A Major Backfire in Japan Deflates Vodafone's One-Size-Fits-All Strategy

Yoko Yakushiji's biggest complaint with her Vodafone cellphone was not just the lack of functions, the expensive bills or the poor signal. It was not even the delays in receiving text messages.
What annoyed her most was feeling like a social outcast, cut off from the instantaneous electronic world of Japan's tech-savvy youth. The 21-year-old university student says she often missed friends' calls and messages with invitations to meals, parties and even class assignments.
In April, she switched providers - something she had resisted because she had to change her phone number and phone-based e-mail address.
"My friends used to treat me differently. They'd say things like, 'Oh, you can't reach Yoko. She's got Vodafone,' " said Ms. Yakushiji, a junior in international finance at Meiji Gakuin University in Tokyo. "I just couldn't take it anymore."
Ms. Yakushiji was not the only one, as Vodafone, the world's largest cellphone carrier, is finding out. Service problems, a botched rollout of its third-generation phone network and a skimpy lineup of new handsets have driven away Japanese customers in droves. The exodus has turned into an embarrassing and costly setback for Vodafone - and one it is now struggling to overcome...
...the one-size-fits-all approach backfired in Japan. Features that were acceptable in Europe or the United States appeared primitive and clunky in Japan. Consumers here are used to getting new technologies like high-resolution color screens, two-megapixel cameras and full Internet access a year or two before the rest of the world...
... in the first five months of this year, Vodafone lost nearly 200,000 subscribers...The unit's stock tumbled 30 percent in March and April before it was delisted on Aug. 1... ...More...

NYTimes link, expires rapidly so grab it while it's still available.

if you use the NYT link generator, you can make a link that wont expire after 2 weeks:

Use this:

http://nytimes.blogspace.com/genlink?q=http://www.nytimes.com/2005/09/05/business/worldbusiness/05vodaphone.html

To get this:

http://www.nytimes.com/2005/09/05/business/worldbusiness/05vodaphone.html?ex=1283572800&en=b42572bbb0631922&ei=5090&partner=rssuserland&emc=rss

gkanai wrote:if you use the NYT link generator, you can make a link that wont expire after 2 weeks:

Isn't there some link generator that doesn't have anything to do with Userland and that asshole Dave Winer?

Charles wrote:

gkanai wrote:if you use the NYT link generator, you can make a link that wont expire after 2 weeks:

Isn't there some link generator that doesn't have anything to do with Userland and that asshole Dave Winer?

It's Aaron Swartz's link generator. It uses resources that Userland, the first blogging software, negotiated out of the New York Times. The poor NYT was too dense to understand the little "Blog" thing would grow to challenge dead trees.

http://nytimes.blogspace.com/genlink

http://nytimes.blogspace.com/

Charles wrote:

gkanai wrote:if you use the NYT link generator, you can make a link that wont expire after 2 weeks:

Isn't there some link generator that doesn't have anything to do with Userland and that asshole Dave Winer?

No.

I'm no fan of Winer, but it's a FREE pass to NYT content that would otherwise fall behind their "paid subscription" firewall, so I say use it and be glad it's there.

Taro Toporific wrote:It's Aaron Swartz's link generator. It uses resources that Userland, the first blogging software, negotiated out of the New York Times. The poor NYT was too dense to understand the little "Blog" thing would grow to challenge dead trees.

I know this is getting off on a tangent here, but let's be clear, Userland absolutely did NOT produce the first blogging software. I don't think he was even second or third. No matter how much Winer claims to have invented blogging, it just isn't true.
Anyway, there are so many reasons to loathe Winer, I hate to use any of his resources. If extra NYT hits come through his system, he'll just use the stats somehow to inflate his own importance.
Maybe someday I'll tell you a really good story about how Winer screwed me bad but I got even with him. It sure won't ever appear on my own blog which I have declared a Winer-free zone.

Just to get back to the original topic...

I'm actually curious about the article, seeing as how I'm clueless when it comes to cell phones. The NYT article stresses tailoring products to local tastes and hints that Vodaphone's main flaw was hubris. I'm often wary of Western reporting on Japan, so I wondered if this take was accurate. Did Vodaphone unintentionally misread the market or did they simply try a one-size-must-fit-all approach?

