Categories
Japan Market Entry Leadership M&A

Volkswagen Suzuki divorce – lessons for partnership strategies in Japan

“Mr Suzuki didn’t want to be a VW employee” (Prof. Dudenhoeffer via Bloomberg)

Partnerships in Japan without meeting of minds, trust, and communication don’t work

by Gerhard Fasol, All Rights Reserved. 18 September 2015

On 9 December 2009, Volkswagen-CEO Mr Martin Winterkorn and Suzuki-CEO Mr Osamu Suzuki at a press conference in Tokyo announced a “comprehensive partnership”.

A Reuters photograph shows a beaming and smiling Mr Winterkorn, while Mr Suzuki looks the other way, avoiding Mr Winterkorn’s eyes. Mr Winterkorn and Mr Suzuki don’t seem to have any language in common, therefore can’t talk to each other. Wall Street Journal writes that details of their “comprehensive partnership” will be negotiated later, in weeks or in months. Looking back it is obvious that these negotiations never were successful.

The Volkswagen-Suzuki partnership soon lead to publicly discussed disputes between both partners, culminating in Osamu Suzuki” blog post “Suzuki and Wagen now and the way forward” (スズキとワーゲンの今とこれから) which sealed the fate of the partnership in the most public way possible.

Professor Ferdinand Dudenhoeffer, Director of the Center for Automotive Research at the University Duisburg-Essen according to Bloomberg, summarized: “Mr Suzuki didn’t want to be a Volkswagen employee, and that’s understandable”.

Read a detailed account and analysis of the Suzuki-Volkswagen partnership, its divorce, and the financial details here.

Lessons to learn from the Suzuki Volkswagen divorce: communication & respect

  • “Comprehensive partnership” without meeting of minds does not work
  • Partnerships are hard when CEOs on both sides don’t have any language in common, thus can’t talk to each other
  • Hidden agendas destroy trust
  • Without trust partnerships don’t work
  • Processes and methods (e.g. acquisitions of minor players all over Europe) successful in Europe often don’t work in Japan
  • Partnerships without respect both ways don’t work
  • Renault and Carlos Ghosn (at least before the 2018/2019 scandals), and Daimler with Mitsubishi-Fuso-Trucks show us how to build an Japanese-European car company alliance, Daimler (with Mitsubishi Motors) and Volkswagen (with Suzuki) show us how it does not work

Read our analysis in detail here: Suzuki Volkswagen “Wagen-san” divorce: how not to partner & lessons to learn.

Copyright 2015 Eurotechnology Japan KK All Rights Reserved

Categories
Japan Market Entry M&A media

Hulu Japan operations sold to Nippon Television

Hulu ends direct operations in Japan

be Gerhard Fasol

Continues licensing relationship with Nippon Television Network Corporation

Hulu started Japan operations on August 31, 2011, and less than three years later, CEO Mike Hopkins announced in his blog the sale of Japan operations to Nippon Television Network Corporation (日本テレビ放送網株式会社).

During this time, Hulu Japan had grown to 50 content partnerships, offering 13,000 TV drama, movie and anime titles: about 1000 movies and 12,000 TV episodes.

In March 2015 Hulu Japan, now under Nippon TV ownership, achieved 1 million subscriptions.

Hulu-CEO, Mike Hopkins, did not announce why Hulu sold Japan operations to Nippon TV. We assume that Hulu, owned by traditional large media corporations (NBC, Fox and Disney) saw the need to partner with a large established Japanese media company to achieve wide penetration and long term growth. Maybe Hulu had expected much more rapid growth in subscription numbers in Japan?

Hulu-Japan = HJ Holdings, LLC (HJホールディングス合同会社)

Hulu’s services are controlled via internet location detection, and were initially blocked anywhere outside the USA.

On August 31, 2011, Hulu started operations in Japan with a monthly subscription charge of YEN 1480.

Hulu Japan was incorporated in September 2011.

On April 12, 2012, Hulu Japan reduced the monthly subscription charge to YEN 980.

On February 27th, 2014 Hulu-CEO, Mike Hopkins, announced the sale of Hulu Japan to Nippon Television Network Corporation (not the Nippon Television Holding company).

Thus the company operating Hulu services in Japan is HJ Holdings, LLC (HJホールディングス合同会社), and is owned 100% by Nippon Television Network Corporation (日本テレビ放送網株式会社), a subsidiary of Nippon Television Holdings, Inc. (日本テレビホールディングス株式会社).

