Global marketing strategy in the digital age: an analysis of Japanese mobile phone manufacturers

Takanori Osaki, Meijo University, Japan*

In the 1980s, the global market share of Japanese mobile phone companies was almost half; it is now less than 10%. It is often said that Japanese manufacturers are particularly good at making and selling small electronic goods; why, then, have Japanese mobile phone manufacturers become so weak in the global market? To analyse the causes of the weaknesses of the Japanese mobile phone companies in the global market, the study of factors is done at two levels. One level concerned macro factors, such as mobile communication standards, the influences of carriers and consumer needs in a global market, and the influence of modularity. Another level was at the micro level, concerning organisational structures, development and production abilities, and marketing strategies for mobile phones. This paper also discusses global marketing strategy in the digital age, based on an analysis of mobile phones in this respect. Keywords Mobile phones, Japanese electronics manufacturers, Japanese carriers, Global marketing strategy, Modularity, Digital age

Introduction In 1985, the global market share of Japanese mobile phones was almost half (Steinbock 2001, p.102). With ten manufacturers in Japan, they dominated the Japanese market in 2005 (The Nikkei 25th April 2006). However, their share of the global market was less than 10% in 2005 (Seed planning 2006, p.61). Although Japanese electronics manufacturers had a large market share in the world market with many products in the 1980s, their share and companies profits have rapidly declined (Nobeoka, Ito and Morita 2006). Findings from this mobile phone research could be applied to a wide range of electronic goods and could contribute to the development of global marketing strategies on the part of electronics manufacturers. Outlines of my research are as follows. The first is a critical review of previous academic works on the causes of weakness of Japanese mobile phone companies. The second is interviews with executives from 4 mobile phone manufacturers and one mobile communication carrier. An analysis of field works regarding the mobile phone markets in Japan, the United
*Correspondence details and a biography for the author are located at the end of the article. The Marketing Review, 2008, Vol. 8, No. 4, pp. 329-341 doi: 10.1362/146934708X378613

ISSN1469-347X print / ISSN 1472-1384 online Westburn Publishers Ltd.

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The Marketing Review, 2008, Vol. 8, No. 4 Kingdom, China, the United States, and Korea, also assists my research. From this, my research paper gives an outline for causes for the weakness of the Japanese mobile phone manufacturers in the global market; and suggests global marketing strategies for electronics manufacturers in the digital age, based on this analysis of mobile phones. Critical analysis of previous works on causes of the weaknesses of Japanese mobile phone companies There are two main themes in previous academic works on the causes of the weaknesses of Japanese mobile phone companies. One concerns differences in mobile communication standards, and another is the unique structure of the Japanese mobile phone industry and market. Differences in mobile communication standards In the 1980s, there was no global standard in mobile communication. For the analog mobile communication system, known as 1G (first generation), each country had a different standard. In the 1990s, a digital mobile communication system, called 2G (second generation) came to the market. In 2G, the GSM (global system for mobile communications) system, lead by Europe, essentially become the de facto global standard. While CDMA (code division multiple access), led by the US, was adopted by 3 countries, GSM was adopted by 101 countries and areas by 1996 (Funk 1998, p.423). By 2005, GSM had more than 2 billion users; it had also been adopted by 214 countries and areas, and its global share was 82% (GSM Association 2006, p.1). On the other hand, the PDC (personal digital cellular) system, led by Japan, was adopted only by Japan. The global weakness of Japanese mobile phone companies has often been explained by this standard issue. Mitarai (2003, p.51). The global share of the mobile phone market tends to be decided by which mobile communication standard is adopted by carriers in each country and area. While European manufacturers, like Nokia, expanded their global share because of GSM, Japanese manufacturers got off to a late start in the global business by being tied to the Japanese standard required by Japanese carriers, such as NTT DoCoMo. Funk (1998, pp.424-426). The change in global standards has had a great impact on global market shares. While American manufacturers have lost market share because of the global adoption of GSM, almost all European manufacturers have increased their market shares. Although there are relatively few competitive manufacturers in IT, home electronics, and semiconductor industries in Europe, the global standardisation of GSM has prevented American and Japanese manufacturers from controlling the European market. Business Week (13th December 2004). Because Japan adopted a unique standard, Japanese manufacturers had to concentrate on the domestic market, largely ignoring GSM and CDMA.