Cheers

Charles wrote:Anyway, there are so many reasons to loathe Winer, I hate to use any of his resources. If extra NYT hits come through his system, he'll just use the stats somehow to inflate his own importance.

Fwiw, Winer is no longer associated with Userland.

gkanai wrote:Fwiw, Winer is no longer associated with Userland.

Riiight. Other than being the owner of the company, he is no longer associated with Userland.

Charles wrote:Riiight. Other than being the owner of the company, he is no longer associated with Userland.

Go look for yourself.

http://www.userland.com/aboutUserLand

He aint there anymore. Hasnt been for a while in fact.

gkanai wrote:

Charles wrote:Riiight. Other than being the owner of the company, he is no longer associated with Userland.

Go look for yourself.

http://www.userland.com/aboutUserLand

He aint there anymore. Hasnt been for a while in fact.

Surely you know the difference between the Board of Directors and the Stockholders?

Winer is the sole stockholder of Userland, he owns it lock stock and barrel. He has repeatedly said he has no involvement in day-to-day operations, but he never said he didn't own the company.

Why Vodafone should ring off from Japan and America
The Telegraph, 11 Dec 2005
Sir John Bond, who becomes Vodafone's chairman in July, should review its global strategy. The mobile operator is in investors' bad books, with its shares trading at a steep discount to the sum of its parts... Take Vodafone Japan, which has been a particularly bad performer...there is little strategic benefit in keeping Japan. Vodafone's initial attempt to force Japan to use the same handsets as the rest of the group is one of the reasons it fell behind. What's more, Japan's poor performance has had a negative impact on Vodafone's stock, disproportionate to its size.
It might seem a pity to sell before the business has been fixed. But the company has been saying it is going to fix it for quite some time...more...

I'll tell you exactly what's wrong with Vodafone and their predecessor J-Phone:

1. They don't have Norika Fujiwara as their official commerical girl anymore.

and

2. Yukie Nakama is the AU girl. You just can't compete with that here.

It's all about the honeys man.

I was involved (albeit at a staff level) in Vodaphone's acquisition of J-Phone in 2001-2002, and it's sad to see how they totally screwed up their Japan strategy. I thought it would be interesting to see them really take it to DoCoMo, but instead they took the typical gajin-who-thinks-Japan-is-the-same approach and fucked it all up. Why haven't international companies learned that they have to specially tailor their strategy for the Japanese market? Aren't there enough examples of past failures that are instructive of what NOT to do in Japan?

kamome wrote:Why haven't international companies learned that they have to specially tailor their strategy for the Japanese market? Aren't there enough examples of past failures that are instructive of what NOT to do in Japan?

One of the reasons why Vodafone went ahead with the acquisition was that the vogue thinking on Japan at the time was proclaiming that Japan had changed. Major evidence for this was thought to be Ripplewood's success with Shinsei Bank and Renault's success with Nissan. Both of those managements appeared to have succeeded by employing very unJapanese business practices. At the same time, Goldman Sachs was hoovering up golf clubs and foreigners had already picked up significant real estate portfolios from Japanese banks. A Starbucks on every corner seemed to confirm the trend.

Japan had changed and continues to change but I've always found the principle of convergence very unhelpful. This states that Japan lagged the west (more specifically, the US) but the post-bubble era had seen the country move closer to international standards which could now be imported wholesale. Merrill Lynch made the same mistake when they bought parts of Yamaichi's retail business as did UK retailer Boots and sandwich chain Pret a Manger.

Old Japan hands who still maintained "Japan is different" had made a rod for their own backs by failing to recognize that there had been changes. The typical response of one of their number to an international company trying to engage with the Japanese market was to point out all the micro obstacles. They might just as well have sucked their teeth and said muzukashii for all the practical help they offered. It's not really so surprising that a CEO preferred to listen to people tell him what might be possible rather than what was impossible.

There is no one right answer and some international companies will continue to find new opportunities here while others fall flat on their face. What determines that is partly up to a company's own definition of failure and success. Vodafone could yet have made a go of its Japanese business. It's likely that someone will and perhaps that will be Softbank. If they do buy the mobile unit, then they will have managed to reconstitute the old Japan Telecom because they already bought their fixed line businesses from Ripplewood. Vodafone's shareholders, however, were intolerant of such a high profile failure and it was taking up increasing amounts of management time so it was easier to decide to dump it than solve the problem over a longer period. Carrefour ran a reasonable operation here but the returns were well below what they were seeing elsewhere in the world and problems at home meant they too preferred to sell up. Meanwhile Wal-Mart continues to struggle with Seiyu where another operator might have thrown in the towel.

