U.S. firms see Asia’s promise

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VerticalNet chairman Mark Walsh has spent the last couple of years preaching his company’s gospel across the U.S., promising profits and Internet efficiencies to all who would listen. Now, he and a group of execs from other b-to-b giants are taking their messages to the nation with the planet’s second largest economy: Japan.

A Who’s Who of U.S. b-to-b companies has in recent weeks entered the Japanese market with new joint ventures and subsidiaries. Others are planning big Japan projects:

• Internet Capital Group will invest $200 million in Japan b-to-b start-ups.

• e21 Corp., a U.S. b-to-b e-business agency, today will announce it will buy Space Net Co. Ltd., a Tokyo tech developer.

• VerticalNet Inc. will introduce a Tokyo-based joint venture, VerticalNet Kabushiki Kaisha.

• MetalSite will start MetalSite Japan Corp.

• Office Depot Inc. by June will launch a buying site for Japanese businesses.

These comprise the biggest collective moves by U.S. b-to-b companies into any single country. What is most striking, however, is not the development’s scale, but that it is happening in a nation that is mired in an 11-year recession that shows no signs of abating. The Japanese economy remains sluggish and inefficient. But most of the U.S. b-to-b executives said that this is precisely why they are entering now.

‘‘Japan is a huge opportunity with huge inefficiencies,’’ said Sam Jadallah, managing director of Internet Capital Group Inc., a b-to-b holding company. ‘‘And we think the Net will change business in Japan even more than in the U.S.’’

Jadallah said Japan’s legendary ability to adapt to technology swiftly will prompt a b-to-b boom. ‘‘If you look at the adoption rates of technology in Japan, you know they are aggressive.’’

Indeed, most executives said that Japan’s business leaders are shedding their notoriously hermetic ways and are more open than ever to working with expert outsiders. With b-to-b, this puts U.S. companies in particularly good stead. This is creating huge opportunities for Americans who are willing to partner with Japanese companies, executives said.

‘‘The attractiveness of Japan is not new,’’ said Ben Smith, a consultant with A.T. Kearney. ‘‘It is just that they are only now beginning to open up.’’ He also said that the Japanese government’s powerful Ministry of International Trade and Industry has in recent months begun focusing on b-to-b as a way to drive Japan’s economy. In a country where government and business have a symbiotic relationship, this is especially important.

The U.S. companies’ moves also underscore a shift from Europe--one of b-to-b’s biggest stories of the past half year--to Asia. Japan aside, Asia’s hangover from its three-year-long megarecession is nearly gone. Recent gross national product growth rates in some Asian countries, are nearly double that of the U.S. rate and are far greater than most European countries.


In all cases, the U.S. b-to-b companies are partnering with Japanese companies or Japanese executives. Tokyo-based Web powerhouse Softbank Corp. and VerticalNet jointly own VerticalNet Kabushiki Kaisha; MetalSite Japan Corp. is a joint venture between New York-based MetalSite and Japanese industrial giants including Sumitomo Corp.

The consensus among U.S. business strategists was that it would be easier to scale Mt. Fuji on one’s fingertips than to go it alone in Japan. This is because of the unwillingness of Japanese brass--no matter how Internet savvy--to work with individuals or companies they do not know intimately.

‘‘Business in Japan is relationship-driven,’’ said Robert C. Azar, CEO of Pacific Rim Management Consultants, which advises longtime Japan hands such as Merrill Lynch & Co. and J.P. Morgan & Co. ‘‘It’s the trust factor. They will absolutely not do business with you if they do not trust you.’’

U.S. companies can also sidestep stifling anti-foreigner red tape--and hefty taxes--by partnering. ‘‘There are nontariff barriers thrown up to keep people out. When you have a local partner you can spirit around them,’’ Azar said.

ICG, VerticalNet take Tokyo

Internet Capital Group last week announced that it was launching Internet Capital Group Japan K.K., a wholly owned subsidiary. The company will invest some $200 million in Japan b-to-b start-ups.

ICG K.K. is unusual in that its U.S. parent wholly owns it. The company, however, will focus on hiring local executives, Jadallah said. ‘‘We believe that to get business done we need to get people who are connected. You can’t run this from Silicon Valley,’’ he said. For that reason, ICG K.K. is assembling a board of influential Japanese businesspeople to help establish ties.

One driving factor for VerticalNet’s decision to enter Japan is the country’s widespread adoption of wireless devices, Walsh said. ‘‘They’re blowing away everyone else on wireless,’’ Walsh said, noting that roving VerticalNet Kabushiki Kaisha sales people will rely on their Web cell phones to get leads. Tellingly, VerticalNet’s leaders were willing to sacrifice majority ownership in VerticalNet Kabushiki Kaisha to get into the market. The company is 60% owned by Softbank and 40% by VerticalNet.

But Japan is only VerticalNet’s entrée into Asia, Walsh said. The Wayne, Pa.-based company will announce a South Korea subsidiary by early next year and is examining other countries, including China.

Enter e21

E21 Corp., a Fremont, Calif.-based b-to-b e-business agency, is positioning itself to help U.S. companies in the coming Japan-Asia boom. Today, it will announce that it is acquiring Tokyo-based Space Net Co. Ltd. and Los Angeles-based eServiceOffice, both b-to-b engineering and software companies. E21 also recently snapped up Magic Media, one of the biggest marketing agencies in Taipei.

The acquisitions will allow e21, which consults to U.S. b-to-b companies that aim to do business in Asia, to offer more technology services, said CEO Joseph Sun. The purchases come less than two months after e21 bought C-Tech, a Tokyo Web networking company.

The most common gaffes among b-to-b executives in Asia, however, are not technology-related but cultural. ‘‘A U.S. company that will go unnamed was giving away clocks in China. Clocks signify death in China,’’ Sun said. E21’s clients include BroadVision Inc., Microsoft Corp. and IBM Corp.

Optimism toward Asia among those interviewed for this article was clearly higher than the skeptical attitude most U.S. executives have had toward Japan in recent years. But most also fretted that Japan’s cloistered ways will again surface. The result could kill off the b-to-b boom there before it starts.

‘‘Japan’s keiretsu-like behavior could turn itself against the Internet as an open trading community. If that happened, we would have a challenge,’’ Walsh said.

Others agreed. ‘‘There are,’’ said Pacific Rim Management’s Azar, ‘‘26 ways to say `no’ in Japanese, including the word `yes.’ ’’

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