The Japanese Facsimile

Industry
Introduction

Facsimile machines read documents, transmitted them over standard or dedicated lines, and produced copies of
incoming documents. These machines served as a major means of communication in Japan that first started as
special-purpose devices for transmitting photographs used by newspaper publishers, government agencies, and
television broadcasters. As time went on, domestic demand for these machines increased which created incentives to
innovation. As a result, Japanese firms invested aggressively and early on in new facsimile technologies by adopting
the new G3 and G4 standards to capture and change the market – a move somehow neglected by U.S. firms.
Therefore, major U.S. manufacturers, such as Xerox, Siemens, Burroughs, being late in the tech race, eventually
were forced to either source facsimile machines from the Japanese firms or exit the market. Japanese firms
accounted for more than 90% of worldwide sales, and nearly 100% of world exports in the facsimile industry in
1989. In my PESTEL, Porter’s forces, and Porter’s diamond model analysis, I will explore the reasons for Japan’s
dominance in the facsimile industry.
PESTEL Analysis
1. Political
 Throughout the 1960s the state monopoly communication company, the NTT, required dedicated lines
for facsimile transmission in Japan whereas in the U.S. general phone lines were not permitted for
facsimile transmission except for the press and reasons of public importance
 In 1969, the U.S. Supreme Court Carterphone allowed the attachment of third-party devices to general
phone lines
 In Japan, the NTT allowed facsimile transmission over the public telephone systems in 1972 and
completely eliminated the requirement for fully dedicated lines in 1973
 In Europe, most countries required approval for each facsimile machine installation in 1979

2. Economical
 Long distance line charges in Japan were high relative to many other countries
 The 1964 Tokyo Olympics stimulated the wider use of facsimile machines in Japan, but overall
demand remained low
 Facsimile machine demand increased massively once digital transmission standards were set in Japan
in the 1980s
 There was very little demand in the U.S. for facsimile machines as they relied more on Telexes, and
Typewriters in the 1970s
 U.S. 1974-1975 recession dealt a severe blow to American facsimile firms
 Facsimile machines received even less demand in Europe than in the U.S. as European PTTs invested
heavily in Telexes and were reluctant to push facsimile technology until they had made back their
investments
 The European market was dominated by American and Japanese firms
 The NTT in Japan invested heavily to market facsimile machines and dedicated facsimile lines in the
1980s
 Early penetration of G3 facsimile machines in the U.S. was driven by the need for communication with
Japan
 In the mid-1980s, prices for facsimile machines fell in the U.S. and demand increased
 The U.S. became the leading export market for Japanese facsimile machines
 By 1990, virtually every large United States company owned a facsimile machine. Medium and small
businesses had become major purchasers.
 Saturation of the large office market in Japan led Japanese facsimile manufacturers to introduce
smaller desk top models designed to penetrate the small business market starting in 1986
 By the end of 1989, there were more than four million facsimiles in use in Japan
 Unit demand was expected to grow by approximately 15% to 20% a year from 1989 to 1992.
 By 1990, at least nine Japanese manufacturers engaged in foreign production to reduce trade friction
and alleviate protective measures on the part of European governments

3. Socio-cultural
 The complexity of the Japanese written language made telexes and typewriters impractical
  Handwritten messages were considered polite and considerate in the Japanese culture
 Since the Japanese written language is so complex, they required precise and accurate facsimile
machines as any slight character change could change the meaning of the whole sentence
 Buyers of facsimile machines were large firms, medium firms, and small firms, and home office
customers
 Large firms demanded advanced technology, high levels of service and support, and the ability to
network their facsimile machines to provide optimal performance and the lowest telephone charges
 Medium firms focused on price, features, service, and the maintenance of their facsimile machines
 Small businesses and home office customers bought facsimile machines on the basis of price and
availability of simple features
 Japan placed great importance on electrical engineering and turned out more electrical engineers than
any other country by 1980

4. Technological
 Japanese firms achieved economies of scale in facsimile machine production
 Many Japanese firms integrated backwards to manufacture specialized components
 U.S. firms were market leaders in analog facsimile machines
 The first digital facsimile machine was produced by a U.S. firm (Dacom) but due to the lack of its
financial resources, and electronic and mechanical expertise, the firm developed a joint venture with
the Japanese firm Ricoh
 Japanese firms were early adopters of new facsimile machine technologies – G3 and G4 in the 1980s
 The Japanese firms were particularly aggressive in developing new data compression techniques and
improved facsimile components
 Japanese manufacturers began innovations in facsimile machine structure by introducing smaller
machines which were important for cramped Japanese offices
 By 1990, compact facsimile machines were one twentieth the size of their ancestors of the early 1980s.
 Japanese firms also manufactured accurate and precise machines due to the complexity of their written
language
 Japanese firms also developed special circuitry that allowed their G3 machines to communicate with
G2 machines.

