Center for Global Communications

Discussants: Hiroyuki Kishi
Professor, Keio University Graduate School of Media Design; and
Sota Kato
Professor, Center for Global Communications (GLOCOM),
International University of Japan

Facilitator: Masahiko Shoji
Senior Research Fellow, Center for Global Communications (GLOCOM),
International University of Japan



New Style of Leadership by the Koizumi Administration

Shoji: The process of policy formation in Japan has changed considerably since the 1990s. With this in mind, I would like you to discuss how the power relationship between Kasumigaseki (home of Ministries and Japanese bureaucracy) and Nagatacho (location of the Japanese Diet and politicians) has changed,

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Takuo Imagawa

Director, Economic Research Office, Bureau of International Strategy on Information and Communications, Ministry of Internal Affairs and Communications

Interviewers: Tomoaki Watanabe (GLOCOM Research Fellow)
Kaoru Sunada (GLOCOM Senior Research Fellow)
Masahiko Shoji (GLOCOM Senior Research Fellow)



Competitiveness: Countries and Companies


Sunada: Mr. Imagawa, you mention two points regarding Japan's international competitiveness in "What Soccer Teaches Us about International Strategy in Information and Communications", one of your regular columns in Nikkei IT+PLUS.

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Martin Fransman, GLOCOM Fellow

In Japan it is widely understood that the ICT Sector has been one of the main contributors to the country’s catch-up and post-Second World War economic growth. However, it is also understood that more recently parts of this sector have been falling behind in terms of international competitiveness, an issue that has been receiving increasing attention from both the companies concerned and the Japanese government.

The aim of this article is to suggest that ecosystems thinking, and more specifically what I call Symbiotic Open Innovation, may assist in the processes of diagnosis and finding solutions.

SOCIO-ECONOMIC ECOSYSTEMS

Charles Darwin’s ideas are a good place to begin an analysis of socio-economic sectors (that in combination make up any economy)². Darwin’s ecosystem consists of populations of different species interacting in and with a changing environment. Particularly important are the interdependencies between the processes that generate variety within species and the processes that select from that variety on the basis of deemed fitness. Different species, and individual members of a species, may compete. However, cooperation (for example through symbiosis, to which we will later return) may be an important determinant of fitness.

The Darwinian system is a restless system in that it is in a constant process of change as variety is generated, the fittest variants are selected, and species adapt. Putting it this way makes the close comparison with the capitalist system evident. Capitalism is also a restless ever-changing system as new innovation-knowledge throws up new products and services, new processes and technologies, new forms of organisation, and new markets. In turn, these change the fortunes of populations of firms and of individual firms as the market and other selection mechanisms reward the fittest and punish the unfit.

For those studying the capitalist economy the Darwinian metaphor should be particularly appealing. Rather than seeing the players (firms, consumers, governments) as maximising their positions on the basis of given knowledge and settling into equilibrium – as conventional economics sees it – we have a constant stream of new innovation-knowledge that challenges the status quo, forcing the players to learn, experiment, and adapt in an attempt to survive and thrive as best they can in their changing ecosystem. Surely the latter world is the one we see around us as company employees, consumers, and members of government? Significantly, however, orthodox economics still tends to cling to the former conceptualisation.

THE NEW ICT ECOSYSTEM

Who are the main species (groups of players) in the New ICT Ecosystem (i.e. the post-Internet ICT sector)? At a high level of aggregation there are four groups of players: ICT equipment providers; network operators (e.g. telecoms, cable and satellite operators, and broadcasters); platform, content and applications providers; and final consumer-users. They are organised into a hierarchically-structured layered architecture. This is shown in Exhibit 1.

EXHIBIT 1³

The players in this ecosystem, it should be noted, may be involved in more than one layer. Furthermore, over time the boundaries between layers tend to shift (as indicated by the dotted boundary lines).

What drives evolutionary change in the New ICT Ecosystem, making it the restless system that it is? The answer is changing innovation-knowledge, that is, new products and services, new processes and technologies, new forms of organisation, and new markets. But how do these innovations happen? The answer to this question is that innovation emerges largely from the symbiotic open innovation relationships between the four groups of players.

