Report No.21
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Japan Entrepreneur Report No. 21 July 2004
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- The greatest industry on earth
- Travel entrepreneurs promote Japan's bright side
- Coffee breakthrough
- Bits and bytes
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The greatest industry on earth
Quick: What's the world's biggest industry? If you guessed automobile
manufacturing, energy, financial services, or food production--no prize
for you!
It's travel and tourism.
Travel and tourism is a multi-trillion dollar industry, by some estimates.
Not bad for a business that didn't exist a century ago.
T&T is huge because it's actually a constellation of complementary
industries: air travel, lodging, ground transport, sports, leisure and
recreational facilities, food services, entertainment, gambling and
gaming, personal services, retail shopping--and more.
Accordingly, it's difficult to precisely define T&T, let alone measure
its value. Direct T&T revenues total $1.5 trillion, but combined direct
and indirect revenues reach a whopping $4.2 trillion, more than ten
percent of global economic activity, according to the World Travel and
Tourism Council.
Japan is a net "exporter" of tourists. Outbound tourists (Japanese
people visiting other countries) generate far more business than do
inbound tourists (foreigners traveling to Japan). Japanese women are in
fact the world's most sought-after tourists: their high average per-day
spending, mostly on retail shopping, keeps businesses pining for them all
over the world.
That doesn't sit well with Japan's bureaucracy, still hoping to score a
trade surplus in every possible business category--including the world's
biggest. Today Japan ranks 35th worldwide as a tourist destination,
while China ranks fifth and aspires to become ichiban, number one, by
2020.
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Travel entrepreneurs promote Japan's bright side
The government, though, is clueless about fixing the situation. Japan's
tradition of excluding foreigners created a host of visitor
inconveniences, such as difficulty changing money or cashing travelers
checks, that simply don't exist in more popular destinations. Perhaps
most important, Japan's bureaucrats don't seek input from the sector's
customers--foreigners.
"It's ironic that in this most international of industries, the
government relies on domestic advertising and PR agencies to develop its
inbound tourism promotion programs," said Alex Kerr, author of Dogs and
Demons, in a telephone interview from his home in Thailand.
In Dogs and Demons, arguably the harshest-ever critique of modern Japan,
Kerr argued that a construction frenzy blighted Japan's landscapes to the
point where the nation's visitor experience is simply uncompetitive with
beautiful destinations striving to preserve traditional architecture,
such as Paris and San Francisco (see www.jir.net/jir10_02.html#3). Yet
beauty, as they say, is in the eyes of the beholder.
"Japan has an image problem, but the country is actually very beautiful,"
said Jeff Aasgaard, founder of Japanese Guest Houses, an online English
language lodging reservation service (www.japaneseguesthouses.com). "The
general public in the U.S. and other countries have an image of Japan--
bleak cityscapes and burned out salarymen. But people actually wanting to
visit Japan have a good impression."
Entrepreneur Aasgaard initially focused on the bigger outbound tourist
market, offering a Japanese language reservation service for bed and
breakfast operators in Canada and the U.S. But the business hit a brick
wall trying to efficiently collect large numbers of relatively small
commissions from the lodges. A friend suggested Aasgaard concentrate
instead on inbound tourism, and to everyone's surprise the new business
thrived. Today Japanese Guest Houses has two full-time staff and nine
part-time employees.
"Our guests travel for cultural reasons, not to see natural beauty," said
Aasgaard. "They can stay in their own countries for that. What we
provide is access to a world that can't be experienced at hotels."
Kerr, too, agrees that visitors to Japan seek more than physical beauty.
"It's relatively easy for foreign visitors to see the sights in Japan,
but it's quite another thing for them to enjoy an authentic cultural
experience," he said.
Kerr is putting his money where his mouth is. After writing Dogs and
Demons, he decided that entrepreneurship is the only way to effect the
change he advocates. Now he is setting up two cultural tourism-related
companies with facilities in Kyoto and abroad. "We want to provide
meaningful, hands-on traditional arts experiences for people who would
otherwise be unable to enjoy them," he says.
