Annals of Business Administrative Science 5 (2006) 19-40
Available at www.gbrc.jp

Online ISSN 1347-4456 Print ISSN 1347-4464©2006 Global Business Research Center

Competition and the Formation of Inter-firm
Differentiation Following the Dominant Perception:
A Case Study of the Online Securities Industry

Ayako TAKAITokyo University of ScienceE-mail: takai@ms.kuki.tus.ac.jp

Abstract: In this paper, in order to answer the question: “In an industry where
imitation by competitors is easy, how has differentiation between companies beencreated and maintained?” we provide a new framework, based on the Dynamic
Capability-Based View of the Firm and Action System Theory. On the basis of thisframework, we analyze the early stages of competition in the online securities
industry in Japan. We found that when a Dominant Perception created in an industry
is strengthened by the actions of companies, the strategy of a successful company
may not be imitated for several years and consequently that an expansion indifferentiation between companies may occur.
Keywords: online securities industry, internet business, innovation, dynamic
capability-based view of the firm, action system theory

1. Introduction

conducted on the internet, each company’s products

Why does differentiation among companies arise andand services are shown in real time and some major

persist in an industry where imitation is easy? In thecompanies disclose their corporate performance.

online securities industry, 1 business is basically

Therefore, the inducement to imitate a strategy thathas succeeded in another company is relatively

1

Online security company in this paper means companies
who provide security trading services such as stocks,
debts and trust fund for individual customers via
internet line. Also, online securities industry means agroup of those companies.

strong. In addition, as will be stated later, eventhough there are problems with the information
system, it is not very difficult to follow the strategy
19

Takaiof others. However, in the early stages of the

In this situation, Noda and Collis (2001)

Japanese online securities industry, Matsui Securities

attempted to build a universal framework to analyze

was visibly successful but others, despite knowing

the dynamic process. In their research, they showed

this, did not imitate their strategy for two years,

a thorough framework, focusing on the strength ofwhich allowed Matsui Securities to build a dominant

three forces: 1. Initial Conditions, which generate

position. This paper aims to analyze the mechanism

the seeds of differentiation among companies; 2.

of this phenomenon, from a dynamic viewpoint, with

Divergence Forces, which extend the differentiation;a discussion of the Dynamic Capability-based View

3.

of the Firm and of the Action System Theory.

differentiation and; Sustainability Conditions that

Convergence

Forces,whichcounter

In researching strategic management theory, toprevent convergence and sustain differentiation. The

answer the question why some companies that

researchers also studied the correlation of thesebelong to the same industry have different

components, in an attempt to build a strategic theory

competencies and keep performing differently, two

about the evolution of differentiation between

major theories of defining the resources ofcompanies in the same industry.

competitive advantage occurred after the 1980s. The

One

company’s

successalwaysinvites

first is Strategic Positioning, which focuses on theimitation by other companies and competitive

external elements of a company and the other is adifferences among companies tend to decrease overResource-based View of the Firm (RBV), whichtime (Williams, 1994). Today especially, with severe

focuses on a company’s internal elements (e.g., Kato

competition on a global scale, even core resources or& Aoshima, 2000). Both explained the concept ofcompetencies that are difficult to imitate, are likely

differentiation among companies thoroughly andto diffuse to other companies (Teece, Pisano, &theoretically, however, there was little or nothing

Shuen, 1997). Nevertheless, their explanations of thementioned about the cause, process or mechanism of

mechanism

how such differentiation occurs. More specifically,

differentiation can be said to be incomplete because

the two views mentioned above have theirof too much reliance on Coincidence and on thelimitations in that they are both statistical models.

aspect of Initial Conditions.

ofcreatingandmaintaining

This has led to an increased interest in a Dynamic

On the other hand, current research is

Capability-Based View of the Firm, which focuses

increasingly being based on the Action Systemon researching the dynamic process (e.g., Levinthal,

Theory, which considers the dynamic process at an

1995; Foss, 1997; Noda, 2001), however, research

early stage of an industry as being the intended

based on this approach is still developing and there

action of a number of players and as a combined

is a lack of available reference material.

process of these (e.g., Numagami, 2000). Generally,
20

Inter-firm differentiation following the dominant perception

many technologies and services are offered at theimitation is relatively easy”, has not yet been

beginning of a market’s formation, then emergenceanswered.

ofthedominant

designconsolidates

them

As we have seen, the dynamic capability-based(Abernathy, 1978). The action system school ofview and the action system theory is deeply involved

thought insists that it is also important to focus onwith the main theme of this paper, but we do not yet

Unintended Results, which are generated by thehave a complete answer. This leads to the necessity

social and political interaction processes in theof building a new viewpoint by adding to theenvironment in which the company exists and not

discussions on the action system theory as to how

only on linear cause-and-result relationships, such as

differentiation among companies is formed andsuperior technology and service being the cause ofmaintained in the early stages of an industry where

market choice in this process. For example: “Aimitation is relatively easy, based on the frameworkcompany’s persistence in core technology andof Noda and Collis (2001) and by showing its

preceding research in the United States” (Fukushima,adequacy in cases analyzed in this paper.

1999); “Technology policy of the government”(Shimamoto, 2001) and; “Technology performance2.

Dynamic

presented at academic society” (Fujii, 2002)

differentiation by competition among

reported on those cases that are influenced largely bycompanies

the innovation process and competition in the early

Noda and Collis (2001) define the first forces thatstages of a market, after Unintended Results havecreateoccurred in consequence of the players’ social

Experiences and the company’s Initial Conditions.

interaction.

