decision on hardware and software must be made and enforced, such as the previously mentioned TEPCO president's e-mail dictate. In other cases market developments are setting the parameters for what equipment/software combinations are adopted. The spread of Microsoft's Windows 95 for PCs and Windows NT for servers is an example. For certain specific industries a global standard exists. EDI for the shipping and transport industry and CALS for manufacturing are two already cited examples.
  • Unwillingness to share data and information freely. This seems to run counter to the Japanese tradition of decisionmaking by consensus and the reputation that Japanese corporations have developed for information gathering and analyzing. As anywhere else, however, information is power in Japan. Because information can be misused, it is shared only with people with whom there is a strong relationship of trust. This is true even among employees of a single company, as possession of key information can be a powerful weapon in office politics or bureaucratic turf wars. This way of thinking extends even to the academic and the research worlds, even though it has been shown in the United States that freely sharing ideas and data often leads to scholarly advances and technological innovations. Another aspect of this perception is that, if data is shared or made freely available without first establishing a basis of trust, the information immediately becomes suspect as worthless or meaningless by those to whom the data is offered.
    Networked PCs and software that seeks to increase information exchanges may prove ineffectual in such an environment. Executives of Japanese firms and research institutions interviewed for this report said that, although software such as Lotus Notes is installed at many sites, the groupware is being used at a minimal level. Some Japanese corporate executives and analysts have asserted that company structures and internal operating procedures must be reformed before all the new hardware and software can be used to its full potential. One internal strategic information technology plan recently completed for a leading Japanese company includes, for example, recommendations for changes in: cost and accounting procedures, methods of handling reports and information, and chains of authority and responsibility as well as what equipment and programs to buy. Efforts to implement "virtual corporations," which will not work without closely coupled networks and freely shared information resources, also should help some firms to be more open about their data.
  • Negative effects of traditional business practices. Many points can be lumped under this rubric. Corporate traditions of trying to hire new employees from the best universities may not result in the selection of workers with the best skills or abilities for the new IT age. Moreover, the seniority system that determines advancement puts older workers in control of IT policies, and they may not understand the technology or even may be hostile toward it. The seniority system also makes it difficult to reward innovative and strong performers, something that the computer-savvy, younger generation expects. The numerous demands for in-person meetings lowers the value of electronic messaging and even videoconferencing.21 Electronic messaging systems are unable (presently) to accommodate the habit of requiring everyone involved in a group decision to affix their personal seal or hanko to a document.

None of these individual problems is insurmountable. Big Japanese companies are experimenting, for example, with their lifetime employment systems, introducing ways to reward star performers and put younger workers in charge of older ones. Yet, it is clear that addressing issues such as these likely will take time. That commodity, however, is in short supply in the rapidly paced world of international business competition.

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Come In, Tokyo, … Are You There?

The task of promoting effective computer use in Japan might sound to some like a perfect job for "Japan Inc." — the cooperative melding of government, industry and finance that some analysts credit with masterminding and enacting Japan's remarkably rapid postwar reconstruction and development. The track record of bureaucrats' efforts to promote the development of computer hardware has had notable failures as well as successes, however. Government programs to promote the software industry have yet to develop a dominant share of any significant market for domestic companies. Similarly, programs to encourage the use of a particular software product also have resulted mostly in disappointments. The CAPTAIN teletext project and the TRON operating system project produced hardware and software that few are using. The ambitious February 1995 plan by the Ministry of Posts and Telecommunications to develop a Japanese "Information Superhighway" has been scaled back because of growing uncertainties over its benefits and usefulness.

Tokyo does offer some nonspecific inducements for firms to buy computers and other high technology equipment, usually in the form of tax incentives and generous capital depreciation schedules. The government also offers funds for companies hurt by the prolonged recession, and this money could be used to computerize operations. Labor-force adjustment funds that could be used for training employees on computers are a related government-backed support for business. Moreover, Ministry of Education policies on paper recognize the need to upgrade the computer skills of the nation's students and work force, but it appears that few financial resources are flowing toward this goal.

At the moment Tokyo's involvement in the promotional area has three new thrusts:

  • Standardizing LANs. MITI's Computer and Communications Policy Office has taken the realistic stance that the government has no business trying to shape the development of the personal computer market but does have a role to play in ensuring that LAN and WAN standards are set and adopted.
  • Advancing multimedia. Government and government-supported research institutions and organizations are working hard to develop multimedia technologies and introduce the private sector to the technologies' potential. The glowing predictions for multimedia turn on expectations that computers will become a part of everyday life in Japan.
  • Reforming the domestic telecommunications market. The full development of computer networks and multimedia depends on the availability of advanced communications services at reasonable prices. Tokyo currently is wrestling with the complex, difficult and critical question of the future shape of Japan's telecommunications market for optimum economic vitality. (See JEI Report No. 28A, July 28, 1995, and No. 38B, October 13, 1995 for background and current developments in this area.)

