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NEWSLETTER- the JAPANALYZER

June 2003

Market Snapshot - Japan
Commercializing IPv6

Each month the Japanalyzer takes you inside one of Japan’s IT industries- showing you who’s who and where the market is heading. This month we focus on the commercialization in Japan of IPv6, the "next generation" protocol designed by the IETF (The Internet Engineering Task Force) to replace the current version Internet Protocol, IP Version 4 ("IPv4"), which has supported the Internet for the last 20 years. For several years now, Japanese IT firms have been studying and promoting the use of IPv6, touting this protocol, which solves many of the problems associated with the current Internet- namely the limitations in addressing, routing, and network configuration. IPv6 also contains features that increase security and enhance multimedia usage. Until recently, IPv6 was purely academic- employed mainly in test environments in R&D labs. However, the last year has seen a noted increase in the number of commercial deployments and announcements, largely related to increasing the efficiency of the networked home.

One leader of the IPv6 commercialization effort is Matsushita Electric, which recently announced that in the spring of 2004 it would launch IPv6 broadband routers and network devices for the home. Matsushita’s devices will enable users to control their home appliances from anywhere there is an Internet connection. Matsushita Electric’s products are designed to take advantage of the automatic network setup features associated with IPv6. IPv6 was developed with a specification making it possible for users to essentially forget about network settings like IP addresses or DNS- aka dynamic host configuration protocol (DHCPv6). Matsushita Electric is still pushing its IPv4 network appliances this year, but once the switch to IPv6 is made next year, the company admits, it’s possible IPv4 will eventually get completely phased out.

Likewise, Sony is targeting the home with appliances that employ IPv6. Inspired by the nearly six-fold increase in sales of new audio-visual (AV) devices like hard disk and DVD recorders in Japan, Sony sells what it calls the CoCoon channel server, which it released in September 2002. The CoCoon automatically records TV programs onto its hard drive by using program information downloaded via the Internet. CoCoon and its “broadband AV router” are now equipped with IPv6, and have begun trials as a delivery system for distributing video content (like VoD). Sony says its use of IPv6 for the CoCoon system is driven by the need to protect the copyrights of the content that is downloaded (another key IPv6 feature).

Even non-traditional IT companies are taking advantage of IPv6. Planet Co Ltd., a music company that compiles weekly hit charts and has connections with approximately 13,000 music stores throughout Japan recently launched an in-store service that allows potential customers to listen to music on digital IPv6-based terminals before they make a purchase. Planet jointly developed the system with Yokogawa Electric Corp.

For the average PC user in Japan, the IPv6 movement has not really yet made an impact. But some ISPs are expecting things to change. Broadband providers offering IPv6 access connections have already arrived. ACCA Networks, a Tokyo ADSL service provider, recently began offering an IPv6/IPv4 service in the Tokyo area in partnership with NTT Communications. ACCA’s service is slated for expansion to all of Japan sometime this year.

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This Month's Bridge Builder
Featuring the real voice of IT across the Pacific

June, 2003

Investing in Japan- the timing could be right
Mr. T. Timothy Ryan Jr., Managing Director, Global Government Institutions Group, JPMorganChase

It seems like every year since Japan’s bubble burst, the Japanese government has stated in essence, that it is aware of the problem and that something needs to be done. And each year, Japan’s banking industry with its abundance of non-performing loans and weak financial institutions, takes most of the blame. Yet it always seems like the structural reforms necessary for breaking this vicious cycle of underperforming banks lending to unprofitable companies is right around the corner. This gives Foreign Direct Investors (FDI) in Japan hope but then despair, when such reforms eventually yield to the pressures of Japanese politics. This year, things just might be different, according to Mr. T. Timothy Ryan Jr., Managing Director, Global Government Institutions Group, JPMorganChase. Mr. Ryan, currently a director of the U.S.-Japan Foundation and member of the US/Japan Private Sector/Government Commission looking at Corporate Restructuring, believes that in 12-13 years that Japan has been trying to achieve meaningful corporate reform, now is the time when things may truly come together. Mr. Ryan recently gave a presentation at JETRO (Japan External Trade Organization) San Francisco’s “(re)Structuring Success: Solid Foundations for Building your Business in Japan” symposium where he discussed the state of the Japanese economy and some positive signs for investors. This month’s Bridge Builder presents some highlights from Mr. Ryan’s discussion.

