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October 14, 2004

After an economic slowdown lasting more than 10 long years, Japan's eCommerce sector experienced faster growth than in the United States in the first two quarters of 2004, an important recovery that made front-page news in many economic circles.

To ensure the long-term health of the economy, the Japanese government launched e-Japan Strategy II last year, a plan for creating a vibrant and world-class e-commerce environment.

Japan is targeting seven sectors for development, from medical services and food safety to finance for small- and medium-sized businesses and education. The program represents a huge opportunity for US and other foreign companies.

The two recognized drivers that fuel consumer e-commerce growth — experienced Internet users and broadband adoption — are in place today in Japan. The percentage of households in Japan using broadband is set to grow to over 70% by 2007, according to eMarketer estimates.

"Broadband usage is on an upward trajectory," says Jeffrey Grau, eMarketer senior analyst and author of the report. "But Internet user growth is leveling off."

eMarketer estimates that by the end of this year there will be 72.8 million Japanese Internet users online from either home or work, but Internet usage in Japan has moved from a rapid growth stage to a mature stage.

In 2001, the number of new Internet users increased by 29% over the previous year. The annual growth rate this year is slated to be 12%, and by 2007 it will slow down to 4%.

Declining Internet user growth is a natural outcome of a highly penetrated market. In 2001, only 38.4% of the Japanese population used the Internet, providing room for growth. This year, an estimated 57% of Japan's population of 127.6 million people will be online.

"With improved speeds and access opportunities, Japan's Internet population will demand more sophisticated services, which explains the government's strategy.

The online marketplace in Japan is mature. Now, the country's goal is to add depth and range to what it's doing online," Grau said.

Paid Inclusion

"There is no question that the e-Japan Strategy II holds promise for US and other foreign firms who are looking to enter the second largest national economy in the world," says Mr. Grau.

"With its emphasis on developing innovative Internet applications that touch people's lives in fundamental ways, there is potential for entrepreneurial IT companies and application service providers."

"However," cautions Grau, "doing business in Japan requires patience and a long-term view.

Firms will encounter many hurdles, and anyone who wants in had better plan ahead to minimize the problems — because there will be problems."

Source: eMarketer