Osaki Global marketing strategy in the digital age Yano Research Institute (2006, pp.35-39). GSM was primarily developed by major European manufacturers, such as Nokia and Ericsson. Japanese manufacturers were obligated to pay royalties to them and this delayed development of mobile phones compatible with GSM. Tsukamoto (2004, pp.201-203) and Mobile Society Research Institute (2006, p.132) also insisted that the difference in mobile communication standards was significant. In the business world, Nobuyuki Idei, CEO of Sony has stated, It is impossible that we can begin production quickly, even if we buy GSM licenses, because our engineers cannot acquire the relevant knowledge rapidly enough. They have not been involved in the development of such standards. It is therefore preferable to move slowly for a couple of years, and develop new products to release to the market. (Fujita and Kawahara 1998, pp.23-25). Yamada (1999, pp.135-136) insisted that the lack of economies of scale and the royalty payments were the main problems which arose from the difference between domestic and global standards. The unique structure of the Japanese mobile phone industry and market The unique structure of the Japanese mobile phone industry and market has also been discussed. Japanese mobile carriers, represented by NTT DoCoMo, are often said to be the main cause of the Japanese industrys unique situation. In Japan, carriers purchase all mobile phones from manufacturers as OEM products. Then, the carriers sell mobile phones to consumers at large discounts. Thus, the manufacturers are not exposed to ordinary market risks. As a result, they have not aggressively entered overseas markets (Yano Research Institute 2006, pp.35-39; Abe 2005; Natsuno 2006, p.213). Additionally, because of the sophisticated features commonly available in Japanese mobile phones, production costs have been too high for overseas markets (Mobile Society Research Institute 2006, p.132). Japanese manufacturers must produce GSM-compatible mobile phones in addition to PDC phones to compete in overseas markets, since GSM has become the de facto global standard. As a result, Japanese manufacturers have been at a severe competitive disadvantage in terms of development and production efficiency, royalty payments, and time to break into the markets. Thus, the difference between the domestic and global standards has had a great impact on the weakness of Japanese mobile phone companies. However, Motorola, Samsung, and LG are strong in the global market, despite the fact that the US and Korea are not originally adopting GSM, but CDMA. On the other hand, among European manufacturers, Siemens and Philips have sold their mobile phone businesses (BENQ 2006; The Nikkei 14th February 2007). The difference between the domestic and global standards alone does not explain the situation of the Japanese phone companies. With regard to sophisticated features, for example, the Japanese ratio of users data transmissions to voice communications was the highest in the

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The Marketing Review, 2008, Vol. 8, No. 4 world in 2005 (Diamond Weekly 2006). However, mobile phones in Korea are also relatively sophisticated; they have the same functions as the advanced Japanese mobile phones. Korean manufacturers use their domestic market as a place for test marketing, and have become more influential in the global market by making use of technology accumulated by developments for a sophisticated domestic market. Additionally, Japanese manufacturers did aggressively produce GSM and CDMA in addition to PDC phones, and did try to expand sales globally. Approaches and methods To analyse the causes of the weaknesses of the Japanese mobile phone companies in the global market, the study of factors is done at two levels. One level concerned macro factors, such as mobile communication standards, the influences of carriers and consumer needs in a global market, and the influence of modularity. Another level was at the micro level, concerning organisational structures, development and production abilities, and marketing strategies for mobile phones. Selected interviewees for the research are executives from four mobile phone manufacturers and one mobile communication carrier. The interview was held with three Japanese phone manufacturers, vice president-level executives for three hours per each manufacturer, and Sony Ericsson, at their headquarters in Tokyo on December 1 and 4, 2006 and January 29, 2007. Three hours of an interview with a vice president of a Japanese mobile communication carrier, Softbank Mobile, was also conducted at their headquarters in Tokyo on January 30, 2007. Subjects of reviewed field works regarding the mobile phone markets within the research are: Japan, the UK, China, the US, and Korea, between May 2006 and April 2007. Europe, China, and the US are the big three mobile phone markets in the world. While the Korean market is not as large as those three, it is Samsungs and LGs domestic market. That Korea constitutes a sophisticated mobile phone market, like Japan, is the reason why it is a part of my study. Results The causes of the Japanese mobile phone companies weakness in the global market can be categorised by macro and micro factors, as described below. Macro causes Differences in mobile communication standards The influence of the de facto global standard of GSM that is often indicated in current research is very serious matter to Japanese mobile phone companies. Japanese mobile phone companies had to develop and manufacture GSMcompatible mobile phones to increase global shares except PDC-compatible mobile phones for Japanese market. It was very difficult for Japanese mobile phone companies to develop and manufacture GSM-compatible mobile

