Report No.28
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Japan Entrepreneur Report No. 28 February 2005
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- Japan's Year 2007 dilemma
- Aging buildings, budding opportunities
- Low rates merit strong interest
- Knowledge as power
- Bits and bytes
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Japan's Year 2007 dilemma
Doomsayers disappointed by the no-show of the much-ballyhooed Year 2000
problem can take heart from another looming disaster, this one specific
to Japan: the Year 2007 Problem.
The Year 2007 Problem became a buzzword a couple of years ago when
information technology industry insiders observed that Japan's post-war
baby boomers, the seven million strong dankai generation born between
1947 and 1949, will start retiring en masse in 2007. Their deep expertise
in the 1970s-era legacy systems still driving the nation's banks,
railways and manufacturers will leave with them.
Believers say baby boomers were the first to build mission-critical
computer systems from scratch, so they understand business processes with
depth and breadth unattainable by today's younger system engineers, who
grew up working on existing systems and who are experts in IT itself
rather than business processes. The baby boomers' retirement could turn
legacy systems into "black boxes" that baffle younger successors, a
situation that produced Mizuho Bank's infamous 2002 system meltdown,
according to Yajima Nobuyuki, who wrote a book on the subject.
Skeptics, though, argue that today's systems engineers are as bright as
yesteryear's, and that computer code itself, with its embedded comments,
offers roadmaps to the past and guideposts to the future. So not to worry,
mate, though veteran advice is always appreciated, thank you very much.
Who's right? Well, no one knows, and the true extent of the IT problem
certainly lies somewhere between these opposing views. But one thing's
for certain: retiring baby boomers are just part of a broader scenario of
potential dilemmas. Let's look at three other Year 2007 problems--and
their flipside opportunities.
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Aging buildings, budding opportunities
Travelers booking their first Tokyo stay can receive a nasty shock: many
Japanese hotels charge per person, not per room. That can mean sky-high
bills for visitors traveling with spouses or kids.
French hotel operator Accor noticed the high prices, small players and
dilapidated properties in Japan's hospitality sector and saw a massive
opportunity to better serve consumers. It entered Japan in 2000 and
unleashed a trend: by 2007 at least 40 new foreign-backed hotels will
open, boasting snazzy names like the Ritz-Carlton, Mandarin Oriental, The
Peninsula and The Conrad. That will add some 10,000 rooms to the market,
experts say.
Given consumer fondness for cachet-laden international brands and
sparkling new buildings, local hotels will be hard pressed to compete
effectively. But that means fresh opportunities for savvy hospitality
consultants, interior designers and marketing experts who can help
domestic players withstand the outsider onslaught.
Meanwhile, industry watchers say, the nation's office building market may
be teetering toward oversupply, with more than a million square meters of
newly-constructed top-class space slated to come online in 2007. While
optimists believe eager tenants will readily absorb the additional space,
the new structures are sure to render obsolete even more of Tokyo's
ubiquitous "pencil" buildings: narrow, short towers whose floor plans
and amenities are passe by modern tenant standards.
One savvy foreign entrepreneur has built a thriving business over the
past several years by quietly acquiring Tokyo area pencil buildings and
converting them to pay-by-the-month storage units. Between now and 2007,
a new string of such buildings await similarly novel entrepreneurial
action.
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Low rates merit strong interest
Question: How much interest would you earn by investing the yen
equivalent of U.S. $25,000 in a Japan Postal Savings one-year fixed-term
deposit?
Answer: Seven dollars and fifty cents (U.S. $7.50), as per the 0.03%
annual interest rate (no, that's not a typo) on the official Japan
Postal Savings Web site (www.yu-cho.japanpost.jp/cgi-bin/rateautchg.cgi?1)
as of February 19, 2005.
Surprised? Don't be. Japan's citizens earn almost nothing on bank and
postal savings deposits comprising the lion's share of their U.S. $14
trillion hoard of personal financial assets. But starting in 2007, they
may be tempted to squirrel away even more cash.
Why? Of all the economic powerhouse nations, Japan has the worst fiscal
deficit, a fancy way of saying its government spends more than it takes
in. And the smart money is betting the administration will act to boost
revenues in 2007 by raising the five percent nationwide sales tax to
eight or even ten percent, a rate more in line with international
standards. That may dampen spending and encourage consumers to save even
more. But it will also prompt depositors to seek ways to make their
savings work harder.
To its credit, the administration will broaden investment choices. As
part of a gradual privatization of postal services, in April 2007 it will
allow the nation's nearly 25,000 post offices to earn fees by selling
stocks, treasury bonds and mutual funds, in essence serving as
transaction depots for security firms and banks. Foreign financial houses
that successfully link to the newly-liberalized postal network may
capture part of a multi-trillion dollar money stream.
Meanwhile, the postal system changes promise a powerful tailwind for
entrepreneurial financial consultants, planners and institutional
marketers eager to sell services to both institutions and citizens facing
a new range of investment options.
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Knowledge as power
Kusunoki Ken is an expert on corporate strategies that rely on "black
boxes"--especially the ones you can't see or touch.
A professor at Hitotsubashi, a national university with a reputation for
knowledge management expertise, Kusunoki says conventional black boxes
flummox competitors with proprietary firmware, code or hardware
components manufactured with unmatched precision and skill. He is equally
intrigued, though, by "soft" black boxes: massive accumulations of tacit
employee knowledge and expertise gained from long years of hands-on trial
and error experience, particularly at manufacturing companies. Such
knowledge-based black boxes are a powerful source of competitive
advantage, impossible for rivals to duplicate exactly, Kusunoki says.
But the advantages are tough to maintain internally, too. Most black box
expertise is passed on informally, and its primary keepers belong to the
dankai generation scheduled to start retiring in 2007. Labor-intensive
manufacturers and construction firms that rely heavily on aging master
technicians are especially vulnerable to seeing their knowledge-based
advantages erode.
So now's the time for training companies, human resource consultancies,
knowledge management experts and personnel agencies to address this side
of the Year 2007 Problem. Whether or not the predicted 2007 disasters
ultimately materialize, entrepreneurs--like the "millennium bug" experts
of the late 1990s--enjoy unprecedented opportunities to sell insurance
against the next big calamity.
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Bits and bytes
Ikeuchi Keishi dealt with shrinking markets and low-cost Chinese
competition by transforming his company, Ikeuchi Towel, into a leader in
environmentally-zero-impact towels. Hear Mr. Ikeuchi's inspiring story
on Tuesday, March 1 at the City Club of Tokyo. Carl Kay will interpret;
see <www.ea-tokyo.com> for details.
Carl Kay and I wrote Saying Yes to Japan: How Outsiders Are Reviving a
Trillion Dollar Services Market, a new book available from retailers in
mid-April. You can meet Carl and purchase a pre-release copy on April 5.
See <www.ea-tokyo.com/speakers/CarlKay.html> for details.
Next month I'll share highlights of the book, some pre-release reviews
and the names of JER readers who contributed. Stay tuned!
Tim Clark
Senior Fellow (non-resident)
SunBridge Corp.
Voice (U.S.) 503.235.4419
Fax (U.S.) 503.235.4429
clark@sunbridge.com
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Copyright 2002-2005 Tim Clark
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