On March 23, 2015, Hulu Japan achieved 1 million subscriptions.

Hulu – “Anywhere, Anytime”

Hulu was founded in 2007 to offer streaming video on demand (VOD) over the internet, and is a joint venture between:

  • NBCUniversal Television Group (Comcast) (32%)
  • Fox Broadcasting Company (21st Century Fox) (36%)
  • Disney–ABC Television Group (The Walt Disney Company) (32%)

The name Hulu comes from two Mandarin Chinese words, húlú (葫芦/葫蘆), “calabash; bottle gourd”, and hùlù (互录/互錄), “interactive recording” (source: Wikipedia.org)

Japan’s media market

Hulu is not the only company offering Video-on-Demand (VOD) services, and is facing considerable competition.

Amazon.com started Amazon Instant Video (Amazon・インスタント・ビデオ) in Japan in November 2013.

Read our report on Japan’s Media Landscape

(approx. 200 pages, pdf file)

Copyright (c) 2014-2015 Eurotechnology Japan KK All Rights Reserved

Categories
fashion Japan Market Entry M&A

Burberry solves its “Japan problem”, at least for now

Burberry goes direct in the world’s most important luxury market: why did Burberry not decide on less disruptive options?

Sanyo-Shokai pivots from Burberry to Mackintosh and continues the valuable Black Label and Blue Label lines

by Gerhard Fasol, All Rights Reserved. 18 August 2015

Burberry Japan – the start of a relationship: Sanyo Shokai started importing Burberry coats to Japan in 1965, and in 1970 partnered with trading company Mitsui to design, make and sell apparel, coats, suits and other fashion items under the Burberry brand under license from the London based Burberry company. According to trade sources, Mitsui licensed the Burberry brand from Burberry, and Mitsui then sub-licensed to Sanyo Shokai.

Burberry's new directly owned flagship store in Tokyo Omotesando
Burberry’s new directly owned flagship store in Tokyo Omotesando

Sanyo Shokai independently developed the Burberry brand business in Japan, creating many products under the Burberry brand in Japan which did not exist anywhere else in the world. In particular Sanyo Shokai created the Burberry Blue Label brand for young ladies and the Burberry Black Label for young men. These products were developed by Sanyo Shokai specially for the needs of Japanese customers, and marketed and sold under the Burberry brand locally in Japan, but were not officially exported to other countries. Of course, tourists coming to Japan could buy these Burberry-Japan products and take them home, and still today there is a secondary online market for these Japan-only Burberry products, including Blue Label and Black Label.

A brand-disconnect was created between Burberry-Japan and the rest of the world of Burberry, which by Burberry, and fashion world insiders was considered as the “Burberry Japan problem”. However, the “Japan problem” yielded excellent sales and profits for Sanyo Shokai, and excellent license/royalty fee payments from Sanyo Shokai to Burberry, which made it hard for Burberry to consider other options in Japan.

Starting with the appointment of Rose Marie Bravo in 1997, who hired creative director Roberto Menichetti, Burberry changed the brand strategy, aiming to transform Burberry from a premium apparel brand to a luxury brand. Burberry’s Japan business became a problem in this transformation, since Burberry’s Japan business was not Burberry’s business at all, but Sanyo Shokai’s, and therefore was independently run by Sanyo Shokai with its own Japan-only products and sub-brands Burberry Blue Label and Burberry Black Label.

Burberry decided to carry out the transformation from the indirect license model, to the direct business model in Japan. Burberry’s license to Sanyo Shokai was meant to expire in 2020, but Burberry brought the termination of the license contract forward to June 2015.

Burberry’s challenge is now to build a different luxury Burberry business in Japan under the same brand name, while Sanyo Shokai’s challenge is to manage the pivot from the Burberry brand to the Mackintosh London brand as smoothly as possible: to move as many customers directly over from the Burberry brand to the Mackintosh brand and other brands used by Sanyo Shokai. Sanyo Shokai has the advantage that Sanyo Shokai keep almost all the former Burberry store locations and refurbishes them over summer 2015 into Macintosh and other Sanyo Shokai stores.

