I met last week for sushi with an old friend of mine and business counterpart, from a very well known Japanese IT company, a very senior executive who has served as the distributor for half dozen or so Israeli IT products, evalauted dozens more, and visited Israel several times. He brought several of his senior staff to meet me, and we had a grand old time, the sake flowed. Well, about into our 5th bottle, he turned to me and said, in hesitating English but with a face flushed with sak-e-motion, "Daniel-san, we are now talking like family, and I hope I do not say something bad, it's okay?"

Oh no, here it comes, more politics, Iraq, Bush, Palestine... But what could he possibly say to offend me, I pondered, so encouraged him to go on. "Daniel-san, Israeli companies have such great technology, but WHY is product quality so BAD?!?!? Please explain this to me!"

I quickly swallowed my melt-in-my-mouth negi-toro-maki, but without hesitation answered, "Good innovation and poor quality are both deeply embedded in the culture. In Israel, we do not really understand how Japanese customers think, and how critical quality is to gaining customer acceptance and sales growth. Quality is the number one marketing feature." I had just heard from a different manufacturer that rigorously tests products before shipping to customers, and is also a channel for a famous US IT products manufacturer, that their testing until recently yielded over 10% DOA (dead on arrival - fatally defective products), and the Japanese customer recently transferred its proprietary test-bed to the US manfacturer.

"Daniel-san, that is EXACTLY what I think. So what should we do?"

"First, don’t accept the products," I answered, recalling what Kyocera did to Iscar products over twenty years ago when the coloration of the cutting blades was not uniform. Dealing with this crisis led Iscar's quality to jump dramatically as it worked to satisfy its Japanese partner, and the end customers. "Second, after they get over the shock, go to their CEO and offer to send a quality engineer for a week to show them some of their major defective practices."

"Daniel-san, what do you think is an acceptable rate of rejects for Japanese manufacturers of, say, networking equipment? Take a guess." My wild and slightly inebriated guess was 1%, and my friend somberly (not soberly) said, "LESS than 1%."

So please note: the primary marketing consideration in Japan is a quality product (I think Konosuke Matsushita said that). There are many others, but that is very high up. And note that the Japanese have very high-quality standards, and we need to listen to customers to find out what they are.

Good luck, and Hag Sameah!

Dan

***ISRAEL-JAPAN NEWS***

+JAPAN'S KANSAI PAINT CHOOSES STOREAGE SVM

StoreAge Networking Technologies announced the deployment of its SVM (Storage Virtualization Manager) at Kansai Paint, the largest Japanese paint manufacturer. The was effected in cooperation with Computer Dynamics Corporation, StoreAge's partner in Japan.

+COGNITENS RECEIVES MULTIPLE SYSTEM ORDERS FROM JAPAN

CogniTens received orders both for its systems from TSK, its Japanese distributor for OEM and Tier-1 customers. These orders will be supplied during this quarter. With this installation, the total installation of CogniTens systems in Japan will be a few dozen systems.

+MITSUBISHI CORP. PARTNERS WITH P-CUBE

Israeli start-up P-Cube announced a business alliance with Mitsubishi Corp. to deliver P-Cube Service Control solutions to Japanese broadband providers. P-Cube brings high-precision service assurance and control to IP networks, offering carriers the service deployment velocity and billing flexibility they need to increase profits.

***BUSINESS NEWS***

+AMENDMENT TO JAPAN'S TELECOM LAW PROPOSED

Japan's Ministry of Public Management, Home Affairs, Posts and Telecommunications completed in March a proposed amendment to the Telecommunications Business Law and NTT Law. If concluded, this will be the most substantial revision after the telecommunications liberalization in 1984, comprising drastic deregulation in this area including the liberalization of communication service fees with some limited exceptions.

+ JAPAN'S BROADBAND USERS CLIMB TO 8.8 MILLION

As at the end of February, the total number of Japan's broadband users reached 8.88 million, the Ministry of Public Management, Home Affairs, Posts and Telecommunications reported. That was an increase of more than 536,000 lines compared with the figure at the end of January. At this rate, the number of domestic broadband lines could exceed 10 million lines in May.

+NTT GROUP MAY INTEGRATE BROADBAND OPERATIONS

Four group firms of Japanese telecom giant NTT Corp. plan to integrate their broadband operations under a single company, according to the Nihon Keizai Shimbun. The move, which could come as early as this year, would be aimed at responding to intense competition on broadband from rivals such as Softbank, as well as the shrinking market for fixed-line phone service. NTT, which was split into four firms in 1999 to help spur competition in the telecommunications, denied the report.

+JAPAN ADDS MORE THAN ONE MILLION 3G SUBSCRIBERS IN MARCH

More than one million users signed up for 3G mobile phone services in March in Japan, helped largely by surging 3G subscribers from KDDI, this according to Japan’s Telecommunications Carriers Association (TCA). KDDI, Japan’s second-largest mobile phone service provider, added about 914,100 3G subscribers to reach 7 million. NTT DoCoMo continued to see growing 3G subscribers, adding 138,400 new FOMA subscribers in March, nearly triple the rise in February.

