A shrinking local market is forcing manufacturers to look towards consumers in Europe and the US for new sales
Written by Michael Fitzpatrick for Times Online
Original URL: http://business.timesonline.co.uk/tol/business/industry_sectors/tel...

For years, it almost didn’t matter in Japan that when the rest of the world thought of the mobile phone, it thought of Apple or Samsung, the iPhone or the BlackBerry. Domestic sales of mobile phones were so strong that the country’s mobile manufacturers could concentrate on their own market and be rewarded with impressive profits.

But not any more. Japan’s domestic demand for mobiles is drying up fast and suddenly, after years of tiptoeing around the global marketplace, its electronics industry is preparing an all-out assault on competitors.

Sharp, the country’s leading mobile manufacturer, says that soon it will launch a smartphone in Europe. It hopes to sell four million mobile handsets outside Japan for the 2009 fiscal year. Panasonic says that it is restructuring its overseas sales channels and network in readiness for a similar campaign. Japan Inc, according to some analysts, could be about to trounce its opposition with technically advanced phones and eye-catching sets.

Others are less impressed with the chances of slow-moving behemoths such as Toshiba and NEC breaking open a market dominated by fleet-footed movers like Apple and Samsung. Japan, they add, does not even make the kind of modern phones that Europeans and Americans are demanding, PC-friendly, application- driven bar phones with touchscreens.

The need for increasing exports is obvious. Handset sales in Japan totalled 46 million in 2006 for a population of 127 million. One estimate for this year is a sobering 36 million mobiles sold.

“The collapse is due to the ban on carrier subsidies to retailers, meaning that the punter has to buy on instalment and is thus locked into a two-tothree-year repayment schedule.” one Tokyo-based analyst said. “The replacement cycle has gone from 18 months to three years.” Add to this the pressures of an ageing population, more frugal consumers and the emergence of the iPhone, which has proved to be big in Japan and, the analyst said: “Looking to exports to saves [the industry’s] skin is one obvious ploy.”

Previous forays into Western markets have been a failure, however, despite Japan being the first to deliver all the bells and whistles on the modern handset that are now considered essential, the likes of e-mail, internet access and downloadable applications. This was, Nobuyuki Hayashi, a mobile internet expert, said, because Japan was too stuck on its own “unique” mobile development path and its phones could not be easily adapted for foreign sales.

“Japan certainly has phones with advanced features, but they belong to a type of Galapagos island. Japanese phones have taken a very different path of evolution,” Mr Hayashi said. “Because its culture is so different from the outside world, those phones made in Japan cannot survive outside Japan ... “Because the market size in Japan is limited and more than 90 per cent of Japanese have phones, so makers are suffering.”

Toshiba is the first standalone Japanese manufacturer to have a serious attempt at selling its phones abroad to bolster domestic troubles. It recently introduced the TG01, a catch- up model that appears to combine the best of smartphone cool and Japanese technological thoroughness.

“It is a high-potential product which I think has all the requirements for success outside Japan,” Kei Shimada, chief executive of Infinita Inc, a mobile research consultancy based in Tokyo, said.

“With smartphones being higher in price but more profitable than feature phones, it would clearly make sense for Japanese manufacturers to apply their knowhow.”

Of course, there are already electronics companies that are applying Japanese knowhow outside Asia — but they are not Japanese. LG, of South Korea, and HTV, of Taiwan, have already created touch phones with the overseas market in mind. Samsung, the Korean giant, is beating all-comers in Europe with its West Star smartphone, a bestseller in six European countries. More than two million units have been pre-ordered already. LG, Samsung and their compatriots have been been helped by a softer Korean won, better design and better forward-thinking.

Yet Japan still may have much to offer, not least that it is the preferred source for components for smartphones and is still ahead in innovations, such as fuel cell and solar-powered handsets.

“The Japanese have the tech savvy not just from phones but from producing high-tech devices such as PCs and digital TVs,” Mr Shimada said. “And with smartphones being closer to a PC than conventional phones, it means that not only Japanese mobile makers but other high-tech manufacturers have a good chance to enter the market. It’s not too late.”