Osaki Global marketing strategy in the digital age phones, since they were not part of the Western companies consortium which aims at developments of the specification for GSM. This caused them a significant delay in putting GSM -compatible mobile phones out on the market as compared to western companies. In addition to this, Japanese mobile phone companies had to pay royalties to western companies that developed the specification for GSM. Though Korea did not adopt GSM either as Japan, CDMA that was adopted by Korea was much more beneficial than PDC. Korean mobile phone companies had a great success in the large US market that mainly adopted CDMA, thus profited greatly and acquired high global consumer awareness. These resulted in a Korean mobile phone companies great success in EU. Japanese carriers technical capabilities NTT DoCoMo had a 56% market share in 2005 and was the biggest carrier in Japan (Telecommunications Carriers Association). NTT DoCoMo played a leading role in the development of PDC. In the development of GSM and CDMA, manufacturers played this role instead. Except in Japan, carriers typically provided only mobile telecommunication services. NTT DoCoMo is a unique carrier with high technical capabilities. Based on these capabilities, NTT DoCoMo developed and provided sophisticated mobile communication services to raise the average revenue per user (ARPU). Thus, the mobile phones they developed were also sophisticated. Though mobile phones are also sophisticated in Korea, the manufacturers played a leading role in this. Sophisticated mobile communication services, mobile phones and consumer needs In Japan, other carriers followed NTT DoCoMo, so every carrier provided sophisticated mobile communication services. As a result, consumers accustomed themselves to and required sophisticated mobile telecommunication services and phones in Japan. However, overseas consumers usually did not request these sophisticated phones except Korea; therefore, Japanese mobile phone companies did not have any opportunities to bring out these phones and capabilities to the overseas market. Distribution control by carriers In Japan, carriers control the distribution of mobile phones. They sell mobile phones to consumers at large discounts to promote new mobile communication services. In Korea, this manner of sales is prohibited by law. In China, mobile phones are primarily sold by manufacturers. In the UK, carriers incentives are not so high. In the US, the style for sales is similar to that in Japan. However, mobile phones typically sold for $100 in the US are almost free in Japan. Thus, Japanese carriers incentives are much higher. Though marketing by the mobile phone companies is not significant in Japan where carriers control the distribution of mobile phones, it is very important in overseas. However, it is difficult for Japanese mobile phone companies to implement finely-tuned marketing in overseas, because they devote considerable degree of resources to Japanese market.

