OECD and APEC Since Vancouver 1995

OECD and APEC since Vancouver 1995

Risaburo NEZU Senior Executive Fellow Fujitsu Research Institute

15 January 2003 Honolulu Hawaii USA

Japanese disappeared from the world IT competition

Source: Business Week, June 24, 2002 Data: Standard & Poor ’s 1

Electronic machinery production

250

200

150 JAPAN

100 USA

GERMANY 50

1 3 5 7 9 199 199 199 199 199 2001

Source: OECD STAN 2

ICT equipment Exports (1990- 2000)

Value in millions of current USD and growth in percentages Average annual growth Exports 1990 1995 2000 (1995/90) (2000/95) Computer US 23,005 34,476 54,685 8.4 9.7 equipment Japan 18,854 29,521 27,558 9.4 -1.4 EU 40,119 66,460 94,131 10.6 7.2 Communication US 4,063 10,933 20,680 21.7 13.6 equipment Japan 5,614 6,904 8,106 4.3 3.3 EU 9,541 26,440 69,179 22.7 21.2 Electronic US 13,826 27,668 70,001 14.9 20.4 component Japan 14,678 43,270 50,348 24.2 3.1 EU 16,330 36,393 55,972 17.5 9.0

Source: OECD, ITS database, January 2002 3

Value chain of IT equipments

Integrated approach VS Modular approach US Fabless (silicon valley) and Foundry (Taiwan)

Japan does everything at home

【Structure of value chain】 After-sales, R&D, D&D Service, Support

Procurement Logistics

Manufacturing

TIME Source: Nikkei Business July 8, 2002 4

Procurement of IT products / components from Taiwan by US, Japanese and EU companies

Total of top 10 Total of top 5 $100M Companies Companies 350

300 US 250 US JPN EU

200

150

100 JPN 50 EU 0 95 96 97 98 99 '00 '01

Source:adapted from Ministry of Economic Affairs ( Taiwan ) 5

World laptop computer shipments(2001) by Taiwan

“ If you own a Dell Laptop, there is a better-than- evens chance that it was made in Quanta’s factory. If you have an IBM, 15.3 Rest of Apple, Compaq- in fact, any big world brand except Toshiba- there is a Total 46.3 Other fighting chance that it was Taiwan 27.3 m made only meters away under 38.4 Quanta the same roof. Quanta, in other words, is a contract manufacturer-a company that designs and makes gadgets but leaves the marketing to companies with famous brands.” Source: Economist Jul 11, 2002 6

World Share of Personal Computer

Dell (US) Compaq (US) HP (US) IBM (US) Total Fujitsu (JP)/ Siemens (GER) NEC (JP) 123Mil Toshiba (JP) Aiser (Taiwan) Gateway (US) Apple (US) Others

Source; IDC 2001 7

A quick look at internet server

16.6% 27.8% IBM HP 3.0% 8.3% Sun Dell

Fujitsu Others 16.6% 27.7%

Source; IDC, Nikkeishimbun, September 2002 8

Sales share for mobile phone, power of global standard Technology standard Japan—PDC 3% 2% Europe Union– GSM 3% 3% Nikia 4% Motorola 8% 42% Samsung Siemens 8% Sony-Ericsson Matsushita 10% NEC Alcatel 17% Kyocera Mitsubishi Source: gartner data quest 9

Fortune 500 Computer and Office equipment

1982 ( Mainframe ) 1992 ( Mini-Computer ) 2002 ( PC ) 1 IBM IBM IBM 2 Sperry Hewlett-Packard Hewlett-Packard 3 Honeywell Digital Equipment Compaq Computer 4 NCR Unisys Dell Computer 5 Burroughs Apple Computer Sun Microsystems 6 Digital Equipment Pitney Bowes Xerox 7 Control Data Compaq Computer Gateway 8 Pitney Bowes Sun Microsystems NCR 9 Wang Laboratories Seagate Technology Apple Computer 10 Wang Laboratories Pitney Bowes

Top 10 Japanese IT companies

1981 2001 Matsushita Hitachi Hitachi Sony Toshiba Matsushita Mitsubishi Electric Toshiba Nihon Electric NEC （Nihon Electric） Sony Fujitsu SANYO Mitsubishi Fujitsu

Source; Fortune Global 500, 11

Semiconductor product mix (2000) JPN US Europe Korea 100% Mos memory 80% Mi com. Logic 60% Linear 40% Digital CCD 20% OPT 0% Discrete HIC IBM INTEL Fujitsu Micron Hitachi Philips Toshiba Infenion Hyundai ST micro ST Samsung

