Japan and Europe �� worlds apart? - Profitable Carrier Strategies

Can operators from Japan and Europe forge successful and workable alliances?

Strategic alliances between operators from different countries have not had a good track record. Remember the disintegration of the original Global One, the collective effort of France Telecom, Deutsche Telekom and Sprint, and the demise of AT&T and BT's joint venture, Concert. When Telia and Telenor attempted to join forces a few years ago, negotiations didn't even make it past the drawing board. Given this backdrop how will Euro-Japanese alliances fare?

"Looking at international alliances, the global statistics are not good," admits Martin Jordy, CEO of Evolium, a joint venture between French network supplier, Alcatel and Japanese manufacturer, Fujitsu, which develops next-generation infrastructure.

However, Jordy is confident that, like any joint venture surviving in today's telecoms environment, implementing the 'right alliance formula' is the key to longevity and a successful working relationship between partners.

Euro-Japanese attraction

The driving forces are clear. Japanese operators want to tackle markets outside Japan and project themselves globally. European operators want to benefit from the experience of Japan and get involved in a market that is unprecedented in mobile data take-up.

Convergence on mobile networks has been a definite launch pad. In the past, Japan with its PDC network, was left to its own 2G devices while Europe pushed ahead with GSM. For next-generation networks, Japan adopted W-CDMA as their 3G protocol, while Europe chose UMTS as stipulated by the 3GPP.

NTT DoCoMo has now amended its specifications to align them with 3GPP recommendations and minor differences between the protocols should disappear by the end of 2002.

With the first global telecoms standard, and the promise of roaming between networks, the opportunity to 'team up' and combine know-how and market exposure becomes more valuable.

"In terms of 3G implementation, Japan is two or three years ahead of Europe and they [European companies] would be foolish not to take the opportunity to learn from the Japanese experience," insists Evolium's Jordy.

Euro-Japanese relationships emerging in the operator arena are forming on different scales. NTT DoCoMo is establishing minority partnerships across Europe with operators such as Dutch operator, KPN Mobile and Hutchinson 3G in the UK to gain a market foothold. In contrast, Vodafone, is taking a 'front-seat' approach with a 66.7 per cent stake in Japan Telecom - closer to an acquisition.

Operator focus

NTT DoCoMo has a 15 per cent share in KPN mobile. Under the 11-year licensing pact with KPN, the Japanese operator will provide its Dutch partner with patents, service know-how and technologies needed to launch i-mode-like services on the GPRS network and eventually 3G mobile networks in Europe, starting in the second quarter of 2002.

"We will gain from KPN's knowledge of the region, while it should benefit from our experience with content providers in particular, as content is key to getting 3G users interested," says Mariko Hanaoka, assistant manager in the PR department of NTT DaCoMo.

By linking with different operators, NTT DoCoMo aims to gain an insight into European approaches to business and market conditions. As Hanoake stresses, "We want to see how our technology and capabilities will fit into European lifestyles."

Although NTT DoCoMo is making its first steps outside its home market, globalisation has been on Vodafone's agenda for some time with a presence in 28 countries.

The focus in Japan is mobile operator, J-phone, a subsidiary of Japan Telecom in which Vodafone has a majority stake. A spokesperson for Vodafane and Japan Telecom explains that Vadafone's decision to have a majority stake will "make it easier to influence development and the standardisation of technology.

"Both operators [Vodafone and Japan Telecom] are working together to develop the J-Phone market in Japan through new strategies."

Looking at the broader picture, Japan Telecom, which is essentially a domestic fixed line operator, wants to use Vodafone's market experience and worldwide position to create an international extension to wholesale business for its Japanese customers.

For Vodafone, the long-term incentive is the advent of 3G roaming. J-Phone expects to launch 3G services this summer.

"Vodafone wants to establish a base in Japan to enable it to provide a global service for its customers through international roaming," the spokesperson claims.

Euro-Japanese hurdles

The obvious hurdle for Euro-Japanese alliances is the difference in business culture -- how the two sides work and conduct their decision-making process.

"There are many examples of cultural differences between companies -- but these are not particular between the Japanese and Europe," insists Dr Murata, deputy MD of Mobisphere, a joint venture between German manufacturer, Siemens, and Japanese vendor, NEC, to develop a common 3G radio network.

"Europe itself is multi-cultured and although there are differences between member states they are more familiar with each other. Every company has its idiosyncracies -- Japan and Europe are just further apart," he adds.