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The Marketing Review, 2008, Vol. 8, No. 4 Carriers interference in phone development Japanese carriers have technical capabilities and control over mobile phone distribution. In this situation, carriers interfere in phone development by manufacturers. Carriers require manufacturers to develop exclusive models. To satisfy these requests, manufacturers expend a large number of resources. Although it has often been said that Japanese manufacturers were reluctant to invest in overseas businesses, it is possible that they could not afford to devote sufficient resources to that enterprise. In overseas markets, manufacturers usually provide mobile phones to carriers with a low degree of customisation, or none at all. Thus, overseas manufacturers tended to have advantages of economies of scale. Carriers influence on manufacturers There are differences in power relationships between carriers and manufactures among markets. In China, manufacturers mainly take control of the phone distribution, which results in manufacturers superiority over carriers. In Korea, though carriers actively enhance their influences on the phone distribution and development, they cannot control Korean manufacturers who have influences on not only in Korea but also overseas. In the UK, carriers are influential to some extent in the phone distribution. In the US, carriers aggressively implement store developments and enhance carriers influences in the phone distribution. Though there are varieties in power relationships between carriers and manufactures among markets; on the whole, manufacturers produce mobile phones and carriers provide mobile communication services in overseas. Thus, the relationships between manufacturers and carriers involve soft connections in the overseas market. On the other hand, in Japan, carriers control the distribution and interfere extensively with the development. Thus, manufacturers cannot help but be subordinate to carriers in this situation. No leadership by the government In the UK, the government prevents a single carrier from being exclusive at their market and promotes competitions among carriers. In Korea, incentives by carriers are prohibited by law. In China, a protectionist policy for domestic manufacturers has been implemented. In Japan, the government does not interfere in the mobile telecommunication business. For instance, the adoption of number portability was delayed, compared with the main overseas market; it was only implemented in 2006. This Japanese mobile telecommunication policy has allowed NTT DoCoMo to extend their influence. Modularity These days, it is relatively easy to produce mobile phones. For instance, Qualcomm provides transmission chips for them. The iPhone, sold by Apple, is assembled from commodity parts and manufactured by a Taiwanese OEM company (The Nikkei 24th January 2007). Thus, modularity has progressed in the mobile phone industry. Even if Japanese manufacturers have good developments and production abilities in place, other manufacturers can also produce phones. This said, those manufacturers would need good developments and production abilities to satisfy demands of sophisticated

Table 1 Cross-national analysis on mobile phones market

Japan Strong manufacturers Low Not so sophisticated Small Manufactures common model Not so strong Small High Middle Many Horizontal division of work High Carriers < Manufacturers Collaborative Strong Very high Carriers < Manufacturers Weak Strong Horizontal division of work Very many Low Very high Low Low Not so many Horizontal division of work High Carriers = Manufacturers Collaborative Weak Zero Not so large Very weak Strong Manufactures common model Manufactures common model Very small Small Not sophisticated Not sophisticated Low Low Not so high Very sophisticated (led by manufacturers) Small Manufactures common model Not so strong Zero (by law) Very high High Many Horizontal division of work High Carriers < Manufacturers Collaborative Very strong Strong manufacturers Strong manufacturers Strong domestic manufacturers UK China US Korea

Manufacturers Very high

Weak domestic manufacturers

Carriers technology

Carriers services, phone, consumer needs Very large

Very sophisticated (led by carriers)