Burberry had to give up the 300-500 Burberry branded stores in Japan which it had no direct control over, most of which Sanyo Shokai will now transform into Mackintosh London and Mackintosh Philosophy stores. In addition, Sanyo Shokai will develop two sub-brands following on from Burberry Blue Label and Burberry Black Label, now under the “Crestbridge” brand:

Sanyo Shokai has until June 2016 to sell its existing Burberry licensed products.

Why did Burberry and Sanyo-Shokai not decide on a less disruptive split? Read our analysis here.

Burberry goes direct in Japan

With the expiry of the license agreement with Sanyo Shokai and Mitsui Trading company, Burberry operates the Burberry business in Japan direct. There is an approx. 1 year transition period where Sanyo Shokai seems to be permitted to sell remaining stocks which are still left from the validity period of the license.

Burberry is now building business in Japan both via its new flagship store in Tokyo Omotesando, other direct stores and indirect stores, and Burberry is also building direct online business via the internet and mobile phones/smartphones.

Burberry's new directly owned flagship store in Tokyo Ginza
Burberry’s new directly owned flagship store in Tokyo Ginza
Burberry's new directly owned flagship store in Tokyo Ginza
Burberry’s new directly owned flagship store in Tokyo Ginza

Burberry Japan luxury non-apparel joint venture

While the apparel license was terminated in June 2015, on 18 November 2008, Burberry, Sanyo Shokai and Mitsui entered into a luxury non-apparel joint venture for Japan operational for the Spring/Summer season 2010.

Burberry (バーバリー)

Burberry was founded by Thomas Burberry, designer of the famous Burberry trench coat in 1856 in London.

Today Burberry Group plc is a public company, traded on the London Stock Exchange:

  • Annual revenues: UKL 2.523 billion (US$ 10.4 billion) (year to March 31, 2015)
  • Annual net income: UKL 341.1 million (US$ 531 million) (year to March 31, 2015)
  • Market Cap: UKL 6.67 billion (US$ 10.4 billion) (August 18, 2015)

Burberry Blue Label (バーバリーブルーレーベル) pivot to Crestbridge Blue Label

Burberry Blue Label was a sub-brand developed by Sanyo Shokai for women. Currently Burberry Blue Label products are traded online second-hand in Japan, and Sanyo Shokai is continuing the Blue Label Brand without the “Burberry” brand.

With the termination of the Burberry license, Sanyo Shokai pivoted this sub-brand to Blue Label Crestbridge.

Blue Label Crestbridge is:

  • Contemporary British
  • Progressive Preppy
  • Cute essence
  • Fine quality
  • Japan x British. British fashion born in Japan

Creative Director is: Yasuhiro Mihara (三原 康裕)

100s of former Burberry Blue Label stores are now converted to Blue Label Crestbridge stores
100s of former Burberry Blue Label stores are now converted to Blue Label Crestbridge stores
100s of former Burberry Blue Label stores are now converted to Blue Label Crestbridge stores
100s of former Burberry Blue Label stores are now converted to Blue Label Crestbridge stores

Burberry Black Label (バーバリーブラックレーベル) pivot to Black Label Crestbridge

Burberry Black Label was a sub-brand developed by Sanyo Shokai for men. Currently Burberry Black Label products are traded online second-hand in Japan, and Sanyo Shokai is continuing the Black Label Brand without the “Burberry” brand.

With the termination of the Burberry license, Sanyo Shokai pivoted this sub-brand to Black Label Crestbridge .

Black Label Crestbridge is:

  • Contemporary British
  • British trad
  • Clean
  • Catchy & humour
  • Fine quality
  • Japan x British. British Fashion born in Japan

Creative Director is: Yasuhiro Mihara (三原 康裕)

Black Label Crestbridge - Tokyo-Harajuku flagship store, one of three Black Label flagship stores in Tokyo
Black Label Crestbridge – Tokyo-Harajuku flagship store, one of three Black Label flagship stores in Tokyo
Black Label Crestbridge flagship store in Tokyo-Harajuku
Black Label Crestbridge flagship store in Tokyo-Harajuku

Mackintosh (マッキントッシュ): reinventing the Scottish rubber raincoat brand via Japan

The Mackintosh is a waterproof raincoat made of rubberized fabric invented by Charles Macintosh and first sold in 1824 (note that the inventor is named Macintosh, while his invention is today known as Mackintosh, with an added “k”).

