Number 19, Winter 2000
The focus of this edition of CHOWA is e-commerce.
Our feature articles are obtained with the permission of our friends at the Japan Society in New York. In May, the Japan Society sponsored a conference with the Asia Society entitled The Future of E-Commerce in Asia. This conference featured talks by a variety of Internet entrepreneurs from across Asia on Asia’s e-market potential.
We are grateful to The Japan Society in New York for allowing us to reprint the highlights of the conference. We believe they will be of interest to you because they describe the opportunities and the issues related to e-commerce in Japan and Asia.
We also have included a brief summary of the main points discussed at the Roundtable on a proposed Japan-Canada free trade agreement.
Our Annual General Meeting will be held on Monday, December 11, 2000 and we look forward to seeing you then.
Since this will be the last newsletter until the New Year, we would like to extend the very best wishes to you and your families for the holiday season.
Ben Ciprietti
President and CEO
On May 18, 2000, The Japan Society of New York sponsored a conference with the Asia Society entitled The Future of E-Commerce in Asia. The conference featured talks by a variety of Internet entrepreneurs from across Asia on Asia’s e-market potential. We express our gratitude to the Japan Society of New York for permission to reprint this article.
General Manager for e-Business Solutions, IBM
Living and working in China means never a dull moment, according to Mr. Wu, especially since e-commerce bubbled up 18 months ago. The advent of e-commerce has spruced up business opportunities for both the newcomers and the household names in his territory -- Mainland China, Hong Kong, and Taiwan.
But don’t expect any overnight windfalls while there are still structural constraints, Wu cautioned. China’s new economy consists of nine million users, of whom 70 percent are male and under the age of 30, earning $500 or less per month. This raises some issues. Is the B2C model viable? Do the users spend money? The answer is yes, but skepticism is warranted. People in China are not accustomed to at-arm’s-length shopping and do not trust at-arm’s-length payment. In the cities, where most Internet users reside, shopping is already very convenient.
The demand side of Internet business may not yet be well-developed in China, but the supply side is another story. E-commerce leaders are primarily the younger generation, many of whom are affiliated with universities. They are creative and also aggressive in developing business models. The older generation is also changing its traditional attitudes and has begun contemplating quiet modes of entry into e-commerce. The gradual integration of e-commerce into China’s private sector will eventually lead to the real value of e-commerce solutions, B2B business, where consolidation makes excellent business sense, according to Mr. Wu.
Hong Kong, where entrepreneurs are highly sensitive to return on assets, is a net source of investment in e-commerce. But the issue for Hong Kong, he admonished, is creating business models that add value.
Executive Vice President of Corporate Development, Global Sources
Mr. Strachan described his company as a worldwide, web-enabled B2B marketplace for goods sourced mainly in Asia. Global Sources (known until recently as Asian Sources) is a part of a massive $5.4 trillion global merchandise market set to grow from 20 percent to 50 percent of the share of world GDP within 10 to 15 years under the current trade regime. By moving the merchandise trade into an electronic context, as Global Sources has done since 1995, distances and time zones can be more readily spanned, administrative costs can be reduced, cultures, languages, and other protocol can be standardized, and trade economies can be created. In addition, Mr. Strachan noted that digitalization can eliminate many administrative costs that currently absorb 7 percent of that world trade.
According to Mr. Strachan, Global Sources’ e-commerce business is profitable. It generates eight revenue streams and 81,000 product profiles, with 4,200 paid supplier web sites. In a recent month, 161,000 sales leads were delivered to suppliers and there were 3.1 million page views. The firm specializes vertically along eight industrial sectors and provides many services from trade databases to communication. New services like private postings have been implemented to insure confidential exchange of sensitive information on the open trading platform. A leading aggregator of content from suppliers, and of purchasing power from buyers, Global Sources’ business model is neutral with respect to buyer and seller interest. Designed as an end-to-end marketplace, Global Sources also provides a diversity of trading solutions along the supply chain; and it is sticky, creating many reasons (including bulletins and email) for traders to stay involved.
President and CEO of IDC America, Inc.