Each company has different Initial Business

differentiation

frameworkastheInitialof

Business

However, the major interest of that researchExperiences when they start business and then move

was to clarify the logic behind what kind of

their strategy in a different direction, which causesinteresting situation could occur in the innovation ordifferentiation among competitors. That is, the Initialcompetition process and to reinforce the probability

Conditions, being the premise of the Initial Businessof logic by using those cases, given that theExperience,

environment(i.e.,

differentiation among companies. Examples of thiscompetition and technology) is not objective, but

are: internal elements, such as different priorities

rather comprises actions by the players that influencewhen acquiring resources; leadership at the top andeach other. Therefore, the research question of thistheir fortune, or; external elements such as the nature

paper: “how differentiation among companies can beof the local market in which companies compete,

formed and maintained in an environment where

and; the environment at the commencement ofsurroundingacompany

21

is

the

key

to

the

originsofTakaibusiness. Anyhow, these various elements, whether

superior

internal or external, work interactively and comprise

understood (Lippman & Rumelt, 1982). However,the Initial Conditions, which affect the direction andlooking at the real world, these elements are notpriority of company’s future.

sufficient to explain a mechanism that sustains a

The second element is Divergence Forces,

company

performance

are

not

well

competitive advantage over a long period.

which extend the initial differentiation among

Discussions have arisen to compensate for thesecompanies. The motivation to extend business, along

unexplained elements and current research calls thiswith the direction set after the Initial Business

Isomorphism Power, based on the action system

Experience, comes from positive feedback, which

theory. Primarily, many strategic options compete

means success at the beginning of business affects

with each other to obtain the limited resources in alater resource allocation and as a result, the strategy

company (Burgelman, 1991). Therefore, in order toposition goes higher. For example, scale merit andinvest resource in line with the strategy, it isresource allocation according to past performanceessential that legitimacy for this one strategy and not(thebusinessothers be approved internally (Hannan & Freeman,preferentially, or a biased perception of top

1984; Kagono, 1988). Many criteria for legitimacy

management, tend to see a business follow a positive

are conceivable, but in the early stages of the market,

successthewhere there is extremely high uncertainty and vague

differentiation of business in each company (e.g.,

evaluation criteria for technology and services, aNoda & Bower, 1996).

company is not necessarily confident about its

battingaverage)route.

Thesetodevelopelements

extendThe third element is Convergence Forces,

strategy. This makes it easier to secure legitimacy bywhich reduce the differentiation among companies

insisting internally that reasonable procedures haveand Sustainability Conditions which counter thebeen

Convergence Forces. One company’s success leads

organization, another company’s strategy that looks

other companies to imitate it and differentiation

to be performing well and the opinions ofamong companies will converge as time goes by

researchers or experts. This process is called(e.g., Williams, 1994). Therefore, it is important toisomorphism (DiMagio & Powell, 1983).

prevent strategic imitation in order to sustain acompetitive

advantage.

Some

examplesfollowed,

forexample,

laws,

upper

The process of isomorphism develops in anofenvironment, called the Ecologies of Learning by

Sustainability Conditions contained in past research

Levitt and March (1988), in which one company

is: patents to prevent imitation of resources andimitates another’s behavior. That means that when

information adherence (Teece, Pisano, & Shuen,

one strategy has been adopted by a leading company

1997), and; causal ambiguity, that is, the causes ofor group of companies, even though the strategy
22Inter-firm differentiation following the dominant perception

turns out to be unreasonable afterwards, it is possible

environment (Leonard-Barton, 1992).

for it to become the dominant perception through the

The development of each company’s strategy

isomorphism process, just because the leading

and of the differentiation among companies formed

company has adopted it or because many companies

in consequence of this is determined by the strength

do the same thing. Once this has happened, itof these three forces. That is, a balance in the

becomes more and more difficult to securestrength of these three elements may occur, causing

legitimacy for strategic ideas that run against theadominant perception internally and an original

legitimacy of its strategy, formed by isomorphism tostrategy will be prevented (e.g., Fukushima, 1999).

the external environment. So, many companies may

situation

wherebyeachcompany

pursuesMoreover, once a company follows a dominant

adopt similar strategies and become resistant toperception-based strategy with the isomorphism

internal change, competing endlessly with each otherprocess, then various internal elements prevent awith an unreasonable axis, but neglecting to imitatechange in strategy. There are two major methods ofthe unique strategy of a successful company.

organizational learning. One is Exploitation, which

In the next section, the probability of the above

focuses on conventional routine work and the otherviewpoints will be examined by looking at the online

is Exploration which focuses on a new routine that

securities industry, where even in an environmentshows possibility. Usually, Exploitation has priority

where the evaluation and imitation of another’s

because it performs better (March, 1991). On thestrategy was relatively easy, a number of companies

other hand, when the external environment changes

held to the Dominant Perception, which was

rapidly and significantly, like in the early stages ofafterwards shown to be unreasonable and thethe market, a company should change learning away

company that was not imitated succeeded as a result.

from Exploitation to Exploration to seek a new
optimal routine. However, as people are used to the

3. Competition in the online securities

Exploitation way with its internal daily routine andindustry at an early stage 2

their thoughts and behavior are fixed, they tend to

3.1.

take the familiar route and stick to conventional

companies

routines (Kagono, 1988; Levitt & March, 1988;

The history of the online securities industry in Japan

Nelson & Winter, 1982). Furthermore, whendates back to April 1996, with the entry of Daiwa

conventional routine is thought to be a competitive

Securities to the arena. Within two years, major andresource or is connected to the political power of2managers, resistance to change will be even larger
and make it more difficult to adjust to the new23

Onlinesecurity

industryandsix

The case in the third section is written based on
description and data in published materials. Note thatthe writer interviewed 15 people working in or with theindustry, including the presidents and chairpersons ofsurveyed companies. They admit this interpretation.