Motivating the Japanese government to improve the quality of the inbound
tourist experience is no different than getting those same bureaucrats to
improve the general quality of life in Japan, a task pessimists would
liken to persuading the Pentagon to organize peace marches. But optimists
see only opportunity.
"Much in modern Japanese culture is attractive to foreigners, too," says
Aasgaard, noting the emergence of new anime tours and tours of locations
famously destroyed by Godzilla. But the real proof of Japan's attraction
lies in the 150 percent annual growth rate achieved by Aasgaard's
reservation service.
"Now we have to start looking for a new office," he said.
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Coffee breakthrough
The first thing venture capitalist Suga Hitoshi noticed when he entered
Tully's first Japanese coffee shop was simple enough: it smelled good.
But what really struck him was that Matsuda Kota, Tully's young manager,
had literally lived in the Ginza store for the first six months, staying
overnight in a sleeping bag in the back so he could open early and close
late.
That raw determination, plus Matsuda's powerful personal charisma,
prompted Suga to offer to invest in Tully's after talking with Matsuda
for only an hour in the Ginza shop. It was the first and only time he's
invested without seeing a business plan, and the experience was literally
life-changing; he eventually left his CEO position at Mitsui Venture
Capital to become vice chairman of Tully's Japan.
The rest, as they say, is history. Tully's Japan scored the fastest IPO
ever achieved by a Japanese food business and went on to become the
nation's third largest coffee shop chain, with 190 stores, almost half
the size of second-runner Starbucks.
Business is brisk. For consumers, coffee remains an affordable luxury--a
mini-vacation--even in tough times. And a huge replacement market is
still open to newcomers like Tully's; most of Japan 7,500 coffee shops
are mom n' pop stores serving mediocre, overpriced coffee and squeaking
by thanks to favorable locations and smoker-friendly policies.
Tully's Japan's success sparked rumors earlier this year that it would
buy out its struggling U.S. parent. In remarks made at an Entrepreneur
Association of Tokyo meeting earlier this month, Suga discounted the
possibility of an immediate buyout, but hinted that an eventual merger of
some kind might be possible.
Asked the secret of Tully's success in Japan, Suga cited in-country bean
roasting, local decision-making authority concerning new products and
policies, strict cost controls and a conservative expansion policy. Yet
Suga emphasized that everything started with the unstoppable enthusiasm
of a single entrepreneur.
"Matsuda's personality attracts people," said Suga. "People instinctively
know he is honest and sincere--not greedy." Suga said sheer charisma can
carry a customer service business, and in a sense "personality is the
ultimate strategy" (see www.japanentrepreneur.com/200212.html#4). But
reliance on personal charisma doesn't cut it in sectors such as
information technology that hinge less on one-to-one customer
interactions, he cautioned.
Suga ended with remarks encouraging to the mostly-foreign crowd. "Hurdles
to entrepreneurship in Japan are low compared to the United States," he
said. "This country is very friendly to foreigners."
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Bits and bytes
You can meet powerful entrepreneur community players like Suga Hitoshi at
Tokyo Entrepreneur Association meetings. The next get-together is Tuesday
August 3. See <www.ea-tokyo.com> for location and details.
Together with Carl Kay, I've been writing a book on entrepreneurship in
Japan's service sectors for more than a year now. This month Vertical
(www.vertical-inc.com) bought the rights for publication in spring of
2005. It will be Vertical's first nonfiction release. More on that
early next year.
Now, off to Tully's in Ebisu for a mini-vacation of my own...
Tim Clark
Senior Fellow
SunBridge Corp.
Mobile (Tokyo thru 8/1/2004) 090.4420.0825
Voice (U.S.) 503.235.4419
Fax (U.S.) 503.235.4429
clark@sunbridge.com
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