As a UK-owned, genuine Japanese communications company, Cable & Wireless IDC is uniquely global, says Mr. Sakamaki, President of the American subsidiary, IDC America, Inc. The combination is the result of the first takeover of a Japanese carrier by an overseas telecommunication company, which occurred shortly after deregulation of the telecommunications industry began in Japan. Cable & Wireless wanted to position itself strategically by taking 100 percent interest in one telecom operator in the U.S., European, and Asian markets. Japan was selected as the Asian beach-head because it is the largest telecom market in the world after the U.S., and is Asia’s internet leader. The strategy is apparently working, as 70 percent of IDC revenue comes from outside its UK home base, and the local presence enables IDC to generate 75 percent of its revenue from business customers.
But for Mr. Sakamaki, the last mile issue is a salient restraint on trade. The role of the U.S. government in successfully lowering access charges in Japan’s market is important to his business, because he believes that Japan is unlikely to deregulate connectivity charges of its own initiative while NTT dominates the market. Mr. Sakamaki noted that other players like MCI are providing high-speed, competitive services and laying their own optical fibres to circumvent the domestic charges. Choices will continue to increase as Titus and other major cable operators provide local access, NTT East/West and Metallics provide ADSL, NTT DoCoMo provides wireless access to specialized web sites, and Cross Wave Communications provides fixed wireless access. Mr. Sakamaki believes that the presence of these competitors will eventually rationalize the structure of telecom charges in Japan.
CEO, ChinaOnline
The difference between being too early and too late in China is about 15 minutes, according to Ms. Hughes. She believes China is much more ready for the Internet than the U.S. public may know. The evidence?
By 2001, China will have more Internet users than any other nation in Asia. By 2005, China’s Internet users will number 300 million - larger than the U.S. population today. By 2010, the size of China’s web will exceed that of the U.S. By 2003, advertising revenues will jump from $42 million to $3.8 billion, according to a recent IDC study.
According to Ms. Hughes, the Chinese are quick to adopt modern technology. There are 100 million debit card holders, 70 million wireless devices, 90 million cable watchers (versus 65 million in the U.S.), and 80 million retail shareholders. There are 1,100 e-commerce web sites in China today. In the U.S. it takes six months for sales to reach $1 million a day. In China, the time lag is more like six weeks.
China’s government supports connectivity, says Ms. Hughes. Finance minister Shang is currently studying the U.S. experience to promulgate tax legislation to promote the Internet, and several municipal-level projects are wiring homes for cable and internet access. Government regulation of information dissemination over the Internet has not, in Ms. Hughes’ experience, been onerous. In fact, the only censorship pressure ChinaOnline has experienced was from a U.S. company seeking to manage its own image on the web.
Ms. Hughes advises direct investors to study Korea’s incredibly vibrant e-commerce market as a foreshadowing of what to expect from China. Korea’s trading companies are deeply involved in Internet development. Online trading and travel are already lucrative commercial sectors. She predicted that within 10 years, two of the top 10 media companies will be Chinese-language based, and that Chinese will be the predominant language of the Internet.
Founder, Monex
Oki Matsumoto founded Japan’s first truly independent brokerage startup, Monex, with Sony seed capital a little over a year ago - just before Japan fully deregulated brokerage commissions. Today the company has opened 60,000 accounts and receives 18,000 stock orders daily. Monex is the fourth-largest broker by number of accounts, after Nomura, Daiwa, and eTrade, which have gradually been converting to online accounts.
Financial liberalization and the growth of e-commerce will extend Monex’s phenomenal rate of growth, says Mr. Matsumoto. So far, nine percent of Japan’s $13 trillion in individual savings is in stocks and mutual funds, leaving 91 percent in fixed income, on-balance sheet assets that yield less than one percent. Introduction of a 401K product for Japan is also underway, and the Japanese government will stop insuring private banks’ deposits within two years. These factors will cause savings to shift into stocks and mutual funds, much like the U.S. in the 1970s and ‘80s.
