This IS your Grandfather's iPad as Japan Elderly Embrace Apple

Bloomberg

 

Hikosaburo Yasuda says he knows a trend when he sees one and plans to buy Apple Inc.’s iPad to keep up with junior members in his computer club. Yasuda is 95.

“It’s important to always try new things, otherwise you get left behind,” Yasuda said. “All these books in just one place, and so many familiar, classic titles that I’ve never had a chance to read. I want to buy the iPad just for that.”

Yasuda and his peers, looking for easier ways to browse the Web and send e-mails, are a potentially lucrative demographic for Apple as the proportion of people aged 65 and over climbs to records each year in countries including the U.S., China and France. Japan has the world’s oldest society, with the elderly accounting for an estimated 22 percent of the population, almost triple the global average.

“The iPad is a good tool for the elderly because it’s very forgiving of mistakes, something the seniors fear when dealing with computers,” said researcher Takahiro Miura of the University of Tokyo, whose team is working with International Business Machines Corp. on using computers to help senior citizens rejoin the workforce. “Unlike the PC, it doesn’t require prior knowledge.”

Android Competition

Motoo Kitamura, 78, a former gas salesman, said the tablet helps him communicate with his 2-year-old grandson, who turns it on himself to play games. Kitamura uses it to follow the Hanshin Tigers baseball team and show vacation pictures.

“I think using the iPad could help keep dementia at bay,” he said. “Trying new things like that is a good mental exercise.”

James Cordwell, a technology analyst at Atlantic Equities Service in London, said the iPad’s appeal to the elderly is helping the company reach beyond its traditional base of younger customers and fend off Google Inc.’s Android mobile-device operating system, which targets more technologically savvy users.

“Demographically, the world, especially in developed markets, is getting older and it’s probably where Apple is least penetrated,” Cordwell said. Elderly users are “a key source of growth for them in the future.”

Apple, the world’s biggest technology company by market value, said net income leaped 78 percent and revenue reached a record $15.7 billion last quarter, the first to include sales of the iPad tablet computer and the newest iPhone.

BlackBerry, Hewlett-Packard

Customers bought 3.27 million iPads, which sell for $499 in the U.S. and 48,800 yen ($565) in Japan for the low-end model. Research firm ISuppli Corp., of El Segundo, California, said Apple may ship 12.9 million this year.

“Every age group is important to Apple,” said Carolyn Wu, a Beijing-based spokeswoman for Apple. The Cupertino, California-based company doesn’t provide a breakdown of iPad sales by region or age.

Apple faces competition from BlackBerry-maker Research In Motion Ltd., which plans to introduce a tablet computer in November, two people familiar with the plans said last month. Hewlett-Packard Co. and LG Electronics Inc. also said they plan to introduce tablet computers.

The iPad’s appeal to seniors extends beyond Japan. Marti Weston, of Arlington, Virginia, bought her father one for his 87th birthday in May. She downloaded applications for newspapers, classical music, the Bible and works by Plato and Shakespeare.

‘Disciplined Finger’

Her father, the Rev. Elmo Pascale, of Harrisonburg, Virginia, found it frustrating to type his journals into a computer using Windows, she said. Weston gave her father tutorials on the iPad, and now he’s downloading lectures and searching YouTube for videos.

“This ‘book-sized’ pad has become my news and entertainment source, requiring only a disciplined index finger and a rare recharging of its battery,” Pascale wrote on his daughter’s blog. “Thanks a million!”

Eiji Mori, an analyst at research firm BCN Inc. in Tokyo, said elderly consumers unfamiliar with technology are drawn to Apple.

“The iPad’s intuitive interface and the ability to enlarge text make for an appealing proposition to seniors,” Mori said. “It will rapidly increase in popularity among the elderly once the product shortages are dealt with and there is a selection of appropriate contents, such as e-books.”

