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A monthly review of the latest developments in Japan’s IT, telecom, and life sciences sectors

March 2002 - Volume V, Issue III

Triangle Technologies is the leading Japan Israel business development and investment advisory firm
www.triangletech.com

Dan's Desk

From Triangle's CEO

WE HAVE AN AGREEMENT, RIGHT? WELL, MY LAWYER WILL BE IN TOUCH WITH YOU SOON

Last month I helped resolve a situation in which a Japanese distributor wanted to renegotiate a recently concluded, legally binding agreement with an Israeli technology company. Fortunately for both, the Israeli CEO was flexible and wise enough NOT to say, "You'll get a letter from my lawyer", even though on legal grounds they certainly had the right to do so. The end result (after lots of discussion back and forth!) was what appears to be a win-win situation - both sides expect now to benefit from flexibly giving and getting. And the Japanese partner SO appreciated the Israeli company's flexibility that now they are making an even harder effort to succeed.
To me, the demand by the Japanese distributor did not seem that unnatural - I had been involved in similar situations before - yet it seemed so perverse to the Israelis! (I completely understand their feelings). To quote from the fascinating “Japanese Negotiator”, by Robert March (1988, Kodansha), "The Japanese have believed that the specific items of a contract are always, even immediately after signing, open to renegotiations." Why? Just a few of the reasons:

1. A lot of deals between Japanese companies are still done without written contracts - the ones that are written are short and vague (last year I executed a $1 mio investment in a Japanese company with no subscription agreement, no shareholders agreement, etc., etc.; not recommended for the fainthearted...).

2. When it exists, a contract is often a statement about the existence of a trust relationship, not a statement of precise commitments and conditions. (I just got off the phone with the CEO of a Japanese company that signed a large deal with DxCxMx - the initial terms are specified in numbers, but thereafter the two parties will negotiate in good faith....).

3. Circumstances change, so why shouldn't contracts? How can we specify all the circumstances in advance? Isn’t it better to build a relationship of trust, and then work out the issues as they arise? When the situation changes, Japanese partners feel free to re-open existing agreements, especially...(next)

4. In the same boat - the instances of contract renegotiations that I have been personally involved in have all stemmed from changing circumstances, such that the interests of the two sides diverged - one side stood to make money, while the other would lose (the Japanese of course). Not a good basis for a partner,ship, right?

Am I saying that anyone can open up the contracts anytime they want? NO! I am saying that when this happens, you need to understand what has changed, and also understand what your own short and long term interests are. It may be a chance to strengthen the partnership; it may be a good chance to improve your own terms (win-win); grabbing a few bucks now vs. losing the commitment of a partner for a long, long time...mmm, there is a tradeoff to think about!

Dan

***Triangle Technologies News***

+Cyota sign Distribution Deal with IWI

Israeli e-payment security company Cyota signed a new distribution partnership with Intelligent Wave Inc. of Japan. The deal is estimated to be worth $10 million for Cyota over the next three years. Triangle Technologies played a key role in negotiating and closing the partnership agreement. The agreement will allow Cyota to quickly penetrate the Japanese market, using IWI’s market position. The first products to be jointly marketed are Cyota’s Verified by Visa product - Cyota SecureVbV and the Cyota SecureSuite platform. Cyota, founded in 1999, is a privately held company that develops online security, payment and transaction products.

***Israel-Japan News***

+Oridion Receives JMH Approval

Oridion Systems (SWX New Market: ORIDN), which develops systems that measure carbon dioxide in human breath, said that Japan's Ministry of Health had approved several of its vital sign monitors and consumable products.

+Midbar Tech to provide CD copy control in Japan

Midbar Tech, developer of Cactus Data Shield (CDS) digital music copy control technology, announced today, that it will provide the technology for the first one million copy-protected CDs to be released in Japan. Select releases will be protected by the new CDS-200.0.4, unveiled at the end of last January at Midem 2002, and will be identified as such on the outside of the CD casing with a special label. To date, over 10-million CDS protected CDs have been released into the world market

***General Technology News***

+Japan's dial-up Net subscriptions top 20 million

Japan's Internet penetration grew to 19.95 million dial-up Internet subscribers at the end of January, according to Ministry of Telecommunications figures. Broadband services made up much of the increase while dial-up growth slowed. Japan's DSL-based Net population has rocketed forward to 1.79 million at the end of January.