SYMBIOTIC OPEN INNOVATION

Symbiosis comes from the Greek meaning to live together. In order to survive and thrive under the selection processes of the ecosystem firms need to ‘live together’ with their customer-users and with complementary firms. The latter include their suppliers, partners, and competitors (from whom they may learn). In the case of the New ICT Ecosystem each of the four groups of players interacts with all the others, making a total of six open symbiotic relationships. It is out of these relationships that most innovation emerges. The six relationships are shown in Exhibit 2.

EXHIBIT 2⁴

However, these six symbiotic open innovation relationships are not the end of the story. The reason, simply, is that the relationships themselves are shaped by a set of other factors that must therefore be included in the analysis. These factors include institutions which Noble Laureate Douglass North defines as the rules of the game that include, for instance, regulation and competition law. Universities and standardisation are other institutions which, although not defining formal rules, will influence the symbiotic relationships. Other determinants such as the financialecosystem will also influence the relationships (as the current global financial crisis is teaching us).

CHALLENGES FOR THE JAPANESE ICT ECOSYSTEM

Ecosystems thinking and the analysis of symbiotic open innovation relationships can be useful in Japan at both the macro and micro levels. At the macro level this analytical framework can allow both ICT companies and government policy makers to better understand some of the most important determinants of innovation. In turn, this could have a significant impact on attempts to increase productivity and economic growth. At the micro level the framework can help companies to improve the design of their innovation ecosystems.

Let us begin at the macro level. As a broad generalisation it is true to say that symbiotic relationships between complementary Japanese companies on the whole work very well. There is a large literature analysing the effectiveness of many of the long-term obligational relationships that bind Japanese companies together, for example in the automobile sector. The benefits of long-term loyalty and trust, often missing in pure short-term market relationships, have benefited many Japanese companies.

However, in a world of greater specialisation and division of labour operating at a global level it is increasingly necessary that Japanese companies form close relationships with customer-users, suppliers, partners, and competitors outside Japan. This is important to benefit from the specialised knowledge that non-Japanese companies and consumer-users may have. But how well do symbiotic relationships formed with non-Japanese outsiders work? To what extent do they contribute to innovation? How can they be improved? These are three important questions that need to be answered.

At the micro level Japanese ICT companies have a good deal to gain from re-examining the symbiotic open innovation relationships that form part of their specific ecosystems. The objective is to re-design these relationships in order to increase their effectiveness. Particularly important, as at the macro level, are the relationships that exist with non-Japanese players (including companies and non-firm players such as foreign universities) outside Japan. The same three questions asked at the macro level (see last paragraph) should also be asked at the micro level.

CONCLUSIONS

Ecosystems thinking and the related idea of symbiotic open innovation has a good deal to offer the Japanese ICT Ecosystem and the Japanese economy more generally as has been made clear in this article. However, the devil is in the detail and hard and self-critical work remains to be done in order improve the design of the innovation process in Japan.

Martin Fransman, GLOCOM Fellow

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¹ This article is based on Martin Fransman, The New ICT Ecosystem – Implications for Policy and Regulation (Cambridge University Press, forthcoming) that won the 2008-09 Joseph Schumpeter Prize.

² For those who may be dubious about starting a socio-economic analysis with a biological analogy it is worth recalling that in formulating his own ideas about the evolutionary origin of biological species Darwin himself was heavily influenced by the thinking of socio-economists such as Adam Smith and Thomas Malthus, particularly regarding the competitive struggle for survival.

³From M. Fransman, The New ICT Ecosystem.

⁴From M. Fransman, The New ICT Ecosystem.

A Step Towards Meaningful Participation
By Adam Peake, GLOCOM Executive Research Fellow.

Now in the fourth year of its initial five-year mandate, the Internet Governance Forum (IGF) is established as an important arena for international multi-stakeholder dialogue about policy issues affecting the Internet's management, development and deployment. However, an area where it has failed to perform as well as hoped has been attracting the interest and participation of stakeholders from developing countries. With limited knowledge of the issues and discussions, developing countries have too often been under-represented in the global arenas where Internet policies are developed, and also unable to contribute fully to the dialogue at the IGF.

