Primarily due to the global economic downtown, corporate spending for factory equipment and machinery has decreased in Japanese manufacturing industries, many of whom use computer-aided design/manufacturing/engineering (CAD/CAM/CAE) software. Business investment in software here has not been immune to the economic slowdown and overall spending on software decreased by 19.8% in 2009 compared to 2008, according to a business outlook survey conducted by the Japanese Ministry of Finance (MOF) and Cabinet Office. This downward trend has also been reflected in the Japanese CAD/CAM/CAE market which is closely aligned with the manufacturing industry as its major customers include automobile and aerospace companies and their affiliates. As the economy now appears to be recovering, however, there appear to be possibilities for future growth in this software sector.
In particular, there are two main solution concepts for CAD software which are attractive in this market, namely Product Lifecycle Management (PLM) and Building Information Modeling (BIM) which are used respectively in the manufacturing and construction industries. The PLM solution has been adopted by many companies since it can control the manufacturing process and data through a product’s lifecycle, while the BIM concept introduced a few years ago can support the construction process in areas such as initial design and environmental impact simulation. The manufacturing process has gone global with parts and components procured from many countries so PLM has been readily accepted as a solution to help Japanese firms communicate with their factories overseas. On the other hand, the Japanese construction sector has proven more challenging with regard to introducing BIM technology because of strict regulations governing the construction industry although the Japanese Government did recently announce the adoption on a trial basis of BIM for government building projects.
The prospects for PLM solutions in Japan include not only automobiles and aerospace, but also electronics, medical devices, consumer goods, and industrial machinery. PLM, a technology which manages product data through its life cycle, has been deployed in a number of Japanese manufacturing companies, whose factories and offices are located in various countries, to help coordinate the company’s overseas operations. Despite the recent economic downturn and investment decreases noted in the above-referenced government survey, industry sources mention that demand for CAD software does not seem to be slowing down to the same degree when compared to other IT-related investments since this technology is seen as being critical to help companies make new product designs for introduction into the market, something viewed as essential for companies to survive. Since this is the case, companies are more likely to invest in new CAD software rather than purchase new IT hardware or other software applications.
Deployment of 3D CAD software in the construction sector has lagged behind the manufacturing sector. The concept of BIM is relatively new in Japan and large construction firms have only recently begun using BIM packaged software. There is great interest here in learning more about BIM to take advantage of its cost savings, its ability to shorten work schedules, and its ability to help address environmental issues. As the Japanese government is encouraging industry to reduce emissions, firms have become more environmentally conscious and are therefore looking for green solutions. As such, software used to analyze environmental impacts and cost efficiency is being sought. It is notable that the Japanese Ministry of Land Infrastructure, and Transportation (MLIT) on March 31, 2010, indicated it will adopt BIM for government building projects on a trial basis. Local industry welcomed this announcement and expects BIM to grow in popularity in the future.
The global economic downturn has adversely affected software investment by Japanese companies. According to the recent Japanese Ministry of Finance and Cabinet Office survey, software investment by business decreased by 19.8% in 2009, and within that figure overall total investment in software by the manufacturing industry decreased by 22.9% (Table 1). Although such decreases are expected to continue in the short term, the survey predicts that software investment should start to pick up gradually by the end of 2010. Yano Research Institute estimates that total sales for CAD/CAM/CAE systems in Japan will total USD 2.92 billion in 2009, a 10.3% decrease over 2008 (Table 2). Electronic design automation (EDA) software was adversely affected by the ailing semiconductor market in 2009 and decreased 17% over 2007.
Large scale manufacturing companies such as auto and aerospace firms which possess numerous factories and offices, and which work with many subcontractors have traditionally been the largest customers for PLM solutions until the recent economic slowdown. The headquarters operations for many companies in these sectors have already implemented their own systems which should continue to be used. Subcontractors tend to use the same system or ones which are already compatible with their customer’s data. 3D CAD will still be considered critical.
