Electronic Commerce in Japan - Present and Future
Mr. Takashi Kitaoka
Executive Corporate Adviser
Mitsubishi Electric Corporation
I would like to talk about the current situation and future outlook of electronic commerce in Japan.
This graph is the result of a joint survey, carried out last March, by the Ministry of International Trade and Industry and Andersen Consulting. As you can see, by the year 2003 electronic commerce in Japan will largely grow to approximately $570 billion in business-to-business (B-to-B), and approximately $27 billion in business-to-consumer (B-to-C). Meanwhile the US figures are estimated to grow to approximately 2.4 times and 6.5 times the Japanese volume. In terms of electronic commerce, one can say that, Japan is lagging behind the US by two to three years in B-to-B and four to five years in B-to-C.
This figure shows the outline of the electronic commerce system in Japan. In the field of government-to-government (G-to-G), we are now developing an e-document Exchange System in order to achieve efficient collaboration in duties and promote paperless communications between individual central government ministries and between central governmental ministries and local authorities.
In the government-to-business field, our objective is to promote rational administrative procedures in various applications and procurements systems.
In the government-to-consumers field, the aim is to improve administrative services through the provision of one-stop administrative services, administrative information services and information disclosure. Basic Resident Registers containing electronic personal data on IC cards are also under consideration.
Now, let me turn to the most common electronic commerce, or B-to-B. Increased efficiency in transactions, contracting and payment as well as information sharing are targeted, and e-market, e-funding and financial EDI (Electronic Data Interchange) are also under consideration. In the intra-B sector, systemization for improved services to employees and rationalized business procedures is being implemented.
In the B-to-C field, Internet shopping and banking are used for the convenience of e-shopping and information search systems and others.
In various fields, electronic commerce has grown rapidly, and it is, therefore, essential to improve security systems while, at the same time, considering system convenience.
Now as a typical example in Japan, I would like to introduce Mitsubishi Electric Corporation's electronic commerce. Mitsubishi Electric Corporation is an overall electronic and electric manufacturer, which is also a vender and user of electronic commerce.
This figure shows the complete picture of the electronic commerce business we are now implementing. The spread of Internet-induced mega-competition makes it indispensable for companies to restructure their value chains and reorganize their value networks if they hope to retain market dominance through electronic commerce. We provide IT solutions that will implement electronic commerce through the construction of intra-business processes, business-to-business processes and business-to-consumer processes on a network basis of the Internet, intranets (Internet within companies), and extranets (Internet between companies). Within each process, electric commerce can provide great innovation to the traditional transaction system. Within the intra-business process, there will be innovation in working processes through Supply Chain Management and Enterprise Resource Planning, and this, in turn, will promote flat organizations and a speeding up decision making. Within the business-to-business process EDI and CALS make direct connections between consumers and producers which, in turn, make real-time design coordination and manufacturing possible. Web-EDI promotes trade between unspecified companies, thereby accelerating price competition, functions and product quality, and which, furthermore, reduces costs. Within the business-to-consumer sector, there will be a wider range of options through e-mall and e-banking on a 24-hour, 365-days-a-year basis without the requirement of physical shops.
These changes in forms of collaboration beyond the frame of previously accepted levels of cooperation will ultimately bring about the restructuring of the entire value chains of Japanese organizations from manufacturing to distribution and payment.
This figure details the IT solutions currently provided by Mitsubishi Electric. I will focus mainly on our strong points - information security technology, and one-to-one marketing using high-performance data mining products.
(1.) Our membership mall system enables us to retain our customer base and rationalize our operations, as well as realize our one-to-one marketing through the use of personalization functions. By connection to our customer's data management systems, we can recognize our customer's needs and provide them with the product information they need. Information security is guaranteed through security observation functions which automatically observe, report and intercept any illegal access attempts.
(2.) We provide a mobile security system for the encoding of files. When a salesman uses any mobile terminal for business reports, information retrieval, or ordering or accepting orders, our security system controls web access, secures e-mails and protects important data from leakage.
(6.) The IC corporate members card system provides intranet information security (encoding and access control). Each employee has a membership card containing an ID code (secret key).
Moreover, (4.) a product image distribution system using the digital water marking is realized, and (7.) VPN (Virtual Private Network) System that enables information sharing is realized as an extranet system.
