Investor AB – briefing 30 Swedish CFOs about Japan

Investor AB’s corporate academy Novare requested education about Japan’s technology industry sector

Eurotechnology Japan KK educates 30 CFOs of Investor AB portfolio companies about Japan

April 24, 2006 was my Swedish Day: for breakfast I was invited to IKEA’s opening party for their new store in Funabashi (I met even with the global Chairman of IKEA – that he attended the opening in Funabashi shows how seriously IKEA is taken the market entry to Japan) – we had done some IT work for IKEA.

Lunch and afternoon I spent with about 30 Swedish CFO’s / controllers of some of the largest Swedish corporations, who had come to Japan on a study tour. These CFO’s/Controllers were all working at companies in Investor AB’s portfolio, and the program was organized by Investor AB’s Corporate Academy Novare.

Investor AB CFOs needed education about Japan’s telecom sector, particularly regarding Ericsson and Nokia

The Swedish controllers had asked for a briefing on Japan’s telecom industry. Some of their companies are considering to start, re-start, or grow faster in Japan, so there were many detailed questions about business in Japan, what can go wrong, personell issues, experience of other multinationals, and of course a lot of questions about IKEA and Vodafone.

My presentation was similar to the presentation I had given on March 23, 2006 to the Technology Attaches of the Embassies of the 25 European Union countries, which lead the European Union to award our company a project contract about EU vs Japan benchmarking issues in telecoms and key technology areas.

Copyright·©1997-2013 ·Eurotechnology Japan KK·All Rights Reserved·

Why Japan is several years ahead of EU in telecoms and broadband?

Why Japan is several years ahead of EU in telecoms and what can Europe do to catch up? Presentation at the Embassy of the European Union in Tokyo

and what can Europe do to catch up?

Presentation to EU Technology Attaches at the Embassy of the European Union in Tokyo

Today (March 23, 2006) I was invited to brief the Technology Attaches of the Embassies of the 25 European Union countries here in Tokyo about Japan’s telecommunications sector (both fixed net and wireless) in a one hour presentation + discussion. I had offered several alternative topics and the conference of EU Technology Attaches selected the most provocative title I had offered:

“Why Japan is several years ahead of Europe in telecommunications and what Europe can do to catch up”

Vodafone KK’s Chairman and former NTT-DoCoMo Vice-President Tsuda, who had worked 34 years at NTT and DoCoMo (and who resigned from his Vodafone-Japan CEO position a few weeks after being head-hunted), said in a recent interview with Bloomberg that “Japan is way ahead in 3G”. – therefore, although this title is clearly provocative, it’s clearly worthwhile examining this question. With the sale of Vodafone KK to SoftBank last week, the timing of this briefing was particularly interesting. My presentation discussed the following questions:

  • Is Japan ahead of Europe in Telecommunications?
  • Why?
  • What is the impact?
  • Is this important?
  • What Europe can do to catch up

EU awards project contract to Eurotechnology Japan KK to document the status of fixed and wireless broad band communications in EU vs Japan

As a consequence of this presentation the EU awards project contract to Eurotechnology Japan KK to document the status of fixed and wireless broad band communications in EU vs Japan, and to prepare recommendations for the EU to learn from Japan, and accelerate progress in Europe.

Japan telecommunications industry market report

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Copyright·©1997-2013 ·Eurotechnology Japan KK·All Rights Reserved·

EU investments in Japan: Why did Vodafone fail in Japan?

vodafone brand disappears from Japan

Vodafone made the largest ever European investment in Japan

Why did Vodafone fail so dramatically in Japan?

Quick answer

Vodafone failed in Japan not for one single reason but for hundreds of reasons, which can be grouped into two groups