Elderly Spending

The iPad also could help reintroduce the elderly into the workforce and create more opportunities to interact with young people, Miura said.

The Nakano Community Center frequented by Yasuda offers three computer clubs run by Toshihiro Okada, a 79-year-old retired architect. Members call him “The Saint” because he often bikes to their homes to troubleshoot computer problems.

He said three elderly friends bought iPads.

“Seniors these days have the trifecta of time, money and curiosity,” Okada said. “The iPad is never out of my hands.”

Annual spending per person in a Japanese household of people 65 and older was 1.34 million yen last year, higher than the national average of 1.24 million yen and second only to the under-30 age group, according to a report by the country’s Cabinet Office.

The elderly devote about 15.4 percent of household expenditures to entertainment and cultural activities, compared with the 13.5 percent national average, the report said.

Masato Enjuji, 89, and Yoshitaka Yamazaki, 77, said they bought iPads mostly out of curiosity after seeing Okada use his.

Enjuji, a retired sundry wholesaler, reads e-books and browses photos. He likened his discovery of the device to the time he learned Morse code as a 17-year-old.

“You’ve got to use your head, your eyes, your hands,” he said. “You can’t wall yourself in by thinking something is too difficult.”

Porn Stars in 3-D Lure Consumers to New Sony, Panasonic TVs

Bloomberg News

 

Porn star Mika Kayama is at the frontier of a push to develop videos and content in Japan that Sony Corp. and Panasonic Corp. need to lure customers for their new 3-D televisions.

Kayama and Yuma Asami, the top actresses of adult-movie maker S1 No.1Style, will star in the country’s first DVDs for the 3-D format TVs, providing content analyst Yuji Fujimori says can trigger the success of the new sets. Sales of adult videos in Japan were 108.6 billion yen ($1.2 billion) in 2009, according to Takashi Kadokura, an economist who runs Yokohama- based BRICs Research Institute. That represents about 30 percent of the overall video market in the nation, according to Kadokura.

“Adult videos will likely be an incentive for consumers to buy a 3-D TV,” said Fujimori, at Barclays Capital in Tokyo. “It’s worth paying attention to the move because it’s lack of content that’s hindering expansion.”

Closely-held S1 No.1Style will offer “3D X Mika Kayama” on June 7 and “3D X Yuma Asami,” Japan’s first pornographic titles in the new format, on June 19 to coincide with the release of Sony’s 3-D Bravia models, with more titles to follow this year, according to the producer, who uses the professional name of Sakon.

Sales Motivation

“I want to try it out,” said Satoshi Miyazaki, 33, who pays about 2,000 yen a month to watch adult cable channels. “I need something dramatic to justify replacing my TV. This could be the motivation.”

Sony, the world’s third-largest TV maker, plans to offer 3- D Bravia TVs in Japan from June 10 and in the U.S. and Europe later this summer, according to Yuki Shima, a Tokyo-based spokeswoman. Panasonic became the first major TV maker to sell high-definition 3-D sets in the U.S. in March and in Japan in April. Sharp Corp. and Mitsubishi Electric Corp. have said they plan to sell similar products.

Sony’s Shima and Akira Kadota, a Panasonic spokesman, declined to comment on whether 3-D adult movies would boost sales of the new TVs.

Worldwide shipments of 3-D TVs are expected to be 4.2 million units this year and 12.9 million in 2011, according to California-based researcher iSuppli Corp. That compares with its projection of 170 million sets this year for all types of liquid-crystal-display TVs, the researcher said May 25.

‘Avatar’ Release

3-D movies, which first appeared in cinemas in the 1920s, gained a resurgence of popularity with the December release of News Corp.’s “Avatar,” the world’s top-grossing motion picture. Suwon, South Korea-based Samsung Electronics Co., the No. 1 TV maker globally, said last month it will work with “Avatar” director James Cameron to develop content to market its 3-D sets, which went on sale in the U.S. in March.