Takaimid-sized companies entered the market, with up totransactions conducted online kept increasing despite

20 players competing. At the same time, thea depressed stock market. Within a few years, theso-called “Big Bang” financial market deregulation

online securities market has grown as large as thein Japan began, which dramatically changed theface-to-face retail sales market (Takai 2001). With

competitive environment for online securities trading

this rapid growth, companies merged or exited the(Takai, 2004a, 2005). One of the first deregulation

market and the number of companies was reduced toinitiatives, introduced in December 1998, was the

55 in September 2003, down from 67 in Marchtransition from a securities company licensing

2001. 3system to a registration system. This made it

Below, we consider the competition history inpossible for many companies, including overseas

the early stages, from October 1999 to June 2003,

companies and those from different industries, tofocusing on six of the leading online securities

enter the market more easily (Takai, 2004c). The

companies 4 : Matsui Securities, E*trade Security,

second change was the deregulation of commission

DLJ direct SFG Security (DLJ), Monex Security,

fees, which occurred in October 1999. Security

Nikko Beans Security and Kabu.com Security. 5

companies were able to set their commission fee at3

any rate, which had previously been set at a single

See Intanetto torihiki ni kansuru tyousa kekka ni tsuite(2004.9) [from the survey of internet dealing], Japan
Securities Dealers Association (2004, November 5).
4
These six companies hold a share of more than 80% of
individual dealing amount in online securities, and holdmore than 60% of the shares of the amount handled overthe counter (2004.4-6; Statistical data of TSE, Quarterly
settlements of companies and Annual report of Matsui
Securities). Therefore, it is enough to pick up those six
in terms of the influences on the industry. Also, it iscommon to deal with those six companies when writing
about major companies in the industry.
5
Kabu.com Security was established by the merger of
Nihon Online Security and E-wing Security in April
2004. Since the surveyed period in this paper covered
more than half of the operation as Kabu.com, I used
Kabu.com in this paper, not the former two companies.
Note that Nihon Online Security entered whencompetition began, but the start of business was delayed
from November 1999 to February 2000 due to a system
failure (Nikkei Sangyo Shimbun, 1999, November 7).
However, accounts began to be offered from October
1999, so it can be treated as they took some part in thecompetition triggered by commission deregulation justlike competitors (Nihon Kinyu Shimbun, 1999,
September 22). Also, DLJ Direct SFG Security changed
their company name to Rakuten Security in July 2004,
but there is no problem in describing it as DFJ Direct
SFG Security because the analysis period of this paper
ended in June 2003. Nikko Beans and Monex merged toestablish a common holding company by share transfer(Nikko Beans Press Release, Monex Press Release,2004, July 15).

rate by law. This change created new competition
rules in the securities industry, once seen as being
differentiated only in scale.
At this institutional turning point of the
securities industry, internet diffusion began and thenumber of companies in the securities industry grewto 51 over a six month period, up from 34 in
September 1999. This includes about a quarter of thedomestic security companies that entered the online
security business during the peak period. In the
beginning, online securities companies only handled
a limited number of products. However, they soon
began to provide products at the same level as
face-to-face retail sales (i.e., at actual shop counters)
and the quality of services also improved. As a resultof such upgrading, the number of exchange
24Inter-firm differentiation following the dominant perception

3.2. Initial business experiences and initialand by utilizing the data and know-how from its

conditions

call-centers. 9 This was a completely different

Initial conditions

approach from all other companies that entered the

Matsui Securities was the only company out of the

securities market before deregulation, who used thesix who entered the market before 1999, wheninternet to complement their counter sales channel.10

competition started, but its entry was in May,

Five companies, other than Matsui, entered themaking it the 13th 6 company to enter the market,

market after deregulation. These were major US

not far ahead of the others. However, the company’s

discount brokers or companies financed by domestic

quest for a new business model started in 1992 whenfinancial institutions, which basically had noit announced the complete abolition of face-to-faceexperience of management in the domestic securities

sales activities. By 1996, Matsui had transformed

industry. 11 That meant that they hardly had theitself into a specialized call-center securities

know-how, data, potential customer base, fixed costs

company. President Matsui had experience of market

or resources to succeed when they started theircompetition after deregulation occurred in thebusinesses.

shipping industry where he had worked before andhe believed that the cost of sales people would not be

Initial business experience

accepted by customers once the market had become

Each company engaged in fierce competition when

deregulated. His belief drove the decision to spend

deregulation occurred in October 1999. Companies

four years eliminating the sales team completely andother than Matsui Securities set their fee system as aovercoming strong internal resistance. 7 Later, at thecommission fee commensurate at the time of thetime of the company’s market entry in 1998, hecontract price, with little originality such as different

added a new line, the internet, to the single channel

commission fees for certain contract price bands orcall-center and after six months he abolished

9

See “NIKKEI BP real interview” (2002, May 31). (InJapanese)10
From the service menu just before the deregulation ofcommissions. Written based on products and services of
all the companies in the online securities industry.
11
E-trade was established by making Osawa Security a
100% subsidiary incorporated in E*trade in the US(second largest share-deal in America in 1988, justbefore entering Japan) and E-trade financed by SoftBank (Osaki, 1999; E-trade corporate history from
homepage). Osawa Security had suffered deficits for theprevious seven years until then and had a small
customer base. E-trade incorporated just for the purposeof acquiring the license (Nikkei Sangyo Shimbun, 1998,
October 5). Before long, Mr. Izuchi from Soft Bank
came in as a new President (Nikkei Sangyo Shimbun,
1998, October 5). Therefore, E-trade inherited almost
nothing from Osawa Security such as strategy andcustomer base.

call-centers, to become a specialized online security
company. 8 Thus, Matsui Securities prepared itself toenter the market by positioning its online security
business as security broking without sales people6

See Osaki (1999, p. 173).
This is detailed in “Havado Daigaku Bijinesu Sukuru
Pota kyoju no senryakuron sabu noto” [Harvard
University Business School Professor Porter’s strategic
sub-note vol.3] (Shukan Toyo Keizai 202004a) show
only sources.02, July 27) (In Japanese). Notes fromcontents of Takai (2004a) show only sources.
8
Above Shukan Toyo Keizai (2002, July 27).
7

