Japan Market Update - May 2007 Edition

Hi,

Technological enhancements continue to take the spotlight in Japan. When I was in Japan in March, the Pasmo train pass/e-wallet card was launched. Pasmo is a card issued jointly by 101 train and bus firms in the Kanto area, not unlike the interchangeable Suica card issued by East Japan Railway Co. Now these cards can be used at over 12,000 retail stores nationwide. Today, it is estimated that over 57 million people are using e-money, nearly one in every 2.2 people in Japan.

In the Japan Market Update below, we review the launch of a major retail player into the e-money business. E-money's acceptance is growing and, according to Nikkei Shimbun, more than 40% of mobile phone users are projected to have handsets capable of e-wallet functions by the end of March 2008 - which enables users to make payments using their mobile phones at retailers and restaurants who have reader terminals.

Below, we also note the importance and impact of blogs, particularly in the travel market. Does your business have a blog or a blogger communicating about your company? Do you have a system to do this? Can your firm identify influential bloggers who are "digital influencers"?

PacRim Marketing Group, Inc. and its sister company, PRTech, are staying abreast of these important consumer trends in the marketplace, and have systems and solutions to help your business take advantage of emerging business opportunities. Let us know if we can help with your customer communications systems or with your digital marketing efforts in this fluid and dynamic consumer market.

Warmest regards,
Dave Erdman
derdman@pacrimmarketing.com

*Japan Market News
-----Travel: Osaka-Honolulu flight to be cancelled
-----Travel: JAL joins oneworld alliance
-----Business: Japan's no. 2 retailer launches electric money
-----Business: Japan Tobacco scores record M&A
-----Business: TBS rejects Rakuten push for more shares
-----Fashion: Dresses and baggy jeans highly visible
-----Fashion: Garment industry recycles
-----Technology: Japan's no. 1 blog nation
-----Technology: Virtual English lessons
-----Technology: Yahoo leads mobile ranking
*Culture Corner
*Media of the Month
*Upcoming Magazine Deadlines
*Important Dates

TRAVEL: OSAKA-HONOLULU FLIGHT TO BE CANCELLED

United Airlines pulls out of Honolulu route for year-end
Service to Honolulu at Osaka's Kansai International Airport (KIX) will be reduced to daily service operated by JALways and Northwest Airlines, following the suspension of United Airlines' KIX-HNL flight in October 2007. Although there were no official press releases discussing the issue, Japan's travel media and travel agency blogs have reported this may be a seasonal suspension, and that flights may resume at some time in 2008. United is planning to coordinate its connecting service between Osaka's Itami Airport and Narita on ANA - United's Star Alliance partner - in order to accommodate passengers within the Kansai market. United has not cited specific reasons for the cancellation. However, travel industry experts in the Kansai region have expressed "shock," and have begun round-table discussions with executives from other airlines that have also suspended U.S. flights. In the meetings, executives have listed stagnant business-class sales and weak travel demand during winter months as reasons for their flight cancellations.

(Source: The Travel Vision News 04/15/07, feelabroad.net 4/17/06)
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TRAVEL: JAL JOINS ONEWORLD ALLIANCE

Alliance part of JAL's plan for financial turnaround
In a move to position itself as a continued competitor in the aviation industry, Japan Airlines Corp. gained full membership in the "oneworld alliance," a 10-airline consortium whose combined fleet of 2,382 aircraft serves almost 700 airports in 142 countries and offers over 9,000 flights a day. The alliance, which also includes American Airlines and British Airways, allows members seamless layovers and connecting flights, in addition to expanded brand recognition through code-sharing arrangements. JAL has operated code-sharing flights with American Airlines, but had opted out of alliances in the past. Membership in oneworld enables JAL to cut jet fuel costs - one of the airline's biggest expenses - which alliance members procure jointly. JAL said it expects greater revenues from purchases of round-the-world tickets, for now the airline can offer the complete package, whereas it only serviced 24 countries on its own. The convenience couldn't come at a better time, since Japan Travel Bureau has reported a threefold surge in round-the-world tickets sold over the last 12 months, notably to recently retired baby boomers. Almost all of the world's major airlines are now signed up to an alliance: JAL's competition All Nippon Airways Co. is a member of Star Allinace alongside United Airlines, and SkyTeam includes Northwest, KLM, Air France, and others.