+DOCOMO 2G ARPU IS HIGHER THAN THOSE OF 3G

NTT DoCoMo reported it generates less average revenue per user from customers on FOMA 3G wireless service than those on conventional 2G i-mode service – roughly $69 to 2G’s $70.5. DoCoMo claimed that there weren’t enough applications for 3G technology, and that the attraction of developing applications is not large enough given the low customer total.

+DOCOMO CLOSES IN ON J-PHONE IN CAMERA-PHONE USERS

Japan's top cellphone operator, NTT DoCoMo, said its camera-phone users now number over nine million, threatening the No.1 spot in the domestic camera-phone market held by camera-phone pioneer J-Phone.

+NEC RE-ORGANIZES LCD OPERATION

NEC Corp. said it has agreed with SVA Group, China's largest home appliance and electronic parts maker, to set up a joint venture that produces TFT-color LCDs in China. The LCD panel plant in China is going to be constructed in Shanghai and start operations in October 2004. NEC also is planning to spin off its LCD division into an independent company in Japan.

+INVESTMENT IN BIOTECH ON THE RISE

Japanese venture capital firms are reportedly stepping up investments in biotechnology start-up companies by contributing money into funds dedicated to biotech ventures. In a recent meeting between British and Japanese venture capital firms, it was reported that Japanese fund NIF Ventures began actively investing in biotech firms in FY2001. Its investment in such firms totaled more than $3 million in that year and is estimated to have shot up to $20 million by FY2002, accounting for more than 10% of its total investment. Japan Asia Investment, which set up a $12 million fund specializing in investments in biotech firms in September 2000, has invested a total of just under $9 million in 28 companies. VC firms are boosting biotech investments because an increasing number of start-ups, including those formed by university researchers, are springing up. By one estimate, Japanese biotech ventures totaled 333 as of the end of last year, doubling over the past four years.

***GENERAL TECHNOLOGY NEWS***

+ GOVT. TO EXPAND PENETRATION OF CELL PHONES INTO UNUSABLE AREAS

The Posts and Telecommunications Ministry aims by the end of fiscal 2005 to enable cell phone communications in over 90% of the areas where phone reception is currently problematic. The ministry will subsidize the construction of necessary facilities, with the order of payments depending on how strong public demand for cell phone use is at each location.

+ DOCOMO TO LAUNCH GPS MOBILE PHONES

In a bid to lure clients and boost data traffic, NTT DoCoMo said it would launch a mobile phone capable of showing the user's location on the phone's screen using a satellite-based global positioning system. It would be DoCoMo's first mobile phone with a GPS function. Rival KDDI launched GPS phones in December 2001.

+SO-NET TO START EXPERIMENT ON IPV6 CONNECTION USING COCOON

Sony Corp. and Sony Communication Network Corp., which runs the Internet access service "So-Net," announced that they would start an experiment on an IPv6 connection employing Sony's home audio video server in May. The experiment’s objective is to verify the connectivity, operating technologies, and quality of the service.

+SOFTBANK STARTS TV SERVICE ON ADSL NETWORK

Japan's Softbank Corp. said it launched a commercial cable TV operation in March for users of its ADSL high-speed Internet access service in Tokyo, in its latest bid to secure a leading position in this market. This is the first time regular TV broadcasting has been available on an ADSL in Japan. For an extra fee, the service will also offer a video-on-demand service.

+ FUJITSU ANNOUNCES CONTACTLESS PALM BIOMETRIC AUTHENTICATION SYSTEM

Fujitsu Laboratories has developed a contactless biometric authentication system capable of verifying identities by recognizing the pattern of blood veins in the palm without making physical contact. Fujitsu is considering using the technology not only for security purposes but also for recording attendance of registrants.

+JAPAN LOOKS TO PROTEOMICS AS WAY BACK INTO GENOME GAME

Japan, up until now a player of secondary importance in the human genome sequencing effort, has reportedly decided to become more involved. In 2002, the government launched the Protein 3000 project, whose stated goal is the analysis of the structure and function of 3,000 proteins related to new drug development. Japanese drug companies have also begun efforts to tap the sequence data, looking for relations between genes and diseases that can open doors to new genetic drugs.

+NEC DEVELOPS EFFECTIVE ANTI-VIRUS TECHNOLOGY FOR COMPUTERS

NEC Corp. has developed a technique to effectively shield computer networks from virus attacks, in cooperation with the University of Tsukuba. The technology uses a fake server and Web site, both of which are operated separately from genuine servers and Web sites. NEC aims to further improve the new technology and commercialize it by the end of fiscal 2003.