  1. Soft factors:
    • Japan knowledge at HQ, and knowledge at HQ about the specifics of Japan’s telecom sector (or lack thereof).
    • choice of management structure (there were attempts to correct the management structure, however too little and too late).
    • attitude displayed both privately e.g. within the Japanese industry sector and publicly via marketing messages and advertising
    • choice of executives and lower ranking managers and their knowledge and experience in Japan’s telecom sector (or lack thereof)
    • lack of sufficient know-how and experience to manage a large Japanese company, and particular the chain of retail stores
    • and many more
  2. Hard factors:
    • far too low budgets for infrastructure investment resulting in much lower coverage and network quality compared to competitors NTT-DoCoMo and KDDI/au and TuKa, Willcom and others. As a consequence of far too low investment budgets, Vodafone failed three times to introduce 3G services in Japan. (3G services were not successfully introduced until after the acquisition by Softbank, and after conversion of Vodafone KK to Softbank-Mobile).
    • mobile phone handsets were inferior to the handsets offered by competitors NTT-DoCoMo and KDDI, and TuKa
    • and many more

Long answer

Find a long answer in this blog post below, in our other blog posts, and in some detail including statistics and financial data in our Softbank Report.

On Friday March 17, 2006, Vodafone and Softbank announced that Vodafone sells Vodafone KK (the totality of all Vodafone operations in Japan) to Softbank.

It has been reported that on Monday March 20, 2006, Softbank started to move all Vodafone KK staff, furniture and equipment from Vodafone KK’s former headquarters in the top floors of the Atago-Greenhills-Mori-Tower to Softbank headquarters in Shiodome (near Shinbashi). Also Softbank started to arrange that essentially all foreign expatriate managers left Vodafone KK – some stayed in Japan working for other IT companies, some returned to European Vodafone divisions, and some pursue telecom careers in USA, India, Bangladesh, or elsewhere.

By total coincidence, I had dinner a high-level manager of Vodafone KK, of European nationality, at the indian restaurant Moti’s in Tokyo-Roppongi on exactly the same day, the Friday March 17, 2006 a few hours after the sale of Vodafone KK to Softbank was announced. I asked him: “Which of the following is true:”

  1. Vodafone never did any market research in Japan?
  2. Vodafone did market research in Japan, but the quality was low?
  3. Vodafone did market research in Japan, but nobody read it?

This Vodafone KK manager’s answer at the indian dinner was (3): market research was done about Japan’s mobile phone market, but the market research was not sufficiently taken into account in the business and strategy planning.

Fact is, that Vodafone KK took many major strategy and market decisions in Japan, which were not related to the realities of Japan’s market. Here one example. When “rebranding” (=changing the company / product / services names) from J-Phone to Vodafone, this “rebranding” campaign was centered on global roaming, i.e. Vodafone enabled Japanese customers to use Japanese J-Phone/Vodafone mobile phones in a very large number of countries outside Japan as well as inside Japan. This was at a time, when Japan’s mainstream mobile 2G phone system which both DoCoMo and J-Phone used was PDC, while much of the rest of the world, especially Europe used GSM. However, what Vodafone overlooked was, that at that time DoCoMo had about 30,000 roaming customers, out of approx. 50 million subscribers, i.e. only about 0.06% of Japanese mobile phone users used international roaming at that time. Thus Vodafone KK in Japan focused their main nation-wide poster and TV and other media campaign on about 0.06% of the Japanese market – less than a niche. (The reason we know how many roaming customers DoCoMo had at that time, is because one of Vodafone KK’s competitors in Japan engaged our company Eurotechnology Japan KK to analyze Japan’s roaming market, and help our client to develop strategy to better compete with Vodafone KK’s roaming products, which were aggressively marketed, and the core of Vodafone KK’s marketing focus).

Another example was Vodafone KK’s strategic focus on Japan’s prepaid market. In 2006 there were about 2.6 million prepaid mobile phone customers in Japan, i.e. about 2.7% of the market, while DoCoMo had about 45,200 prepaid subscribers, i.e. about 0.09% of DoCoMo’s subscribers were prepaid customers. Since the prepaid market in Europe (especially Italy where about 1/2 of the market is prepaid) is extremely important and highly profitable, Vodafone decided on the strategy to focus strongly on the development and growth of Japan’s prepaid market. Almost at the same time however, a national campaign started in Japan linking unregistered and illegally traded prepaid mobile phones to crime, and a law was proposed in Japan’s parliament to outlaw any type of prepaid mobile phones. Thus Vodafone KK found itself on the one hand promoting and investing to develop prepaid mobile phone services in Japan, developing, purchasing (as was the business model in Japan at that time) and bringing to market special prepaid handsets, and organizing national media campaigns promoting Vodafone prepaid mobile phones, while at the same time on the other hand facing the possibility that Japan’s parliament would outlaw these same prepaid mobile phones, and a broad press and TV national discussion on how prepaid mobile phones are linked to crime. The end result was, that instead of outlawing prepaid mobile phones, it was decided to introduce far stricter registration requirements and ID requirements for mobile phones and especially for prepaid mobile phones, and the unauthorized/unregistered sale or transfer of prepaid mobile phones in Japan was made a crime. The end effect for Vodafone of course was a commercial failure of Vodafone’s prepaid mobile phone campaign, in addition to a general decrease of ARPU (average revenue per user).

