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Japan Internet Report No. 27 June 1998
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In this month's issue:
- Thematic unity
- International mail order and the Internet
- Interview with Matt McCullough of JCX International
- Selling to Japan without spending any money?
- Fun facts to know and tell about the Japan market
- Number of Internet users in Japan
- Book of the Month
- Advice from finance sector professional sought
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Thematic unity
Each month from now on we'll work to address a specific theme in our interviews and
commentary: This month it's mail-order sales to Japan. There will still be plenty of
miscellany in JIR, but we hope to keep on track with a specific topic, and in fact provide
some advance notice on upcoming themes. Next month we'll talk about Web-based employment
services specific to Japan. Please let us know if you have questions you'd like addressed.
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International mail order and the Internet
Starting up business-to-consumer sales to Japan via the Internet means starting up an
international mail-order business. The electronic interface (the Web) simply replaces the
traditional interface (a paper catalog). All the back end (fulfillment) operations remain
exactly the same. That's why it's crucial to focus first on issues such as the logistics
of shipping merchandise to Japan (transport options, postage and handling costs,
customs/duties/declarations, returns policy, etc.), credit card merchant status, handling
of warranties on merchandise shipped overseas, customer support, gray market issues, if
any, responsibility for damaged shipments, and so forth.
This is where the rubber really meets the road. A lot of people we talk to are enamored of
the Web aspects of the process, but haven't yet thought through these tough back end
issues. In comparison to the logistics of fulfillment, customer service, and all the rest,
the Web site is the relatively straightforward part of the business.
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Interview with Matt McCullough of JCX International
Matt McCullough is president of JCX International, a Honolulu-based Japanese language call
center that specializes in serving the Japanese customers of U.S. mail-order companies.
Call centers serving catalog companies accept telephone calls from consumers, usually
using toll-free numbers, and perform a number of customer service functions, including
taking orders, dealing with merchandise returns or warranty questions, or simply answering
questions about the company or its products. These services are known as
"inbound" services. "Outbound" services involve making calls on behalf
of clients TO consumers. Such services include telemarketing and market research.
- What are the five most common mistakes that direct, U.S.-based offshore marketers to
Japan can avoid on the first time out?
First, the strong inclination to expect to rely almost exclusively on pre-existing mailing
lists. Japan is far behind the U.S. in the database business. This is exacerbated by the
fact that Japanese companies favor market share over profitability so they are not
inclined to share their customer lists with outsiders. In Japan, a big part of a marketing
effort is going to have to be via "alternative media" such as space ads, PR,
DRTV, and now increasingly the Internet. New entrants must plan on developing their own
databases through innovative means. This may sound daunting, but it is rapidly becoming
more doable. This challenge should also be viewed as a great opportunity for those with
vision.
Second, translating instead of writing copy. Most American direct marketers have very poor
Japanese language materials, a fact usually unbeknownst to them. It never ceases to amaze
me how much agency-produced, "professionally translated" material is inaccurate,
incoherent, or reads like the equivalent of broken English. Good Japanese copywriters are
few and far between but they do exist. Translators and copywriters produce work that is
worlds apart. Write copy, don't translate.
Third, treating Japanese customers with less urgency and consideration than domestic
customers. Domestic customer service staffs have a bad habit of de-prioritizing
transactions from overseas. Japan is too often out of sight and out of mind. However, just
like domestic customers, Japanese customers are in a hurry, need instant stock and order
status information, and do not want any hassles even though they are shopping from
overseas. Successful direct marketers treat their customers in Japan with the same level
of urgency, expediency, and care as they would domestic customers, plus they go out of
their way to systematically eliminate foreseeable problems that arise in international
transactions. It's just like any other business, you have to sympathize with the
customer's point of view to win.
Fourth, believing the myth that you have to have a physical presence in Japan. Most
service providers and consultants like to say that locating in Japan is a must, primarily
because this increases their own importance and earning power. However, for the vast
majority of direct marketers, nothing could be further from the truth. In fact,
establishing a physical presence there should be viewed as an action of last resort for
all except the very largest entities. The most attractive feature of international direct
marketing is the unique opportunity to go directly to consumers without becoming involved
with the perilous Japanese business system. The rapid growth of the Internet in Japan
increases American companies' global reach and further decreases the need for a local
physical presence.
