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April 13, 1988


By CBR Staff Writer

With profit up 16% at $595m on turnover up a storming 21% at $8,523m in 1987, IBM Japan looks to have been by far the brightest jewel in the company’s threadbare crown last year, but appearances can deceive: that profit figure is only 2.8% up on the one for 1985. The Wall Street Journal has been taking a closer look at the company’s business in Japan and finds that it still faces an uphill struggle. Until the mainframe shakeout at the end of the 1970s, which left just three local contenders, Fujitsu and Hitachi with machines that could run IBM mainframe applications with minor modifications, and NEC with Honeywell compatible machines, IBM Japan had the field pretty much to itself. And that was how it behaved. The army of maintenance programmers that is the mainstay of the large US or European mainframe site is much less in evidence in Japan, where users were educated in the 1970s to believe that software was free, and looked to manufacturers to do much of the work to tailor their (always custom – the packaged software market only really started to develop in Japan in the 1980s) applications to new generations of machines or to changing requirements. And while Japanese manufacturers excelled at the kind of hand-holding customers demanded, IBM Japan took a largely take-it-or-leave-it attitude. The effect was that in 1979, Fujitsu dumped IBM off its top spot in the market, and since then, NEC has moved ahead of it into second place, while Hitachi is snapping at its heels. And much of the improvement seen last year is attributed to a violent switch in policy only last year, when the company started discounting to win business for the first time, put in place a hand-holding programme for customers, and started agreeing to integrate its systems with those from other manufacturers. The last point is important, because of the culture in Japan, where companies make buying decisions for social business reasons rather than purely on price and performance. So a big company that does business with all the majors – a bank, say – will try to buy some of its kit from each of them as a matter of courtesy and good business relations. The switch is also important because – as tends to be the case in Europe – IBM’s business in Japan is much more strongly slewed to the mainframe end of the business than it is in the US. In the US, machines like System 36 are a major product that has to be targeted by all IBM’s big competitors, in Europe or Japan it is just another small business system, handsomely outsold by offerings from the best of the local manufacturers. And in Japan, if IBM does not accomodate those machines, there’s a choice of three local mainframers who will. And on the support side, IBM is still seen as having a long way to go: with businesses of comparable size to that of IBM, Fujitsu has 23,000 hardware and software support staff, Hitachi has 17,000, IBM has 10,000. And the indications are that the new, aggressive IBM caught the locals a little off guard last year, and that they are moving rapidly to reassert their lead over the company in the things that matter to Japanese users.

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