POINT OF VIEW/ Takeshi Natsuno: Reshape 'Galapagos' cellphones for the world

As an employee of NTT DoCoMo Inc., the nation's leading cellphone carrier, I was involved in the launch of i-mode, the world's first instantly accessible mobile Internet service. The i-mode service helped propel Japan to the status of information technology powerhouse over the past decade.

The wireless communications protocols that rapidly gained popularity in Japan were far more advanced than those adopted elsewhere in the world. By capitalizing on the rapid spread of wireless Internet technology in this country, NTT DoCoMo offered a range of innovative services using mobile telephony as infrastructure for new lifestyles, including the "Osaifu Keitai" e-money service that lets users make payments using handsets as electronic money and credit cards.

Back then, feature-loaded Japanese cellphones were regarded overseas as "smart phones." Japan was on the cutting edge of mobile phone technology and service.

Now, it seems that Japanese cellphones are losing ground to foreign rivals in the domestic market. Is that true? In fiscal 2009, more than 2.3 million smart phones, including Apple Inc.'s iPhones, were shipped in Japan.

But overall shipments of mobile handsets that year came to the around 35 million units, well below the peak of more than 50 million units.

However, the figures show that smart phones still have a long way to go before they dominate the Japanese market.

Why does the perception linger that Japanese cellphones are struggling to hold their own against foreign rivals? It is probably because Japanese handsets have shown little technological evolution over the past two years or so.

Japanese mobile service providers used to offer hefty incentives to lower the retail prices of handsets as a way to lock customers into their services. Cellphone carriers recouped their outlays by charging subscribers steep rates for air time.

But the Ministry of Internal Affairs and Communications set new guidelines to lower mobile service fees, forcing carriers to change their business model.

As a result, handset prices have risen significantly, discouraging consumers from buying new models to replace old ones. This in turn has slowed the pace at which handset makers roll out new products.

Against this backdrop, Apple launched the iPhone, packed with eye-catching features like a touch-sensitive panel, in the Japanese market. It is priced competitively against Japanese cellphones.

Japanese keitai (mobile phones) may be more technologically advanced than their foreign rivals, but they have lost much of their consumer appeal in terms of both design and pricing. Now, they are called Galapagos keitai, or Galakei for short, because of their unique evolution.

Still, there is potential for Japanese cellphone makers to take the competitive advantage over their foreign rivals.

They have, for instance, greater technological prowess. Japanese consumer electronics makers can develop and manufacture both cellphone handsets and personal computers. In contrast, Nokia Corp. and Motorola Inc., which have large shares in the global cellphone market, don't have the capability to make personal computers. Cellphones will become increasingly more like computers in the future. Japanese makers can benefit greatly from their pools of experienced computer engineers.

In trying to explain the lack of interest overseas in Japanese cellphones, some observers point out that Japan has a different standard for cellular communications from the one commonly used elsewhere.

Then how does that explain the success of Samsung Electronics Co. and LG Electronics Inc. both of South Korea, which hold a combined 30-percent share in the world market for mobile handsets? South Korea's protocols for mobile telephony are also different from the world's mainstream standards. These companies sought to increase their global shares by developing and manufacturing products separately for the domestic and overseas markets.

In contrast, typical Japanese chief executives are imbued with traditional Japanese-style management and corporate culture, characterized by seniority-based promotion and lifetime employment. They simply are unable to deal with the global business environment.

If Japanese companies are going to win in global competition, they will need to be flexible and multicultural in their outlook. That will require hiring people with diverse backgrounds and values and a willingness to promote young people, non-Japanese and women to senior executive posts.

Companies still wedded to the systems and approaches of Japan's bygone era of high economic growth are to blame for the Galapagos-style evolution of Japanese cellphones.

With Japan's population projected to fall below 100 million by 2050, the domestic market will continue to shrink. But Japanese consumers remain as picky as ever. Any product that appeals to Japanese has a good chance of building a solid presence in the global market if its technology and design are refined to match the tastes of overseas consumers.

Japanese companies can benefit from being based in this country. They should use the home market as their launch pad for expansion into world markets.

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Takeshi Natsuno is a guest professor at Keio University's Graduate School of Media and Governance. He is a former senior vice president at NTT DoCoMo Inc. He is now a managing director for Dwango Co., a mobile service company that runs the "Nico Nico Douga" video-sharing service.