Austin Companies Learn More About Exporting Software to Japan

Key points:

Intro

Estimates vary, but there are approximately 400 to 500 software companies here in Austin. Most of these are no doubt, small start-ups with only a few employees. Because of their small size, many of these companies may be overlooking a possible market for their product–Japan. Japanese companies are in fact, eager to tap into the creativity of entrepreneurial companies here in Austin. As an indication of this, the Japan External Trade Organization (JETRO) recently co-sponsored a seminar on exporting software to Japan. Realizing that many small and medium sized companies do not have the in-house expertise in international marketing, the seminar provided some general answers to the question–how do I get my company started exporting to the Japanese market?

Seminar Speakers

The seminar was hosted by Dr. Robert Sullivan, the director of the IC2 Institute here in Austin. Co-hosts included Hiroshi Kojima, Executive Director of the Houston JETRO office, Norio Iseki, Senior Trade Advisor for JETRO here in Austin, and the Chamber of Commerce.

Hideaki Kanno ([email protected]) provided an overview of the Japanese software market. Japan for example spends 2.5 percent of GDP on Information Technology compared to the 2.8 percent that the U.S. spends. One key difference in the Japanese market is that Mainframes remain quite popular, even today. PC use is growing rapidly however–domestic Japanese PC shipments totaled 5.1 million in 1995, and packaged PC software shipments totaled USD 4.7 billion in 1996. OS, LAN OS, Word Processing, and Spreadsheet programs make up the majority of packaged software shipments, and these are generally bundled with the machine by the equipment manufacturer. For Packaged software, 39 percent is sold through distributors, while 35 percent is sold through direct sales. In 1996, Internet use saw a dramatic increase, and it is currently around 800,000 users. 53 percent of leading companies now use LAN’s and this number is expected to grow to 70 percent in the near future. LAN management, Groupware/Email, and Databases make up the majority of applications software used with LANs. According to Kanno, there is a need in Japan for multi-dimensional database analysis tools; he also noted that Groupware/Email applications might provide a good opportunity for US developers. Regarding business applications, Kanno noted that this could be a niche market, but he warned that, for example, Japanese payroll systems are quite different from US systems.

JETRO also provided some detailed Market Analyses of the Software Market in Japan; but rather than list those figures here, you can get a more complete treatment by contacting JETRO directly (Houston Office tel 713 759 9595 fax 9210).

Tokiko Takashima of Global Software Network ([email protected]) (Tokyo fax 03 3403 6546) gave a brief on marketing software in Japan. Her company partners with US software developers to market and localize software. Aside from the usual advice on doing business with Japanese companies, she reminded the audience that the fiscal year in Japan begins in April, and so it is important to hit the Japanese companies prior to the June/July sales effort so that sales can be allocated for that year’s budget. Latecomers will in all likelihood find themselves having to wait until the next cycle. Takashima also noted that for the ‘enterprise customer’ there is a strong dependence on the [Japanese] hardware vendors. This takes some doing to overcome, but it is possible when the US company has developed a more long term relationship with the Japanese company. The Japanese partner will be crucial not only for marketing, but also in customer service, and communication. For example, the Japanese partner can distribute press releases and organize seminars and users’ groups.

Most of the Japanese speakers noted that the Japanese Software developers can not keep up with American firms and that with Applications software, and Utilities software, Japanese producers recognize US products as the de facto standard.

Takashima noted that custom software development in Japan is a USD 300 million a year business, but she noted that with the recession, and the need for downsizing, custom software will become less attractive. Packaged software will have to take its place. (An example might be say, the Insurance and Banking industries.)

Advice from an Austin Company

Marc Yagjian of Quadralay (http://www.quadralay.com), an Austin Software company, provided some insights into trying to break into the Japanese market. Marc advised that your product needs to be:

Marc noted that in his experience, the European market was easier to enter, and that English versions sold well in Europe. This should not be expected in Japan. Marc pointed out that if you will be providing software for the still popular mainframes in Japan–You will have to deal with the proprietary Japanese systems. He also warned that even among Japanese PC’s, the systems are not necessarily compatible. Regarding the Internet, Marc noted that it is becoming very popular with young Japanese, but the local measured service in Japan is a hindrance to more rapid expansion.

Establishing a good partnership with a Japanese company is crucial unless you have millions to spend. Other non-trivial problems include the need for Japanese language manuals; hardware and software differences; e.g., screens, ports, and drivers; and special requirements for the customer. Localizing the software can be particularly difficult if the original was not written with the intention of localizing it into different languages.

In addition to the usual resources that one can look at to begin marketing in Japan, Marc advised that the Internet can be a useful tool. You can use it to test market software shipped via the Net, establish direct contact with potential customers, and conduct general market research. Key distribution factors are:

New distribution channels are opening in Japan to challenge the traditional multi-layered system. These include:

One key difference that Japanese customers will expect is that all of the bugs will be worked out prior to the sale. Providing a customer with a software program still loaded with problems could be devastating to that long-term relationship based on trust that you’re seeking.

Marc advises that you can use JETRO to research markets, develop contacts, make introductions, and provide temporary office space in Tokyo. You can expand your direct presence later. What is the reward for this effort? Margins are much higher in Japan–generally 2 times the U.S. retail price for software. A few lucky companies may have products that Japanese consumers are willing to use in the English language/U.S. version. If they can bypass the costly Japanese distribution system by delivering over the Net–the rewards could be high.

More Info?

Where can you go for more information? Call JETRO, The U.S. Department of Commerce, The Small Business Administration, the Chamber of Commerce. . . The list is pretty long, and you may be overwhelmed by the amount of information available. Also, you can contact the author for general information at the email address listed below. Gambarimasu (‘keep at it’ in Japanese)

About the author: Michael Mastrangelo, a University of Texas MBA, recently spent four years in Japan in Yokohama, Osaka, and Tokyo reporting on Japanese Science and Technology issues for the U.S. government. He is currently writing a resource guide for Austin companies seeking to export software to Japan; and would appreciate any comments you could provide on your company’s experience dealing with Japan–particularly if you have used JETRO programs. Comments can be sent to [email protected].