Mr. Matsumoto judged prospects for Japanese e-commerce to be excellent. Seventeen million people use the Internet today and a 33-million increase is expected over the next four years. Market penetration will reach 50 million in five years, or 75 to 85 percent saturation given a total market of 60 or 65 million. Considering that Japanese GDP is about 60 percent of the U.S., and that consumer spending represents 70 to 75 percent of Japanese GDP, he reasoned that the development of e-commerce will be one of the largest global economic events of the next five years.
Mr. Matsumoto urged the reform of Japanese law to clarify how to allocate liabilities and damages in e-commerce. Japanese like to create laws to prevent errors, but in cyberspace, mistakes are inevitable, and it’s important to set the rule for allocating damages, he said.
Professor, National University of Singapore
A law professor at the National University of Singapore and currently a visiting attorney with Morrison & Foerster in New York, Mary Wong believes the legal challenges of e-commerce arise from traditional assumptions about the inseparability of law and geography. Conventional legal solutions to commercial problems tended to have a territorial dimension, said Ms. Wong, but the Internet transcends geography, and thus raises a host of cross-border issues, from internet banking to intellectual property enforcement.
However, Ms. Wong believes that many of these legal problems are similar across jurisdictions. For example, regulating e-commerce in Asia can also be problematic in the U.S. and Europe. Ensuring that the requisite trust exists between parties to online transactions and providing for the security and integrity of communications over the Internet are of as much concern to Asian individuals, companies, and legislatures, as their counterparts elsewhere. Other common legal issues that transcend territoriality include the need to create or update legal rules and procedures for tracking infringements, enforcing rights, starting actions, and locating defendants over the Internet.
Ms. Wong suggests that to make Asia and other regions ready for e-commerce, it is helpful to review existing laws for needed revisions or additional legislation, and to harmonize these amendments or enactments globally, where possible. Areas of particular need include harmonizing standards and procedures for the protection and enforcement of intellectual property rights. However, it behooves companies engaged in e-commerce to keep themselves up to date with current legal issues and initiatives. Since we are all engaged in the same businesses, reasons Ms. Wong, it is imperative to keep track of these issues and remain aware of the legal challenges. Multilateral institutions like the OECD, WIPO, UNCITRAL, and ICANN are providing the intellectual woof and warp by promulgating model laws and launching innovative initiatives like WIPO’s online dispute resolution forum.
Regarding start-up financing, she observes that Singapore welcomes entrepreneurs with various types of incentives, support, and government-managed funds that are intended to encourage both local and foreign high-tech investment into Singapore with a minimum of red tape. Aside from government initiatives, several Singapore banks have developed funding schemes targeted at dot-com companies in exchange for equity. Singapore is also a high-tech servicers hub for Asia. There is a tremendous amount of money looking for investment opportunities. Typically, the first round of financing starts at several million and up in Asia, unlike in the U.S. where it can be a much smaller sum.
Business Development Manager, Lycos
The challenges for a U.S. company in entering Japan and Korea are both structural and cultural, according to Tamiko Asada, Lycos’ manager for those markets. But for aspiring international Internet entrepreneurs, these differences are worth noticing. Japan is the second-largest Internet market in the world, and Korea is the fastest-growing Internet market in Asia, with approximately 10 million users.
Ms. Asada says the cultural challenges begin with language differences, which bring out the need for translation and influence preferences in unforeseen or unforeseeable ways. She recommended translating the language first into ASCII and then into Unicode. Another is balancing brand name identity with local preference when the web site goes international. Here, says Ms. Asada, sensitivity is required. A third source of culture shock is the necessity of translating prices into the local currency. Payment methods also entail cultural sensitivities. For example, giving out credit card numbers is not considered secure in North Asia. On the other hand, local solutions to retail financing and logistics do exist that are not intuitive to Americans. Finally, the expectation of customer service is not uniform across cultures. Koreans and Japanese expect more than Americans. For example, a voicemail greeting and prolonged contact with a recorded voice are not acceptable.
Structural challenges include the wide acceptance of wireless Internet services in North Asia, the relative immaturity of the Internet market there, and the dearth of local expertise - a particular obstacle if the growth strategy involves local partnership, as it does for Lycos. Regulatory expertise is also limited, and there are fewer law firms that specialize in Internet. They must learn by doing, as U.S. firms have.