Enabling the meaningful participation of developing country partners in the formation of global Internet policy has long been identified as an important priority in achieving an equitable and accessible Information Society. Many of the rules and norms of global information society are being created in forums and processes discussing policies related to the Internet and ICTs, and it is important that all should have the opportunity to shape and influence the direction of these discussions.

With this challenge in mind, in 2008 a regional IGF process in East Africa brought together participants from Rwanda, Tanzania, Uganda and Kenya to identify, explore and build consensus around common policy priorities. Each country began with an online discussion to identify the Internet policy issues most important to them, followed by a face-to-face national IGF meeting. These multi-stakeholder national processes then fed into the East African Internet Governance Forum (EA-IGF) held over three days in Nairobi, Kenya. The outcomes of the regional forum were then presented and discussed at the 2008 IGF meeting in Hyderabad.

I was fortunate to be able to help with the organization of the 2008 EA-IGF, and hope to continue to work with colleagues from what will be five countries –Burundi asked to join the process– on the EA-IGF initiative this year.

Contributing to this process is a continuation of work GLOCOM began when we participated in the G8 Digital Opportunity Task Force (DOT Force) where our focus was on recommendations to ensure universal participation in international policy and technical issues raised by ICT and the Internet. We knew at the time that participation had to mean more than simply attending meetings and being in the room where Internet and ICT issues were being discussed; developing country stakeholders had to be able to identify issues important to them, bring those issues to international processes and have the results contribute to local strategies and policies.

However, in the seven years since DOT Force made its recommendations, little progress had been made in achieving the goal of "meaningful" participation. Developing countries are still too often under-represented and unable to contribute fully and effectively in the formation of Internet and ICT policies, even in the IGF.

National and regional initiatives around the IGF themes and process provide an opportunity to build a local foundation from which to contribute and participate. The multi-stakeholder model developed in East Africa of online discussions, followed by national meetings, culminating in a regional process provides a framework for sharing knowledge, experience and expertise, whether local, national, regional or global.

Goals of the 2008 EA-IGF process:

• Raise awareness of Internet Governance among policy makers and stakeholders in the East African Region


• Establish which Internet Governance issues are relevant to the countries of the region


• Build consensus and national and regional positions around relevant Internet Governance issues


• Share the outcomes of the regional forum with IGF Hyderabad 2008

And priority areas identified by the 2008 national and regional processes:

• Connectivity and infrastructure development


• Access including issues of local content development


• Representation, inclusiveness and participation through fostering collaboration of all national and regional stakeholders


• Capacity building to promote skills growth and general awareness


• Policies for the development of local content


• Development of legislative frameworks for information society


• Cyber-security and setting up national and regional Computer Emergency Response Team (CERT)/Computer Security Incident Response Team (CSIRT)


• Critical Internet resources, the transition to IPv6, ccTLDs, new gTLDs and IDNs.

These priority issues were shared with global partners in discussions at the 2008 IGF in Hyderabad, and are now the subject of ongoing discussions at the national level as the five East Africa countries (Kenya, Rwanda, Tanzania, Burundi and Uganda) identify needs, assess progress and develop common positions on an ongoing basis, and continue the regional EA-IGF process in 2009.

While the global IGF was established as a non-binding forum and finds it difficult to directly influence policy, the processes in East Africa have no such restrictions. We are beginning to see outcomes relating to the harmonization of ICT policy in the region and more specific results such as progress being made with policy relating to country code top-level domains of Rwanda and Uganda.

The first online discussions for the 2009 process are being planned now and once started will continue throughout the year. National face-to-face IGF meetings will be organized and held by the end of July 2009, the regional EA-IGF will be held before the end of September 2009.