Finally, assuming that you need a partner in Japan. This is what I call the "ultimate
mistake." There are two kinds of companies in Japan - the very small and the very
large. One of these would be your potential "partner." The small firms have
virtually no market power and can't really help you, but they are going to be more than
happy to accept your money until you figure this out. Therefore, you don't need a small
partner. A big partner has lots of market power and can genuinely help you. Your very
large partner will be happy to entertain your ideas until you teach them enough to make
yourself obsolete, whereupon you drop out of the picture. In this case, the large partner
doesn't need you. There are of course the exceptions, but for 98% of the foreign
businesses entering Japan, the sad reality is that a Japanese partner is going to be an
expensive dead end. Once again, the beauty of marketing direct.
- How did you come to operate a Japanese call center in Hawaii?
I originally came to Hawaii in 1992 to get my master's degree in computer science. I had
never been to Hawaii before but as soon as I arrived I was awestruck by the sheer volume
and spending power of the Japanese tourists in Waikiki. For a moment, I thought I had
landed in Ginza by accident. Japanese came to Hawaii to shop because it was the closest
part of America they could get to. My impression of this situation was "how
ineffecient, wouldn't be easier if America went to them?" From that moment on I
sought business opportunities that would involve "delivering America."
Ironically, when I started this business four years ago, I didn't know anything about call
centers or direct marketing. I just knew there had to be a way to sell American goods
directly to individual consumers in Japan, thus bypassing the expensive and closed
distribution system that Japan is notorious for. One day, I was reading the business news
and came across an article about LL Bean's entrance into Japan. The idea for a
Honolulu-based Japanese service center popped instantly into my mind. In my view, Hawaii
was the ideal place for a communications intermediary to locate. We have a large community
of Japanese expats for a workforce, time zone advantages over the mainland, and cost
advantages over metropolitan Japan where Japanese call centers typically locate.
Right after graduation, I devoted myself to marketing and growing my new company, Japan
Communications International, now known simply as JCX International. We entered the market
at a great time, just as the initial foreign catalog craze was gaining momentum. It was
easy to pick up new clients. We started small and grew steadily. We learned the
international call center business the hard way and a lot about direct marketing in the
process. Today, JCX is a full service call center specializing in serving North American
direct marketers targeting both the business and consumer segments in Japan.
The beauty of direct marketing to Japan is that you don't have to set up operations there
or make the common mistake of taking on a Japanese partner. Being in Japan is expensive
and difficult for foreigners almost by definition. As the world shrinks, there less and
less need to locate anything abroad. International communications costs are falling very
fast and global parcel shipping is now commonplace. Wide area networking, the Internet
being the primary example, also contributes greatly to "location independence."
With experienced, domestic fulfillment partners to handle operations, direct marketers can
enjoy the rich opportunities in Japan while minimizing risk and upfront investment.
One hidden value to locating in Hawaii is cultural. Hawaii is the physical and
psychological crossroad of North America and Asia. This can be an extremely positive
feature considering that Japan and America are two of the world's most dissimilar
societies. Daily interaction with a "Japan office," even if it is your own, is
typically painful and frustrating for both parties. The lack of cultural common ground
reduces "communications throughput" between American and Japanese staff, a
needless and expensive inefficiency. Hawaii attracts and fosters individuals who are
bicultural as well as bilingual, and we've been able to effectively utilize this duality
to create strategic advantage for our clients.
- What critical issues are domestic call centers in Japan facing today, and what are the
key advantages of being located offshore?
The domestic Japanese telephone system is still heavily regulated. Domestic calls are
tolled based on distance just like AT&T was in the 1970s. A simple call to your next
door neighbor incurs toll charges. So most Japanese telemarketers have call centers
throughout the country to avoid the high distance-based charges. The redundant facility
inefficiencies of this scenario areobvious.
Deregulation is coming, but like all things in Japan, it is coming slowly. In America,
call centers tend to be located in rural areas where labor and land are relatively cheap.
In Japan, large call centers are based in some of the most expensive urban districts, such
as Shibuya and Ikebukuro in Tokyo.
Japan also faces the problem of being a nation of followers in the PC and telecom
revolutions, despite the nation's otherwise high-tech image. Technically skilled labor in
these fields in Japan is very expensive so call centers there face an additional cost
disadvantage as they attempt to support ever-greater levels of CTI complexity.