(Source: The Japan Times 4/21/07)
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BUSINESS: JAPAN'S NO. 2 RETAILER LAUNCHES ELECTRIC MONEY

Seven & I Holdings introduces first phase of "nanaco" within convenience store chain
In the wake of Pasmo's debut in March, which linked a large network of Japan's transportation system with a seamless pre-paid system, Seven & I Holdings' new "nanaco" card represents new progress for Japan's e-money initiative. Like its predecessors - bitWallet's Edy and Japan Railway's Suica - nanaco is powered by smart-card technology, and uses contactless readers that debit prepaid accounts. A notably new feature, however, is a point-accrued cash back system worth about 1 percent of purchases made with the card. Seven & I will roll out the nanaco card within 1,500 of its Seven-Eleven outlets in urban areas first, and will expand its use to over 11,000 chains nationwide. By the fall, nanaco should be functional at Seven & I Holdings' 1,800 Ito-Yokado supermarkets and Denny's restaurants as well. An estimated 100,000 applications were filed on the first day.

(Source: Trendy Magazine 4/07; Yomiuri Shimbun 4/26/07)
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BUSINESS: JAPAN TOBACCO SCORES RECORD M&A

JT takes over British maker of Benson & Hedges
Japan Tobacco Inc., the world's third-largest cigarette company, expanded into the European market through the acquisition of Britain's Gallaher Group, for $15 billion. The move allows JT to reach out beyond its Japanese customer-base, which is declining, and also follows the trend in Japan's mergers and acquisitions in recent years. JT hopes to reach Gallaher's current markets including Great Britain, Austria, and Sweden, but will remain no. 3 in global market share, behind Altria of U.S. (owner of Philip Morris USA), and British American Tobacco. The JT-Gallaher deal is the largest overseas acquisition on record for a Japanese company, exceeding Softbank Corp.'s purchase of British telecom Vodafone Group for $14.7 billion last year. Japan's government regulations have loosened in recent years to promote global competition. As a result, acquisitions involving Japanese companies taking over foreign companies totaled 412 in 2006, up from 77 back in 1985.

(Source: boston.com 4/18/07, Japan Times 4/18/07)
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BUSINESS: TBS REJECTS RAKUTEN PUSH FOR MORE SHARES

Broadcasting execs oppose Rakuten's possible takeover strategy
Tokyo Broadcasting Systems officially quashed Internet mall operator Rakuten Corp.'s request to increase its stake in the television network to above 20 percent. In addition to boosting its share from its current 19.9 percent, Rakuten intended to place two of its own representatives on the TBS board. Ties between TBS and Rakuten have been uneasy ever since Rakuten made a surprise 15.46 percent acquisition of the broadcaster in November 2005. The Internet empire has since tried to increase its stakes in TBS, staging a possible takeover, but has been met with staunch opposition from the broadcaster. TBS introduced its own poison pill against Rakuten, which enables TBS to issue equity warrants if a bidder tried to take a stake of 20 percent or more. Rakuten on the other hand has explained its "friendly" intentions, which aim to maximize business services for both companies. Meanwhile, Rakuten has solicited proxies to gain shareholder approval, launching a possible proxy war with TBS. If this news sounds eerily familiar, it's because the now-defunct Livedoor also staged an intricate stakes-gaining scheme over Fujisankei Communications Group in 2005. Internet companies seeking control within TV networks seem to premise the emergence of Web TV, and the competition for media content.

