BEIJING -
Tokyo-based Japanese reporter Shinya Enomoto
doesn't read Chinese, but he has frequently been
using Chinese website Baidu.com to download his
favorite songs.
That's music to Baidu's
ears as the company prepares to launch a Japanese
website this year, an event eagerly awaited by
Enomoto.
Robin Li, the chairman and chief
executive officer of Nasdaq-listed Baidu.com Inc,
said in February that his company had developed
the necessary technology to start a Japanese
website and would
spend
US$15 million to log on to the Japanese market.
Meanwhile, Alibaba.com, China's largest
business-to-business (B2B) e-commerce company,
will also reportedly start offering Japanese
services in the second half of 2007.
Baidu
and Alibaba aren't exactly blazing a trail.
Chinese technology companies such as Lenovo Group,
Neusoft Group and Kingsoft have already made
significant inroads into Japan.
As Chinese
tech companies get bigger and look for more room
to grow in overseas markets, Japan has become a
"must-tap" market.
A suitable market
Lu Bowang, a senior Internet industry
analyst in Beijing, says enhanced capability and a
competitive domestic market, along with a similar
written language and culture, are the main reasons
for the Chinese dotcoms' yen for Japan.
Since the Internet bubble burst in 2000,
many Chinese companies have given up business
models aping their US counterparts and have
developed their own, which have helped them beat
such global giants as Google, MSN, Yahoo and eBay
in the Chinese market. Such companies as Baidu and
Alibaba, with hundreds of millions of dollars in
hand and being pushed by investors to find new
growth engines, are thus turning to Japan.
Japan is the world's second-largest
economy and is also the second-largest technology
market. More important, it's blissfully devoid of
strong local players, dominated as it is by US
conglomerates such as Yahoo and Microsoft. The
growth of local leaders has also been hindered by
the practice of outsourcing, which many Japanese
companies resort to.
The fact that both
written Chinese and Japanese are two-byte
languages, which means strong similarities in
computer-speak, is seen by Chinese firms as an
added advantage.
Beijing-based Kingsoft,
which competes with Microsoft in China's office
automation software market, established a Japanese
venture in 2005.
"We started probing the
Japanese market, whose office software segment is
20 times that of China. But we have been waiting
for an internationally competitive product," said
Lei Jun, CEO of Kingsoft.
In September,
the company started to charge for its anti-virus
software Duba, after a year of free service. In
four months, Kingsoft broke even. Thus buoyed, in
February it released office software WPS in the
Japanese market.
In January, Japanese
venture-capital heavyweight JAFCO invested 2.5
billion yen ($21 million) in Kingsoft's Japanese
arm, eight times Kingsoft's original investment.
Neusoft Group, the largest Chinese
technology service outsourcing firm, last year
generated 60% of its offshore revenue from
Japanese customers, and every week, hundreds of
its Chinese and Japanese employees shuttle between
its Shenyang headquarters and Tokyo. Chairman and
CEO Liu Jiren, who started the company with a
contract from Japanese firm Alpine, flies to Japan
every month to meet customers and oversee the
operations there.
Many US dotcoms in China
are criticized for being slow in localizing. As
Chinese companies swarm into Japan, they are
facing similar issues.
Internet analyst Lu
warns that the Chinese and Japanese markets are
vastly different. The business community in Japan
is highly interconnected, and it is difficult for
a foreign company to integrate. The legal
environment is also very different from that in
China.
In addition to good products and
services, the key to success for such companies as
Neusoft and Kingsoft largely lies in local
partnerships.
When Neusoft was founded in
1991, it sailed through with the help of Alpine,
with which it formed a joint venture. Later,
Neusoft also had Toshiba as a strategic investor.
Neusoft's Liu says his company will seek more
investment from Japanese partners this year to
expand its business lines.
Neusoft has
more than 100 employees in Japan, and most of them
are Japanese. The CEO of Neusoft Japan and the
managers of its finance and technology wings are
all Japanese.
"The key for us is to build
trust in the local market and grow with the local
people and in the framework of local rules," said
Liu.
Compared with Liu, Kingsoft's Lei
does not visit Japan that often, relying more on
conference calls with executives of the Japanese
venture. But he too believes trust and partnership
are pivotal.
Lei spent almost two years to
find the right people for his Japanese business
and finally found a Japanese executive, who used
to run his own gaming-software firm and had rich
experience in Japan's software-distribution
network. Kingsoft also offered local managers
stakes in the Japanese firm as additional
incentives.
To innovate and
win As latecomers, Chinese companies have
to work extra hard to enter foreign markets, but
their innovative business models in the domestic
market could help.
When Kingsoft opened
its Japanese business in 2005, it faced challenges
on several fronts: Microsoft had an overwhelming
dominance in the office automation software market
and such companies as Symantec and Trend Micro led
in the anti-virus segment.
What Lei did
was take advantage of the Internet to cut
distribution and sales costs. In the first year,
Kingsoft offered free downloads and upgrades on
the Web, which attracted thousands of customers.
By the time it began to charge users from last
September, Kingsoft had already clocked up a huge
user base. While the Microsoft Office suite sells
at about 50,000 yen ($421), Kingsoft's WPS is
priced at just 10% of that.
"As a
latecomer, we must have a business model different
from established rivals, and the online platform
was our solution," said Lei.
Experience in
developing products for the local market is also
something Chinese Internet companies want to use
when venturing into Japan.
In the first
stage of Baidu's development in China, attracting
young users with its music-search service was the
key, while in the later stage, it developed a
distribution model that allowed the company to
take its services to thousands of small and
medium-sized companies and beat Google's online
sales platform.
"With our proven strength
in Chinese search services and our focus on
delivering the best user experience, we will be
able to provide Japanese users with a quality
alternative to existing search engines," said
Baidu's Li.
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