7-11 Japan: Question 3

Q3. Role of Government in the growth of E-commerce in Japan

Current Condition

Japan has a flourish e-commerce. It ranked third in terms of total B2C e-salesin 2012(Ecommerce Digest, n.d.) and is growing at 12% per year (The Economist, 2012). Twelve years ago, however, Japan was ranked the lowest in terms of readiness for e-commerce among the Group of Seven industrialised countries (G7) and the growth of B2C Ecommercewas considered as slow compared to other G7 members (Farhoomand& Tan, 2000: 1). There has been a large increase in the development of e-commerce.

There are factors explaining the rapid rise of Japan e-commerce sector. For instance, current recession encourages Japanese to stay at home and serve the internet which raise the number of online shopper (The Economist, 2010). Among these, government policy plays an important role contributing to the flourish of e-commerce.

Government policy

Japan e-commerce development has impeded by the Internet issues in Japan. The government pointed out that there are three issues which are 1) Expensive internet fee; 2) Slow internet access; and 3) Insecure internet issues (Aritomi, 2000: 6). To tackle these problems and promote E-commerce, the Japanese government has put the focuses on E-commerce sector and telecommunication sector – a prerequisite component of launching e-commerce.

E-Commerce Sector

The Japanese government has set goal and ways to improve the E-commerce environment. In 2000, the “Basic IT strategy” was compiled, which the aim and general solution are listed that(IT Strategy Council, 2000; IT Strategy Headquarters, 2001;Manaboo, 2004):

We will strive to establish an environment where the private sector, based on market forces, can exert its full potential and make Japan the world's most advanced IT nation within five years by: 1) building an ultra high-speed Internet network and providing constant Internet access at the earliest date possible, 2) establishing rules on electronic commerce, 3) realizing an electronic government and 4) nurturing high-quality human resources for the new era.

Putting into practice, the IT Strategic Headquarters was established to draft and announce the e-Japan strategy as national strategy in 2001 (Manaboo, 2004). E-Japan strategy sets clear, detailed goals and guidelines on implementing the Basic IT strategy.

Facinginsecure internet, the Japanese Government hasdrafted law to protect the interest among different parties of the E-commerce sector.Before the launch of e-Japan strategy, the government had passed the Law Concerning Electronic Signatures and Certification Servicesin 2000. It clearly describes the legal validity of electronic signature, thus confirming the legal status of electronic data with valid e-signature (Manaboo, 2004). After the launch of e-Japan strategy, the government further protects different parties’ right through revising the intellectual property right of internet-based software and the protection of personal information on the internet (Ministry of Economic Affairs, ROC, 2007). These measures provide legal protection to both e-commerce customers and providers, increasing the public confidence towards e-commerce.

To promote e-commerce, the government has implemented several measures. Other than legal mean, the government takes action by both supporting the private sector and putting resources on developing information security technology (Manaboo, 2004). Furthermore, it launched the e-government,which provides government services and information on the internet, so that “People can feel easy, safe and comfortable in receiving 7days-24hours services and information via Internet on such as the government portal” (Manaboo, 2004).These measures raise the public confidence on e-commerce, resulting in promotion effect.

Telecommunication Sector

Since 1985, the Japanese government has been introducing competition in telecommunication sector to improve services and lower the price. In 1985, the government privatized the Nippon Telegraph and Telephone (NTT) and allowed other competitors enter the market (Iida, n.d.: 10). The government took a further step in 1997 that it abolished the entry requirement item 1 and 2 of the Telecommunication Basic Law (see figure 1), lowering the entry level for potential competitors(Iida, n.d.: 13).