25

Takaisetting different commissions according to the asset

index turnover rates. 16 Here, turnover rate is thebalance. These companies set their management

index that shows a transaction rate per customer. So,

target at increasing the number of accounts held. 12

while other companies were focusing on increasing

Companies that disclosed the number of accounts

their number of accounts, only Matsui focused onheld, such as DLJ, Monex and E*trade, held moreexperienced investors and on maximizing theiraccounts than Matsui Securities who had entered thetransactions. 17

deregulated market six months before them and thisIn detail, Matsui Securities offered a unique

was considered a great success at that time. 13

fixed commission fee system (a fixed fee for

Matsui Securities, on the other hand, adopted amultiple transactions), that is, the commission

different strategy from the others who wereremained fixed (3,000 yen) for up to threecompeting on the number of accounts, based on its

transactions per day, as long as the total amount did

own customer data 14 on the market size of the

not exceed a set range (three million yen). Comparedonline securities industry and its future. In fact,with others who charged commission on the number

President Matsui at that time said: “They say aof transactions, Matsui’s system cost more 18 formillion or two million accounts, but its nonsense… It

only one transaction, however, it became less costly

will be 200 to 300 thousand, I guess.” 15 Competitors

as a customer repeated transactions, so this system

had set targets at several hundred thousand accounts

was suitable for professionals. In addition, Matsuifor each company. Based on this, Matsui Securities

offered services that took advantage of the real-time

set customer targets at experienced investors andprocessing capability of online businesses, that carrya high risk and requires specific knowledge, such as
margin trading and option trading. 19

12Each company’s management index is as follows.
E-trade: “We will acquire 100,000 accounts in a year.”(President Kitao) (Nikkei Sangyo Shimbun, 1999,
October, 4). Nikko Beans: “BEP is 300,000 accounts.
We will attract new investors like the young.” (Nikkei
Kinyu Shimbun, 1999, September 27). DLJ: “We willcertainly acquire more than 100,000 accounts by the endof this year.” (President Kunishige) (Nikkei Ryutsu
Shimbun, 2000, February, 12). Monex: “We aim at
200,000 accounts within this year.” (President
Matsumoto) (Nikkei Ryutsu Shimbun, 2000, February,12). e-wing/Nihon Online: “(By the end of March 2000)
acquire more than 100,000 accounts” “(Same) secure
50~60,000 accounts” (Yano Research Institute, 2002).
13
In April 2000, the numbers of accounts were: Matsui30,226, DLJ 51,491, Monex 56,594. E-trade announced
79,247 in March 2000, one month ahead of the others(from press released information).
14
See “NIKKEI BP real interview” (2002, May 31). (InJapanese)
15
Comments of President of Matsui Securities, Mr.
Matsui (Above “Special Seminar at Financial
Information Technology 2000,” 2000, September 22).

As can be seen, Matsui Securities made a goodstart with its trading services such as a uniquecommission system worldwide and margin andoption trading for experienced investors. 20 That is,
16

See Matsui and Matsumoto (2001), p. 52.
See Nikkei Sangyo Shimbun (2001, January 10).
18
Commission fee for contract price of ¥500,000 is:
E-trade ¥800, DLJ ¥1,900, Monex ¥1,000, Nikko Beans¥2,400, Kabu.com ¥1,000, whereas Matsui charged¥3,000 even for 1 transaction.
19
See Yano Research Institute (2000), p. 149.
20
Daily average transaction amount increased
dramatically in September 1999, just before commission
deregulation, ¥1,930 million whereas in October justafter the regulation, ¥4,890 million and in March 2000,
six months after, ¥11,300 million (press release, Matsui
Securities).
1726

Inter-firm differentiation following the dominant perception

attracting

below the profit line. 22 Although there was a

middle-aged investors who use margin trading

common understanding at the time that 3,000 yen

frequently with services that took their investors’

was the profitable line, the companies, other than

behavior and mentality into consideration. 21

Matsui Securities, proposed fees that were below thisMatsui

Securities

succeededinline (e.g., E*Trade=2,500 yen, DLJ=1,900 yen,
3.3. Divergence forces

Monex=1,000 yen). In fact, many of theseCompetition of companies excepting Matsuicompanies admitted that upon deregulation they had

Securities:

set the fee below the profit line, as is shown in theirCompetition

toincreasethenumber of accounts

comments: “We are prepared to suffer a loss for

When commission fees were deregulated in October

three years” (Nikko Beans) and “The fee will not

1999, the proposed fee systems of the leading

cover fixed costs” (DLJ). Despite the fact thatcompanies that specialized in online securities

companies were already incurring losses, a fierce

trading, except for Matsui Securities, were alreadyprice war soon erupted. The first company toFigure 1. Strategy and merger of six companies regarding commission fee
1999.10 ~ 2000.9(Beginning of Price War)

2000.10 ~ 2001.9(Price War and M&A)

Following Matsui1999.9 1999.12 2000.3 2000.6 2000.9 2000.12 2001.3 2001.6 2001.9 2001.12 2002.3 2002.6 2002.9 2002.12 2003.3 2003.6

Matsui99.10
Fixed commission（up to 3 times）

E-trade99.10 99.10
New ¥0systemDFJ Direct SFG

Monex

Nikko Beans

00.9
New fixed commission(no limits)

00.3
20%
Reduction

01.3
00.10 00.11 01.2
01.9
02.1
¥100 Long/ Reduced Shareholders Reduction Cred. reduction
campaign
Min.
cred.
（〜03） Fixed commission Reduce fixed rate
¥800
¥800

99.10
New
system

01.8
01.10
01.12
More than More than Fixed
20 times 20 times commission
¥90
¥700

99.10
Initiation

00.4
Reduction

01.3
M&A

99.10
New
systemKabu.com

01.7
M&A

02.10
Night
time

01.6
Reduction

02.8
Fixed
commission

01.4
M&A

Revision of commission (fixed commission)
Revision of commission (system / price change)
Campaign for special commission rate
M&A

01.10
credit02.10 02.11
Physical One
shot

03.4
Fixed
commission

03.3
Reduction

Note: strategy regarding commission fee is limited to physical shares here.
Sources: IR materials, press release of each company and four series of news papers from Nikkei.

22

21

See Nikkei Sangyo Shimbun (2001, January 10).