The company was founded in Glasgow, Scotland around 1846. The company went through ups and downs, management buy-outs, and in the 1970s was mainly producing uniforms for British Rail and the London Metropolitan Police. British Rail and the Police procurement were looking for cheaper options, so Mackintosh had to reinvent its business leading to the reinvention of Mackintosh as a fashion brand.

In 2007 the Osaka firm Yagi Tsusho (八木通商株式会社) acquired the company and the brand Mackintosh, and created a new flagship store in Mount Street in London’s Mayfair.

The Mackintosh brand as a fashion label was created via Japan, as described by The Scotsman.

Sanyo Shokai reached a licensing and business development partnership with Yaki Tusho regarding the Mackintosh London brand.

Sanyo Shokai’s strategy is to replace the lost Burberry license by the Mackintosh London brand. Sanyo Shokai opened the first Mackintosh London store in Yokohama in July 2015, and plans to open 263 Mackintosh London stores in Japan.

Sanyo Shokai plans a price range of YEN 120,000 – 160,000 for coats and suits. Most Mackintosh London stores will be Sanyo Shokai stores, which were operating under the Burberry brand previously, continuing business at the same locations with the same staff, converting from the Burberry to the Mackintosh brand identity, including the luxury floors in the main Japanese department stores. Sanyo Shokai plans to have converted approx. 170 stores in summer 2015.

Sanyo Shokai is now developing two sub-brands:

Sanyo Shokai (株式会社三陽商会)

Sanyo Shokai (株式会社三陽商会) was founded on May 11, 1943, and after an IPO in July 1971 is traded on the Tokyo Stock Exchange, Code 8011. Sanyo Shokai employs about 1300 people.

  • Annual revenues: YEN 109 billion (US$ 0.9 billion) (year to Dec 31, 2014)
  • Annual net income: YEN 6.4 billion (US$ 51 million) (year to Dec 31, 2014)
  • Market Cap: YEN 54 billion (US$ 0.4 billion) (August 18, 2015)
Sanyo Shokai Ginza Building (second Building from the left) in Tokyo Ginza, one of the world's top ranked shopping areas, being converted from Burberry to Sanyo branding.
Sanyo Shokai Ginza Building (second Building from the left) in Tokyo Ginza, one of the world’s top ranked shopping areas, being converted from Burberry to Sanyo branding.
Sanyo Shokai Ginza Building in Tokyo-Ginza, one of the world's prime luxury shopping areas (was Burberry, now converted back to Sanyo branding)
Sanyo Shokai Ginza Building in Tokyo-Ginza, one of the world’s prime luxury shopping areas (was Burberry, now converted back to Sanyo branding)
Sanyo Shokai's "Sanyo Ginza Tower" after conversion from Burberry branding to Black Label by Crestbridge, Blue Label by Crestbridge, and other Sanyo brands
Sanyo Shokai’s “Sanyo Ginza Tower” after conversion from Burberry branding to Black Label by Crestbridge, Blue Label by Crestbridge, and other Sanyo brands
Sanyo Shokai's "Sanyo Ginza Tower" after conversation from Burberry branding to Black Label by Crestbridge, Blue Label by Crestbridge, and other Sanyo brands
Sanyo Shokai’s “Sanyo Ginza Tower” after conversation from Burberry branding to Black Label by Crestbridge, Blue Label by Crestbridge, and other Sanyo brands
Sanyo Shokai's "Sanyo Ginza Tower" after conversion from Burberry branding to Black Label by Crestbridge, Blue Label by Crestbridge, and other Sanyo brands
Sanyo Shokai’s “Sanyo Ginza Tower” after conversion from Burberry branding to Black Label by Crestbridge, Blue Label by Crestbridge, and other Sanyo brands

Yagi Tsusho (八木通商株式会社)

Yagi Tsusho (八木通商株式会社) was founded on December 21, 1946 and is a trading, marketing and merchandizing company based in Osaka.

In 2007 Yagi Tsusho acquired the Scottish company Mackintosh.

Yagi Tsusho employs about 200 people.

  • Annual revenues: Annual revenues: YEN 38.8 billion (US$ 312 million) (year to March 31, 2015)

Why did Burberry and Sanyo-Shokai not decide on a less disruptive split? Read our analysis here.

We guide companies to overcome the complexities of Japan’s markets – contact us:

Japan’s Media Landscape – analysis

(approx. 200 pages, pdf file)

Copyright (c) 2015-2019 Eurotechnology Japan KK All Rights Reserved

Categories
games Japan Market Entry mobile

Google Play apps Japan: which android apps show highest revenues?