To support the previously-mentioned electronic commerce activities, the following systems are the backbone of our smooth operation: CTI system for help-desk one-to-one marketing, administration control system and customer data management system. In particular, the customer data management system requires only few seconds to categorize and analyze vast amounts of data. This is made possible by the use of our server products with original architecture technology.
Regarding the network and infrastructure for electronic commerce, as this illustration shows, Mitsubishi Electric Group is developing systems for ASP (Application Service Provider) as well as ISP (Internet Service Provider). We are planning to achieve sales of \500 billion (approximately US$5 billion) by 2003. In order to achieve this target, we will invest \100 billion (US$1 billion) by 2003. We will provide following Internet based services.
The application of instantaneous communications networks with the highest communications circuit at all times, such as CATV and optical fiber.
Maintenance of networks and servers on a 24-hour-a-day basis 365 days a year.
The issuance and management of digital certificates, encoding via MISTY (our unique and powerful enciphering technology), and the provision of secure communication environments, such as control access.
The provision of e-commerce Web application services represented by WEB-EDI.
The provision of protocol conversion functions through exchanging EDI data.
The provision of EAI (Enterprise Application Integration) tools linking individual systems and S/I (System Integrations).
This figure shows how electronic commerce has been adopted throughout Mitsubishi Electric Group companies as a means to the construction of SCM (Supply Management System). The system enables individual processes, such as procurement, manufacturing and delivery to be connected smoothly. Mitsubishi Electric, an overall electronic and electric manufacturer, deals in a wide range of products; therefore our SCM system has been constructed based on the requirements of several basic patterns.
Our electronic activities include:
Electronic ordering from clients via Internet Web.
Reduction of procurement costs through a concentration of group purchasing power.
Electronics business communications with suppliers via the Web or by e-mail.
Time savings and cost reductions on the procurement of indirect materials through e-catalogue ordering and admission work-flow systems.
Let me give an example of how much EDI was applied in our supply procurement system. At this point in time, the amount of annual purchases reaches US$10 billion by approximately 1,500 suppliers.
I would like to end my talk by listing the issues and problems of electronic commerce in Japan.
1. Although personal computers are owned by more than 25% of Japanese families, B-to-C electronic commerce has not yet spread throughout the country. The main reason for this is the high telephone costs. The bottleneck is the expensive local loop access measured by time of usage, the so-called "last one mile". In order to free this bottleneck, NTT started an ISDN test service at a fixed rate last November.
2. However, the number of mobile telephone users in Japan has exceeded 40% of the total population. Furthermore, the i-mode, a mobile internet-capable service provided by NTT DoCoMo, has achieved garnered 4 million users in the single year since last February. This success shows that simple B-to-C electronic commerce using mobile telephones such as checking bank balances or ticket purchases is increasing popular.
3. Another style of B-to-C electronic commerce is expected to spread through convenience stores as centers for electronic commerce payment and delivery. Convenience stores in most Japanese towns sell necessary daily goods through a network of 40 thousand shops. As Japanese consumers prefer to pay cash rather than pay by credit cards, and using convenience stores solves the problem of delivery, this style of electronic commerce is expected to take flourish in Japan.
4. Last November, under the auspices of the Information and Telecommunications Society Promotion Headquarters, headed by Prime Minister Obuchi, the Japanese government promulgated the Basic Guidelines on the Promotion of an Advanced Information and Telecommunications Society "Action Plan". Following this step, the government is actively building up systems for electronic government, while tackling legislation on electronic signatures and electronic authentication to be adopted this Spring by our parliament, the Diet.
5. Many problems still remain. Other than problems concerning communication costs, more traditional regulations need to be eased in order to raise new business through electronic commerce, including, for example, a retail system for books. In order for the Japanese companies to fully apply electronic commerce to their day-to-day operations, they have to break traditional management systems such as keiretsu (corporate groupings) and the life-time employment system.
As various steps to prepare a propitious development of electronic commerce are now being introduced in Japan, we certainly hope that foreign companies will actively participate into the Japanese markets.
Issues and Problems Typical of EC in Japan
Expensive local loop access for long usage
Explosive increase of mobile Internet users (i-mode achieved 4 million users in one year)
Convenience stores for EC payment/delivery
Legislative measures such as Authentication Law
Various regulations hindering EC growth
Hard to break traditional ways of management