National information infrastructure

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Multimedia — the anticipated convergence of audio, video and computing technologies — has been the great anticipated growth market for Japan’s electronics companies for many years. They have developed both new products, such as Sony’s handheld Data Discman and Fujitsu’s home PC series FM Towns, and promoted existing products such as CD-ROMs and even karaoke as part of an anticipated “multimedia revolution.”

While touting multimedia as a potentially huge industry, the Telecommunications Council report remains vague on its definition of multimedia. New multimedia markets are defined as those “newly created by program distribution, production of terminal devices, network operations and other related to the development of the fiber-optic network.” Existing markets expected to expand by 67 trillion yen include “video equipment, telecommunications equipment, computers and video software.” In effect, the report is including the entire electronics and telecommunications industry under the term “multimedia.” There is no estimate of the growth of those industries in the absence of a universal fiber-optic network, hence no true estimation of the additional value to be produced by building such a network, just the assertion that building the network will create 123 trillion yen in economic activity and more than 2 million new jobs.

Regardless of how vaguely the term “multimedia” is defined (and those hyping multimedia in the U.S. and elsewhere are not much more precise), it is clear that the NII vision in Japan is based on the belief that multimedia will be a tremendous driver of economic growth in coming years. Multimedia is expected to revive the stagnant consumer electronics industry by linking it to computing and telecommunications and giving Japan’s electronics companies a new edge over their Asian competitors. It is also expected to enable Japan to make inroads in the entertainment and software industries, where Japanese companies have been unable to challenge the dominance of Hollywood, Silicon Valley and Redmond.

Broadband, fiber-optic communications infrastructure

The link from multimedia to an information infrastructure is straightforward. Only multimedia content — home movies (video on demand), interactive video games, interactive education, business videoconferencing, and so on — requires the bandwidth to justify a nationwide digital telecommunications network supplanting the existing telephone network. Such a network is the cornerstone of the plans of Japan (and other nations) for an “information society” in which information is conveyed digitally between citizens, business and government, rather than via mail, fax, telephone or television.

Japan's NII plans state that this multimedia system will be delivered via a fiber optic network. In the U.S., current plans call for a hybrid of fiber optics, coaxial cable, enhanced copper wire and wireless. Coaxial cable TV lines serve the vast majority of U.S. homes and have the capacity to provide high-bandwidth transmission. In Japan, expensive, tightly-regulated cable TV has not caught on, available to only 22% of all TV households and subscribed to by a mere 5% (Yamazaki, 1994). So Japan's NII visions call for building a pure fiber optic network.

In 1994, NTT announced plans to wire every Japanese household with fiber-optics by 2015. But then MPT announced a target date of 2010, so NTT changed its projections to 2010 as well. Today, many officials and observers privately say fiber-to-the-home will not happen by 2010, both because of cost and because there is no clear demand on the part of users for such high-speed service to the home. However, there is still a clear emphasis on building the infrastructure as a means of stimulating demand, rather than waiting for demand to drive investment in the infrastructure.

New hardware opportunities

The NII is seen as a means to stimulate domestic demand for computer hardware, consumer electronics, and communications equipment. Some of the major categories of hardware include PCs and peripherals, set-top boxes, semiconductors, HDTV, PDAs, video servers, fiber-optic cable, and digital switching equipment. Some of this demand, particularly for telecommunications equipment, will come from the actual construction of the NII. Demand for products such as computers, HDTV, video servers, PDAs and various consumer devices will be driven by the availability of multimedia content over the NII.

In addition, the creation of domestic markets for such products is expected to support exports. Japan’s large, sophisticated domestic market for consumer electronics is credited with supporting exports of TVs, VCRs, video games, Walkman radios, and numerous other devices. By contrast, Japan’s slow adoption of PCs is one reason for the lack of export success in that industry. By stimulating domestic demand for multimedia hardware, it is hoped that new products will be developed for export, and profits from the domestic market will support an export drive. Such a strategy is based on the earlier successes of Japan’s automobile and consumer electronics industries, but also reflects the pattern followed by the U.S. PC industry. This aspect of the NII is not discussed as directly in the various NII visions, but given the strong concern over endaka and hollowing-out, there is no doubt as to the perceived need to develop new export opportunities for Japan’s manufacturers.

Developing software and services capabilities

Software and services are the fastest growing segments of the information technology industry worldwide, and still offer better profit opportunities than most of the brutally competitive hardware industry. Japan has tried for decades to catch up in software, through a number of government R&D programs as well as corporate efforts, but if anything has continued to fall further behind the U.S. industry.

Japan’s software industry lags far behind that of the U.S. in almost every key dimension. In applications software, eight of the ten largest firms are American, while only one is Japanese. For systems software, seven are U.S. firms and none are Japanese (Office of Industries, U.S. International Trade Commission, 1995). Japanese software companies have almost no presence outside their domestic market. They continue to focus on custom programming, while the global market is shifting rapidly to packaged applications. Most importantly, virtually every key software architecture is controlled by U.S. companies.46 The only important exception is video game software, which runs on architectures controlled by Nintendo and Sega. Even the Japanese domestic market for packaged software is dominated by U.S. applications, and IBM’s DOS-V and Microsoft Windows are unifying the formerly fragmented PC applications market.47 The Japanese market is still relatively small for information services, such as systems integration, outsourcing, on-line services and network services. Japanese companies have failed to compete outside the domestic market for such services, and are beginning to face foreign competition in their home market.

The other essential “soft” component of a multimedia future is content. Such an imperative motivated the purchase of Hollywood properties (MCA, Columbia Pictures, Columbia Records) by Japanese electronics companies, since Japanese-produced entertainment exports are largely confined to video games, karaoke and animation. The anticipated synergies between “hard” and “soft” goods have not been realized, and one of the major acquisitions, MCA, has since been sold by Matsushita to a Canadian owner. Meanwhile, Japanese firms such as Sony have experimented with U.S.-based new media subsidiaries and joint ventures, but, in the end, the predominant share of the world’s entertainment content still comes from the U.S.

The NII offers new opportunities for Japan in software and services. Multimedia and interactive markets are still in their infancy, and new kinds of content and entertainment are sure to be developed. As new markets develop, it is believed that opportunities will be created for Japanese companies to develop their capabilities in software, services and content and challenge the present U.S. dominance in those areas. Even if U.S. firms set the standards, such standards provide a well-defined target that will play to Japan’s forte: manufacturing high-quality complex products that conform to those standards (West, 1995).

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