27

See Nihon Keizai Shimbun (1999, September, 27),
Nikkei Kinyu Shimbun (1999, September 27), Nikkei
Kinyu Shinbun (1999, August 10).

Takaidecrease

its

commission

fee

was

Matsui’s strategy: Fixed commission andE*tradeSecurities, 23 which was also the company that was

margin trading

first to trigger “price destruction” in the United

Matsui Securities, on the other hand, maintained

States. Initially in October 1999, E*trade Securities

commission rates that were more costly if thebegan a free commission fee campaign for a limited

customer made only one transaction. Moreover,period, without changing its revised price scheme

recognizing that many customers had moved andthat had just been set up. Following this, in Marchthat the turnover rate was high after actual

2000,

its

competition had begun, Matsui had information thatcommission fee by 20%, this was soon followed bythis strategy was correct. 26 Then, in October 2001,

Monex, which lowered its commission fee forthey changed their fixed commission fee system byrelatively high range transactions of more than two

removing the limitation on the number of daily

million yen.

transactions, from a maximum of three per day to nowhen

E*tradeSecurities

loweredA movement towards expanding scale began, in

limit on the number of transactions for a commission

which various attempts took place to increase theof 3,000 yen, as long as the total trading remained

number of accounts held through mergers andunder three million yen. 27

acquisitions. In April 2001, Kabu.com announced

They continued to enhance their services andthat it was to be incorporated through a merger, 24

products and developed an information systemfollowed by an announcement of acquisitions by

within the company 28 for purposes of realizing a

Nikko Beans and Monex, respectively. 25

strategy that focuses on turnover rates by targeting
experienced investors, such as a combination of a

These events triggered extreme discounting

fixed commission system and margin trading. 29

competitions after the latter half of the 2000
financial year, while the number of online security
accounts increased by more than expected. As stated,

Differentiation expansion

companies other than Matsui, competed intensely by

Two years after the securities market competition

focusing on increasing their number of accounts by

had begun, in September 2001, when Matsui

discounting commission fees and by acquisition

Securities was still seen as a niche or day traders’(Figure 1).

company, Monex ranked first with 178,000 clients,
followed by E*trade’s with 168,000, DLJ’s 111,000,
26

See Matsui and Matsumoto (2001), p. 61.
See Press release, Matsui Securities (2000, July 28, and2000, July 18).
28
See Nikkei Sangyo Shimbun (2000, January 21).
29
See Press release, Matsui Securities (2000, April 14,
2000, May 1, 2000, June 15, 2000, July 7, 2001,
February 14).
27

23

See Osaki (1999), p. 16.
See Nikkei Kinyu Shimbun (2000, December 6).
25
See Press release, Nikko Beans (2000, December 26),
Press release, Monex (2000, December 27).
24

28

Inter-firm differentiation following the dominant perception

Nikko Beans’ 78,000, and Kabu.com’s 76,000.

3.4. Convergence forces and sustainability

Taking second billing to the latecomers, Matsuiconditions

Securities’ client base stood at only 63,000.

Dominant perception as a sustainability

Nevertheless, when comparing the number ofconditiontransactions per account per day or the amount ofInterestingly enough, most companies did not imitate

sales of transactions per day, there was a radical

Matsui’s strategy for over two years, even thoughdifference between Matsui Securities and the others,

there was such a clear difference in performance.

ranging from a three-fold to ten-fold difference. 30

The reason for this phenomenon is possibly the

The ratio of operating profit to operating revenue 31

Dominant Perception formed in the industry at thatin the fiscal year ending March 2002 was 19%, 17%,time.

1% for Matsui Securities, E*trade and DLJ,In the Japanese securities industry before

respectively. On the other hand, for Kabu.com,

deregulation, the only successful business model was

Nikko Beans, Monex, it was -9%, -22%, and -44%,

to have as many “good” customers as possible.

respectively, showing that these companies were still

Securities companies sought to keep their good

suffering large losses, even after three years from

customers as long as possible, by providing valuable

their market entry. In addition, E*trade sufferedinvestment information and advise, tailored to thelosses 32 in the stock brokerage business. This means,needs of each customer under a relatively high andin reality, that only Matsui Securities was reallyuniform commission fee structure, which was notshowing a profit.

viewed as particularly onerous by the affluent,As discussed, Matsui went in a totally different

middle-aged consumer groups, with their surplus

direction against the other companies. While theassets, to which most of the securities companies’

other companies suffered from low performancecustomers belonged. 33

because of continuous price competition in an

However, amid the public discourse of the Big

attempt to increase the number of accounts, only

Bang financial reforms in Japan, which gained

Matsui made favorable profits with its core strategy

momentum from around 1997, the governmentof a fixed commission fee system and margin

decided that securities commissions would betrading.

deregulated, among other anticipated deregulatory
moves in the Japanese securities industries. At thetime, there were strong expectations that the assets

30

Numbers of contracts per account were, assuming
Matsui as 100: DLJ 27, Monex 13, Nikko Beans 15,
Kabu.com 10. Under the same assumption, transaction
amounts were: E-trade 23, DLJ 38, Nikko Beans 9,
Kabu.com 8 (Takai, 2004a).
31
See annual IR materials from FY 2002.3.
32
See Nikkei Kinyu Shimbun (2003, April 24).

of general customers, who had previously not beentargeted by the securities industry, would flash into
33

29

See Saga (2001).

Takaithe stock market upon commissions deregulation.

and commission deregulation, securities companies

Moreover, at the time, Japan was in the midst of theheld high expectations for explosive growth of theso-called IT bubble economy, with the Nikkei stock

Japanese market based on the precedent set by theindex enjoying a rising trend. 34

United States.