S1 No.1Style, which releases about 25 DVDs a month, is offering 3-D titles at the same price of 2,980 yen as 2-D ones, Sakon said. Soft on Demand Co., a Tokyo-based adult-film company, plans to sell two 3-D titles on June 25 and more later this year, according to Tsuyoshi Fujimoto, a spokesman.

Local TV station Sky Perfect JSAT Corp. will join BS Broadcasting Corp. and Jupiter Telecommunications Co. in airing 3-D programs on June 19, according to the companies. Three 3-D PlayStation 3 games will be available when Sony starts selling 3-D Bravias, said Shima.

Soccer World Cup

Sony’s not aware of any announcement of 3-D titles that will be available on June 10 to coincide with the release of its new Bravia TVs, Shima said. The company’s film unit will offer “Cloudy With a Chance of Meatballs” in 3-D Blu-ray in the summer, and the 2010 soccer World Cup games by the end of the year, she said.

Sony shares have risen 1.5 percent this year in Tokyo, while Panasonic has dropped 14 percent. Japan’s benchmark Nikkei 225 Stock Average has declined 8.9 percent this year.

The 3-D TVs may help stem a decline in sales of adult movies in Japan, which have dropped about 15 percent since their peak in 2006 because of a prolonged recession and competition from free online pornography, said BRICs Research’s Kadokura. “3-D technology is just what the porn industry needed,” he said.

S1 No.1Style spent three months making its first 3-D films, triple the time for a normal production, said 29-year-old Sakon.

Actors Moves

“It was a different filming experience using a new camera,” he said. “Actors needed to move more slowly, furniture had to be relocated and lighting rearranged to make it work. But it was worth it. We’ll make a profit out of this.”

Tokyo-based Sony, which projects sales from 3-D products excluding content will reach 1 trillion yen in the year to March 2013, plans to sell Vaio personal computers that can show 3-D images before the end of the year, the company said in January.

Toshiya Shimizu, a 28-year old Tokyo resident, said he may wait for the cheaper 3-D computer.

“I want to rent the DVD first to see how good the image is,” he said. “I’d like to watch Yuma Asami in 3-D.”

IPad May Be `Black Ship' That Shakes Up Japan's Book Industry

Bloomberg

Apple Inc.’s iPad may force Japan’s $21 billion book market to reshape pricing in the industry by historic proportions, publishing officials and analysts said.

Communications minister Kazuhiro Haraguchi and the Electronic Book Publishers Association of Japan this week compared Apple’s device to the “Black Ships” that led the country to open trade with the U.S. 157 years ago. Unlike most Western markets, Japanese publishers set retail prices and prevent discounting, allowing more than 450 companies to coexist.

The maker of the iPhone may challenge Japan’s publishing establishment in a market where e-book sales -- estimated by Nomura Holdings Inc. to be four times those of the U.S. -- come mostly from comics on mobile phones. Sony Corp. and Panasonic Corp., Japan’s two biggest consumer electronics makers, have scrapped their e-reader business in the country and Amazon.com Inc. has yet to offer its Kindle in Japanese.

“There’s a strong chance that a device like the iPad will allow authors to cut out the publishers as middlemen,” said Jun Hasebe, a Tokyo-based analyst at Daiwa Securities Group Inc. “Japanese printing, publishing and distribution industries are strongly interconnected and all three face that threat.”

Amazon.com and Barnes & Noble Inc., maker of the Nook reader, are giving publishers control over pricing to stave off competition from Apple, three publishing officials said this month. More than 7 million iPads may be sold globally in the first year, according to researcher iSuppli Corp.

Nervous About IPad

In Japan, some publishers are nervous about how the iPad may affect pricing negotiations with authors and distributors, said Mitsuyoshi Hosojima, a director at the Tokyo-based e-book association, a group formed last month by 31 members including publishers such as Kadokawa Group Holdings Inc. and Shueisha Inc.