PLM applications such as data managing software, analytical software and document management control software will also be deployed as PLM is more widely utilized by various industries. According to an industry source, changes in manufacturing procedures should offer niche markets for PLM solution software.
In the construction sector, how broadly BIM is adopted will be the key to success for US companies, whose technology is recognized as being advanced. MLIT announced on March 31, 2010, that it will implement BIM on a trial basis for selected construction projects at the design stage. MLIT will examine the merits of implementing BIM in areas such as design visualization and information integration. Japanese construction firms and design offices are interested in learning more about BIM technology and how it is utilized in the United States. The International Alliance for Interoperability (IAI) Japan has organized an event called “Build Live Tokyo” twice in the past. The purpose of this event is to raise awareness and promote BIM solutions. At this event, Japanese construction companies and design offices compete virtually to complete a construction design using BIM within 48 hours.
As they become more environmentally conscious, Japanese companies are also seeking ways to contribute to a green society. In addition to making products more environmentally friendly, Japanese manufacturers are examining their manufacturing process to reduce emissions throughout the product lifecycle using PLM solutions. In construction areas where green building approaches are starting to be recognized, BIM is considered a tool to analyze environmental planning, energy utilization and building sustainability.
Another good prospect in Japan is 3D scanning technology. As compatibility with 3D CAD software has grown, interest in 3D measurement technology has recently been increasing. Demand for 3D CAD will increase as the 3D-scanning technology is deployed. Scanned data is integrated into 3D CAD applications which are used for facilities management, mapping, and civil engineering. Promising applications for 3-D scanning technology would include facilities management, mobile mapping systems, civil engineering, industrial plant imaging, and security.
In Japan, foreign CAD software products are usually first distributed through trading companies, agents and distributors. As business develops in Japan for foreign companies, however, many of them establish local operations, create their own distribution channels, and work directly with their local customers.
Actual end-users for CAD products are manufacturing companies and their subcontractors, construction firms, and design offices. Industries include automobiles, aerospace, electronic products, medical devices, consumer products, and construction. Large Japanese conglomerates tend to adopt the same software or interoperable products to streamline operations.
Participating in one of the below Japanese trade shows can provide good opportunities to meet with potential partners and gather market intelligence. U.S. new-to-market companies are encouraged to find Japanese partners who have experience and knowledge in the market and establish a good long-term relationship with them. Localization is necessary for most products to be accepted by Japanese users. Follow-up training and maintenance services are also critical so that end-users can use the products most effectively and obtain up-todate information on these products.
Since there are already many suppliers in Japan which carry domestic and overseas products, the Japanese market is highly competitive. However, potential Japanese end-users are always seeking innovative technologies and products that are environmentally friendly and cost effective.
Market Issues & Obstacles
There are no regulatory restrictions on exporting software to Japan. The competition between existing products is severe, however, and localization is necessary to gain acceptance by end-users. It is also important to conform to relevant Japanese laws such as the Building Standards Law which regulates the construction sector and update software as relevant laws/regulations are amended. In this regard, it is critical for U.S. companies who are not familiar with these regulations to have knowledgeable Japanese partners.
Thanks to the recent explosive growth in popularity for smartphones in Japan, both smartphone devices and applications are attracting more attention in Japan’s business and consumer markets. Although the penetration rate of smartphone devices is still relatively low, unit sales in 2008 reached 1.6 million units, a 68% increase from the previous year. From 2009 to 2012, the annual growth rate for the Japanese smartphone device market is predicted to increase between 20 and 30%. There is also demand among Japanese mobile service operators for more smartphone software choices as a means to gain market share and increased average revenue per unit (ARPU). For U.S. firms interested in the Japanese market, market-proven business applications for smartphones are in particularly high demand. Japan possesses a good foundation for the smartphone applications market since there is increasing demand for programs that enable users to do office work anywhere on mobile devices.
Smartphone handset shipments are still small, only 2% of the total mobile phone market in Japan compared to 17% in the United States. However, mobile service operators are expecting smartphones to create new business opportunities since the current non-smartphone mobile market is reaching a saturation point. According to a recent Japanese Government survey, the household penetration rate for mobile phones was 90.5% in 2008.