In the United States commissions had alreadyCompanies that specialized in online securities

been deregulated in 1975, 20 years ahead of Japan.

trading quickly became the leading players of theThis triggered a new type of security company called

online securities market. Despite their entry into thea Discount Broker that discounted commission fees

market being later than the larger securities

and offered no or little investing information orcompanies, they were capable of implementing

consulting. This new type of companies afforded

aggressive strategies because they did not have thegeneral citizens, not only the affluent, an opportunity

constraint of existing customers. Their objective wasto invest their asset. Despite this, in the U.S., theto attract new customers from the younger

number of accounts for online security trading

generations who had no securities transactions

increased rapidly after around 1996 because ofexperience or from the large pool of businesspeopleinternet diffusion. The Japanese security industry

who were too busy to visit retail outlets. 38 Eachwatched this trend with interest.

company tried to be the first to attract such

By comparison of actual data, in September

customers

1999, just before deregulation in Japan, there were

in

bulk

and

a

very

competitiveenvironment ensued.

only 130,000 online securities accounts 35 in Japan

In summary, the target customers in thewhereas the figure in the U.S. was 13 million. 36

Japanese securities industry had been limited toThus the Japanese market was much smaller thanaffluent, middle-aged and elder customers for a longthat of the U.S., even taking into consideration

time. However, as expectation of an increase in the

population size, individual asset compositions, andcustomer base rose, hopes for the viability of thetotal assets. 37 Based on two significant upcoming

online channel also rose. As such, driven by thechanges that changed the U.S. market dramatically,

anticipated explosive market growth, as happened in

namely the convenience provided by online services

the United States and with a push from the IT bubble
economy, 39 the dominant perception was formed

34

It increased continuously from ¥13,406 in September
1998 to ¥ 20,337 in March 2000, then decreased to¥7,831 in April 2003 (Bank of Japan home page).
35
See Nikkei Kinyu Shimbun (1999, October 21).
36
Number of accounts in 1999 from Saga (2000).
37
The amount of stocks held by individuals was ¥100
trillion (6.4% of individuals’ total assets) in Japan,
whereas it was ¥ 860 trillion in the United States (24.2%
of individual’s total assets) (explanatory materials,
August 2001).

that customer numbers would increase significantly.
Companies other than Matsui went into competition

38
39

30

See Nihon Keizai Shimbun (1999, November 2).
From interview with Mr. Amamiya, operating officer
and general operation manager, Kabu.com Security(2004, March 25).

Inter-firm differentiation following the dominant perception

under this perception.

completely different from the others, while other

The mass media paid much attention to Matsuicompanies engaged in price competition based on

Securities’ unique strategies and so the otherthe dominant perception. The result was that itcompetitors must have had a good indication of what

steadily increased its number of accounts to a scale

Matsui Securities was doing. But Matsui Securities’

much larger than that of a niche company andcommission fees remained relatively higher than themaintained the top profit level in the industry,

minimum commission fees of its competitors who

saying: “Several hundred customers a month switch

were

the

from Nomura and Daiwa” (Matsui & Matsumoto,deregulation in October 1999. Therefore the majority

2001). Moreover, by this time, Matsui Securities’of the industry thought that Matsui Securities’

revenue was significantly higher than the others andperformance was not enough to constitute a threat.

in addition, as mentioned above, the industry became

Also, other companies held to the dominantaware of the fact that in reality it was normal for one

perception, therefore even though they paid attention

customer to hold four to five accounts and the actual

to Matsui’s strategy, they kept evaluating it ascustomers who trade in the company’s account are

targeting the limited and obsessed segments of thelimited. 42 Therefore, companies with the target ofmarket: in other words day traders who traded stocks

explosively

on a daily basis. 40 Ultimately, they perceived,

charging a low commission fee per transaction

Matsui Securities would not be able to attract thechanged their strategy to increase their turnover bygeneral public. 41 Other companies continued

margin trading and a fixed commission fee system,competing to discount commissions with theas Matsui Securities was doing. Figure 2 shows theseobjective of increasing their number of accounts.

transitions of strategy, from competition to attain aengaging

in

price

decreases

after

increasing

generalcustomers

andhigh number of accounts, to the improvement of the
Imitation of Matsui and consequences of therate of turnover.

time lag: Convergence forces

After the strategy shift, those companies that

After two years of such competition, from around

had engaged in a fierce price competition found thatthe latter half of 2001, competitors started to imitate

their increase in the number of accounts stopped, but

Matsui Securities’ strategy. As mentioned, Matsui

they experienced a favorable turnaround in business

Securities maintained its unique strategy which was

by following Matsui Securities’ strategy. 43 In fact,
42

40

43

From interview with President Kitao, E*trade, see
Nikkei Sangyo Shimbun (2001, August 9).
41
Comments from Mr. Suda, first President of Nikko
Beans and operating officer, in charge of retailpromotion at that time (Nikkei Sangyo Shimbun, 2001,
August 10).

31

See Nikkei MJ (2000, September 25).
Following Matsui, initiation of combination of “margin
trading” and “fixed commission fee”, instead of numberof accounts, decreased in absolute number and rate ofincrease, but profitability improved (Takai, 2004a,
Figures 11 and 12). Only Monex, who were late tofollow, showed a dramatic fall in profit.

TakaiFigure 2. Table of strategic follow
1999.91999.12

2000.3

2000.6

2000.92000.122001.3

2001.6

1999.10 ~ 2000.9

2000.10 ~ 2001.9(Beginning of Price War)(Price War and M&A)

2001.92001.12

2002.3

2002.6

2002.92002.122003.3

2003.6CompetitionforAccounts(New Customers)

T i m eL a g
E-tradeMatsui
98.5

00.11
99.10

Monex

DLJ Direct SFG

01.9

00.9

02.12
01.12

Nikko Beans

01.8

Kabu.com
01.11

Start of margin trading

03.04

Competition
for
Active Customers(Active Users)

02.8
02.11

Initiation of fixed commission fee system

Note: Kabu.com introduced “one-shot transaction”, which allows spending multiple days in fixed commission fee range.
This is expressed as dotted line.
Source: IR materials of each company.