(Sources: varietyasiaonline.com 4/22/07; japantimes.com 4/23/07)
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FASHION: DRESSES AND BAGGY JEANS HIGHLY VISIBLE

A skinny-jean backlash? Baggy jeans seen in Kansai; Dresses trend expansive
Following consecutive seasons of the skinny-jeans boom, an unlikely look - baggy jeans - is spreading from the Kansai-region cities of Kobe, Osaka, and Nagoya, to the fashion streets of Tokyo. Unlike skinnies, baggy jeans fit more body types, and will likely become hot items for the coming summer and fall seasons. Paired with the right top, such as cropped jackets and snug tanks, the loose and baggy denim just may become Tokyo's newest definition of fresh and funky style. Meanwhile, a not-so-surprising dress trend sparked in the U.S. and Europe, is now widespread throughout Japan. The styles seen on the streets are various, including wrap dresses, tight and high-hemline dresses, metallic A-line dresses, and sporty polo-type dresses.

(Source: Trends in Japan 3/07, 4/07)
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FASHION: GARMENT INDUSTRY RECYCLES

Japan's big chains join environmental effort by recycling garments
A couple of months ago, it was reported that Uniqlo, Japan's largest casual-wear chain, began a company-wide campaign to collect unused garments and accessories, which would then be donated to charities that support underdeveloped nations around the world. But even before that effort, Uniqlo had been collecting used fleece products to be reused in future production. It turns out that garment recycling has been in the works since at least 2005, when U.S.-based Patagonia launched its first fleece-recycling campaign. Patagonia Japan followed suit, and encouraged customers to return unused items to the store, whether they be "worn to threads." The fleece, a 95-percent polyester material called Capilene is then sent to a fiber manufacturer in Osaka, where the garment is reproduced into brand new polyester fibers. Supermarket chain Jasco also started a fiber reproduction program in 2006, selling knit garments such as sweaters made from recycled wool fibers blended with new acrylic thread. Even department store giant Takashimaya joined the bandwagon the same year, and began collecting used suits from customers during "suits sale" season. Last year alone, the store collected about 31,000 suits from 4,900 customers, some of whom were widowers hoping "recycling" the suits worn by their late husbands was better than throwing them away. The suits are then reproduced into insulation material for automobiles.

(Source: yomiuri.co.jp 12/13/06)
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TECHNOLOGY: JAPAN NO. 1 BLOG NATION

Travel industry also blogs to spread information on services and destinations
Japanese blogs - short for Weblogs -- now account for 37 percent of all blogs on the Web, according to a report by U.S.-based Internet search engine company, Technorati. The total number of blogs rise dramatically - approximately doubling every six months - but the percentage of Japanese-language blogs remain high. Last year, when there were 35 million blogs, 33 percent were in Japanese. Blogs are, in fact, everywhere, from personal web sites to social network sites. But the latest industry to use blogs as a marketing tool is that of travel. H.I.S., for instance, gathered data from its regional offices around the world, and posted blogs with themes such as "recommended souvenirs for students." H.I.S. also utilizes blogs on its web sites to introduce events and destination information. As blog topics pique readers interests, H.I.S. says the exposure can lead to stronger overall out bound travel demand. Kinki Nippon Tourist Co. also posts blogs written by tour planners and staffers, who give insights on topics ranging from seasonal tours to tips on traveling with children.

(Source: Travel Journal International 4/18/07; sifry.com 4/07)
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TECHNOLOGY: VIRTUAL ENGLISH LESSONS

New technology offers fresh approach to learning foreign languages
Learning English conversation - or "eikaiwa," as it is called in Japan - has for decades been a favorite, yet often challenging, goal for the Japanese populace. English lessons, however, are shifting from "real-time" classrooms to "online" settings using web cams; furthermore, thanks to a new peer-to-peer model called Skype and innovations in gaming technology, Japanese tech companies are now creating online virtual experiences that aim to teach English. One such site, cafetalk.jp, introduced a real-time learning system through which users can choose themes such as "hip hop English," medical English, and "speed-learn in 24 hours." Cafetalk's latest offering is a virtual-reality English lesson modeled after a currently cult-status fantasy gaming environment developed in the U.S. called "Second Life." While in the Second Life game, users create characters and scenarios that interact with other gamers, the English lesson offers a handsome, bearded virtual teacher called Corvy, who takes users on a 50-minute date through which business-level English can be learned in the process. Each session costs 3,900 yen (approx. $33).