Mr. Ryan kicked off his presentation by showing the “truth in numbers” about the Japanese economy: exports are down, industrial production is down, and deflation is persistent. But on the other hand, he pointed out, that since Japan’s legendary savings ratio is down and capital expenditures are up- the economy is being supported. He also showed that the Yen/Dollar exchange rate is hovering right around the ideal rate for Japanese exporters (115). Mr. Ryan also emphasized that like the U.S., manufacturing jobs are being lost to overseas workers but service sector jobs are taking their place. Yet overall, he said, the medium-term outlook for Japan’s economy is weak due to the falling exports, deflation, and the changing demographics of Japan, a society which is slowly aging.

Next, Mr. Ryan laid out the opportunities that still exist in spite of the economic situation. He focused on specific industries- IT and healthcare. Information Technology, long a strong market in Japan for foreign players, continues stay that way, largely due to the sophistication of Japanese corporations and the rapid proliferation of broadband. Furthermore, core technologies developed for Japan, have the potential to become de facto standards globally. For healthcare, the opportunity stems from Japan’s demographics. The aging population creates the need for nursing services and new pharmaceuticals. In addition, the healthcare industry is one where the inefficiencies are known and companies welcome the necessary change.

From a pure banking and investment perspective, Mr. Ryan discussed the hurdles to banking reform but also pointed out the progress being made. For example, NPL (non-performing loan) purchases by RCC (Resolution and Collection Corporation), the government NPL purchasing organization are on the increase. Joining the RCC, is the recently created IRC (Industrial Revitalization Corporation) which is designed to act like a “fitness center” for Japanese corporations matching weak companies with a “personal trainer” (investor) to get them in shape, to use the analogy offered by Mr. Ryan.

To find foreign investors already bullish on Japan’s future, Mr. Ryan suggests looking at Ripplewood Holdings, one of the most prominent equity investors in Japan (Japan Telecom, Shinsei Bank). Ripplewood believes Japan remains the leader in many industries, in both process and product technology. Ripplewood is taking advantage of the new rules in Japanese business, which have allowed for increased acceptance of foreign ownership, deregulation, and a significant increase in M&A activity.

For more information on JETRO events and how to work with JETRO, please contact Ms. Miyuki Doi, Director of Trade and Investment Promotion, at 415-392-1333 or visit the JETRO San Francisco website at www.jetro.org/sanfrancisco.

Previous Interviews

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ExpoCom Wireless Japan 2003
July 16-18, 2003 Tokyo Big Sight (Tokyo International Exhibition Center)
An exhibition of wireless broadband, mobile internet, 5GHz/2.4GHz W-LAN, 3G application/contents, hot spot, internet ITS & telematics, mobile IP, bluetooth, CRM/SFA, and security technologies.

Auto-ID Expo
September 10-12, 2003 Tokyo Big Sight (Tokyo International Exhibition Center)
An exhibition of Auto ID technologies sponsored by the Automatic Identification Manufacturers Association, whose mission is to contribute to Japan's economic development and the quality of life, through research, study, standardized promotion, and the popularization of automatic identification, while establishing close relations with similar organizations inside and outside Japan.

WPC Expo
September 17-20, 2003 Makuhari Messe (Nippon Convention Center)
At WPC EXPO, which claims to be the largest IT trade showcase in Asia, Featured technologies include Computers, Servers, Mobile, Information Appliances, Computer Hardware, Cameras, Video, Computer Components, Network Products, OS, Security, and Networking.

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