E*trade, which had been the most pro-active

strategy and as a result have succeeded in reducing

price-cutting leader, admitted that they had improved

the revenue difference. 47 Regarding this, President

their performance with the transition from the

Matsui was quoted as saying; “Having been imitatedconventional strategy to a strategy of fixedby others who have differentiated themselves from us

commission fees and margin trading with small

by their lower commission fees, some of ourbonds, which Matsui has invented. 44 Monex

customers have shifted to these other companies.” 48

Security took another year to start imitating Matsui,

However, today Matsui Securities still remains

conceded that they had been left behind in

the leading company in the industry (Takai, 2004b).

recovering

performance

figures.

President

Matsumoto puts the delay down to: “A lack of
insight.” 45

did not follow Matsui’s strategy, Monex, lost moreaccounts to Matsui than were transferred from Matsui(Nihon ni okeru onlain shoken torihiki no genjo [Thereality of online security trading in Japan], 2004
December, Kinzai Institute. (in Japanese)).
47
Comparing the change in numbers of contracts andtransaction amount per account (September 2001 to
March 2003), Matsui decreased to about 70% in
contracts and 60% in transaction amount. On thecontrary, companies that decreased were Monex, which
was late to follow, and the number of contracts of Nikko
Beans, except for closed information such as number ofcontracts of E-trade and transaction amount of Monex.
Monex showed an enormous increase in transaction
amount (Takai, 2004a).
48
See Matsui (2003), pp. 130-131.

Today, various companies including E*trade,
DLJ, and Monex, have succeeded in attracting
Matsui Securities customers 46 by imitating its
44

See Nikkei Kinyu Shimbun (2003, April 24).
See Nikkei Kinyu Shimbun (2003, April 24).
46
Analyzing the difference of “inbound and outbound ofstocks,” which shows the account transfer among
companies in FY 2003.3, companies followed Matsui’s
strategy and acquired from Matsui more than theytransferred to Matsui. However, the only company that45

32

Inter-firm differentiation following the dominant perception

3.5. Consideration for causes of forming andturnover rate in Matsui Securities. In fact, Matsui

maintaining differentiation among companies:

Securities developed an original information system

Reconfirmation of the framework

by removing their upper limit for the number ofAs mentioned earlier, it is basically quite easy totransactions per day.

imitate the strategies of competitors in the online

Companies other than Matsui Securities, on the

securities industry. Despite this, Matsui Securities

other hand, experienced different Initial Businesssucceeded in establishing a predominant position inExperiences, namely that their number of accounts

the initial stages of this industry for two years andwas increased by lowering commission fees and by

this phenomenon really interests us. The nextcompany acquisition. The difference in their Initialquestion should be: Why Matsui Securities’ strategy

Business Experiences formed another momentum: towas not imitated for so long?

focus more on increasing the number of accounts,

Matsui

Securities

was

under

an

Initialwhich eventually expanded their differentiation from

Condition that it had derived from being a

Matsui as Divergence Forces.

specialized call-center security company, before the

However, this is not considered an absolute

online security market had become properly

factor in maintaining persistent differentiation

established. It learned that it was important to attract

between companies. Additionally, the originalactive customers who trade securities often in orderinformation system developed by Matsui to offer its

to improve its turnover rate and that there are manydifferentiated services and products played some rolecustomers who favor a system 49 that allows its

in preventing imitation, however, if competitors

customer (experienced investors) to engage in as

wanted to, they could have overcome this in just amany transactions as they liked – however small the

few months. 51

transaction amount may be. 50 Therefore Matsui

Strategic imitation works as a Convergenceaffluent,

Force but the Sustainability Condition prevented it.

middle-aged customers by adopting a strategy to

The fact is that companies, other than Matsui

develop and offer their own services, such as the

Securities, held to the Dominant Perception. In othercombination of a fixed commission fee system andwords, the other companies continued to follow a

margin trading. These Initial Business Experiences

dominant

generatedthoroughnumbers would increase dramatically as was cases in

implementation of a strategy that was targeted at

the United States in an IT bubble economy and kept

experienced investors and that improved theirfollowing the strategy of winning the price

Securities

49
50

succeededtheinmomentumattractingfora

See Yomiuri Shimbun (2004, March 15).
Above, “NIKKEI BP real interview” (2002, May 31)(In Japanese).

51

33

perception,

believingthatcustomer

From interview with Mr. Namba, Chief Information
Officer in Monex Security (2004, June 21).

TakaiFigure 3. Mechanism of formation and maintaining differentiation among companies
Stronger
Company A
Divergence Forces

Company B

InitialBusiness
Experience
Strategic Commitment andStrategic Position

Dominant Perception
Inte

rac
tio

na

mo
ng

com

Company C
Time
Company D
Convergence Forces andSustainment Condition

pa n
ies

Weakercompetition and taking in customers first, to reapof turnover rate by acquiring active users, should

profits afterwards. This strategy seemed to be

have been clear to all the other companies from thesuccessful at first because the number of accounts

published material and President Matsui’s remarks.

did increase. Moreover, competitors saw that Matsui

Nevertheless, the other companies continued toSecurities was following a different strategy but

follow the dominant perception, which indicated thatmisunderstood that Matsui Securities is a company

customers would increase dramatically and so thesefor niche customers only, that did not enjoy thecompanies engaged in fierce competition, repeatedly

support of the most profitable customer group.

cutting commissions whenever others did.

Because of this misunderstanding, even if they wereAs stated before, it took no less than two years

left behind by Matsui Securities in terms of profit,

from the real rise of the market for the reality thatwhich was not a major issue at that time, they didn’t

Matsui Securities grabs active users who are the coretake it as a failure but rather a temporary

customers of this stage of the online securities

phenomenon. Therefore, there was no necessity tomarket, to replace the perception of Matsui

imitate the strategy.

Securities being a niche player that only attracts day

Of course, the effectiveness of the strategy that

traders. This replacement was a kind of ‘Copernican

Matsui Securities took during the early stages of the

Revolution’ in the industry’s view of the market.

online securities industry, namely the improvement

However, by the time the change occurred, the gap
34

Inter-firm differentiation following the dominant perception

between Matsui Securities and the others wascompanies is created and maintained in a situationconsiderable.