“The iPad is coming from the U.S. and brings a new set of rules with it,” said Toshihiro Takagi, a researcher at Impress R&D in Tokyo.

Jill Tan, a Hong Kong-based spokeswoman at Apple, referred queries to U.S.-based spokeswoman Natalie Harrison, who didn’t immediately respond to e-mails. Misao Konishi, a Tokyo-based spokeswoman at Amazon, declined to comment on the company’s Kindle plans in Japan and Apple’s entry.

Unlike the U.S., Japanese bookstores don’t have the incentive to compete on price because they can return unsold books to publishers, said Takayoshi Koike, a Tokyo-based analyst at Deutsche Bank AG. The system hinders the ability to offer electronic titles cheaper than paper books, Nomura said in a Nov. 17 report.

Unique Market

“The Japanese book market is unique in that retailers must absolutely follow prices set by publishers,” Koike said. “Stores are shielded from book returns, which is why such a great number of small outlets can exist.”

For example, a book sold for 1,000 yen ($10.70) in Tokyo would typically result in the publisher receiving 630 yen, the author getting 70 yen, the distributor pocketing 80 yen and the bookstore being left with the remaining 220 yen, according to Japan’s Ministry of Economy, Trade and Industry.

“A lot of things are said about the iPad and Kindle which are what you would call ‘Black Ships,’” Minister Haraguchi said at an April 6 briefing in Tokyo.

Commodore Matthew Perry is credited by historians with helping usher in Japan’s modern era in 1853, when he opened Japan’s ports to trade by taking four black U.S. Navy steam ships to negotiate a treaty. The Japanese, shocked by the number and size of the guns aboard the ships, capitulated after seeing the “giant dragons puffing smoke,” according to the Naval History & Heritage Command’s Web site.

Giving Up

Japan has yet to open to e-readers. Buyers of Amazon’s Kindle reader are redirected to the company’s U.S. site since no Japanese-language titles are available. Tokyo-based Sony stopped selling e-readers in its home market in 2007 and Osaka-based Panasonic gave up in 2008.

Japanese consumers, accustomed to using mobile phones to surf the web, were reluctant to buy devices that can only read books, according to Sony spokeswoman Yuki Kobayashi and Akira Kadota at Panasonic.

“We’d be interested in joining the iPad platform but not at the expense of ruining pricing of our products,” said Fumiyuki Kakizawa, a Tokyo-based spokesman at Kadokawa, Japan’s biggest listed publisher. He declined to comment on the iPad’s impact on the publishing industry.

Still, the iPad offers publishers a chance to offset slumping revenue with content that combines text, video and audio, said Daiwa’s Hasebe, who covers Internet companies.

Sales of paper books and magazines in Japan fell 4.1 percent to a 21-year low in 2009, shrinking 27 percent since its 1996 peak, according to the Research Institute for Publications.

Advertising spending in Japan slumped 26 percent for magazines and 19 percent for newspapers in 2009, according to Dentsu Inc., the country’s largest advertising company.

“What sets iPad apart from a dedicated e-book reader such as Kindle is that many people will buy it for other features and end up reading books as an afterthought,” said Hasebe.

Japan's Tech Champions

The Economist

A host of medium-sized Japanese electronics firms have developed dominant positions in many areas of technology. Can they keep them?

ABOUT 40 nuclear reactors are under construction around the world, designed by half a dozen companies from America, China, France, Japan and Russia. But to obtain a huge, solid-steel vessel to contain the radioactivity, all must turn to a single firm, Japan Steel Works, on the northern island of Hokkaido. Though smaller or welded vessels exist, only the Japanese company has the technology to forge the critical $150m part from a single 600-tonne ingot.