Existing traditional models lack strong replacement benefits and the upgrade cycle for these mobile phones tends to be longer so leading local service operators such as NTT DoCoMo or au (KDDI) are expecting more smartphone demand within the Japanese business sector.
As smartphones and smartphone operating systems are capable of being used “ubiquitously” (i.e. being used everywhere at all times), more enterprises will likely extend their in-house applications to the mobile environment and the demand for business applications for smartphones is therefore expected to increase. For example, mobile Software as a Service (SaaS) for customer relationship management (CRM), enterprise resource planning (ERP), sales force automation (SFA), or other enterprise solutions may be of interest to the business sector.
Thanks to the expansion of smartphone demand in the business sector and an increase in the number of device models, there is demand for high quality mobile-phone applications for business.
In Japan, mobile handset functions are becoming more diversified and advanced; therefore the need for highperformance operating systems (OS) is increasing. Chart 3 shows OS share in 2008. Windows Mobile share is high due to its earlier launch into the Japanese market. OS X (iPhone) was launched in Japan in 2008 and has reached almost 10% market share with more growth expected. In addition, smartphones equipped with messaging and office applications that are comparable with personal computers are attracting attention in the Japanese business market, which is expanding with the introduction in 2006 of Mobile Number Portability (MNP).
For U.S. firms interested in the Japanese smartphone market, market-proven business applications for smartphones are in demand. Japan’s mobile phone household penetration rate totaled over 90% in 2008 according to the Japanese Government. Hence Japan has a good foundation for programs which enable computing that people used to do at the office on desktop computers to be done anywhere on mobile devices.
Local mobile service operators are interested in attractive market-proven applications for smartphones to increase average revenue per unit (ARPU).
As for enterprises, most any firm can be a possible smartphone application user. But according to the 2008 survey conducted by Mobile Computing Promotion Consortium (MCPC), the smartphone implementation rate for business is just 7%. The business smartphone market is still at an emerging stage but industry interest in communications and productivity tools is high.
There are three key elements to launching smartphone applications into the Japanese market: (1) localization — localization includes Japanese translation, testing, and customization. Application suppliers are required to provide not only translations but to consider Japanese business customs and culture to meet local client needs; (2) support capability - Japanese language support is mandatory; and (3) product quality — quality control is one of the most important considerations for Japanese users.
Many American exporters use agents or distributors to pursue business in the Japanese market. However, finding prospective partners takes a long time. Japanese firms are always seeking new technologies from the United States but building long term relationships and trust are key to opening a partnership in Japan. Prospective exporters to Japan should be aware that competition is strong and that buyers expect a high level of after sales support. It is also important for U.S. companies to regularly visit their representatives in Japan and maintain a good relationship with them.
Market Issues & Obstacles
There are no significant regulatory issues for this market. However a low level of awareness of smartphone benefits among potential Japanese corporate customers is an issue impacting smartphone market growth.
According to the 2008 survey conducted by MCPC, 70% of corporate users mentioned that they ‘do not know’, or ‘only know the term’ when asked what they know about smartphones. Expected increases in the number of application stores and/or marketplaces and the provision of new services such as integration services for platforms and programs should increase the popular level of awareness.
Japan is the world's second largest market for information technology equipment
and services (telecommunications, computers, peripherals, software, and
multimedia). Fueling the current strong demand for telecommunications
infrastructure is the Japanese government's goal to connect all Japanese
businesses, government offices, schools, and homes by 2010, combined with the
e-Japan program initiated by former Prime Minister Mori that aims to make Japan
a leader in information technologies by 2005. Current investment in
telecommunications infrastructure is $40 billion annually. Japan's recent
exponential growth in the market demand for networking, for IP/broadband-based
communications, Internet applications, wireless communications (3G, wireless
LAN, etc), and satellite communications is expected to continue for the next
Note: The Yen/Dollar exchange rates used to calculate dollar figures for the
best prospects for non-agricultural goods and services were: 122 yen in
2001, and 125 yen in 2002, and 119 yen in 2003.