Top grossing apps (Feb. 18, 2015)

Google play apps Japan ranking in Japan by gross revenues

AppAnnie showed that in terms of combined iOS AppStore + Google play apps Japan revenues, Japan is No. 1 globally, spending more than the USA. Therefore Japan is naturally the No. 1 target globally for many mobile game companies!

Android Google Play – Japan “Top Grossing” apps ranking of February 18, 2015:

Note that the Android/Google Play ranking shown here is very similar to the iOS top grossing ranking.

  • No. 1 Puzzle & Dragons by GungHo
  • No. 2 Monster strike (by Mixi)
  • No. 3 白猫プロジェクト (= white cat project) (by Colopl Inc.)
  • No. 4 クイズRPG 魔法使いと黒猫のウィズ (= Quiz RPG (role playing game) The World of Mystic Wiz, the which and the black cat wiz) (by Colopl Inc.)
  • No. 5 LINE Disney tsumu tsumu (by LINE Corporation) (ツムツム = Tsum Tsum)
  • No. 6 LINE PokoPoko (by LINE Corporation)
  • No. 7 Dragon Quest Monsters Superlight (by Square Enix)
  • No. 8 LINE (by LINE Corporation)
  • No. 9 Final Fantasy Record Keeper (by DeNA Ltd)
  • No. 10 LINE Rangers (by LINE Corporation)
  • No. 11 Love life! School Idol Festival (by KLab Inc.)
  • No. 12 Logres of Swords and Sorcery – popular online RPG (by Marvelous Inc.)
  • No. 13 Runaway lives motorcycle Tiger (by Donuts Co Ltd)
  • No. 14 Clash of Clans (by Supercell)
  • No. 15 Chain chronicle – real scenario RPG (ChainChro = チェンクロ) (by SEGA Corporation)
  • No. 16 Actual powerful pro-baseball (実況パワフルプロ野球) (by KONAMI)
  • No. 17 Schoolgirl strikers (by Square Enix)
  • No. 18 Puyo puyo!! Quest (by Sega Corporation)
  • No. 19 LINE POP2 (by LINE Corporation)
  • No. 20 Granblue Fantasy (by Cygames Inc)
  • No. 21 Drift Spirits (by Bandai Namco Games Inc)
  • No. 22 Pro baseball Pride 2014 (by Colopl Inc.)
  • No. 23 Sengoku Enbu – KIZNA – (by Sumzap Inc)
  • No. 24 Dragon poker (by Asobism Co Ltd)
  • No. 25 Gandam Conquest (by Bandai Namco Games Inc)

Japan’s iconic game companies created many game categories – this tradition carries over to mobile gaming now.

Copyright 2015 Eurotechnology Japan KK All Rights Reserved

Categories
energy Japan Market Entry Leadership

Sir Stephen Gomersall on UK-Japan business and globalization

Sir Stephen Gomersall: former British Ambassador to Japan and Chairman of Hitachi Europe

Sir Stephen Gomersall on UK-Japan business and globalization: Globalization and the art of tea

Hitachi – Japan’s most iconic corporation – under the leadership of Chairman & CEO, Hiroaki Nakanishi embarked on the “Smart Transformation Project” to globalize, to face a world where value creation has moved from manufacturing to innovation and solving customer’s problems, and to overcome long years of stagnation and low profits or losses, despite strong technology capabilities.

One of the most important brains behind Hitachi’s reinvention and globalization is Sir Stephen Gomersall. After a long and successful career as diplomat in the British Foreign Service, culminating in the years as British Ambassador to Japan 1999-2004, Sir Stephen joined Hitachi in 2004 as the first foreigner responsible for proposing and implementing Hitachi’s overseas regional strategy. Later Sir Stephen became responsible for all of Hitachi’s business in Europe as Chairman and Chief Executive of Hitachi Europe, and in addition Sir Stephen also served as Director on the Board of all Hitachi 2011-2014 overseeing all of Hitachi Group’s business as Board Director. With Sir Stephen’s leadership Hitachi achieved major business breakthroughs in Europe.

On March 5, 2015, Sir Stephen gave the “Princess Chichibu Memorial Lecture to the Japan British Society at Ueno Gakuen University in Tokyo with deep insights on Japan-British relations, on comparison of Britain’s and Japan’s position in the world, and on the challenges of globalization facing Japan and Japanese corporations – in particular Hitachi.