A recommendation from the 2008 EA-IGF was to develop a capacity building initiative around the issues highlighted by process. A curriculum is being developed based mainly on local East Africa expertise and themes identified by the national and regional processes. The course will target policy-makers and policy-influencers from government, the non-profit sector/NGOs, academia and the private sector, with objectives of:

• Providing a deeper understanding of global internet governance issues, institutions and processes


• Developing regional perception of Internet governance topics


• Enhance use of the Internet in socio-economic development

The EA-IGF is being considered as the model for other clusters of national and regional meetings being planned in Africa this year.

It is my hope that these national and regional IGFs will help to realize many of the capacity building and development goals of the IGF discussions, as well as creating a sustainable foundation that supports developing nation participation and contributions to Internet policy processes that are shaping the emerging information society.

Online Brand Hijacking and Brand Management
By Heather Hopkins

Millions of dollars are spent each year on brand advertising and brand tracking -- but the internet introduces a host of new challenges that bedevil brand owners. While your competitor can’t legally take out an advertisement in the phone book under your brand name, when searching online for a brand we often see that brand’s fiercest competitors among the sponsored results.

The problem is enormous. According to data from Hitwise, an online competitive intelligence service, one quarter of US Internet visits comes from a search engine. Branded terms make up the majority of internet searches, at 86% of US queries in September of 2008. And branded search is on the rise, up from 71% just three years ago.

With websites relying on search engines as the largest single source of traffic and with branded search terms dominating, it is no wonder that brand marketers are paying more attention to the results search engines present consumers for branded queries.

Hitwise analysis reveals that more than one in ten web searches for major brands send internet users away from the brand owner’s website, including to competitors and price comparison websites. In September, 87% of visits from the top search term for each of the thirty brands measured sent visits to the brand owner’s website.

As one might expect, the results vary greatly for each brand. For example, 96% of searches for “usaa” went to the USAA website and 92% of searches for “northwest airlines” went to the Northwest Airlines website. At the other end of the spectrum, a top 10 Appliances and Electronics retailer received 66% of visits from searches for its brand, a top 10 Insurance provider 78% and a top 10 Airline 75%.

The issue becomes more complex when we consider misspellings and searches that combine the brand name with a key product term in the search string. For example, while 96% of searches for “usaa” sent visits to www.usaa.com, searches for ‘usaa insurance’ sent only 78% of visits to www.usaa.com and 12% went to a price comparison website offering details on several competing products. And while 90% of visits from searches for “southwest airlines” went to the Southwest Airlines website, that figure dropped to 66% for searches for “southwest airlines reservations”.

In addition to competitive websites, brands are competing with social networks such as MySpace, Facebook and YouTube for visits from brand searches. Hitwise analysis reveals a 65% year-on-year increase in visits to Social Networking sites from searches for leading brands and a 3-fold increase over the past three years. Mobile phone retailers and brands need to be particularly aware of this. For example, 4% of searches for “virgin mobile” went to Social Networking sites and 2% of searches for “tmobile”.

Brand owners often find that brand terms are the highest converting terms to a site, meaning that visitors are more likely to make a purchase. As a result, visits from the brand name can have a real impact on the bottom line. But how can brand owners respond?

While the search engines will not arbitrate trademark disputes, the leading search engines (Google, Yahoo! Search and MSN Search) offer some protection to brand owners. Most ensure that advertisements do not use a trademarked term in the ad content. But these protections do not extend to misspellings. Another option is to write exclusion policies into terms with affiliates to prevent partners from bidding on the brand name.

Brand owners can benefit from monitoring competitor and affiliate listings in search results by performing searches and monitoring the sites that appear in the results. There are also services, such as from Hitwise, to learn what percentage of internet users click on your company’s advert versus your competitors’.

Most of all, if a competitor receives ever increasing numbers of visits from searches for your brand -- take action. Scrutinise effective advertisements or promotions offered by competitors and learn from them.

Finally, brand owners can take heart that search engine brand protection efforts can work. Just three years ago, consumers could regularly find lower airfares and rates for hotel rooms by booking through online travel agencies.

Airlines and hotel chains have tightened the reins on travel agencies and resellers to ensure that consumers can always find the best price by booking direct. Travel companies made very public commitments to offer the best price through the brand’s own website and these efforts appear to be working.