Finally, the Japanese still tend to be xenophobic. This can make domestic Japanese call
centers pretty unfriendly to potential foreign clients, and lead to the poor communication
"throughput" and other problems I just mentioned.
Of course this is my bias, but locating offshore can mean cheaper facilities and labor,
greater user-friendliness from the both the clients' and their customers points of view,
and an overall efficiency that can be elusive when working with a Japanese service
provider. I like to think of JCX as the quintessential example of an offshore call center
solution for American direct marketers, and the antithesis of a Japan-based call center.
Whether outsourcing or creating an in-house Japanese call center, most direct marketers
will find that going offshore - in other words staying in the USA - is the optimal
solution.
- How do you see the Internet impacting your business?
Our business is founded on the principal that the world is shrinking. Global personal
trade is a growing reality that will boom throughout Asia as middle classes swell once the
region's economies recover from their bubble hangovers. The world loves Americana.
Americana hot off the press and direct from America is the very best kind. The Internet is
already a "global yellow pages" where customers from all over the world can look
up vendors of interest and place orders directly. Perhaps even more significantly, the
Internet allows for greater opportunities to radically improve the cost effectiveness of
personalized relationship marketing on a global scale. Person to person marketing is a
buzz concept that is being made real by the information distribution efficiencies of the
Internet.
For JCX, all the new international communication brought about by the Internet will spell
a long-term bonanza. The bottom line is that people still like to pick up a phone and
immediately get assistance from someone who can genuinely help. Computers provide
information while humans provide flexible service. It is this human touch that will make
international call centers that much more in demand over time.
Matt McCullough, President
JCX International (tm) LLC
www.jcx.com
Tel 808-955-1852 Fax 808-922-9565
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Selling to Japan without spending any money?
Over the last couple of weeks I had telephone conversations with 1) the president of a
large U.S. mail-order company and 2) a JIR reader who is looking to take his telecom
service business into Japan. These very smart people told me they want to punch up
existing Japan sales (the mail-order guy) and start selling to customers in Japan for the
first time (the telecom guy). Also, both of them told me they want to do so without
spending any money.
At the time, I was at a loss as to how to respond. I felt like quoting an old Eastern
European proverb by saying: "Well, cooked geese don't come flying into your
mouth," but at the moment that seemed not only obscure but rude. Now I would like to
answer both with a quote from JIR's Book of the Month:
"Entering a new international market requires investment. This investment will be in
time, money, and management attention. The same would be true for entering any new market.
If you are not prepared to make these investments, do not enter the new market - you will
fail."
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Fun facts to know and tell about the Japan market
Q: According to market research firm IDC, in 1995 what portions of the worldwide computer
market did the United States, Japan, and Germany (the top three markets) account for,
respectively?
A: 37.5%, 19.8%, and 6.7%, respectively.
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Number of Internet users in Japan
Ten million residents of Japan now have access to the Internet, a number confirmed by
separate studies from the Ministry of Posts and Telecommunications (MPT), market research
firm Access Media International/non-profit Internet Association of Japan (IAJ), and
Nikkei. The three studies offered different growth projections; here are a few: 14 million
by the end of this year, 20 million by late 1999, more than 41 million in 2005.
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Book of the Month
Every once in a while, I actually buy and read a book. So every once in a while I'm going
to feature in JIR a title I think will be of interest to readers. This time it's
"Guide to Software Export" by Roger A. Phillips, which was recommended to me by
Jane Devlin (http://www.swexport.com/d-i/).
Even though I'm not in the software business, I found this book absolutely outstanding. As
Jane says, it's like having a consultant sit down and tell you, in plain language, what to
do and what not to do. There are a lot of lessons here for anyone dealing with overseas
markets in any way. Buy it from Amazon.com at:
http://www.amazon.com/exec/obidos/ASIN/0789001438/tkai
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Advice from finance sector professional sought
Are you a finance professional with an interest in the Big Bang in Japan, particularly
retail security sales? We would like to hear your thoughts regarding some upcoming
research. Please contact Tim at <tim@jir.net> or
call TKAI at the number below.
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Tim Clark
Editor
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Copyright 1998 by TKAI All rights reserved
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Ion Global (USA)
Japanese e-business specialists
http://www.tkai.com/
Tel. (503) 235-4433 Fax (503) 235-4422
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