1. Medical Equipment (MED)
The Japanese medical equipment and supplies sector continues to be an
extremely successful market for American firms, representing one of the few
sectors where the U. S. has consistently achieved trade surpluses with
Japan. Japan's medical device market, the world's second largest, is also
one of the few areas in Japan that have achieved steady growth despite the
sluggish performance of the Japanese economy in recent years. The value of
Japan's medical device sector is expected to remain steady at around $13
billion in 2003. Traditionally, imports account for approximately 40 percent
of this figure, with American firms supplying approximately 65 percent of
imported products. Total U.S. sales in this sector, including local
production by American companies, are valued at roughly $5 billion annually.
The Japanese Government has undertaken a major reform of the Pharmaceutical
Affairs Law (PAL) for the first time in 40 years. One of the key provisions
of the reform is the creation of a new independent administrative
corporation, to commence operations in April 2004, that will be responsible,
among its other duties, for reviewing new medical devices. Since low-risk
devices will be reviewed by a third-party entity accredited by MHLW, this
new organization will be able to concentrate on evaluating medical devices
that pose a greater risk to the human body. The new organization will also
be given authority to collect user fees to cover its expenses, thus allowing
the hire of more reviewers. These steps are viewed as largely positive and
should result in faster and more efficient medical device approvals.
One Ministry of Health, Labor and Welfare (MHLW) study suggested that if
Japan's spending on medical care continues to increase at current levels,
national medical costs would exceed $670 billion by 2025. Under these
circumstances, it is expected that the Japanese Government will continue to
focus on reducing medical device prices. Further price cutting pressure is
expected, especially for sophisticated imported equipment for which
foreign/domestic price differentials are significant.
Overall, Japan's market for medical devices is expected to exhibit slow
growth in 2003. A strong emphasis on cost containment will continue for the
foreseeable future, but will be counter-balanced by the continued
introduction of new medical technologies into Japan. American firms will
continue to see bright sales prospects in the more technologically
sophisticated product categories such as pacemakers, advanced interventional
cardiology products, artificial implants, catheters and stents. Other areas
of projected stronger demand include software and other products used in
medical information systems and telemedicine.
Millions of U.S. dollars
Total Market Size
Total Local Production
Imports from the U.S.
Note: Statistics for 2001 are official figures; those for 2002 and 2003 are
2. Biotechnology (BTC)
Although Japan still lags considerably behind the United States and much of
Europe in the development of its biotechnology sector, it is making considerable
efforts to grow this sector as a major new industry. In this effort, the
Japanese government established the "Biotechnology Strategy Council" headed by
Prime Minister Junichiro Koizumi in early 2002 to discuss the strategic plan to
promote biotechnology at the national level. The Council compiled a strategic
plan in December 2002 that highlighted the government focus on biotech-related
research and development and industrialization of the research outcomes. Thus
the government budget for biotechnology and life science-related projects is
expected to grow steadily despite Japan's continued slow economy.
The market size of the Japanese biotechnology industry in 2002 was estimated at
$11.4 billion, a ten-percent growth rate over the previous year. Key market
segments include pharmaceuticals and medical diagnostics, functional food,
agriculture, bio-informatics and equipment for biotech research (DNA chips; DNA
sequencers, etc). Imports account for about one-third of all sales in the drug
and medical device sector.
The Japanese private sector (pharmaceutical, food/agricultural-related
companies, IT companies, etc.) is expanding into bio-related activities. These
firms are increasingly seeking opportunities to form strategic partnerships,
research collaborations, and licensing arrangements with U.S. companies and
Millions of U.S. Dollars
Total Market Size
Note: The above statistics are unofficial estimates.
3. Electronic Components (ELC)
Japan is the world's second largest market for electronic
components, and as such presents great opportunities for U.S.
suppliers, although competition from Japanese and other companies is
fierce. According to the Japan Electronics and Information
Technology Association (JEITA), demand for electronic components in
2003 is expected to increase 2 percent over 2002, while imports are
expected to grow by 2.2 percent. While modest, this growth is
welcome given the recent pain experienced in this sector.