(Source: cafetalk.jp; japan.internet.com 4/07)
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TECHNOLOGY: YAHOO LEADS MOBILE RANKING

Yahoo and Google highly recognized among mobile phone users
According to a survey by IT research firm Internet.com and transportation group JR Tokai Press Research, Yahoo and Google ranked the highest for search engine use via mobile phone. Yahoo Mobile is the default search engine for phones issued by Softbank, and Google Mobile is the official search engine for "au" phones. Other search engines include infoseek, goo, and MSN. The survey also noted that more Japanese mobile phones are adapting to a high-resolution phone display called QVGA, which will allow full-browser use much like with PCs, as opposed to the condensed capabilities of Yahoo and Google's mobile-version search engines. When asked what topic users search most on the Web while on the go, pollers answered "job search." The most notable finding, the survey said, was the widespread recognition of Yahoo and Google as mobile search services.

(Source: japan.internet.com 04/07)
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Japanese Cell Phone Culture - Latest Technology

When it comes to the latest technology in cell phones, Japan has always been a leader - releasing new technologies and making them commonplace years earlier than the rest of the world. While the time gap between what is available in Japan and the rest of the world has been shortened in recent years, there is still a significant difference. In Japan, many cell phones (keitai) have a range of additional capabilities, such as:

* TV phone
* E-money service and various certification functions through Untouched IC card (FeliCa etc.)
* Various services with NTT Docomo's 'osaifu-keitai (mobile phone with wallet function)'
* E-money service e.g. 'Edy'
* Function as 'Suica,' which can be used for a season ticket and a train ticket
* Cmode: vending machines which can be used with QR code and 'osaifu-keitai' of a mobile phone
* Crime prevention buzzer (with the automatic report system to the police)
* Pedometer
* 'Read aloud' system
* Touch-pad system
* Mobile phones with HDD (Hard Disk Drive)
* Mobile centrex service with wireless LAN
* A fingerprint/face certification system for the protection of personal data
* Navigation by GPS
* Viewing and listening to TV and radio (FM/AM)
* Faster software development with pan-OSes such as Symbian OS and Linux

Some cell phones can even be used as debit or credit cards, as more companies offer catalogs for cell phones. The phones can be swiped through most checkout lines to buy everything from mascara to jet planes.

Sony, working with NTT DoCoMo, has been spearheading the mobile phone wallet technology, commonly known as 'FeliCa'. This technology makes use of a RFID chip inside the handset that can communicate with reading devices when the phone is placed near them. Though the technology is relatively new, there are many convenience stores that allow users to pay for goods using their phones; some vending machines even accept phone payments. Users must 'charge up' their accounts with credits before they can pay using their phones. The growing popularity of the system is compelling other manufacturers to make compatible phones.

A popular trend in Japan is to use the mobile phone handset to read information from special barcodes. The current technology is based on 'QR codes' - a form of 2D barcode that is written out in a square shape instead of a bar shape. The phone handset can scan the barcode using its camera or other input, decode the information, and then take actions based on the type of content. The most popular use of these QR codes is in advertising. All over Japan, the codes appear on posters, in magazines, and even on some people's business cards. The QR code usually has links to a web site address or contains addresses and telephone numbers.

Gracenote and Media Socket have a service where the user holds the phone up to a source of music (such as a speaker), and, by dialing a certain phone number, the song is found in a database and identified. The user receives the song's title, artist, and album within seconds. This information can, in turn, be used to search the mobile Internet to find that song.

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