The government clearly can play a supporting role in helping the private sector make better use of available computer technology. Yet, Tokyo is not likely to have a decisive say. Regardless of what policies it adopts on multimedia and telecommunications, global competition will provide incessant pressure that will force Japanese companies to adopt and use technologies that strengthen their competitive abilities. Most executives in Japan seem to agree that, at the moment, this means PC networks and network servers.

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Outlook

Some historical perspective from the American experience is useful in looking at the subject of computer use in Japan. Although many analysts use the development of the PC and PC networks in the United States as the standard by which to judge other countries, this "standard" is far from perfect. PCs were available for several years before IBM's first personal computer sparked the industry's wild growth and development. Similarly, the development of PC networks, especially network standards, did not follow a smooth or quick path. Moreover, while American companies can move rapidly to develop, adopt and adapt new technologies when they feel it necessary, at other times some U.S. executives can be quite conservative about using high technology or changing corporate practices so that technology can be employed effectively.

From one aspect Japan has an advantage over the United States. It is jumping directly from the mainframe-centered paradigm of computing to the networked PC model, skipping the stand-alone PC stage. This could mean that Japanese companies will have saved most of the expense of buying early generation PCs. (Machines based on Intel Corp.'s Pentium processor are the current standard being installed in Japanese companies and homes.) However, the Japanese may take some time to adjust to such a radical shift. The public's current general unfamiliarity with PCs is one shortcoming of skipping the intermediate stage. (Although even on this point, it is questionable how many older Americans are really comfortable using a networked PC.)

The growth in Japan of networked PCs and the Internet is rapid, as indicated by the strong hardware and software sales being recorded as well as the rapidly growing number of World Wide Web access providers, homepages and Web sites in Japan. Yet, what still concerns some Japanese political and business leaders is that the expansion of these two categories is even faster elsewhere. Countries like Singapore and New Zealand, for example, appear to be investing more in information technology as a percentage of gross domestic product than Japan is.22 Even as computer-related activities accelerate in Japan, therefore, some Japanese fear that the country still is losing ground to competitors. Given the large investments that leading Japanese companies have announced and the great competitive strengths these firms can marshal, such an outlook may be too pessimistic, however.

Opinions that Japanese culture is a formidable barrier to effective use of IT also may be exaggerating the situation. Japan's culture indeed may work against the introduction of Western approaches to IT, but some analysts suggest that this is not what Japan needs. While Japanese companies may be able to alter their corporate culture to suit Western IT concepts, the rest of Japanese society may not be as amenable to such a change. In the words of a Computerworld review of computing around the globe: "Counting PCs [in Japan] misses the point. … Japanese companies use computers to enhance and support human relationships rather than replace them."23 Examples cited include providing bankers and sales people with more comprehensive information so that they are better able to provide customers with the services they need. Yet, even this article admits, "Office computing is one area where disharmony between computers and people still exists."24 Nevertheless, the review concludes with this admonition: "… outsiders shouldn't underestimate Japan's information systems by taking Japanese self-criticism at face value."25

Astute observers warn that merely throwing money — in the shape of PCs, software and networks — at the problem of white-collar efficiency is too simplistic an approach. "While currently there is a lot of room for improvement when it comes to Japanese white-collar efficiency," comments James LaLonde, manager at Microsoft Japan for vertical marketing, "taking a bad process and making it more efficient only speeds up or increases the damage. Therefore the key lies in whether [the] Japanese will reengineer their processes."26

One example of the reengineering issue can be seen in how Japanese corporations are using their newly installed e-mail systems. "When e-mail or workgroup software is initially introduced into a Japanese company users take great pains to retain the same communications patterns and customs," Mr. LaLonde observes, "but over time these tendencies usually (slowly) give way to less formal and more goals/results-oriented communications patterns."27 An official with a top Japanese trading company in charge of preparing the firm's strategic IS plan agrees, adding that it often takes pressure from the top to break down these ingrained procedures.

There is evidence, however, that reengineering can happen. For example, NEC's PC marketing division introduced a new system of reporting activities at the same time that it installed a PC network. Under the new system employees e-mail daily activities reports directly to senior managers, providing a copy to their immediate supervisors. In addition, the daily sales data, which used to be presented just to section chiefs at the end of each day, now is available to the entire marketing division via the network data base.28

Hitachi, Ltd., meanwhile, has realized two unexpected benefits from the introduction of an e-mail system throughout its research and white-collar departments. For one, the responsibilities of employees and sections have become more clearly defined; that helps people outside the section to get in contact with the appropriate employee. It is common practice in Japanese companies to have vague job descriptions and assignments as a way to promote flexibility; Hitachi found that this practice had become a hindrance. For another, Hitachi employees now can reach across departmental boundaries more easily to recruit volunteers for proposed projects. Negotiations before the "network age" between Hitachi department heads were necessary to arrange for personnel reassignments and to set meeting times. Now, in contrast, announcements of project proposals are posted on Hitachi's electronic bulletin board and interested workers from any department can take part in project discussions without the permission of their boss and without leaving their desks.29