As a consequence of these and other factors, Vodafone KK’s market share continuously decreased, subscribers moved from Vodafone KK to DoCoMo and KDDI/au, and the financial performance of Vodafone KK deteriorated, in the end convincing Vodafone that the best option was to sell Vodafone’s Japan operations and terminate business activities in Japan.

You can find further details and statistics, financial performance and market share data during this period in our Softbank report.

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Vodafone in Japan? Why did Vodafone change its mind about Japan?

vodafone brand disappears from Japan

Negotiations between SoftBank and Vodafone about sale of Vodafone Japan confirmed

Bloomberg: Vodafone-Japan CEO Tsuda seeks growth in Japan, not sale

About one year ago, in an interview with Bloomberg (“Vodafone KK’s Tsuda seeks growth in Japan, not sale“), I mentioned that a sale of Vodafone’s Japan operations to Softbank might be the way Vodafone will go in Japan. This seems to be happening now and negotiations to this effect were confirmed by both Softbank and Vodafone over the weekend.

The potential deal

Although a deal has not been closed yet, it is widely reported that a sale of Vodafone’s Japan operations to Softbank is very likely to be closed within a few weeks. What could this deal look like?

As reported by Bloomberg Vodafone KK’s capitalization at the point of delisting from the Tokyo Stock Exchange was around YEN 1.4 Trillion (= about US$ 12 Billion). Bloomberg mentions estimations by London based analysts who value Vodafone KK in the range US$ 14 to 16 Billion. Of course, if a deal is actually concluded, it might be a complex deal with several components, not just a simple cash price, and any cash value will not be determined by analysts in London, but on the negotiating table between Softbank and Vodafone, and the final deal could be more complex than a simple sale against cash payment.

In any case, this deal – if it happens – promises to become one of the largest M&A transactions ever in Japan sofar in terms of cash value. Vodafone is reported to prefer a cash deal, and Softbank has been reported to consider a leveraged buy-out (LBO) where Softbank will take debt against the to-be-acquired company.

It has also been reported that Softbank seems to be planning to change the name of the resulting company, so the “Vodafone” brand is not likely to survive in Japan.

What is Softbank likely to do with Vodafone’s Japan operations

An acquisition of Vodafone’s Japan operations will be the completion of Softbank‘s march to build a full-scale telecommunications group on a par with NTT and KDDI through a series of acquisitions plus internal growth.

Softbank in this new shape will become a much more serious competitor for NTT and KDDI, which both have succeeded to transform themselves from former monopolies into some of the world’s most advanced telecom operators.

In a sense Softbank is already where DoCoMo and KDDI are working very hard to get to: DoCoMo and KDDI are working hard to build content and transaction businesses (such as shopping, financial services, auctions and music), because pure traffic revenue (ARPU) is driven down by relentless competition.

Softbank is strongly linked to YAHOO-Japan, and YAHOO-Japan demonstrated it’s strength by driving eBay out of Japan – so Softbank is already where DoCoMo and KDDI want to go. All Softbank still needed was a wireless network, and with a Vodafone acquisition, Softbank will have a wireless network much faster than expected.

A Vodafone/Softbank deal will not be a good development for eAccess/eMobile, and eAccess/eMobile is reported to have submitted documents to Japan’s regulatory authorities regarding Softbank’s wireless license. It will be interesting how the regulating government ministry will decide on the regulatory aspects of any Softbank/Vodafone deal. In the past few years Japan’s government has been singularly focused on creating the conditions to make Japan the most advanced IT market in the world, so I think we can
be confident to expect a wise decision – wise for Japan, not necessarily beneficial for particular mobile operators.