Analysis of internet search data reveals that compared with previous years a higher proportion of searches for travel brands are reaching the brand owners’ websites. For example, traffic from searches for the American Airlines brand three years ago made up nearly 4% of visits to Travel Agencies. That was down to less than 1% in September 2008.

In a time of increasing economic uncertainty and tighter budgets, online brand protection can help marketers make better use of money already spent on brand advertising.

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Heather Hopkins is a visiting research fellow with GLOCOM and a member of the Hitwise Research team. Heather regularly contributes to a blog at www.ilovedata.com.

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Lessons for Internet Governance from the Global Financial Crisis
By Peng Hwa ANG, GLOCOM Fellow

As I write this, the financial markets around the world are on a downhill roller-coaster ride with no prospect of returning to the starting point. It is frightening; those caught in the ride are screaming, and for them, it does look like the end of the world.

As one of those who suffered real dollar loss of several years of savings, there is no schadenfreude to see my friends suffer. Instead, I want to draw some lessons for what has happened in the financial world and apply them to the internet world.

Trust
The current financial crisis is an illustration of the value of trust in a market. The credit markets froze because those who can lend are not sure that they can trust the borrower to pay back. Here, each person working for his or her own selfish ends does not help the invisible hand. Instead, governments have to step in.

Trust, having faith that the other party one is transacting with is acting in good faith, is often taken for granted. Trust is noticed, but noticed quickly, when it is absent. Some research has shown that trust has a higher correlation to internet penetration and use than GDP per capita. In fact, it is one of the best predictive factors for internet adoption.

To build and maintain trust on the internet requires the help of the stakeholders-government, civil society and business. Each can play a role to ensure that the internet is safe, secure from scams and other fraudsters and that those who promise to keep users' data private do indeed keep the data private. If one does not know it from personal experience already, the current crisis shows how difficult to rebuild trust when it has broken down.

Moral Hazard

If the value of trust is so blindingly obvious, how did the investment bankers-often the cream of the MBA graduate pool-bring the crisis onto their own heads? The answer is that there was a moral hazard, a conflict in interest between them and their customers. Mortgages were converted into tradeable securities, given a good credit rating and sold at a profit. So those who originated the mortgages were not incentivised to be careful about the quality of the borrowers.

Moral hazards do exist on the internet. Take spam. One of the reasons it is taking so much time to defeat is that ISPs and telcos do benefit from spam. When I roam, the more spam that is sent to my mailbox, the more revenue my telco collects in roaming charges.

The rules regarding the hosting of third-party content, such as user-generated book reviews on the Amazon.com site, would be a good example of the balance that can be struck between the competing interests. Globally, the move is towards a limited immunity for intermediaries (such as forum sites and ISPs) who host third-party content. The immunity is limited to reasonable action by the intermediary in taking down the content when notice is given that the material may infringe some rights. And there are counter-measures to ensure that the notice.

Moral hazards should be eliminated where they arise. Otherwise, they create a perverse result that is ultimately destructive.

Regulations

Because the financial market/internet is an important interconnected global, it needs more, not less regulation. By regulation, I also mean enforcement of the rules. It appeared that some prudent lending rules-such as that the borrower can actually afford to repay-were not followed.

Lest I be misunderstood, let me add the word “judicious” before regulation because it is obvious that many industries benefited from liberalization and deregulation. The telecom sector in fact is one such beneficiary. It is not a coincidence that the growth of the internet came after the liberalization of the sector in the USA. This generation may well have witnessed the highwater mark of the sentiments of de-regulation and non-regulation. The trick is to recognize the areas where in fact more regulation might be needed, for example, to minimize moral hazards.

The internet is an important and powerful medium for communication and information. It is precisely because it is important and powerful that it needs regulation.

Multilateral and Multistakeholder Response

The financial market is an interconnected global system. The current financial crisis is a networked financial disaster. It is surprising who around the world ultimately holds the securitized mortgages. Because of the linkages, governments have to coordinate to avoid the fallout. Interestingly, some wealthy private individuals, Warren Buffet in particular, have offered to help the US Government in its recent bailout package by buying into some of the distressed assets.