Carriers interference in phone development

Mobile phone Very strong Very large Very low High Not so many

Exclusive model for each carrier

Carriers distribution control

Incentives (Discounts) to phones

Price

Volume zones spec

The number of phone in market

Carriers business model Low

Vertical integration

The necessity of marketing by manufacturers

Power Subordinate Weak

Carriers > Manufacturers

Relationship

Osaki Global marketing strategy in the digital age

Involvement from government

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The Marketing Review, 2008, Vol. 8, No. 4 phones by Japanese consumers. However, the consumers typically do not require such sophisticated features in the major overseas markets. Micro causes Organisational structure Japanese mobile phones companies are typically home electronics or information technology manufacturers. However, Nokia is the mobile communication equipment manufacture; and Motorola is the communication equipment manufacture. Their total proportions of mobile phone sales to total sales are 60%; therefore weight of the mobile phone businesses are much greater for them than that for Japanese companies. Though Korean mobile phone companies are home electronics manufacturers as well as Japanese, their proportions of mobile phone sales to total sales are 30%. In addition to this, Korean government strongly supported mobile phone business in the national policy; therefore Korean companies adopted a solid stance on the mobile phone business at an early stage. In Japanese companies, the mobile phone businesses were not as influential as in overseas companies. Japanese companies did not anticipate the rapid expansion of global market. As a result, they delayed in expanding their mobile phone divisions. Relationships with overseas carriers In China, the relationship with carriers is not significant in sales of mobile phones compared to the US and EU where carriers have some influences to the phone distribution. Therefore, the relationship with carriers is important for manufactures to expand sales mobile phone sales in the US and EU. However, Japanese phone companies do not build strong relationships with these overseas carriers. Marketing Major overseas mobile manufacturers invested huge sums of money in a development of distribution systems; they also invested heavily in advertising to establish strong brands. However, the market shares of Japanese manufacturers are small in overseas, thus they cannot devote huge resources for marketing. They also think that maintenance of cost-benefit performance is difficult in doing this. Technology The typical Japanese mobile phone has highly sophisticated features. They show the advanced technological abilities of the Japanese mobile manufacturers. However, a progress in modularity has negated this advantage. Additionally, overseas consumers typically do not demand such sophisticated features. Cost In addition to high operational costs, Japanese manufacturers do not benefit from economies of scale, because they do not have large shares in overseas markets, also they are required to produce exclusive models for the domestic

Osaki Global marketing strategy in the digital age market. Moreover Japanese phone companies must pay royalties to GSM- or CDMA-compatible mobile phones. Concluding discussions What is the digital age? Many electronics products including mobile phones are rapidly digitalised at the present time. Digitalisation of products requires software developments which demands huge resources. Regarding the development of mobile phones, Keiji Tachikawa a former CEO of NTT DoCoMo said, The software development in 3G adaptable mobile phones needs one thousand million dollars. 3G adaptable mobile phones software has about four hundred million programming steps that are almost equal to how much it takes to run old-time large-scale computers (Tachikawa 2006, pp.168-170) Many mobile phone companies have a tendency to focus on sales of chip sets, in addition to sales of assembled products, to recoup this huge investments. Therefore, it is easy for many companies to procure chip sets that are required for high technical capabilities in development. Though digitalised products require high technical capabilities in development, assembling of digitalised products are much easier than analog products. As a result, companies that have neither high technical capabilities nor enough resources can easily assemble and sell products in the digital age. This encourages the progress of modularity, which advances commoditisation. Consequently, manufacturers need wider markets; thus, increased competitions in global markets. The number of winners will be small. These are the key characteristics of the digital age. Global marketing strategy in the digital age Business model Although Japanese electronics manufacturers had strong competitive advantages in the 1980s, many products lost these advantages in the 1990s and since then (Mitarai 2003; Sakakibara and Kouyama 2006; Nobeoka, Ito and Morita 2006). The mobile phone is a typical product representing the present state of Japanese electronics manufacturers. Modularity has often been considered a cause of weakness in Japanese electronics companies. While Japanese manufacturers have tended to implement vertical integration policies, a horizontal division of work is effective in an industry with a high degree of modularity (Fujimoto 2001; Kokuryo 1999; Nobeoka, Ito and Morita 2006). However, both styles can coexist, because they can each provide advantages at different times. Though the relationship of progress in technology and modularity appears to be proportionate, there are in fact two time periods; the transition of technology and the diffusion of modularity. When technology changes dramatically, it takes time to become modular. Thus, benefits accrue from using vertical integration policies. While this period may be short, the opportunity exists for large profits. On the other

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The Marketing Review, 2008, Vol. 8, No. 4 Figure 1 Business model as to progress of technology and modularity

