SEMINARS

Training and education in international affairs:
Japan, Palestine and the Middle East (1999)

Japan’s Information Technology Industry - Current Position and Future Trends

The information technology (IT) industry in­cludes equipment, services, software, etc. In 1997, its market size was US$1.8 trillion. The largest mar­ket is that of the United States, amounting to US$643 billion and representing 35.7 percent of the worldwide market. After the American mar­ket comes that of Japan, amount­ing to US$317 billion and representing 17.6 per­cent of the worldwide market. The rest of the world is in comparison a very small market.

Table 1: Worldwide IT Market, 1997

Source: JISA

In 1997, there was a three percent increase in the IT industry as a whole in Japan, although there was a slight decrease in hardware. The figures for 1998 are expected to be seven percent higher than those for 1997, and those for 1999 eight or nine percent higher than those for 1998.

It should be mentioned at this point that large companies – e.g., Kodak – often give technology to other companies.

The PC Market in Japan

Personal computer (PC) and PC server ship­ments drive the Japanese hardware market, and although there was a slight decrease in this mar­ket in 1997, 1998 witnessed a steady increase; in regard to PC server shipments, there was a large increase of more than 20 percent. It has been estimated that some 7.6 million units will be shipped in 1999, representing a nine percent in­crease.[1]

In this context it should also be noted that the PC business in Japan is connected to income and also, more recently, to the popularity of the Internet.

The Software Market in Japan

The software market in Japan is currently worth approximately US$12.8 billion. A lot of deci­sions need to be made with regard to this sector, not least of all because of the Y2K, the year 2000 problem, which we also refer to as the ‘big bang’. Although we have sales problems, the Y2K pres­ents a big opportunity because every­body will have to change his or her sys­tem. There are ap­proxi­mately 7,000 software compa­nies in Japan, which gives a general idea about the scale of its software industry.

With regard to the new types of technology, there is the semiconductor/IC card, mobile com­mu­ni­cation, the Internet, and multimedia. As for new applications, there is electronic com­merce (either B to B or business to business, and B to C, or business to consumer), digital con­sumer elec­tron­ics, electric government, and En­terprise Re­source Planning (ERP)/supply chain management.

Enterprise Resource Planning (ERP) is a com­puter system that is gradually gaining a larger share of the market. It includes everything: for example, accounting, household management, lo­gistics, and factory management.

An extremely important factor of the new tech­nologies – whose development, in some cases, began more than ten years ago – is that it is get­ting increasingly cheaper to obtain. This includes the semi-conductors for the mobile communica­tions, Internet and multimedia. Although some of the technology is relatively old, it has become more important as people have become aware of the different applications.

Current technology also gives one an idea about the future of houses and daily life. In Japan, the Internet refrigerator, for example, already exists, but nobody uses it. The fridge is linked to a su­permarket, which receives signals and then dis­patches the necessary items accordingly. The supermarket can display ‘today’s discount infor­mation’ and functions similar to TV shopping. The cost is high but it would be very use­ful for certain groups of people, such as the eld­erly.

Digital electrical appliances for everyone and daily use also include devices such as car navi­gators and the PDA, which is a small PC that controls all the machines inside the house: the television, air conditioning and security systems, etc. Another example is mobile telephones that, in addition to the usual functions, allow for holding video conferences.

Obviously, all of this entails investing massive amounts of money in the infrastructure. The Japa­nese Government, for example, is currently think­ing of having a nationwide optical fiber network. Moreover, the Japanese Government and Malay­sia’s Prime Minister are currently in the process of creating an electronic government by connect­ing all the governmental offices to one network in order to facilitate communica­tion. Needless to say, this is a very ambitious project.

What exactly is IT industry?

The IT industry comprises of hardware (PCs, serv­ers, work stations, main frames, etc.) and hardware components such as semiconductors, boards, disks (hard disk, floppy, CD ROM, etc.), printers, displays, etc., as well as the correspond­ing software and services (e.g., consultancy, com­puter centers, Inter­net providers, etc).

Hardware components and the assembly busi­ness require huge investments. For example, in order to develop a new server or work station, one needs to invest at least US$5 million in re­search and development if the outcome is to be something modern and competitive. For good in­vestment, I personally recommend software and services, as this is a very easy field to pene­trate.

To enter the software industry one needs lots of money and a lot of hi-tech. The following soft­ware sub-groups can be differentiated:

·       Operating systems (e.g., Windows, nt, unix, mvs, etc.)

·       Databases (e.g., Oracle, Sybase, db2, sql server, etc.)

·       Languages (e.g., Cobol, Fortran, C, C++, Java, etc.)

·       Middle ware (e.g., Tuxedo, cics, ims, etc.)

·       Network and communication software

·       Development tools

·       Application software

In 1992, a student at Helsinki University an­nounced the UNIX-based operating system on the Internet, which resulted in somewhere be­tween 50,000 and 100,000 system engineers throughout the world spending their time trying to improve this system. The UNIX-based system is the big­gest competitor of Windows NT, with both hav­ing approximately 20 million installa­tions through­out the world. As Internet-made new products are becoming a new culture, one can say that the biggest competitor of Microsoft is a nonprofit center.

Table 2:

Application Software (examples)

There are many applications in software and it is easy to reach the market but extremely hard to compete with the big companies such as Micro­soft and IBM. Of course, each industry needs different software.

I would say that my company is dominating al­most all of Japan. Amongst other places, we ex­port products to California, the Philippines and Malaysia. My advice to the Palestinians is as follows: if you want to be a successful busi­ness­man, you should know that business is busi­ness; do not believe in metaphysics, but be a realist.

Characteristics of Japan’s software industry

There are nearly 70,000 repair shops in Japan, and at least 7,000 software companies, 90 per­cent of which are very small. The largest one is the NTT data Corporation with 10,098 em­ploy­ees. To give you an idea, this com­pany has a revenue of 699 billion Yen (US$5 billion) and a profit (before tax) of 30 billion Yen (US$230 million).

The software industry in Japan has a 12 percent annual growth rate (1996-1997) and a share of more than 90 percent university graduates among its employees. Currently, it is character­ized by small capital investment per person.

One problem the industry faces worldwide is the illegal copying of software programs. In order to stop people from doing this, one needs to provide integrated services, which is something that smaller companies are unable to do.

Opportunities for Developing Countries

There are also possibilities for developing coun­tries to infiltrate the global market for PC and software items. Opportunities include the fol­lowing:

·       small investment - for example, one PC in a garage. Distribution costs can be kept low, i.e., via the Internet, which also provides access to a worldwide market. The other side of the coin, however, is that there is lots of competition;

·       independent infrastructure and/or geography (e.g., India, Israel, Russia, etc.);

·       involvement of labor intensive (but not low level) work, which is usually available;

·         promotion of education.