The growing popularity of ubiquitous computing, new digital consumer
electronics products and intelligent transportation systems (ITS)
and telematics is driving demand. In particular, the market growth
for components in DVD players and car navigation systems should rise
substantially, perhaps as much as 30 percent a year over the next
few years. The onset and proliferation of 3G mobile
telecommunications, and the corresponding desire for ever-fancier
and flashier cell phones, should also spur semiconductor and
electronic component growth in the near future.
Another exciting new development that could help component demand is
in radio frequency identification (RFID). RFID is a promising new
technology intended to replace bar codes as a means to manage
inventory for retailers, trace delivery for distribution companies,
identify origin of products for manufacturers, etc. The number of IC
chips used for RFID products was 10.7 million in 2002, but this is
expected to increase 100 fold to 1.1 billion by 2010.
U.S. firms active in the semiconductor market in Japan include
Motorola, Texas Instruments, LSI Logic, Analog Devices, Intel, AMD,
Millions of U.S. dollars
Total Market Size
Total Local Production
Imports from the U.S.
The above statistics are unofficial US&FCS estimates.
4. Computer Software (CSF)
As Japan's economy has continued its struggle, the country's software market has
shrunk slightly as well. Businesses have been more careful about making new
investments in IT equipment, especially since new purchases involve not just
software, but also hardware, wireless devices, broadband access and/or web
services. Companies want a high return on their IT investment.
The software market has also been hit hard by the drop-off in demand for IT from
the financial and telecommunication sectors, two of the biggest sectors to
purchase IT products and services in the recent past. System integration and
software development, two areas where Japanese vendors are strong, have suffered
the most. Stiff price competition in a down market has also negatively affected
However, there continues to be strong demand for system infrastructure software,
such as package OS, network software, storage management, security and system
management -- areas where U.S vendors have a particularly strong hold.
There is also hope in the government sector. Indeed, the Government of Japan is
expected to spend 1,324 billion yen (about $11 billion) on IT procurement over
the next 3 years (2003-2005) as part of its "e-Japan" program, an initiative
aimed at completely digitizing the government so that all administrative
services can be delivered to citizens online by 2005. There is opportunity for
U.S. firms in areas such as e-education software and security/privacy software
in this regard, although U.S. vendors should consider strategic alliances with
well-established Japanese distributors/integrators to succeed in this market.
The rapid expansion of broadband in Japan is also creating opportunities.
Software products that make use of broadband, such as for amusement/gaming,
video/audio, communication, and remote education, should be in high demand for
years to come.
As seen in the table below, the majority of imported software in Japan is
U.S.-origin. Most major U.S. software suppliers such as Microsoft, Oracle,
Symantec, Adobe, and Macromedia, have established a strong market presence in
Millions of U.S. dollars
Total Market Size
Total Local Production
Imports from the U.S.
Notes: 1) Total exports include game software
from Japan. 2) The above statistics are unofficial US&FCS estimates.
5. Pharmaceuticals (DRG) Japan continues to be the world's second largest consumer of
pharmaceuticals and the largest international market for American drug firms.
Each year, sales of prescription drugs in Japan total about $60 billion. Japan's
imports of pharmaceuticals account for almost 10 percent of the total market,
and industry sources indicate that the total market share of foreign originating
drugs in Japan is much higher than is suggested by current import levels. The
market share for foreign firms is estimated to be approximately 45 percent if we
include direct imports, local production by foreign firms and compounds licensed
to Japanese manufacturers. American pharmaceutical firms have achieved a market
share approaching 20 percent.
