Japan in Gold Rush to the Web

TOKYO – Japan is rushing to the Web and spending big bucks buying product on line – $3 billion last year, MITI, the Ministry of International Trade and Industry, has reported. That’s four times more than in 1998.

MITI, which ran the Japanese economy when it seemed poised to take over the world but has not been in the news much since, also predicted that the online market would swell to 3.16 trillion yen ($28.7 billion).

Last year, MITI researchers found, PC related goods accounted for the largest sector of Japan’s e-commerce with surfers buying goods worth 51 billion yen.

Travel was next with 23 billion yen, then food and financial services with 17 billion yen each. Clothing accounted for 14 billion yen, and, interestingly, Books & CDs, usually pack leaders, came in last at 7 billion yen.

Other Japanese researchers found that over the last 12 months more than 42 percent of all Japanese with access to the Internet bought something at least once.

Clearly, Japan is a growing Internet market, although the concept of Web merchandising is still running into some resistance. Thus Japan’s consumer electronics industry was shocked when Sony went online in January.

It did so through formation of a subsidiary by Sony and Sony Marketing. The joint venture is SonyStyle.com Japan and plans to sell most major home electronic products from PCs to TV sets on the Web. First year revenues are targeted at 10 billion yen ($90 million).

Last month Sony announced plans to launch a second online venture with another subsidiary, Sony Computer Entertainment, the largest video game manufacturer in Japan. It set up another Internet firm – Playstation.com.

Sony rivals Matsushita Electronics and Sharp are watching closely to see how well Sony does online. Just in case, both firms are in the process of starting small tests to see how well they might do on the Internet.

Sony has one clear advantage – fewer dealers, only 2,000 nationwide while Matsushita must satisfy the needs of a dealer network with 20,000 members.

Nor are home electronics companies the only ones looking for a Web presence. Mitsubishi, one of Japan’s largest trading firms, set up a direct marketing company last December named Digital Direct.

While initially the new company expects to focus on DRTV, its Vice-President, Atsuniko Tanizaki, said that “we will enter the e-commerce business as soon the time is right.” He did not say when that might be.

E-commerce IPOs still appear to be rare in Japan, perhaps because of the shaky stock market but clearly interest in taking such companies public is growing.

Thus Rakuten, the operator of Japan’s largest e-commerce mall plans an IPO this spring. Last year its holiday sales were ten times larger than they had been in 1998.

The continuing softness of the Japanese economy is pushing more and more companies into more traditional mail order and direct marketing businesses, before trying the Web.

Thus First Retailing, one of Japan’s big manufacturers and retailers of casual apparel has started a catalog business in partnership with Smyree, one of the major apparel catalogers.

In effect, Smyree will play an agency role by supplying First Retailing with resources and DM techniques, something of a first for the Japanese DM industry.

Since companies like Smyree already have a DM infrastructure including call centers, warehouses and other fulfillment services in place, more and more of them are thinking about renting these facilities to others.

Oaklawn Marketing exemplifies the trend. The Nagoya-based firm has been in the infomercial business for years and back in 1997 opened a large call center in its home town.

Infomercials grew rapidly in the mid-90s but the sagging economy and rising competition made the market a tough one. Oaklawn said its business is still growing but at a far lower rate than in previous years.

Its teleservices business, however, has been booming. “We’re seeing rapid growth these days with most of our customers coming from telecommunications and broadcasting,” company president Robert Roche said.

“We hope to make this business as large as DRTV and to do it more quickly as well.” Roche said he is aiming for a listing on the Tokyo stock exchange later this year. So are other teleservices companies – Daiichi-Ad System, Nestor and CSK Call Center on Okinawa, for example.

Japanese investors are looking for other IPO candidates with IT, e-commerce and telecom related industries seen as blue chip prospects.

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