Sir Stephen is very clear that there is no alternative to globalization: “Globalisation poses tough challenges for Japanese companies, but is the only way forward”.

Read Sir Stephen’s lecture here:

Sir Stephen Gomersall: “Globalisation and the art of tea” (click the link above to read the full text of Sir Stephen’s Princess Chichibu Memorial Lecture)

Sir Stephen Gomersall

Stephen Gomersall was British Ambassador to Japan from 1999-2004, and Hitachi’s Chief Executive for Europe and subsequently Board Director from 2004-2014. He is now Adviser to the CEO, Hitachi Ltd.

Copyright (c) 2015 Eurotechnology Japan KK All Rights Reserved

Categories
Japan Market Entry M&A telecommunications

Fidelity Japan market entry into Japan’s cloud and data center markets via KVH

Fidelity: Japan market entry the patient and careful way

Fidelity’s Colt to acquire KVH for YEN 18.595 billion (€ 130.3 million = US$ 160 million)

Both Colt and KVH were founded with investments by Fidelity Investments and associated companies, Colt in London in 1992, and KVH in 1999 in Tokyo, as telecommunications service providers for the financial industry and other industrial customers. While KVH remained 100% owned by Fidelity and associated companies, Colt was listed on the London Stock Exchange in 1996.

Initially founded as telecommunications companies, both Colt and KVH have developed into “information delivery platforms” based on networking infrastructure, data centers, optical fibre networks and associated management and information services.

On November 12, 2014, Colt announced the plan to acquire KVH for YEN 18.595 billion (€ 130.3 million = US$ 160 million) in cash from KVH’s owner Fidelity Investments.

Since KVH is 100% owned by Fidelity Investments, and Colt have also been founded by Fidelity which is still a shareholder, the acquisition needs to be approved by independent Directors and by independent shareholders of Colt.

A General Meeting of Colt’s shareholder has been announced for December 16, 2014 at 10:00am in Luxembourg where the approval of shareholders of Colt will be sought.

Colt – the “information delivery platform”

Colt was founded by James P Hynes (Jim Hynes) with investments from Fidelity Investments and related companies in 1992 in London, and went public with an IPO on London Stock Exchange in 1996.

Colt operates 20 data centers and substantial optical fiber networks, and has more than 5000 employees.

Colt’s annual revenues are € 1,575.8 million (= US$ 2 billion) in 2013.

Colt market capitalization currently is UKL 1.19 billion (= US$ 1.9 billion).

KVH – “Asia’s information delivery platform”

KVH was founded by Fidelity Investments and related companies on April 2, 1999 in Tokyo.

KVH operates 9 Data Centers, owns optical fiber networks in Japan and to major financial centers in the world, and has about 590 employees.

KVH annual revenues are approx. € 133.6 million (= US$ 170 million) in FY2013, i.e. Colt is about 10 times bigger in terms of market cap and sales than KVH.

KVH owns optical fibre, ethernet, data center data infrastructure in Tokyo, Osaka and other parts of Asia.
KVH owns optical fibre, ethernet, data center data infrastructure in Tokyo, Osaka and other parts of Asia. This photograph shows KVH owned cable infrastructure in the center of Tokyo

The planned acquisition values KVH at YEN 18.595 billion (€ 130.3 million = US$ 160 million), i.e. COLT is about 12 times bigger than KVH in terms of market capitalization/value.

Implications of acquisition of KVH by Colt – view as a Japan (and Asia) market entry by Colt

From the point of view of Colt, the acquisition of KVH – which has always been a sister company via the common investor Fidelity Investments, and common founder Jim Hynes – is a relatively low risk market entry into Japan and several other major Asian markets, and promises to have a very high chance of success for all parties.

We need to keep in mind, that essentially all other large scale market entries into Japan by infrastructure based telecommunication operators have failed: Vodafone, Cable & Wireless, WorldCom’s market entries into Japan’s telecom markets have all failed, and to our knowledge KVH is the only remaining internationally owned telecom infrastructure company in Japan today.

You can read a detailed discussion about why Vodafone failed in Japan in our blog here “Vodafone Japan could have been a business worth US$ 50 billion today. Why did Vodafone Japan fail and sell to SoftBank?”.