Japan's aging population is generating increased demand for pharmaceutical
treatments for such chronic illnesses as cardiovascular problems, digestive
problems, diabetes, anti-cancer remedies, diagnostic reagents, etc. It is also
expected that the use of generic drugs will be further promoted as, with the
aging of its population, Japan faces a budgetary crisis in its healthcare
system. However, the other side of the coin is that the government of Japan has
systematically embarked on a mission to cut the reimbursement prices of
pharmaceuticals. Conversely, they are also interested in fostering the proper
atmosphere for innovativeness in order to develop the Japanese pharmaceutical
industry. One way to achieve this goal was the increase, in 2002, in premium
pricing that rewards innovative drugs. The use of this system, and the
continuous launching of new products by U.S. firms, should serve to enhance
sales of U.S. pharmaceutical products, in spite of the downward pressure on
Another positive step taken by the government of Japan that will help
U.S.z88;pharmaceutical exporters is the revision, for the first time in 40
years, of the Pharmaceutical Affairs Law (PAL). Under this revision, a new
reviewing agency will be established, to begin operations in the spring of 2004.
This should speed up the process by which new pharmaceuticals are introduced
into the Japanese healthcare system. The government has also promised that the
new agency will examine the concept of performance measures, embrace
international harmonization and utilize internationally accepted science.
Millions of U.S. Dollars
Total market size
Total local Production
Imports from the U.S.
14. Telecommunications Equipment (TEL)
Japan's telecommunications equipment market has declined for two consecutive
years, with a 32 percent drop between 2001 and 2002. This precipitous fall
comes largely as a result of the bursting of the IT bubble worldwide and
Japan's prolonged economic stagnation, both of which have contributed to
reduced investment in IT and telecommunications equipment by Japanese firms.
However, as part of the Government of Japan's so-called e-Japan initiative,
which aims to make Japan "the world's most advanced IT nation" by 2005,
Japan is making progress toward rolling out an impressive broadband network
nationwide. As a result, Japan remains a strong market for fiber optics and
"last mile" solutions. According to the Ministry of Public Management, Home
Affairs, and Posts and Telecommunications (MPHPT), there were 10.4 million
households with broadband connections as of April 2003, with roughly 8
million using ADSL, 2 million utilizing cable, and another 400,000 gaining
access via Fiber-To-The-Home (FTTH). ADSL growth has been most impressive,
with just 1.32 million users in December 2001, but FTTH is also expected to
grow rapidly over the next several years.
Japan's telecom equipment market is very competitive with world-class
domestic manufacturers willing to engage in cutthroat price competition. The
primary telecommunications manufacturers association, the Communications and
Information Network Association of Japan (CIAJ), has about 200 members
including leading Japanese manufacturers such as NEC, Fujitsu, Oki, and
Hitachi. Most major European and North American telecom equipment suppliers
also have offices in Japan, including Alcatel, Avaya, Cisco, Lucent and
As broadband usage has proliferated, IP Telephony via dedicated networks has
become increasingly popular. According to Yano Research Institute Ltd., the
number of households using IP phones at the end of 2002 was 3.08 million,
with an additional 10,100 corporate users. This is expected to increase to
5.32 million household and 11,980 corporate users by the end of 2003.
Conversely, the market for WAN nodes such as ATM nodes, Frame Relay nodes
and TDM, has been shrinking drastically, as Japan's telecommunications
network relies more heavily on IP technologies.
The best sales prospects in Japan's telecom market include networking
equipment such as Layer 2 switches, Layer 3 switches, xDSL's access
multiplexers and modems, WDM equipment and media converters, IP-PBX, VoIP
gateway, IP telephones and load balancers.
Telecommunications Equipment Market (million USD)
(Source: Communications Industry Association of Japan for 2001 and 2002;
unofficial US&FCS estimates for 2003)
Note: The figures for 2001 are the latest
official figures; statistics for 2002 and 2003 are unofficial estimates.
Examples of Major Foreign Direct Investments by
US companies and other Foreign Nations' companies
C and W (British/US interest) acquired IDC
MCI World Com - Greenfield investment
Level 3 - Greenfield investment
Time Warner/Media One - TITUS
Global One (Sprint JV with European firms) -greenfield investment
Cisco Systems -capital participation in Soft Bank
Microchip Technology - acquired assets of Fujitsu
Intel - capital participation in Nikon