5. Legal
 In the 1940s-1950s there were no standards for facsimile machines
 In the U.S., AT&T did not permit the use of general phone lines for facsimile transmission, except for
the press and other uses considered to be of public importance
 In 1958, AT&T restrictions were changed to allow limited use of the public network in the U.S.
 Nippon Telephone and Telegraph (NTT), the state monopoly communications company, required
dedicated lines for facsimile transmission in Japan through the 1960s.
 The 1969 U.S. Supreme Court Carterphone decision allowed the attachment of third-party devices to
general phone lines in the United States
 In Japan, NTT first allowed facsimile transmission over the public telephone system in May 1972 and
completely eliminated the requirement for fully dedicated lines in 1973.
 In the early 1970s, the Japanese Government was one of the first to give facsimile documents legal
standing.
 Deregulation of telephone lines came later in Europe than in the United States and Japan.
 In 1990, many European nations still imposed regulations on facsimiles.
Porter’s forces
Threat of new Bargaining power Bargaining power Threat of Rivalry
entrants of suppliers of buyers substitutes
Economies of Large number of Large number of No direct substitute Many large players
scale needed suppliers present in buyers in Japan and product available present in the
the Japanese U.S. facsimile industry
facsimile industry
Large investments Suppliers distribute High switching Facsimile machines Fierce competition
needed in R&D differentiated costs are differentiated present in the
products and sold to industry
customer segments
Existing brands some Buyers find it hard
have loyal manufacturers are to integrate
customer base integrated forwards backwards (such
as U.S. firms)
Porter’s Diamond Model

Factor conditions:

 Firms employ mass production assembly methods to ensure economies of scale

 Great importance was placed on education; Japan was turning out a very high number of engineers that
have helped drive technological innovation by the Japanese industry.
 Automated part selection and flexible assembly lines resulted in rapid and inexpensive changeovers for
major manufacturers
 Some 85% of the world’s thermal facsimile paper came from Japan.

Related & supporting industries

 Existence of various distribution channels
 Availability of domestic supporting component industries such as scanners, printer heads and
semiconductors
 A network of specialized suppliers had grown up to serve the Japanese firms

Demand conditions
 Cultural demand as the Japanese placed great importance on handwritten documents to show politeness and
education
 Strong domestic demand for facsimile machines because of the complexity of the Japanese written
language
 Business demand, to communicate with other companies in the U.S. and Europe

Strategy, structure, and rivalry

 Japanese firms were quick to adopt new standards
 Japanese firms were among the first in the world to initiate G1 facsimile machines
 Japanese firms were successful in making new generation facsimile machines with digital transmission
technologies
 The NTT in Japan invested heavily to market facsimile machines and dedicated facsimile lines in the 1980s
and even was privatized to encourage competition
Conclusion
As it was established in my analysis of the Japanese facsimile industry case, Japan dominated the facsimile industry,
even overtaking the American market where facsimile machines were invented. The ultimate reason behind Japan’s
dominance that can be pointed out is, first, cultural orientation.

The Japanese people preferred handwritten business documents as it was believed that this showed politeness and
level of education - almost 98% of business documents were handwritten. Moreover, the complexity of the written
Japanese language made other means of transmission impractical. This means that a slight change in a character
could change its meaning of the sentence and lead to a serious misunderstanding. Therefore, there was a major need
for facsimile machines

On the other hand, in the U.S. and Europe where telexes and typewriters were more prominent, there was not a real
need for facsimile machines. The English, and European languages were easy to use on such transmission
technologies relative to the Japanese language.

The second reason behind Japan’s success in the facsimile industry is innovation. The Japanese firms invested
heavily in R&D and employed electronic engineers to manufacture important components and improve production
of facsimile machines. Specifically, the Japanese firms were particularly aggressive in developing new data
compression techniques and improved facsimile components which differentiated their products and made them
more attractive.

Additionally, NTT, the state-owned telecommunications company, saw the potential of facsimile transmission to
stimulate demand for telecommunication services and invested heavily to market facsimile machines, whereas,
companies in other nations were far slower to react. The NTT became even more aggressive in marketing facsimile
machines and services after it was privatized in 1985.

Finally, the Japanese firms were particularly quick to adopt new standards, the G3 and G4, which enabled them to
capture and change the market. Major U.S. firms, being slow in the tech race, were eventually forced to either
source from Japanese firms or exit the game, thus, making the Japanese firms market leaders.