global american technology alliances

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 decade.

BEST PROSPECTS

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

Year	2001	2002 (est.)	2003 (estimated)
Total Market Size	16,031	16,597	16,719
Total Local Production	12,434	12,135	12,748
Total Exports	3,257	3,180	3,340
Total Imports	6,855	6,742	7,311
Imports from the U.S.	4,394	4,382	4,752

Note: Statistics for 2001 are official figures; those for 2002 and 2003 are unofficial estimates.

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 research institutes.

Millions of U.S. Dollars

	2001	2002	2003
Total Market Size	10,700	11,400	12,500

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, and others.

Millions of U.S. dollars

Year	2001	2002	2003 (Estimate)
Total Market Size	41,700	42,100	42,900
Total Local Production	72,600	73,300	74,800
Total Exports	62,500	61,200	61,800
Total Imports	31,600	31,200	31,800
Imports from the U.S.	12,800	12,500	13,000

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 software sales.

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 Japan.

Millions of U.S. dollars

Year	2001	2002	2003 (Estimate)
Total Market Size	15,100	17,450	17,250
Total Local Production	9,050	9,950	9,650
Total Exports	1,300	1,350	1,400
Total Imports	7,350	8,850	9,000
Imports from the U.S.	5,560	6,600	6,750

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 prices.

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

Year	2001	2002 (estimated)	2003 (estimated)
Total market size	58,755	56,191	60,807
Total local Production	53,314	50,994	55,172
Total exports	406	396	416
Total imports	5,847	5,593	6,051
Imports from the U.S.	1,244	1,119	1,210

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 Nortel.

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)

	2001	2002	2003
Import Market	4,207	3,123	3,117
Local Production	31,407	21,297	21,252
Exports	5,791	4,093	4,085
Total Market	29,824	20,327	20,284

(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

Information Technology/Telecommunications

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

Internet users	56,000,000
Internet Users Rank	3
Internet Users Date of Information	2002
Telephones - mobile cellular	63,880,000
Cell Phone Rank	3
Cell Phone Date of Information	2000
Telephones - main lines in use	60,381,000
Telephone Rank	3
Telephones Date of Information	1997
GDP - real growth rate(%)	-0.3
Growth Rank	84
Growth Date of Information	2002 est.
GDP - per capita	$28,000
GDP/pc Rank	13
GDP/pc Date of Information	2002 est.
GDP	$3,550,000,000,000
GDP Rank	4
GDP Date of Information	2002 est.
Population	127,214,499
Pop Rank	11
Pop Date of Information	July 2003 est.

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This site was last updated 27 March, 2007