Good analysis here, but I prefer a simpler explanation. Vodaphone was part of the New Internet Bubble (tm) and they just figured their product was so awesome they couldn't fail. Live and learn.

Big Booger wrote:So like I am about to get a new phone, should I switch to KDDI or DoCoMo? Or will the vodaphone service improve? Disappear? etc...

It may be reborn as Yahoo!Mobile but don't wait for that. Switch to AU. I did and I don't regret it at all.

DoCoMo for me. I love it. Sexy phones, awesome service, good price. I am on a "family plan" though, which does make it cheaper.

Mulboyne,

I thought the prevailing notion that Japan had changed related to regulatory norms and the "Big Bang" that aligned Japanese accounting standards with global norms. Certainly, the changes you mention resulted in a lack of barriers to entry in the market.

But was there also a perception that the public's taste for sophisticated design and features in their phones had changed as well? From a marketing perspective, I'm surprised that no one anticipated that Vodaphone would need to cater to the Japanese public's taste in phone models.

It was seen as more than just regulatory convergence. There was also the idea that the Japanese consumer was becoming more international along with their taste in lattes. Many US companies thought the same in the 70s when McDonalds and KFC succeeded. Vodafone believed that by building a global mobile brand they would carve out a unique niche in the Japanese market and differentiate themselves in a way that the old J-Phone had not been able to. Indeed, they were early in offering some limited global roaming with an old Motorola triband handset which was successful - until people worked out how damned expensive the bills were and dumped it. I think they also overestimated customer loyalty (which I'm sure some consultant descibed as "inertia"). They perhaps assumed that while they might not add to subscriber numbers substantially, they would at least hang on to their existing base while they grew their global brand and made a belated entry into 3G. Hence the rapid deployment of weapons of David Beckham in their rebranding campaign.

I sometimes think that when international companies consider Japanese consumer loyalty, they envisage a montage of rows of people bowing down to the Emperor, Shibuya girls queuing up for print club pictures, shelves full of second-hand Levis selling for outrageous prices in local boutiques and all set to the soundtrack of Cheap Trick Live at the Budokan. Just as in other markets, though, loyalty has to be earned and subscribers began to leave in alarming numbers. Vodafone also discovered that employees can get very demotivated when they perceive they are working for a "loser" company unless there is an inspirational cult leader, sorry, I mean boss, at the top. There wasn't.

Vodafone found instead that it had to play catch-up when they didn't have the product offerings to match the other two players. They had hoped to take advantage of number portability which will allow subscribers to keep their existing numbers but switch between carriers. Instead, it was looking more like they would lose large when that regulation comes into force and that isn't a failure they wanted to show to their shareholders.

Mulboyne wrote:...I think they also overestimated customer loyalty (which I'm sure some consultant descibed as "inertia"). They perhaps assumed that while they might not add to subscriber numbers substantially, they would at least hang on to their existing base while they grew their global brand and made a belated entry into 3G. Hence the rapid deployment of weapons of David Beckham in their rebranding campaign.

...I sometimes think that when international companies consider Japanese consumer loyalty, they envisage a montage of rows of people bowing down to the Emperor, Shibuya girls queuing up for print club pictures, shelves full of second-hand Levis selling for outrageous prices in local boutiques and all set to the soundtrack of Cheap Trick Live at the Budokan. Just as in other markets, though, loyalty has to be earned and subscribers began to live in alarming numbers.

Yes, exactly my point that Vodaphone made serious miscalculations about the Japanese consumer. That's why I wonder how foreign companies fail to learn about the "real" J-consumer given other companies' failures before them.

By the way, this phenomenon also happens to law firms. I have seen them follow a certain conventional wisdom about how to open and maintain an office in foreign countries and then try to apply that to opening a Japan office. Problem is, they usually do it without the requisite Japan expertise and try to import their customs/practices wholesale into Japan only to realize later on that they can't sustain the business.