What made Vodafone change it’s mind about Japan?

As reported by Bloomberg, one year ago Vodafone had the clear intention to remain in Japan for the next 10, 20, 30 years. What made Vodafone change it’s mind?

As widely reported, Vodafone was loosing market share in Japan’s mobile phone market over the last several years.

With number portability being introduced in Japan from autumn 2006, and with three new operators entering the market during 2006-2007, the competitive environment will become much more severe than it is now, decreasing pure network profitability, while at the same time massive network investments are necessary.

Analysis of Vodafone-Japan’s subscriber numbers shows that early warning signs appeared already in 2002 – 2002 would have been the time for Vodafone to take decisive action to turn the business around in Japan.

More about Japan’s telecom sector: download our JCOMM-Report.

See also: my comments in Der Standard (German language) “Aus fuer Vodafone in Japan”

UPI also quotes us: “Globe Talk: Vodafone’s sayonara problems”

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Copyright·©1997-2013 ·Eurotechnology Japan KK·All Rights Reserved·

SANYO – NOKIA CDMA2000 JV (Interview for CNBC)

Was interviewed today about the announced JV between SANYO and Nokia for CDMA2000 phone handsets (I added some corrections here):

[Q1] How will SANYO benefit from this, since they are the ones who have the technology, what do they hope to gain from working with Nokia? Or is this merely a way to reduce costs for the company, since it’s struggling to remain profitable?

It is clear to me that NOKIA will benefit, since NOKIA needs 3G know-how from Japan because all markets where NOKIA is dominating are behind compared to Japan in 3G development, and also NOKIA needs a lot of other advanced technology from SANYO.

Of course who benefits depends both on the contract conditions and the relative strengths of the parties.

It’s clear that financially NOKIA is the much stronger of the two. NOKIA is financially very strong, while SANYO is in a very weak position, so it’s a very clever move for NOKIA.

[Q2] Is it already too late for Nokia to make such a move in the CDMA 2000 market, with strong players like Samsung, LG and Motorola already entrenched in the market?

I don’t think it’s too late – both Motorola and NOKIA demonstrated rebounds recently with new design initiatives such as Motorola’s RAZR and NOKIA did a successsful turn-round by introducing clam-shell phones a trend which NOKIA had missed by not being linked sufficiently into Japan before.

To succeed you need to make spectactular phones which match consumer needs, and you need the financial and manufacturing power as well as the brand. The combination of SANYO‘s technology with NOKIA’s financial strength and brand, as well as NOKIA’s efficient supply chain are a good basis.

[Q3] When would you expect to see the benefits of such a move to emerge?

I think one should not underestimate the cultural risks. NOKIA and SANYO have extremely different corporate cultures, and we have seen many cases where corporate cultures lead to great difficulties.

I think the key will be to manage the difference in corporate cultures of two very proud companies. Locating the JV in the USA might help.

SONY-Ericsson has demonstrated that such a JV can be successful. In the case of SONY-Ericsson it has taken several years for the JV to succeed. If one takes SONY-Ericsson as a measure, then it might take a couple of years (3-4 years) for this JV to succeed. If it’s faster than that it will be a positive surprise.

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Asahi Kasei Fibers Corporation acquires Dorlastan fibers business from Lanxess

Lanxess continues refocussing following spin-out from Bayer

Textiles business moves to Asia

On 17 November 2005, Lanxess (Köln, Germany) and Asahi Kasei Fibers Corporation (Osaka, Japan) announced the planned sale of Lanxess’ Dorlastan business to Asahi Kasei Fibers Corporation.

Lanxess’ Dorlastan division includes production sites at Dormagen, Germany, and in Bushy Park, South Carolina, USA:

  • Dormagen (Germany): currently 280 employees, 170 to be transferred to Asahi Kasei Fibers Corp.
  • Bushy Park (South Carolina, USA): currently 190 employees, 160 to be transferred to Asahi Kasei Fibers Corp.

Lanxess

Lanxess was founded in 2004 as a spin-out from Germany’s chemical giant Bayer, and includes some of Bayer’s former chemicals and polymers divisions.

Lanxess focuses on manufacturing and marketing plastics, rubber, intermediates and speciality chemicals.