Business Roundtable Panelists - from left Dr. Wendy Dobson, Mr. Yoshio Nakatani, The Honourable Edward Lumley, Mr. Sam Boutziouvis.
As a part of Access Japan 2000, the Japan Society and the Canada Japan Society of Toronto held a Business Roundtable at the University of Toronto. Guest speakers were Dr. Wendy Dobson, Director, Centre for International Business, Joseph L. Rotman School of Management, University of Toronto; Sam Boutziouvis, Vice President, International Trade and Global Economics, Business Council on National Issues; The Honourable Edward Lumley, Chairman, Canada-Japan Forum and Vice-Chairman, BMO Nesbitt Burns Inc.; and Yoshio Nakatani, President and Chief Executive Officer, Toyota Canada Inc. Here is a summary of what was said at the meeting.
Such a major proposal will obviously not gain immediate support from all quarters. There will be some who, content with the status quo, will object to any new initiative. But there are valid reasons to support this innovative proposal. With this is mind, we should not hesitate to promote free trade, keeping an open mind to what it will mean for both countries and for international trade as a whole.
This show was held as one of the concluding events of Access Japan 2000, a two-month long celebration of Japanese culture. Over 1000 people attended the show. Congratulations to Consul General Hara and James Matsumoto for bringing this part of Japanese culture to us.
The Japan Society's annual golf tournament was held on August 30, 2000 at the Angus Glen Golf Club. Pictured from left are: The Honourable Edward Lumley, Chairman of the Canada-Japan Forum and Vice Chairman of BMO Nesbitt Burns Inc., Yoshio Nakatani, President and CEO of Toyota Canada Inc., Satoshi Hara, Consul General of Japan (Toronto), and Satoru Miura, President and CEO of Mitsui & Co. (Canada). We look forward to seeing everyone next year at the ninth annual Ambassador's Cup.
You may have noticed at the Golf Tournament or the Business Roundtable that we have had a change in staff. Susan Poaps, the Executive Administrator of the Japan Society for the past five years has taken a position at the British Chamber of Trade and Commerce. We wish Susan all the best in her new position.
Taking over the reins is Shaney Crawford who has just returned from a 5-year stay in Japan. Shaney worked in Fukushima-ken as an English teacher on the JET Programme for two years and as a Co-ordinator for International Relations for three years.
Friday December 1, 2000 at 8pm
Ron Korb Flute Concert
Ron Korb, the flutist who performed at the Access Japan 2000 Opening Celebration, will give a concert at the Scarborough Town Centre.
Thursday December 14
JCCC Speakers Session
Professor Bob Tadashi Wakabayashi will talk about Japan from Seclusion to Nuclear Holocaust. Bob is a professor of history at York University. He has written numerous books and articles and has presented at conferences all over the world.
The JCCC Speakers Session is a monthly informal event that highlights the talents and experiences of the Japanese Canadian community. The aim is to stimulate thoughts, spur discussion, and develop new friendships. The monthly speaker will talk about their experience in a particular field. There will be time to ask questions, have a drink at the cash bar, and mingle with others. The sessions will run from 8pm to 10:30pm every second Thursday of the month. $5 for JCCC members, $10 for non-members.
Now until December 22, 2000
Kotaro Migishi Exhibit
The work of renowned Japanese artist, Kotaro Migishi, will be displayed at Beckett Fine Art Ltd., 120 Scollard Street, Toronto. The gallery is open Wednesday to Saturday from 10:30am to 5pm and by appointment. Please call 416-922-5582 for more information.
Sunday December 31, 2000 at 8pm
Kiyoshi Nagata Ensemble
Free one-hour outdoor taiko (Japanese drums) concert at Mississauga City Hall.
Honourable Barbara J. McDougall
Chairperson
President, Canadian Institute of International Affairs
Mr. William A. Macdonald, Q.C.
Past Chairman and Founding Director
President, W.A. Macdonald Associates, Inc.
Mr. Hartland M. MacDougall, C.V.O., O.C.
Founding Chairman and Founding Director
Mr. Ben J. Ciprietti
President and Chief Executive Officer
Ms. Shaney Crawford
Executive Administrator