Progress of technology

Superiority of a horizontal division of work

Superiority of vertical integration policies

Progress of modularity

hand, a horizontal division of work can be profitable after the diffusion of modularity. At this point, there will be many competitors in the market, and profits may not be so high. The scale of the company will be much more important. Vertical integration policies require major resources to develop new technology. On the other hand, a horizontal division of work needs a big global share in order to reduce costs and survive intense competitions. To do that, marketing, including the arrangement of distribution facilities and advertising, is required. Thus, large investments are required in both styles of business. Global marketing Though effectiveness of both extension strategy and adaptation strategy was actively discussed in 1960s, many companies had a tendency to focus on adaptation strategy. Extension strategy means that marketing strategy in home country is extended to other market. On the other hand, adaptation strategy means that marketing strategy in home country is adapted to each market with large costs. Buzzell (1968) referred to American companies, which implemented international marketing strategy based on the strict division into countries, in his study of the possibilities and limits of standardisation of international marketing in multinational companies. Aylmer (1970) referred to Multinational companies, which had a tendency to delegate great powers to local management branches, in his study of the standardisation of marketing decision-making in multinational companies. Levitt (1983) insisted that the superiority of the global corporation sold the same products in the same way everywhere, because the worlds needs and desires had been irrevocably homogenised. At the threshold of this Levitts study, many researchers compared effectiveness of the following strategies, standardisation, adaptation, and a combination of standardisation and adaptation in 1980s. These traditional frameworks of analysis such as standardisation or adaptation have been often recognised as ineffective in making the concept of marketing strategy since 1990s. Enatsu (1996) insisted that the time when making a judgment by standardisation or adaptation was over, because business circumstances had not been circulative, slower and predicable since the late 1980s. Results of my research; however, suggest that companies should focus

Osaki Global marketing strategy in the digital age on the maximisation of standardisation in the digital age. In fact, there are many differences among markets. Standardisation strategy cannot fully treat these differences, so must miss some market opportunities (Oishi 1993). It is true that implementation of adaptation strategy can avoid missing market opportunities. Therefore, the necessity of adaptation strategy cannot be denied completely. However, in the digital age when modularity and commoditisation dramatically progress, cost and speed in the development and circulation of products are much more important than ever. These are essential conditions in whichever business model, vertical integration policies or a horizontal division of work. In the vertical integration policies, companies must obtain a profit in a short-term before modularity diffuses. There is no extra time to adapt products to each market. This extra time leads to the delay in a product rollout, so this could cause a serious loss of opportunities. These losses are often much greater than the extra return from adaptation. On the other hand, in a horizontal division of work, cost competitive power is essentially important. Therefore, companies must achieve economies of scale by selling same models in the wider market. Takeuchi and Porter (1986) insisted the importance of the simultaneous implementation of both standardisation and adaptation. It is true that ICT advanced the method of mass customisation. However, needless to say, the simultaneous implementation of both standardisation and adaptation naturally needs time and cost more than the implementation of standardisation alone. Therefore, companies should implement the minimum adaptation according to the diffusion of commoditisation. Companies also should recognise that they can avoid the market where excessive commoditisation is strongly required such as Japanese mobile phone market. The design is particularly important in mobile phones compared with other electronics products, because people carry mobile phones which are constantly exposed to peoples gazes. Therefore, consumer-needs for mobile phones tend to be diverse. Yet, even among mobile phones, there are particular products that have enormously succeeded in the world such as Motorola RAZR and LG CHOCOLATE. Considering this situation, homogeneousness of consumer-needs across borders has much more advanced in many electronics products. This implies the advance of the integration of the markets. As a result, my research concludes standardised marketing strategy to be superior in the present digital age. References
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About the author and correspondence Takanori Osaki graduated from Kyushu University (Japan) with a Ph.D. in economics. After working at Toyota Motor Corporation and Nagasaki Institute of Applied Science he joined Meijo University (Japan) as an Associate Professor. His research interests include empirical research into global marketing strategy in the digital age and relationship marketing using IT in BtoC. Dr Takanori Osaki, Faculty of Business Management, Meijo University, 1501, Shiogamaguchi, Tempaku-ku, Nagoya, 468-8502 Japan. T +81 52 832 1151 F +81 52 833 4767 E osaki@ccmfs.meijo-u.ac.jp