Matsuiwhere imitation is easy. On this point, this paper

Securities held to the dominant perception, they did

provides a framework, based on Noda and Collis

not follow Matsui Securities’ strategy, even though(2001), with discussion of the Action System theory

they knew the effectiveness of the strategy and its

and with the concept of Dominant Perception as aintention quite well. As a result, Matsui Securities

strong Sustainability Condition and successfully

kept growing in a situation that appeared to beconceptualizes

similardifferentiation among companies is created, as seentoCompanies

theso-called

other

“gap

than

createdbyconcentration of several companies” (Shimamoto,thedynamic

processofhowin Figure 3.

2001) (Figure 3).

In Figure 3, the mechanism to create andmaintain differentiation among companies originates

4. Discussion

in the Seeds of Differentiation among Companies;

This paper has tried to build a new framework of theInitial Conditions and in Divergence Forces toissue why differentiation is formed and maintained

expand it. In an industry where imitation is easy, if

in an industry where imitation is relatively easy,

nothing happens, the differentiation would bebased on a Dynamic Capability-based View of the

reduced rapidly as per the dotted line in Figure 3.

Firm and the Action System Theory.

However, once a Dominant Perception has been

Noda and Collis (2001) used conceptual images,

formed, most companies compete under it andbased on a Dynamic Capacity-based Approach, toaccelerate competition in the wrong direction byshow how differentiation among companies isinteraction

created, with an axis of Strategic Position anddifferentiation among companies can be maintained

Commitment and Time. In detail: when Seeds offor a much longer period than is normally the case.

Differentiation

among

Companies;

among

companies.

Therefore,

InitialIn this paper, we clarify the fact that theConditions is operational, Divergence Forces work

strategy of a successful company in the early stages

to expand differentiation, however, as time passesof an industry may not be imitated for years, even in

Conversion Power begins to reduce it by imitation,

the situation where competitors know the strategy

whereas Sustainability Conditions act to preserveand its performance. So the validity of the strategy

differentiation. This is the process that maintains

has been proved, because the Dominant Perception,differentiation among companies.

to which many companies adhered, was strengthened.

However, their logic depends too much on

This has enormous significance in the field of

coincidence and Initial Conditions, it is therefore not

management strategy in providing the mechanism

enough to explain how differentiation among

and the reasons why strategic imitation does not
35

Takaihappen at once, even in an environment whereimportant to learn from other companies with ainformation is so freely available, as it is today.

different approach to competition (Numagami,

So, what is

ex-postAsaba, Shintaku, & Amikura, 1992). When one

unreasonable competition, as in the online securities

company succeeds with very unique strategic

industry, or not to get involved in the first place?

behavior, like Matsui did in the online securities

Firstly, the answer is that the top executive

industry, learning and watching the company

himself/herself

information

carefully, gives the opportunity to expose one’s own

intentionally, not merely process it automatically as

inertia, to be noticed and to examine the rules andpart of routine work (e.g., Kuwada & Tao, 1998).

premises of learning (Shintaku & Amikura, 1998).

The original purpose of a work routine is to

Using the unique strategy of another company as aeliminate redundant information and data forreference to watch oneself comparatively, such as

efficient management, however, as a routine

considering why that company behaved as it did, isbecomes entrenched information and data, which

necessary to get out of wrong homogeneous

seem to be unrelated to the operation, are eliminatedcompetition.

tries

important:totointerpretexit

to a greater extent (Levitt & March, 1988). However,In this paper, we tried to analyze theif top executives can obtain rich information that hasmechanism of the formation and maintenance of

not been eliminated in a work processing routine anddifferentiation between companies from a dynamic

can interpret it correctly, it is possible that high level

point of view. Yet there are still some issues to belearning to modify the context and premises ofsolved in order to add sophistication to thisexisting behavior will be promoted (Kuwada, 1991).

framework, such as identifying the detailed action

It has been suggested that the best way toundertaken by the internal business process of eachinterpret information as a rich experience is to takecompany. More discussion is also necessary to

raw data in directly, which has not yet beenclarify what the conditions are that form a Dominant

processed in an existing information processing

Perception. We would like to build a more universal

procedure, by repeating a small experiment (e.g.,framework in future research.

Itami & Kagono, 2003). Thus, a company that
accumulates information itself is thought to have a

Acknowledgements

chance of exiting from irrational competition

The author would like to thank Junjiro Shintaku,

because it can judge the information from a market

Takahiro Fujimoto, Nobuo Takahashi, Tatsuyuki

in alternative ways and proactively (Itami, 2004).

Negoro, Yoko Takeda, Daniel Heller, and Yoshinori

As stated above, in order for a top executive to

Konno for helpful comments and suggestions on

interpret information as a rich experience, it isearlier drafts of this paper.
36

Inter-firm differentiation following the dominant perception

This research is financially supported by

Itami, H. (2004). Nihon kigyo no noryoku kochiku

Grant-in-Aid for Scientific Research from Japan[Capability building of Japanese companies].

Society for the Promotion of Science (JSPS) andPaper presented at the regular symposium of the

Research

Academic Association for Organizational Science,

Grants

from

The

Japan

Securities

Scholarship Foundation.

Tokyo, Japan. (In Japanese)
Itami, H., & Kagono, T. (2003). Semina keieigaku

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Takai40

ABAS: Annals of Business Administrative ScienceVol. 5 December 2006

CHIEF EDITOR

Junjiro Shintaku

University of TokyoEDITORIAL BOARD

Makoto Abe
University of Tokyo
Takahiro Fujimoto University of Tokyo
Makoto Kasuya
University of Tokyo
Nobuo Takahashi University of Tokyo
Technical Editor: Maki Nishida, Global Business Research Center

ABAS: Annals of Business Administrative Science is published annually in December by
Global Business Research Center, Hongo, Bunkyo-ku, Tokyo, JAPAN. http://www.gbrc.jp