As If The U.S. Weren't Tough EnoughNeil Gross
Launching an American personal computer in Japan takes nerves of steel--especially when your existing business is already hitting a wall. In Japan, you're up against 19 domestic players, seven of them conglomerates with more than $20 billion in sales. They have an edge over foreign players in both distribution and brand awareness. And most make electronic components, so they get first crack at new technology.
You need to be a little crazy to face such a lineup. Nonetheless, after three years of studying the Japanese market, Compaq Computer Corp. last month set up a Tokyo subsidiary. The game plan: to sell high-end PC systems to large multinationals in Tokyo and steer clear of the cutthroat low-end market. It's a sensible approach, but as Baring Securities Ltd. analyst Michael Jeremy puts it: "Even if Compaq does everything right, it's going to be very tough."
The biggest headache will be distribution. Compaq's strongest suit these days is laptops, but more than half the laptops sold in Japan are marketed just like cameras and television sets--in crowded discount shops. Products sink or sail on the basis of price or the latest features--or both. Because of the advantage the Japanese have in designing components, Compaq can't touch local rivals in their ability to churn out new models.
TWIN ACES. To learn the ropes, Compaq handed control to Masaru Vic Murai, a 29-year veteran of IBM Japan. As local critics quickly pointed out, the new president's experience at Big Blue was in telecommunications and mainframes, not PCs. Sniffs a senior manager at a large Japanese rival: "Compaq should have appointed somebody who understood consumer electronics."
Not so, argues Murai, who says he won't rely heavily on the typical PC discount shop. "That's not the correct entry point for any foreign company," says Murai. "Going through business channels, we have advantages over every other manufacturer." What he has in mind are Compaq's twin aces: IBM compatibility and networking skills. As Japanese companies spread overseas, they need computers to communicate across continents. Many use IBM PCs in America or Europe, even though at home there isn't an industrywide PC standard. The closest thing is NEC Corp.'s PC line, with around 60% of the market.
So Murai hopes to hook large corporations on its fully IBM-compatible product line and help them move from mainframes to PC-based local-area networks, or LANs. He has enlisted giant trader Marubeni Corp. and such outlets as ComputerLand. Now, he's trying to sign more resellers. And since LANs are still new to Japan, says Murai, "we're getting in at the ground floor."
Maybe the second story, actually. Workstation leader Sun Microsystems Inc. and software supplier Ungermann-Bass, a Tandem Computers Inc. subsidiary, brought LANs to Japan in the late 1980s. Then, Novell Inc. arrived in March, 1990, and sold a 20% stake in its new Japan subsidiary to NEC, Fujitsu, Toshiba, and others. Now, the Ministry of International Trade & Industry is showing interest in the critical networking technology. Next year, MITI plans to set up a $27 million consortium with 100 private companies to develop LAN hardware and software products.
LITTLE BLUE. And while IBM compatibility is essential in the rest of the world, it means little in Japan. Even with plenty of Japanese-language software, IBM sold just 126,000 PCs in Japan last year, according to market researcher International Data Corp. That's one-eighth of what NEC sold. "How can Compaq make a dent with its idea of compatibility," asks Kenji Ishima, chief researcher at Yano Research Institute in Tokyo, "if Japanese don't buy IBM PCs?"
Murai doesn't have all the answers, but he does have a guarantee from headquarters not to interfere. It comes from Chief Operating Officer Eckhard Pfeiffer, who headed the thriving European subsidiary and knows the value of local autonomy. "If I fail, management may get rid of me," Murai jokes, "but Compaq is in Japan to stay." Indeed, with 16% annual growth, the $7 billion Japanese PC market is just too luscious to pass up.