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For Made-in-Japan Smartphones, a Life-or-Death Battle

  • January 30, 2012
Fujitsu and NEC have begun to make bolder moves in smartphone markets outside Japan. Panasonic and Sony are also expanding their presence overseas. These are the opening gambits in a battle none can afford to lose.

Fujitsu Ltd. managing executive officer Nobuo Ohtani wants his company's smartphones to have a higher profile. "In the global market, we are not content to be lumped into the 'other' category," ranked sixth or below, says Ohtani, head of Fujitsu's ubiquitous products business group.

"We want to sell overseas, the sooner the better. We are getting ready," he says. In Fujitsu's plans, which Ohtani shared with Nikkei BP, the company will soon start shipping its Arrows smartphones outside Japan. Its FY2012 sales target is 7 million phones, 20% of which will be sold overseas.

This will mark Fujitsu's first full-scale attempt to sell smartphones outside Japan. It conducted test marketing in Taiwan in 2009 and in China in 2011, but the number of units sold were only in the tens of thousands in each country.

Its new target markets for smartphones are China, Europe and North America. In China it is now negotiating a sales agreement with the same major mobile phone company that helped with its test marketing. In North America as well, it is negotiating with telecommunications carriers as potential partners. In Europe, Fujitsu plans to sell smartphones to corporate customers through German subsidiary Fujitsu Technology Solutions, offering solutions that integrate smartphones with IT services.

In markets outside Japan, Fujitsu aims to promote its Arrows smartphones, shown here at an NTT DoCoMo event (Photo credit: Aflo Reuters)

"Apart from electronic money and one-seg, Arrows' strengths in overseas markets will be waterproofing and high sound quality," Ohtani says. Initially Fujitsu plans to offer the same models it sells in Japan, slightly modified for local conditions, but it is also readying new products as part of its global strategy.

Looking for global selling points

"This is our global roll-out of new products we think of as 'easy to use' smartphones. Raku-Raku phones, our hit product line in mobile phones, have been simple to operate, and we have sold over 20 million units mainly because older people like them," Ohtani says. The new smartphone version will go on sale in Japan in early 2012, and the same models will go on sale later outside Japan, with the hope that older people there will like them too.

"We are using an LCD screen designed for older users, who tend to have less fine motor coordination, and have added health care applications and services that will set our products apart from the competition," Ohtani says. Fujitsu's aim is not just to increase sales of smartphone handsets; it also wants to use smartphones to expand its sales of IT services both in and outside Japan.

NEC Casio Mobile Communications Ltd. is another manufacturer that is looking overseas for growth. Although its smartphone sales for FY2011 is estimated at 3 million units, its sales target for FY2012 is about 9 million units, of which it aims to sell at least 4 million outside Japan. Since the company is aiming to triple its smartphone sales in one year, strengthening its overseas business is an important element of this plan.

The company is planning its full-scale entry into overseas markets with the Medias smartphones it currently sells only in Japan. While it too is looking at North America, Europe and China, it plans to start first in the U.S., where it will begin sales around June. It has already shipped demo models to telcos, received their detailed feedback, and is making improvements in response. The key features of the Medias phones are their 8mm thinness, and their resistance to water and dust―all features not widely available in competing products in the U.S. In deference to body types in the U.S., the Medias phones to be sold there will be slightly larger than Japan models.

NEC Casio plans to strengthen its phones' appeal to U.S. consumers with Medias Plus, a concept that combines smartphones with external peripherals. Company president Yoshiharu Tamura says, "We foresee a growing need for integrating smartphones with personal computers, other communications devices and household appliances. In anticipation, we are now developing our own hardware."

For Fujitsu and NEC Casio―which rank No. 4 and No. 6 in Japan's smartphone market in terms of market share―rushing to build up their overseas business is a matter of survival. According to forecasts by U.S. research company IDC, smartphone sales may exceed 1 billion units in 2015, growing to half the entire mobile phone market. Japan's smartphone makers feel that unless they raise their profile overseas they may be shunted aside.

No margin for stumbling

In the recent past, Japan has earned the nickname "Galapagos" for its mobile phones packed with features that proved to be a tough sell in other countries. Companies here―including Sharp, Sony and others―know they cannot afford to suffer the same fate with their smartphones, which represent the next growth market.

Last October, Sharp launched the smartphone version of its Aquos Phone line―featuring touchscreens with the company's LCD technology―in France. This year, Sony plans to take control of its mobile phone joint venture with Ericsson of Sweden and make it a full subsidiary, as part of Sony's plan to remake its smartphone business, whose earnings fared poorly last year. Sony is unifying its brand image across its full range of products, from LCD TVs to personal computers. Europe has been a core market for Sony, but now it is preparing fresh initiatives in the U.S. and China to increase its market share globally.

Panasonic Corp., which has lagged behind in the domestic market, has also unveiled plans for a concerted effort to sell its smartphones in Europe. Its new models will go on sale there in March, and it aims to sell 1.5 million units by March 31, 2013.

While Japanese smartphone companies are clearly feeling pressure to succeed overseas, what are their chances of success? According to statistics from the Ministry of Finance, Japan's exports of mobile phones―both smartphones and others―totaled just 1.1 billion yen in April-September 2011. Although Japanese companies may have their eye on markets in Europe, the Americas and China, South Korea's Samsung Electronics and U.S.- based Apple Inc. are already there, and selling 10 times as much product. Competition is intense.

Even so, it is not meaningless for Japanese smartphone makers to make an all-out effort overseas, if only as a sales promotion tool. In emerging markets, growing numbers of consumers are becoming "brand-oriented." If they purchase a particular mobile phone or smartphone, they are likely to remember the manufacturer's name, and purchase perhaps a TV of the same brand. Sales of smartphones may have a positive effect on sales of TVs, PCs and other products.

The chance to slough off the "Galapagos" image will come if non-Japanese consumers grow to appreciate dust-proof, water-proof mobile phones with high-resolution displays, good for TV reception. But unless Japanese companies can win the hearts of non-Japanese consumers, Japanese smartphones will remain viable only in the "Galapagos" of the Japanese archipelago. Overseas sales are developing into a make-or-break battle for Japanese smartphone companies.

(Saiji Ugajin, Naoki Togawa, Staff Writers, Nikkei Business)

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