Essentially, both Vodafone and Cable & Wireless failed in Japan’s telecom markets, because they did not have the multitude of skills and know-how needed to manage a telecommunications business in Japan in a competitive manner. Colt with the acquisition of KVH acquires this know-how, and KVH at the same time has been an internationally managed company from the outset, so that Colt avoids the risks of acquiring a 100% Japanese companies such as Vodafone had done by acquiring Japan Telecom, with all the cultural issues that this entails.

At the same time, we also need to keep the scale in mind. While KVH has a market capitalization (i.e. the purchase price) of US$ 160 million, it can be argued that Vodafone-Japan could be expected to have a capitalization of around US$ 60 billion today had it been successful – i.e. about 375 times larger than KVH.

Japan’s largest telecommunication operator NTT currently has a market capitalization of US$ 62 billion, i.e. about 390 times larger than KVH, while SoftBank’s market capitalization is about 500 times larger than KVH’s.

Thus, if we see Colt’s acquisition of KVH as a market entry into Japan by a European telecom operator, then this is on an approx. 300-400 times smaller scale than Vodafone’s failed market entry into Japan, and with far better circumstances, and a far higher chance of success, and in our view with very carefully controlled risks.

Without doubt, a merger of KVH with Colt was on the minds of Fidelity Investments and Jim Hynes, when they founded both KVH and Colt in the 1990s.

Copyright 2014 Eurotechnology Japan KK All Rights Reserved

Categories
Japan Market Entry M&A mobile

Vodafone Japan could have been a business worth US$ 50 billion today! Why did Vodafone Japan fail and sell to SoftBank?

What can we learn from Vodafone’s failure in Japan?

by Gerhard Fasol

Had Vodafone been successful in Japan, Vodafone’s Japan business could be worth € 40 billion (US$ 50 billion) today

In a separate blog post “EU-Japan Management: What is the value of good management?” we analyze what the value of Vodafone’s Japan business might be today, had Vodafone succeeded in Japan, based on current market values of the comparable companies NTT-Docomo, KDDI and Softbank, and we conclude that it is not unreasonable to assume that Vodafone’s Japan business could be worth € 40 billion (US$ 50 billion) today, had it been successful.

Vodafone Japan? Why did it fail and sell to SoftBank? – Quick answer

Vodafone Japan failed not for one single reason but for hundreds of reasons, which can be grouped into soft factors (mainly lack of understanding Japan and Japan’s telecom markets and it’s true size) and hard factors (mainly far too low investment) – read more details in our SoftBank-report:

  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
    • lack of management and execution know-how in Japan: tried three (3!!) times to introduce / roll-out 3G services in Japan, and failed every time to attract sufficient subscribers. As a result Vodafone Japan was far behind in 3G introduction. Only after sale to SoftBank, did SoftBank succeed in implementing the transition to 3G
    • too high expectations for profitability and margins from HQ, which were out of line with profitability and returns usual in Japan, and out of line of competitor’s margins
    • 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

Vodafone Japan? Why did it fail and sell to SoftBank? – Detailed 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 arranged very quickly 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 pursued telecom careers in USA, India, Bangladesh, or elsewhere.

By total coincidence, I had dinner with 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 (Vodafone Japan) 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 (Vodafone Japan) 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 0.1% 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 0.1% of the Japanese market (and about 0.02% of Vodafone KK’s accessible market, given Vodafone KK’s approx. 20% market share) – 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 (find detailed statistics and market shares and analysis of Japan’s prepaid market in our JCOMM report). 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).

Instead of focusing on its core business in Japan, Vodafone KK focused management resources, and other resources to try to influence political decisions concerning 2.7% of the market: Japan’s minute and decreasing prepaid market.

Vodafone had many other management issues in Japan, which included recruitment and personality and retain issues of top executives, many kinds of HR issues, management issues at the retail stores, handset planning issues, branding and brand management issues, localization issues and much more.

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 and in our JCOMM report.

Copyright 2014 Eurotechnology Japan KK All Rights Reserved

Categories
Japan Market Entry M&A

NASDAQ quit Japan in 2002, and London Stock Exchange quit Japan in 2012 for similar reasons. Read why.