Few companies find themselves in such a privileged position. But Japan Steel Works is only the most visible example of an insufficiently appreciated feature of corporate Japan. The country has a host of medium-sized firms that dominate specialised global markets. Some of these are in simple engineering: Shimano earns around $1.5 billion a year by supplying 60-70% of the world’s bicycle gears and brakes; YKK makes around half the world’s zip fasteners by value, and used to control far more. But it is in the arcane corners of electronics, engineering and materials-science that Japanese companies reign. The technologies are largely invisible to consumers, but the firms enjoy outsize market shares because they are essential for making particular products.

For example, around 75% of motors for hard-disk drives in computers come from a firm called Nidec; 90% of the micro-motors used to adjust the rear-view mirror in every car are made by Mabuchi. Often the products are components, materials or equipment used to make other equipment: TEL makes 80% of the etchers used in making an LCD panel; Covalent produces 60% of the containers that hold silicon wafers as they are turned into computer chips.

A choice: Japanese or Japanese?

In some instances the companies’ only real rivals are also Japanese, making the country indispensable even if there is more than one supplier. Shin-Etsu has 50% of the market for the photomask substrate, used to place patterns on semiconductors, but the other producers—Covalent, NSG, AGC and Tosoh—all hail from Japan too. Japanese companies have a similar grip on, for example, bonding material for integrated circuit packages and the lithography machines (called steppers) to make LCD panels. So far, despite their dominance, most have avoided antitrust trouble.

Whereas big Japanese electronics companies such as Panasonic, Sharp and Sony have been losing market share to rivals from China, South Korea and Taiwan, these smaller, less well known Japanese firms continue to dominate niches upon which the global technology industry depends. The Japanese even have a term for them: chuken kigyo (strong, medium-sized firms). It doesn’t matter if the brand on the casing says Apple, Nokia or Samsung: the innards are stuffed with Japanese wares. According to an official at Apple, the company depends on Japanese firms for vital components because few suppliers elsewhere can live up to its rigorous standards.

“They may not be the sexiest products, but you can’t make a semiconductor chip or an LCD panel without them,” says Alberto Moel, an expert on high-tech manufacturing with Monitor Group, a consulting firm, in Tokyo. Japanese companies serve more than 70% of the worldwide market in at least 30 technology sectors worth more than $1 billion apiece, according to the Ministry of Economy, Trade and Industry (METI). They range from certain films to diffuse light used in LCD screens (where they have the whole of a market worth more than ¥270 billion, or $3 billion) to multilayer ceramic capacitors that regulate the current in electrical equipment (77% of ¥540 billion).

Japan’s technological prowess is a reminder of the country’s industrial strength at a time when it is struggling to overcome nearly two decades of economic stagnation and is poised to lose its place as the world’s second-largest economy to China. It is also an answer to decades of criticism by Western management experts who breathlessly argued that the country’s business culture, from a rigid labour market to weak shareholder rights, was holding companies back. Corporate Japan must have been doing something right after all.

Of course, some foreign companies can boast similar supremacy in global markets. Microsoft’s Windows operating system is on more than 90% of the world’s 1 billion or so personal computers, of which around 80% are powered by Intel chips. And chips designed by ARM, a British firm, dominate the market for application processors, which run software on smart-phones. Germany’s Mittelstand, the closest Western equivalent of the chuken kigyo, also boasts many smallish world-beaters. In much the same way as the Mittelstand, Japan’s chuken kigyo is not simply a part of the national economy, but the core of its industrial structure. It enables the country’s bigger, well-known electronics firms to exist, as well as meeting foreigners’ essential needs. Strikingly, doubts are growing about Japanese companies’ ability to maintain their enviable position—but for now their grip remains mostly firm.

Treasure in small things

The best example of Japan’s technical strength is hard to see: a capacitor. With some being as small as a grain of salt, a magnifying glass is needed. They store electricity in a circuit and are a basic building-block of many electronic devices. They cost somewhere between a quarter of a cent and 20 cents each, but a mobile phone may need 100 of them and a PC 1,000. A Japanese company called Murata has 40% of the global market.