Source: Semiconductor Industry Research Institute Japan 12

R&D Sales ratio

(%) 18 16 14 12 10 8 6 4 2 0

a t ft o ll n a y a l M el o e hi su n b IB Int s isc D jit o o itac S shi NEC ucen r S o otoro L ic Micro H Fu T M M atsushit Instrument M

Texas

Organizational changes in firms Using ITs

(% Active Responses ) 60 52.9 50 45.7 40 Slow Responses 30 20 16.9 15.3 12 8.9 7.7 10 2 0 Others work External In house In Review sharing of power of paperless paperless making process process decision Delegation transaction Information Speed-up of Streamlining

Source: Ministry of Public Management, Home Affairs, Posts and Telecommunications 14

Percent of those who use the Internet

Wholesale / Banking & Manufacturing Retail Insurance Distribution Japan US Japan US Japan US Advertising and marketing purposes 38.5 71.3 37.5 56.6 52.6 81.4 Making sales online 31.4 27.9 17.1 52.4 29.8 31.5 After sales customer service and support 40.3 57.9 18.9 54.6 30.9 55.9 Making purchases online 54.2 76.6 25.6 70.9 26.4 76.5 Exchanging operational data with suppliers 63.9 46.0 50.5 42.2 25.3 40.9 Exchanging operational data with business 65.9 64.6 50.3 46.7 29.2 64.4 customers Formally integrating the same business processes with suppliers or other 17.5 38.5 16.8 34.2 3.0 36.3 business partners

Source; University of California, Irvine 15

IT-Related Applications

100 Japan 90 USA 80 Europe 70 Asia 60 50 40 30 20 10 0 CAD ERP SCM CRM KM EDI

Source: International Survey of Corporate Management Strategies (METI) 16

Telecommunication sector

1985 privatization of telecom sector, creation of NTT, but real competition did not occur ( telephone tariff highest in OECD)

1997 real opening of local loop to competition

Too much investment in optical fiber.

2000 entry of Yahoo in ADSL business, resulting in explosion of BB with the lowest price in the world.

New entries from other sectors (e.g. electricity)

Forgotten ISDN, questionable future of optical fiber

From wired to wireless LAN ( WiFi)

I-mode is a success, but what comes after this ?

Will telecom meltdown happen in Japan/US /EU ?

Broadband—disappointing so far

Ａｓｉａｎ countries lead the world, but no one makes money. Why are Europe and US so slow ? Does BB really matter ? (No killer application but entertainment )? Why so expensive in US? Why so cheap in Japan ? 3G mobile for what ? Nobody will move on 3G soon ? FOMA was disappointing in Japan ? Open spectrum ? Should BB be universal service ?

Including non-OECD countries

Other 15 Cable Modem DSL

5 Subscribers per 100 inhabitants, June 2002 .

a g a i n s d a e n s d y y d n e a l a d g y c o d e e k m i r n D U i i a i m ly r r i d y n d e r u e n r a d n a n a c l n l c n n e r a p d a i t a t o p a C a E a n n g a o a a u a b i a o o i e a l s p n l w l p o u r t l o g x l la k n a m g t a a r E r n a t t t d I a u r K K a w l e u a J l e m o i S r r g b n e e o u T n e S c g r O r F s s e u p r g C S I A e z e F E o u n m e M I P T e B d n it N i Z n e e i h G P A e H R s D t S t K x o e i e w w h S d e u H n n N c i e N L e h U it z C n C U

Number of subscribers of ADSL in Japan NTT

5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 Others 1,000,000 500,000 0 '01．14 7 10'02．14 10

Source: Ministry of Public Management, Home Affairs, Posts and Telecommunications 20

Rate of Dial-up and ADSL

（US$ / Month） dial-up (40H) ADSL 100 90 80 70 60 50 40 30 20 10 0 Japan US Korea UK Germany

Source: FRI 21

Two opposing views

TOYOTA SONY

Continuous Improvement

Challenges for IT companies

1. Disruptive/discontinuous nature of innovations. 2. Incorporating Asian production basis 3. Rapid turnover of IT companies. 4. Open access, open spectrum, open source. 5. Select and concentrate strategies. Can Japanese managers deal with them ?

Thank you very much!

For further discussion, please read “Perspective and Strategies for Japanese Industry “ (http://www.fri.fujitsu.com/activities/economic/papers/main.html )

Risaburo NEZU Senior Executive Fellow Fujitsu Research Institute [email protected]