Evolium's Jordy includes national cultural differences as one of three problems that Euro-Japanese joint ventures face. He also points to company culture differences, such as history and experience, and their market exposure. For example, in the mobile market, while Alcatel has numerous customers across Europe, Fujitsu has had one strong relationship in the Japanese market with NTI DoCoMo.

Looking at company culture differences, Jordy gives an example of the different approaches to decision-making. "In the west, we tend to take 'top-down' decisions and expect the levels below to accept and implement it," he claims. "In Japan, it is middle management that make the decisions and it is always consensus based." This means a Japanese company might take longer to make a decision, maybe three weeks compared to three days in Europe. But Jordy adds, "Once that decision is made, it is 'rock-solid' and quick to implement because everyone has been consulted and has agreed on it. This is not always true in Europe."

NTT DoCoMo's Hanoake explains the root of such business differences lies in Japan's culture. "Japanese people are very similar to each other -- around 97 per cent of them have similar backgrounds and way of thinking," she says. "Therefore, they don't talk as much [as their European counterparts] because a few words is often enough to understand each other."

It is inherent approaches to business such as this that takes time for companies involved in Euro-Japanese alliances to learn to adapt to.

Vodafone and Japan Telecom s spokesperson agrees. "For every international alliance it is important to study each others market carefully. It is crucial that companies listen to each other and have the patience to deal with the obvious culture and language differences," she says.

She points to Vodafone's merger with US wireless service provider, AirTouch -- "one of the founding members of J-Phone and instrumental in its development" -- as evidence of Vodafone's long-term connection and understanding of its Japanese associate. Close co-operation between company members is also crucial. Looking at Japan Telecom's board of directors, at each level there are Vodafone and Japan Telecom representatives. In fact, Jordy's Evolium includes the necessity of national counterparts in Euro-Japanese relationships as part of his five-paint strategy for alliance success (see sidebar on page 39).

Worlds apart?

Aside from business culture differences between companies, there is some scepticism about whether the business models and strategies Japanese operators have deployed are compatible or viable in Europe and vice versa for European operators moving into Japan.

"The success of i-mode in Japan stems a lot from NTI DoCoMo's ability to bring everyone to the same table and force discussion between vendors and content providers. Is this method really transferable to Europe?" asks Nikesh Arora, member of the board of management at new business of T-Mobile International.

"NTT DoCoMo has market dominance in Japan with strong distribution and customer base -- this was critical to the success they had. In Europe, the market is wider with different mobile operators and we can't replicate what happened in the Japanese market."

Vodafone's and Japan Telecom's spokesperson adds, "International markets are on different curves. Japan has cute and curious fixations with gadgets such as 'sha-male' [the mobile phone with an embedded camera] that won't necessarily translate straight to the European market."

Adaptability and market awareness will clearly be key concepts for Euro-Japanese alliances to embrace.

"In the telecoms market, worldwide interoperability is more important than ever. National markets have different parameters and the question is what can be standardised across nations and what can be localised," stresses Mobisphere's Murata.

He believes the growth of Euro-Japanese alliances will fuel this phenomenon.

However, the fact that there are fewer players in the Japanese market than Europe leads Nigel Deighton, vice president and research director of analyst firm, Gartner, to believe that a more likely trend is more Euro-Asian alliances with countries such as Korea.

Differences between Japan and Europe do exist but what is more significant are the goals and ambitions they have in common.

RELATED ARTICLE: Euro-Japanese survival guide

Euro-Japanese alliances between operators can learn from existing joint ventures in the vendor community. Evolium's Jordy has a five-point survival guide.

1. One objective and mission -- it is vital both companies are pulling in the same direction and have identical focus;

2. Open-minded approach -- with business and cultural differences, flexibility and mutual respect is critical to make the alliance work;

3. Country exposure -- to develop in-sight and understanding, various company members from each country should work in their partner country to forge better relations.

4. Notional counterparts - to encourage integration and discussion, each European management member could have a Japanese counterpart with whom they must negotiate and make all decisions with;

5. Integrated organisation -- the joint venture, from top to bottom, should be considered an integrated organisation and not part-European or part-Japanese;

Nb. The last two criteria are mare relevant to joint ventures.

Sanjima DeZoysa, staff editor (sdezoysa@horizonhouse.co.uk)

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