NetInternational: Japan's E-Commerce Future
By Edwina Gibbs
TOKYO (Reuters) - Buying through the Internet is still in its infancy in Japan and while cyberspace companies are expected to borrow heavily from the United States, electronic commerce here will take on some uniquely Japanese traits.
Industry analysts say Japan's obsession with mobile phones and its ubiquitous 24-hour convenience stores will put some new twists on online business.
Japanese e-commerce is reckoned to be three to five years behind the United States. Figures published by the Trade Ministry and Andersen Consulting show that Japan's business-to-consumer e-commerce market was worth 65 billion yen ($546 million) in 1998, just three percent of the U.S. level.
With prospects of 50-fold growth over the next five years, the gap is expected to narrow and the Trade Ministry puts the market at 3.16 trillion yen in 2003.
IF YOU DON'T LIKE IT, BLAME THE PHONE COMPANY
The biggest impediment to growth in e-commerce and the Internet overall in Japan is the high cost of telephone calls, which are still based on how long the call lasts.
Although Nippon Telegraph and Telephone (NTT), the former telephone monopoly that still controls 95 percent of subscriber lines, will introduce a fixed rate for unlimited Internet access this year. But at a hefty 10,000 yen a month, it is unlikely to lure consumers en masse to the Internet.
''People with cell phones are already paying 10,000 yen a month. If they have kids, they are paying the same for their cell phones, and now 10,000 yen more for the net, households can't afford it,'' says Schroders Japan analyst Tsuyoshi Kuwabara.
The high telephone costs are expected to make online Japanese consumers more function-oriented, less inclined to surf and more interested in what they can get for free.
These high costs and low household ownership of personal computers, currently at only 10 percent, may make cell phones and their cheaper cousins, personal handy phone systems (PHS), the first port of access to the Internet for many Japanese.
About 48 million Japanese, or 39 percent of the population, own a cell phone or a PHS unit. Some phones can already be used to make financial transactions or airline reservations, or to check stock prices, horse race results or what movies are playing at the local cinema.
''In Japan, it's not determined yet whether it's going to be a PC or a cell phone that connects most people to the Internet,'' said Noriko Takezaki, senior editor at the magazine Computing Japan.
CONVENIENCE STORES SOLVE SECURITY CONCERNS, DELIVERY HASSLES
Geography will also be key. The United States is considered well-suited to e-commerce because most people need to get in a car and drive at least 10 to 20 minutes to go shopping.
But for most Japanese, who commute by train, shopping is done on the way home.
Some observers believe this may make common online product offerings such as best-selling books unprofitable. Japanese consumers are instead likely to go for specialist books not available at the nearest bookstore.
Also on the way home for just about everyone in Japan is the convenience store. There are 36,600 of them nationwide, and in Tokyo there is the equivalent of one every 500 meters.
Leading convenience store operators Seven-Eleven Japan and Lawson Inc, an affiliate of supermarket chain Daiei Inc, have already joined ventures allowing consumers to buy goods online that can be picked up and paid for at a convenience store.
The system gets around security concerns about online transactions and the inconvenient wait for the delivery man. It also lets convenience stores with limited shelf space offer more goods to consumers.
FRONT-RUNNERS, LAGGARDS AND OLD CORPORATE TIES But while the number of Japanese firms launching Internet ventures is expected to soar in the next six to 12 months, analysts say that except for software powerhouse Softbank Corp, it is still too early to say which companies have a clear edge.
In general, telecommunications firms such as NTT and Hikari Tsushin, and information technology and software support firms such as NTT Data, Fujitsu and Hitachi, are expected to benefit first.
Among industries, brokerages are front-runners in the field, boasting more than 20 entrants as they jostle for position ahead of full deregulation of securities commissions in October
Laggards include the travel industry and the retail sector, which have not aggressively targeted the new medium, although innovative new players may step in and beat them to the punch by establishing new brands and customer loyalty.
Traditional corporate ties are expected to slow the pace of e-commerce development at major firms, which may have to tread carefully for fear of upsetting dealer networks.
Susan MacDermid, president of Internet marketing specialist Modem Media Japan, notes differences between Toyota Motor Corp's (Nasdaq:TOYOY) web page in Japan and its counterpart in the United States, which offers more details about the product line-up and possible financing.
''You have to wonder how much of that is managing channel conflict. Every major brand or corporation, whether it's Matsushita (Electric Industrial Co) or Toyota, is looking how to support their dealers and not cannibalize them,'' she said.
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