Back in 2001, when US President Bush spoke the first time at the United Nations' General Assembly, he did not use the word “multilateral” even once; in his recent speech to the same Assembly, he used the world “multilateral” 10 times. It is hard to see any space for a unilateral world; the multilateral world is here to stay.

On the internet, the issue of its unilateral control by the USA has been defused but not truly solved by the agreement at the World Summit on the Information Society in 2005 in Tunis. There is no crisis to speak of at the moment. The internet works. But that is not the point. The USA should prepare for a multilateral control of the internet when there is no crisis.

The WSIS of 2005 also talked of a multistakeholder approach. And so civil society and business should also have a role. Again, it is not an issue of a crisis. The issue is a more robust governance structure precisely to handle if not avoid crises.

Conclusion

There were warning signs of the economic downdraft in America. But even the appearance of those warning signs may indicate that it is too late. The above lessons are lessons in the organization and structure (aka governance) of the internet. It is too late to apply them to the financial markets, but not too late yet for the internet.

Two or three times each year GLOCOM publishes a collection of research papers, opinion pieces, interviews and meeting reports produced by GLOCOM staff, fellows and friends in a periodical known in Japanese as "GLOCOM Chijo". Beginning with the next issue in early November 2008 we will translate selected articles into English. To give a flavor of the type of work being published, we have taken eight articles dating from March 2006 and they are available in PDF format below. The works range from discussion about the popular and notorious Japanese P2P file sharing software, Winny, to interviews with two of Japan's leading game developers and evaluation of Japan's gaming market, a review of SNS in Japan, and two papers about the Japanese software industry.

Clarifying the Original Goals of Winny Technology (PDF)
A report of a presentation by Winny developer Isamu Kaneko, at GLOCOM on January 28, 2006. Kaneko described how he developed Winny and discussed issues for the future of P2P software. Report by Satoshi Hamano, GLOCOM Researcher.

The Engineering Mind of Winny (PDF)
Comments by GLOCOM Research Fellow Shinji Yamane following Kaneko's presentation. At the time Kaneko spoke he was facing allegations of conspiracy to commit copyright violation, Yamane's commentary notes problems Kaneko's case raises for software developers.

Content Business and Games (PDF)
Interview with Masakazu Kubo, leading game developer and one of the forces behind the Pokémon games and TV series. Interview from the December 2006/January 2007 issue by Akito Inoue (GLOCOM Research Fellow) and Saori Morita (GLOCOM Senior Research Fellow).

History of Game Technology and Design: From the Dawn of Video Games to the Mobile Age (PDF)
Interview with Masanobu Endo, one of Japan's best known game developers, titles such as Xevious and The Tower of Druaga, and successful game company executive. Interview from the December 2006/January 2007 issue by Akito Inoue (GLOCOM Research Fellow) and Saori Morita (GLOCOM Senior Research Fellow).

Devolution of the Game Market: from single leader to many strong competitors (PDF)
Article discussing the evolution of Japan's gaming market from the Family Computer of the mid 1980s to Playstation and Wii. By GLOCOM Research Fellow Akito Inoue from the December 2006/January 2007 issue.

Regional Social Networking Services (SNS) – The Current Situation and the Future Potential (PDF)
A review of SNS phenomenon in Japan, noting the development of regional SNS as an important feature of the Japanese experience. By GLOCOM Research Fellow Masahiko Shoji from the February/March 2007 issue.

History of the Software Industry (PDF)
A paper by Kaoru Sunada, GLOCOM Senior Research Fellow, looking at the history of the software industry, focusing on Japan, noting that the industry is at period of significant change that may bring opportunities for the Japanese sector. From the October/November 2007 issue.

The Competitiveness of Japan's Software Industry – Summary of the Current Situation (PDF)
Tatsuo Tanaka, Associate Professor at Keio University's Faculty of Economics and GLOCOM Executive Research Fellow discusses the Japanese software industry's lack of international competitiveness and provides and explanation as to how the situation came about. From the October/November 2007 issue.