Items to be checked in the market entry permission process under the

Telecommunications Business Law

1. Must provide telecommunications services appropriate to demand (abolished)

2. Must not create a surfeit of telecommunications lines and equipment (abolished)

3. Must have a sufficient accounting foundation and technological capacity

4. Must have a business plan that is solid and reasonable

5. Must contribute to the healthy development of telecommunications

6. Must exclude those that have violated the law

Figure 1. Requirement to enter the Telecommunication industry and amendment in 1997

Source: Iida, n.d.: 13

Besides, owing to the enormous structure of NTT, the Japanese government further reorganized NTT and deregulatedso as to further ensuring fair competition (Iida, n.d.: 14, 17). The government split NTT up into five corporates in 1999. Two of the corporates, NTT East and NTT West, are separated by region, aiming “to promote competition including yardstick competition in the monopolistic sector”(Iida, n.d.: 14).In 2004, the government simplified the entry procedure by abolishing the pre-approval regulation and replacing to procedure that “only carriers with a certain amount of lines and equipment are obliged to register, while other carriers are required only to notify”(Iida, n.d.: 17). These changes further enhances the competition of telecommunication sector which lowering the price and improving the quality of services.

Apart from introducing competition, the government plays an active role on improving the telecommunication facilities. In an attempt to expanding the ultra-high speed broadband throughout the country, the Japanese government provided both tax breaks to telecommunication operators and subsidies to local government (Iida, n.d.: 24). With regard to tax breaks, it encouraged the telecommunication operators to set up and improve the facilities. For the subsidies, it, indeed, financially supported the local government to play an active role on developing and improving the network, then providing the facilities to operators through Indefeasible Right of UserScheme(see figure 2) (Iida, n.d.: 25). This can ensure high network coverage that the tax breaks raised companies’ incentive to expand the network while subsidizing local government can extend the coverage to areas where are not lucrative for private sector to invest.

Short Conclusion

In order to solve the obstacles of e-commerce development, the Japanese government set Basic IT strategyand achieved by e-Japan Strategy accompanying with other policies on telecommunication sector. To solve the problem of insecure internet, the government “[establishes] rules on electronic commerce”(IT Strategy Council, 2000; IT Strategy Headquarters, 2001)to protect different parties of the e-commerce sector. To tackle expensive and slow internet services, the government supported both public and private sectors to “[build] an ultra high-speed Internet network and providing constant Internet access”(IT Strategy Council, 2000; IT Strategy Headquarters, 2001) and makes good use of market mechanism by introducing competition. To promote e-commerce, the government support “nurturinghigh-quality human resources” and “[realizes] an electronic government”(IT Strategy Council, 2000; IT Strategy Headquarters, 2001) to raise public confidence.The rapid growth of e-commerce in Japan to a certain extent is contributed by the favorable environment created by the government.

Reference:

Aritomi, Kanichiro 2000, E-commerce Evolution and PolicyInitiatives in Japan.Available from: <http://www.meti.go.jp/english/information/data/cEC30001Ae.pdf>. [25 March 2014].

Ecommerce Digest n.d., 3.5 B2C: Asia. Available from: <http://www.ecommerce-digest.com/b2c-asia.html>. [25 March 2014].

Iida, Yoichi n.d., Japan’s Telecom Policy and Infrastructure.Available from: <https://www.kdevelopedia.org/mnt/idas/asset/2013/01/30/DOC/PDF/04201301300124751076357.pdf>. [27 March 2014].

IT Strategy Council 2000, Basic IT Strategy. Available from: <http://japan.kantei.go.jp/it/council/basic_it.html>. [26 March 2014].

IT Strategy Headquarters 2001, e-Japan Strategy. Available from: <http://japan.kantei.go.jp/it/network/0122full_e.html>. [26 March 2014].

Manabu, Muta 2004, Japanese eGovernment and eCommerce.Available from: <http://www.manaboo.com/english/egov_japan.htm>. [26 March 2014].

Ministry of Economic Affairs, ROC 2007, E-commerce Legal Environment in Japan.Available from: <http://gcis.nat.gov.tw/eclaw/tjk/english/tjk_tw_body.asp?PageCode=jp_page1e>. [26 March 2014].

The Economist 2010, E-commerce takes off in Japan: Up and away. Available from: <http://www.economist.com/node/16322651>. [25 March 2014].

The Economist 2012, Online retailing in Japan: Gains in translation. Available from: <http://www.economist.com/blogs/schumpeter/2012/07/online-retailing-japan>. [25 March 2014].