Though the profitability of Murata’s capacitors is hard to know, the company’s overall margins are typically about 50%, estimates Macquarie, an investment bank. Japan’s total market share (other suppliers include TDK and Taiyo Yuden) is 80%. But that is down from around 90% at the start of decade. Ground has been lost to ambitious foreign rivals such as Samsung Electro-Mechanics of South Korea and Yageo of Taiwan.

Other Japanese companies boast similar strengths. Nitto Denko claims to have more than 20 market-leading products, mostly for making LCD displays. Covalent also has several; it controls, for example, 70% of the market for carbon brushes in electric motors. Mitsubishi Chemical commands a near monopoly in red phosphorescent materials used to make natural-white LED light bulbs. Shin-Etsu enjoys the top spot for certain silicon wafers for semiconductors. Kyocera leads in several integrated-circuit components.

The process of making computer chips illustrates Japan’s dominance. Among the many steps are four in which the Japanese are indispensable: wafer processing; thin-film formation; coating, lithography and developing; and contact and packaging. Japanese companies rule the markets for essential components in all four stages and equipment in three of them.

Electronics manufacturers everywhere turn to Japanese makers for these sorts of tools and components because of their high quality and reliability, explains T.W. Kang, a Korean semiconductor expert who recently retired from the board of NEC Electronics. No one wants to have a car dashboard malfunction because of an inferior part that cost only a few pence.

Many technology products have become commodities, but certain components have not, since they require continual innovation. So entry barriers to the business of making them remain high, and although the margins on the final goods have deteriorated, the margins on specialised, high-end components are still juicy.

Japan’s technology champions share certain characteristics. They invest handsomely in research and development (R&D). Many have factories abroad for basic products but keep the high-end stuff at home—in a “black box”, they like to say. They often own their supply chains: chip companies that might use crystal components generally grow their own. Some firms even make the very machines they use, in order to control costs, remain independent of suppliers and maintain a deep understanding of their technology.

When asked what is the main reason for their success, executives invariably gush about the quality of their customers. The response initially sounds scripted, or perhaps typically humble. Of course, good customers impose strict standards, forcing suppliers to raise their game. But there is more to it than that. As Susumu Kohyama, the boss of Covalent, points out, the components, tools and materials in which Japanese firms excel are highly customised. It is only by working closely with clients over many years that suppliers gain insight into their future technical plans and are trusted to learn about thorny problems that a clever supplier might solve. Once firms become technology leaders, it is harder to unseat them.

Moreover, the knowledge about the technology is tacit, not formal. It cannot be transmitted by writing a manual or reading a patent application. Rather, it accumulates by working with colleagues over many years. This poses a barrier to entry for rivals. It is also why firms try to maintain lifetime employment in specialised high-tech sectors, though it is ebbing elsewhere in the economy.

This belief that the strength of the company is stored in the collective mind of employees—rather than in the share price of the moment—also helps explain why Japanese companies disdain mergers and acquisitions. Firms resist takeovers, rather than viewing them as the natural combinatory process of business, as in the West.

Ironically, the very success of Japan’s hidden technology champions is in part due to changes in the industry that have hammered Japan’s big electronics firms. Companies anywhere can buy the machines, chemicals and know-how to get into the manufacturing business, so the leading Japanese brands have suffered. But the country is also home to the firms that supply those very machines, chemicals and know-how. As the giants have struggled, the chuken kigyo has thrived.

The foreigners are coming

Impressive as it is, however, Japanese firms’ continuing dominance is not guaranteed. They conquered their markets partly by adopting and improving on foreign (largely American) technology, first with low cost, then better quality and finally with technical superiority. Along the way, they developed close relationships with their customers, gaining intimate knowledge of—and then satisfying—their precise needs. A technical edge and customers’ trust amounts to a formidable barrier to entry. The question now is whether China, South Korea and Taiwan could do to Japan what Japan did to America.