This is an exciting and pivotal time for Japan's computer industry and for Japanese computer users. Powerful hardware and sophisticated software at low prices are within easy reach of the average consumer. Japanese companies frantically are seeking ways to boost their competitiveness. It took Scott McNealy, chief executive officer of Sun Microsystems Inc., more than a decade to convince the American computer world that a stand-alone PC is like a "hairball on a desktop" and that the true potential of PCs is realized only when they are linked together in a network.30 With much less effort, many Japanese executives now are humming McNealy's mantra, "The Network Is The Computer." The Internet remains a big question mark in terms of commercial and social relevance, but both Japanese consumers and businesses are surfing the Net with enthusiasm, unwilling to be left behind in what is becoming a global trend. Computer usage in Japan clearly is on the upswing. Moreover, most observers agree that there is lots of room to grow. A nagging question remains, however. Is all this activity and excitement just a passing fad? Or will computers truly become as indispensable and common to Japanese life as the telephone, television or fax machine?

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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Notes
aaa

1aa William McGurn, "Net Assets," Far Eastern Economic Review, July 27, 1995, p. 70. Return to Text

2aa Ministry of Foreign Affairs, "Satellite Office and Telecommuting Boom Begins to Light Up Again," Information Bulletin No. 82, August 3, 1995. Return to Text

3aa "PC Fever Expected to Heat Up Sales by 49%," The Japan Times, September 11, 1995, p. 10. Return to Text

4aa "Windows 95 Prices Falling Fast," The Japan Times, December 29, 1995, p. 7. Return to Text

5aa The Japan Times (September 11, 1995), op.cit. Return to Text

6aa The Japan Times (September 11,1995), op. cit. Return to Text

7aa "Second Time Around," The Economist, August 12, 1995, p. 51. Return to Text

8aa "Major Banks Finally Giving PCs to Marketing Staff," The Nikkei Weekly, December 26, 1994/January 2, 1995, p. 16. Return to Text

9aa "Nomura Counts on PC LAN to Cut Costs," The Nikkei Weekly, May 8, 1995, p. 7. Return to Text

10aa The Economist, op. cit. Return to Text

11aa "Data Flow Trend Sweeps Corporate Japan," The Nikkei Weekly, October 2, 1995, p. 8. Return to Text

12aa Ibid. Return to Text

13aa "Todai nado 5 daigaku; Jishin Namigata Deita Kokan (Tokyo University and 5 Other Universities; To Exchange Earthquake Waveform Data)," Nihon Keizai Shimbun, October 17, 1994, p. 12. Return to Text

14aa "83 of Nation's Top 100 Firms Have E-mail Systems," The Japan Times, March 1, 1995, p. 3. Return to Text

15aa "Firm Goes Inkless to Survive," The Japan Times, September 20, 1995, p. 13. Return to Text

16aa Ministry of Foreign Affairs, "Print Media Goes Electronic," Information Bulletin No. 108, October 27, 1995. Return to Text

17aa Ministry of Foreign Affairs, "Looking for Jobs on the Internet," Information Bulletin No. 87, August 28, 1995. Return to Text

18aa Ministry of Foreign Affairs, "Internet Cafes Appear in Japan," Information Bulletin No. 89, August 28, 1995. Return to Text

19aa Mari Yamaguchi, "Older Execs Struggle to Cope as Firms Go High-Tech," The Japan Times, January 3, 1996, p. 10. Return to Text

20aa The Nikkei Weekly (December 26, 1994/January 2, 1995), op. cit. Return to Text

21aa "Teleconferencing Hits Cultural Static," The Nikkei Weekly, October 23, 1995, p. 9. Return to Text

22aa J.L Dedrick, et al., "Little Engines that Could: Computing in Small Energetic Countries," Communications of the ACM, XXXVIII, No. 5, May 1995, p. 23. Return to Text

23aa Allan E. Alter and Rob Guth, "The Global 100; Japan," Computerworld, May 1, 1995, p. 27. Return to Text

24aa Ibid., p. 30. Return to Text

25aa Ibid. Return to Text

26aa Comments via e-mail by James LaLonde, Microsoft Japan Co., Ltd., January 19, 1996. Return to Text

27aa Ibid. Return to Text

28aa "PCs Threaten Corporate Hierarchy," The Nikkei Weekly, March 13, 1995, p. 13. Return to Text

29aa Ibid. Return to Text

30aa Robert D. Hof, et al., "Scott McNealy's Rising Sun," Business Week, January 22, 1996, pp. 66 and 68. Return to Text

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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