I also know what you mean about the need for a cult figure/strong leader in Japan. If they can't latch on to a leader or feel they are on a sinking ship, the employees kind of mail it in and don't follow the same work ethic.

kamome wrote:I wonder how foreign companies fail to learn about the "real" J-consumer given other companies' failures before them...By the way, this phenomenon also happens to law firms. I have seen them follow a certain conventional wisdom about how to open and maintain an office in foreign countries and then try to apply that to opening a Japan office. Problem is, they usually do it without the requisite Japan expertise and try to import their customs/practices wholesale into Japan only to realize later on that they can't sustain the business.

Well, I also know firms who come to Japan. import their culture wholesale and succeed so there really is no right answer. It`s also much easier to work out why some firms fail rather than why some firms succeed.

Think of Starbucks. No-one believed that a coffee chain could succeed at that price point and with a no-smoking policy yet they did. Pret a Manger was brought to Japan by McDonalds, who you think ought to know a thing or two about the fast food market, but they failed. Ripplewood applied their own philosophy with Shinsei bank and have done OK. They tried the same with Nippon Columbia, Denon, Seagaia etc and have found it much harder going.

Vodafone certainly misjudged their market and, for the reason Charles gave, probably overpaid for their acquisition. Not that their investment bankers would have said so at the time. The Japanese consumer is a moving target, however. Just ask the supermarkets who lost a big chunk of their sales to Uniqlo and the 100 yen shops. Book Off developed a second hand market which has destroyed small bookshops. You can make a case that the bursting of the bubble created a new desire for value but that won`t explain why, over the same period, overseas luxury brands have gone from strength to strength. Coach was able to make huge inroads with a philosophy lifted directly from their NY office playbook.

The Japanese consumer certainly demands a high level of service and will only give ground on that demand if the product or service offered is uniquely desirable or becomes a trend. Even then you can get it wrong if someone else can replicate your model as EBay has found out to its cost. That still leaves the problem of figuring out what those new products and services might be. Vodafone thought that a global brand mobile phone was the future for the market but it hasn`t worked that way. In fact, it hasn`t worked that way in any region to date so it was a flawed strategy irrespective of the Japanese consumer. If they had been right, who knows what would have happened in Japan.

You are right that Vodafone got it wrong but it is difficult to say what lessons they could have learned from such a wide diversity of successes and failures. In the end, they picked the successes that suited their own business case. Also, one of the reasons for their interest in Japan was to learn what people did with their mobiles and try to apply the knowledge elsewhere so they weren`t hoping simply for one-way traffic. In fact, they intend to keep a minority stake in the business so they can keep that channel open. As soon as the underlying rationale disappeared, though, they were left with a third-placed company in a market they didn`t really understand, no new products to save the day and no managers to keep the ship afloat. Still, it is important to remember that they werent going bankrupt. Softbank is paying a hefty price for the business so it isn`t a firesale. In the end, the main lesson they learned is that investors don`t like hearing bad news.

" wrote:It may be reborn as Yahoo!Mobile

The Vodafone logo always looked like the Marufuku Cashing logo anyway.

While there are no shortage of angles on this topic, I look at this as less of a “foreign company fails in J market” story and more of “there’s no such thing as a global consumer…there are only local consumers” story. Each market has its own quirks, either due to culture, regulations, pricing, or a combination of all three. Text messaging usage is very low in the US compared to Japan or Europe, although a small number of US folks love their blackberrys. It turns out US folks rather dial a 9 digit number and talk to someone rather than key in 50 button pushes to text a message in most cases (also texting usually costs extra while most people have a surplus of free voice minutes)…although youngsters seem to think that texting is cool. One of the newer things here in the US is “walkie talkie/instant connect” function where the user’s phone doesn’t even ring but loudly beeps about a 1/3 of second before the sender’s distorted voice starts booming of a speakerphone on the cell phone…this is a really lovely feature….rather than being subjected to only one side of someone’s inane conversation, now you get to hear both sides since many users just yell back into the speakerphone…Somehow, I doubt this feature will be coming to Japan anytime soon. By focusing too much on the mythical global consumer/global strategy, Vodaphone took their eye off the ball in many markets not just Japan.

However, as Mulboyne pointed out, it is not like Vodaphone completely tanked either…The Wall St Journal said the other day that J-phone’s market share was 19% when it was purchased by Vodaphone and stands around 17% now….not an ideal turn of events in a capital intensive industry, but far from a complete disaster. Nor are they alone in poor judgments…with AT&T, DoCoMo invested around $10 billion 2001 to be cashed out for $6.5 billion in 2004 when AT&T was sold to Cingular...And not only did the lose scads of cash, they still didn't get any of their 3G tech installed in the US which was the primairy reason for the investment in the first place. And didn’t DoCoMo also have some serious problems with 3rd party affiliates who milked them for big signup spiffs on what turned out to be a large number of unrecoverable accounts a few years back?