Worries about the sustainability of Japan’s lead stem chiefly from a belief among some executives and officials that Japanese firms are not doing as much as they could to realise the value of their technology. Hiroaki Okamoto, the director of R&D at Shin-Etsu, even believes the industry is in crisis. “We know that Korean and Taiwanese firms might catch up. There are so many competitors in Japan, no one is really making much money” on certain products. Lower margins mean that Japanese companies have less money to invest in R&D. “This lets Taiwanese, Chinese and Korean companies compete.”

That said, market dominance is a pretty strong starting position. Some executives believe that when a narrow market is shared by a few firms, they should consolidate. They also rue the inwardness of Japanese firms that resist co-operating with others. Jun Saito, a researcher at the University of Tokyo, notes that Japanese tax law actually discourages partnerships from forming. Mr Moel of Monitor believes that the firms could generate new revenue opportunities if they were more outward-looking and managed the technology better.

The very attributes of Japanese business that led to its technical dominance also risk holding it back. The lack of shareholder pressure that lets companies focus on long-term projects removes the market discipline to boost performance and cull weak projects. Vertical integration ensures supply and quality, but leads companies into non-core areas better done by others. Lifetime employment keeps knowledge in-house, but firms lose flexibility, employees lose labour mobility and fresh ideas can be stifled.

“Frankly speaking, the changes are starting now,” confides a manager at Taiyo Yuden. South Korean products are good, he says. “We see others coming after us. If we don’t do anything, they will run over us. So we’re struggling to find a new way.”

What is Japan’s response? If possible, more innovation. In substrates for integrated circuits—the foundations for chips and other components—this has worked (see chart 2). Between 2002 and 2007 Japan’s market share collapsed, from 75% to 34%, as Taiwanese firms doubled and South Korean firms quadrupled their presence. So the Japanese moved to higher-value products, focusing on substrates for microprocessor units (MPUs). The 3% of substrates for MPU applications shipped in 2007 accounted for 30% of the market’s value.

However, innovation alone may not always help. High volume also counts for a lot. Japan went from making half of the world’s solar panels to less than 20% over the past four years. Although it continues to make the best-performing ones, the industry has largely shifted to China. Furthermore, the best technology is less prized in the fastest-growing markets—poor countries like China and India that want basic products. Japanese makers of mobile phones have the world’s most sophisticated devices but their market share abroad is virtually nil.

A warning to the chuken kigyo is the experience of two big firms, Canon and Nikon, against ASML, a Dutch company, in the market for steppers, the tools used to make computer chips. In 1990 ASML had less than 10% of the market, while the two Japanese firms dominated it. Yet today ASML controls 65%. Japanese executives raise the matter to decry corporate complacency. How did ASML win?

“We were too small to compete with Nikon and Canon directly,” explains Willem Maris, who devised the strategy as the boss of ASML from 1990 to 2000. The Japanese had far more resources and did everything in-house. So ASML redesigned the product to make it modular, which let it farm out work to specialists. For instance, Carl Zeiss, a German company, made precision lenses. This ultimately enabled ASML to innovate faster and surpass the Japanese, says Mr Maris.

ASML’s openness took a more literal form, too. “When a machine at Samsung broke down, 20 Japanese would come over and place a tent over it, so no one could see exactly what they did,” he says. ASML took the opposite approach, and showed customers the problem and how it would be fixed. Today, Nikon and Canon remain as closed as ever—and separate, even though merging their stepper businesses would make sense.

Old skills, modern times

Japan’s technical success has its roots in old strengths. Its excellence in fine ceramics harks back to its expertise in pottery. Its brilliant steel forgings are a vestige of ancient swordmaking. Japanese will say this reflects their culture of monozukuri (making things) and kaizen (continuous improvement). But not all of Japan’s customs serve it well. Its tradition of resisting outsiders—be they foreigners or other companies—today risks undermining it.