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SonyEricsson design team presentation & discussion at the Embassy of Sweden in Tokyo

The SonyEricsson mobile phone design team gave a very impressive presentation of their work at the Swedish Embassy yesterday.

Here is Art Director Mr Kawagoi, who created the famous SonyEricsson logo, explaining the messages contained in his creation:

SONY-Ericsson Design Director explaining his thoughts behind creating the SONY-Ericsson logo
SONY-Ericsson Design Director explaining his thoughts behind creating the SONY-Ericsson logo

Here Swedish Managers of the SonyEricsson Creative Design Center from Lund/Sweden:

SONY-Ericsson presentation at the Embassy of Sweden in Tokyo
SONY-Ericsson presentation at the Embassy of Sweden in Tokyo

My conclusion: expect a lot more great designs out of SonyEricsson. Also, there is every indication it’s a very successful Japan-Swedish cooperation.

[images in this post are taken with a DoCoMo/Sharp SH900i 3G/FOMA camera-phone in 2Megapixel setting, and sent through the air via DoCoMo’s FOMA network. Images are reproduced here in much less than the original 1224 x 1632 pixel size, which would not fit on most PC screens.]

Copyright·©1997-2013 ·Eurotechnology Japan KK·All Rights Reserved·

Cable and Wireless-Japan acquired by Softbank???!!

Today’s top article in Nikkei is about Cable and Wireless-Japan: the article reports that Cable and Wireless is in discussion with Softbank and a private equity firm to sell their Japan operations. Apparently this news article is not confirmed, and it already mentions a purchase prize on the order of US$ 100 million. This article appeared in the top position in Nikkei – but there are several things a bit mysterious about it.

I did not follow Cable and Wireless recently in Japan, but it seems that C&W made a loss of YEN 61.6 OKU on sales of YEN 713 OKU, i.e. almost 10% loss.

Spent all morning discussing with one of the innovation managers of a big European telco. Interesting. Spent afternoon with a US bio-tech company which which is thinking of asking us to build their business in Japan, and in the evening listened to a talk by Tadashi Onodera, the CEO of KDDI. Expected him to talk mainly about mobile – but he did not. His focus was a national VOIP network they are building, attacking the fixed line income of NTT. Got hold of him after his talk and discussed with him for about 10 minutes.

UPDATE: on October 26, 2004, Softbank announced the acquisition of Cable & Wireless IDC. Total cost of the acquistion is announced as YEN 12.3 billion (= US$ 110 million)

Copyright·©1997-2013 ·Eurotechnology Japan KK·All Rights Reserved·

The Economist about 3G and Vodafone in Japan

An article in The Economist about Vodafone is partly based on our analysis:

“Vodafone- Not so big in Japan” (The Economist, Sept 30th, 2004)

Japan telecommunications industry market report

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Toshiba Elevator and Building Systems Corporation (TELC) and KONE enter into capital alliance

Toshiba

Toshiba Elevators and Finnish KONE invest in each other

Toshiba Elevators sends one Director to KONE’s Board, and KONE sends two Directors to Toshiba Elevator’s Board

On December 20, 2001, Toshiba Elevator and KONE announced, that in March 2002,:

  • TELC will issue new shares and increase its capital, and KONE will acquire a 20% holding of the new capitalization
  • TELC will acquire 5% of KONE’s shares
  • TELC will nominate one Director to the Board of Directors of KONE
  • KONE will nominate two Directors to the Board of Directors of TELC

Toshiba Elevator and Building Systems Corporation (TELC)

Toshiba Elevator and Building Systems Corporation (TELC) is a subsidiary of Japan’s Toshiba Corporation, established on February 16, 1967, the first escalator was installed in 1966, and the first elevator in 1967.

Toshiba Elevators produces advanced elevators, such as double decker elevators.

TELC has sales of approx. YEN 120 billion (US$ 1.2 billion) per year, and employs about 4700 people.

KONE

KONE was founded in 1910. KONE’s annual sales are on the order of EURO 7 billion, and KONE employs about 47,000 people. KONE’s shares are listed on NASDAQ OMX Helsinki Exchange.

Japan electronics industries – mono zukuri. Preview this report:

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