It will be interesting to see how the upcoming number portability in Japan will play out. In the US there was a lot of doom and gloom about how this would turn out but the reality turned out to be a bit of a wash. It turns out that were a similar number of customers with each of major carriers that simply hated them and wanted out but didn't want to lose their number. When portability came around there were only mostly modest increases in churn rates rather than wholesale defection of million customers…For everyone person who hated Cingular and wanted to join Verizon, there seemed to be a counterpart that hated Verizon and wanted to join Cingular. In the long term, it might have even been a benefit for the cell phone providers since now most phones come with 2 year contracts (1 year contracts were the norm before portability) and the carriers got out alot of new phones that they can at least attempt to sell extra services to rather than users sticking with their beat up nokia 5165s because they didn't want to re-up with a carrier they hated.

The only thing IMHO that is ultimately different between Japan and any other mobile phone market is the phones are higher tech. Global phones are just as idiotic as global car platforms. This saga reminds me of what happened when American car manufacturers entered the Japanese market thinking they could carve out the market for themselves.

US car companies did control the Japanese market but politics and war conspired against them.

From the JAMA website.

..Perceiving Japan as a potentially lucrative market, Ford established Ford Motors Japan in Yokohama in February 1925 and began local assembly and sales (from June that year) of Model Ts. GM followed suit, establishing GM Japan in Osaka in January 1927 and commencing local assembly and sales (from April) of Chevrolets. The advent of these two companies in Japan provided the country with its first opportunity to directly experience modern automobile manufacturing. This included mass production technology, rigorous quality control of subcontracting parts manufacturers, and a system for rapidly establishing a nationwide sales network.
...The advance of America's Big Three (Ford, GM and Chrysler, known in Japan as Kyoritsu Motors) into the Japanese market beginning in 1925 meant that, by 1930, their annual production of automobiles totaled 19,684 units, about 43 times the production (458 units) of domestic cars. However, they were forced to stop production with the passage of the Automobile Manufacturing Industries Act which, as previously explained, aimed to eliminate dependence on foreign manufacturers for reasons of national security. Moreover, when foreign exchange regulations were revised after the break-out of the Sino-Japanese War in 1937, import prices skyrocketed with the decline in the yen exchange rate. Feeling the mounting pressure, the Big Three finally discontinued production in 1939 and withdrew from Japan. Between 1925 and 1935, the Big Three produced a cumulative total of 208,967 units. In contrast, domestic production for the same period totaled 12,127 units, just 5.8% that of American manufacturers.

Their old production facilities were taken over by the domestic manufacturers.

On a related note...

Rival warns on DoCoMo dominance
http://news.ft.com/cms/s/ffb18bd0-b2fe-11da-ab3e-0000779e2340.html

The Japanese government should do more to address the dominance of NTT DoCoMo, the country's largest mobile phone operator, and promote greater competition in the country's Y9,000bn ($75.5bn) mobile phone market, the chairman of a rival operator said yesterday.

"The current state of the Japanese [mobile phone] market is abnormal. A market where one company has a 56 per cent market share . . . could be a breach of anti-monopoly rules," Sachio Senmoto, chief executive of eMobile, said in an statement that was unusually critical for a member of Japan's normally polite corporate world.
....
Mr Senmoto - a co-founder of DDI, Japan's first private phone company, and founder of eAccess, the ADSL group - said DoCoMo's dominance was unusual in global markets. "In the UK, there are four mobile operators which compete for 20 to 30 per cent of the market. Hong Kong has five to six companies. The fact that Japanese consumers don't complain [about the lack of competition] is abnormal," he said.

However, Michito Kimura, senior market analyst at IDC, said DoCoMo had worked to gain its dominance. "About 1m people switch operators every month . . . but even with this change DoCoMo has 56 per cent of the market," Mr Kimura said.

Analysts say the new entrants - eMobile, ip mobile and SoftBank - face a tough battle ahead as they will have to build their networks and compete with rivals that have introduced services aimed at locking in their subscribers.