To help overcome the reluctance among companies to share technologies or join forces, in July METI established the Innovation Network Corporation of Japan. Packed with people from business, it acts as a sort of national private-equity fund, with assets and credit guarantees totalling $9 billion. It aims to invest in promising intellectual property, with the idea of creating spin-out companies or encouraging consolidation.

“They never merge,” laments a METI official, who fears more companies will go the way of Nikon and Canon in steppers. “We can’t lose that,” he says about Japan’s technical dominance. In the past, Japan’s closed approach made sense, admits Mr Kohyama, the boss of Covalent. But not today. “We have to think a lot more openly,” he implores.

Japan’s hidden champions will probably need to unite in some form to maintain the financial and technical strength they need to stay dominant. They will also have to be wary of antitrust watchdogs, even if they have largely avoided them hitherto. The American authorities are investigating makers of optical drives (used in computers and DVD players) and Japanese trustbusters tend to focus on a merger’s effect on the domestic market although it would create a strong global supplier.

As for Japan Steel Works, its technical superiority is legendary. Even today it makes samurai swords using time-honoured techniques. Yet its absolute dominance in nuclear-containment vessels is coming to an end, as rivals from China, South Korea and elsewhere emerge.

“In the not too distant future we’re going to have at least five options,” notes Aris Candris, the boss of Westinghouse, which builds reactors. “Unfortunately none of them are from Pittsburgh”—where Westinghouse is based and which used to be the centre of America’s steel industry. The lesson is clear: once the expertise is lost, it is hard to regain.

As Yen Strengthens, Panasonic Prepares to Release More Employees

Originally Posted in The Wall Street Journal.

TOKYO -- Panasonic Corp. joined a growing list of Japanese electronics firms forecasting a huge loss for the current fiscal year and said it plans to cut about 15,000 jobs to combat a sharp slowdown in demand and to ease the burden of a strong yen.

The announcement by Panasonic, which is considered one of the standout performers within Japan's electronics industry, is further evidence of how grim the outlook is for the country's flagship manufacturing industries.

Panasonic now expects a net loss of 380 billion yen ($4.3 billion) for the fiscal year ending March 31, down from a November profit forecast of 30 billion yen. Panasonic said it will take a 345 billion yen charge -- 190 billion yen more than originally planned -- to restructure.

The Osaka-based company, which is cutting 5% of its employees, plans to split the cuts evenly between its Japanese and overseas staff. It will also close 27 manufacturing sites, or about 12% of its global production facilities. The goal is to shave 100 billion yen in costs in the coming fiscal year ending in March 2010.

Japan's export-reliant electronics companies are being hit by the double whammy of a slide in overseas demand while a strong yen is eating into what little overseas sales there are. In the December quarter, Panasonic's overseas sales fell 29% while the yen rose nearly 15% against the dollar.

In the last two weeks, Japan's major electronics firms have announced more than 60,000 job cuts and have slashed earnings forecasts to project losses totaling $20 billion. Hitachi Ltd. and Toshiba Corp. are each forecasting that they will report the biggest annual loss in their company history. Consumers with a good cash position will find this a good time to shop for refurbished Toshiba laptops.

Another factor working against Japan's electronics companies is that South Korean rivals are being helped by a weak won.

Panasonic expects to post an operating loss of close to 200 billion yen in the quarter ending March 31. Makoto Uenoyama, a director at Panasonic, said he sees no bottom in sight with sales plummeting and price competition intensifying.

"We think it will take more than one year, more like two years, to work through this environment," said Mr. Uenoyama at a press conference in Tokyo. "We're taking these measures to strengthen our operation so we can recover faster than any other company."

For the fiscal third quarter ended Dec. 31, Panasonic reported a net loss of 63.1 billion yen on a 20% drop in sales to 1.88 trillion yen. It managed to post a profit of 26.4 billion yen on an operating basis.