+Japan's Server Market Registers 19.4 Pct. Growth in 2001

460,000 servers were shipped in Japan in 2001, up 19.4 percent from 2000, and registering 889.6 billion yen in value, down 1.7 percent. In the first half of 2001, server shipments rose 30.3 percent from the same period of the previous year. However, from the third quarter of 2001 the growth rate decelerated and the units shipped in the latter half of 2001 recorded only a 10.2 percent increase.

+FY2001 Internet ads worth JPY73.5bn

According to Dentsu, the leading Japanese advertising firm, the Internet ad market for last year was worth JPY73.5bn, a 24.6% increase over FY2000. The increase was mainly from cell phone operators like NTT DoCoMo. According to Dentsu, the overall Japanese ad market was worth JPY6.058trn last year, down slightly from FY2000.

+JASDAQ and NASDAQ Japan Negotiate Possible Integration

Japan's two stock exchanges, Nasdaq Japan and JASDAQ, are negotiating for a possible integration, according to Nikkei Net. Along with Mothers at the Tokyo Stock Exchange (TSE), the two exchanges are more lenient on listing criteria than other traditional exchanges such as TSE, and thus are thought to be the first places for venture firms to go public.

+Joint Development for 3G

NEC, Matsushita Electric Industrial (MEI) and Matsushita Communication Industrial (MCI) announced in February that they had completed their joint development of a semiconductor chip for 3G mobile phones. The chip supports complex data processing including smooth animation streaming. NEC and MCI will separately release their own terminal using the chip at the end of this year. The companies plan to license semiconductor/terminal manufacturing companies their chip design technology, and anticipate playing leading roles on the global 3G terminal development market.

+KDDI to deploy BREW to subscribers

KDDI, the second largest operator in Japan behind NTT DoCoMo, has announced it will begin deployment of Qualcomm's BREW technology this month. BREW is an execution environment which resides on mobile handsets and enables users to run rich applications.

+Microsoft Bluetooth Boost

Sales of Bluetooth-enabled mobile phones in Japan are expected to receive a boost this summer when Windows XP ships with Bluetooth drivers. Fujitsu, Mitsubishi and Sharp will market their new FOMA 3G phones as Bluetooth ready.

+IIJ to Launch Internet VPN Service Covering 50 Countries in April

Internet Initiative Japan Inc. (IIJ), a major Japanese Internet service provider, announced March 5 that it would start providing a new service called "IIJ Global VPN Service" from April 1. The service will be based on Internet virtual private network technology and will allow firms and users to access the Internet via IIJ from overseas access points.

+Fuel Cell May Go into Practical Use in 2003

Fuel cells for mobile information devices are entering into a practical phase, as Toshiba demonstrated a prototype product of a commercially available PDA incorporated with a fuel cell at a technology exhibition held on Jan. 30, 2001. The company is trying to speed up the development for commercialization of the product by 2003.

+NEC and Telecom Firms Eye tie-up as Internet Provider

NEC has begun talks with NTT and two other major telephone carriers to create an Internet service coalition, sources said. NEC is negotiating with NTT Communications, KDDI and Japan Telecom to launch an alliance that would be known as Japan Online (JOL). The alliance would not be a merger or integration, but would give the Internet service providers a combined 10.8 million subscribers, they said Monday.

+eBay Japan to Withdraw from Net Auction Market

eBay Japan has announced that it will shut down its web auction site by the end of March. eBay had mentioned as early as January that it may sell its Japanese operation, as it wasn't generating enough business. eBay Japan had suffered a lot from severe competition, the continued economic recession, and the hegemony of Yahoo! JAPAN.