NASDAQ and London Stock Exchange both hope to build stock markets in Japan. And both failed for similar reasons and with similar end results

by Gerhard Fasol

NASDA and LSE: in both cases the stock markets NASDAQ and LSE created are still continuing business in Japan after there departure

Initially, London Stock Exchange and Tokyo Stock Exchange created Tokyo-AIM as a joint-venture company in order to create a jointly owned and jointly managed AIM Stock Market in Tokyo, modeled according to the very successful London-AIM model.

“Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own” NIKKEI on March 26, 2012

However, on March 26, 2012 NIKKEI reported that “Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own. TSE plans to improve the rules of its own new market, so that TSE can create a more welcoming market” (our translation of the original Japanese NIKKEI article to English).

LSE withdrew from the Tokyo AIM joint venture, and sold all to Tokyo Stock Exchange

London Stock Exchange withdrew from the venture, and Tokyo Stock Exchange took over 100% of Tokyo-AIM. Essentially, London Stock Exchange AIM’s venture into Japan failed, while the stock market created by the venture continues without London Stock Exchange’s involvement. As explained in our blog here, these events are very very similar to what happened with NASDAQ about 10 years earlier!

In 2012 Tokyo AIMS’s name was changed to TOKYO PRO Market and TOKYO PRO-BOND Market

In 2012, the name was changed from Tokyo-AIM, to TOKYO PRO Market and TOKYO PRO-BOND Market. Details can be found here:

Some background about the mistakes which led to the failure of both NASDAQ and London Stock Exchange AIM to build business in Japan can be found here:

Copyright 2014 Eurotechnology Japan KK All Rights Reserved

Categories
Economics Japan Market Entry Leadership

High-tech market entry to Japan: new opportunities versus old mistakes (Stanford University lecture)

Success stories vs failure. Why some foreign companies succeed in Japan’s high tech sector, and why others fail.

High-tech market entry to Japan: Stanford University Japan Technology Center lecture by Gerhard Fasol

New opportunities vs old mistakes – foreign companies in Japan’s high-tech markets
Stanford University lecture, given on October 28th, 1999

This lecture was given on October 28th, 1999 to an audience of Stanford University faculty, students, post-docs and alumni working in Silicon Valley firms. Although this lecture is now some time ago, much of what was said still is true today. As an example, our recognition of the interplay of “old Japan” vs “new Japan” is still extremely relevant today, with old traditional corporations coexisting with new venture start-ups, some of which, like SoftBank and Rakuten have grown to very large size even on a global scale.

Stanford University Japan Technology Center lecture: outline

(note that some statistical data have changed since this lecture was given, the main change is the growth of China, for example today Japan is not the second, but the third largest economy after China).

  • Why is Japan important?
    • Japan is the world’s second largest market
    • 60%-70% of Asia’s economy is in Japan
    • 10%-20% of the world’s internet/telecom/e-commerce markets are in Japan
    • Some important recent high-tech breakthroughs come from Japan, e.g. blue LED and lasers)
    • For US corporations Japan is in general the most important/largest foreign market & competitor & partner
  • “Old Japan” versus “New Japan”
    • The “old official Japan” may fade into irrelevance, large sections (60%) of Japanese society were excluded from equal access to the “old Japan”, e.g. women, Korean residents, foreign nationals, “half”-people….
    • A “new Japan” is emerging: e.g. Nichia, SoftBank, Don Quichote, etc
    • Education is a major problem
    • Foreign corporations should tune into the “new Japan” new
  • Opportunities which never existed before
    • Foreign corporations for the first time ever can hire top Japanese performers
    • For the first time ever foreign corporations can acquire Japanese corporations on a meaningful scale
  • Some typical mistakes of foreign companies in Japan
    • Manage Asia from Singapore or Hong-Kong (thats like managing All-Europe operations from Tel-Aviv or Reykjavik)
    • Hire the wrong people (wrong Japan-CEO, wrong peronnel, e.g. too much emphasis on English vs true performance or technical excellence)
    • Partnerships or joint ventures with wrong partners or wrong expectations
    • Enter Japan, build R&D labs etc without first planning strategy and aims
    • Forget to do the homework (there is Gigabytes of information you better learn about Japan before you start, training on the job increases risks)
    • Be too fascinated by cherry blossoms & be too optimistic or too pessimistic about Japan
    • Taking things for granted in Japan, which are not:
      • brand recognition
      • Japanese consumer & customer habits and needs
      • Assume global corporations have the same depth as you are used to elsewhere in the world

Copyright 1999-2016 Eurotechnology Japan KK All Rights Reserved