2007・5
Emerging competitive value in use with materiality: Competitivetransformation of business system about online securities market in Japan

Noboru Matsushima
Kosuke Mizukoshi

Emerging competitive value in use with materiality: Competitive transformation ofbusiness system about online securities market in Japan
Noboru Matsushima（Kobe University Graduate School of Business Administration）
Kosuke Mizukoshi （Tokyo Metropolitan University）

1. Introduction
This study examines transformation of business system in the Japanese securities
industry and the initial stage of new markets created by aggressive individual investors.
With the launch of deregulation in 1997, Japan’s financial industry is still in atransitional stage to a full-fledged phase. Coupled with the rapid development of theinternet, emerging online securities firms have been rapidly growing and are now
competitive with traditional securities firms.
This trend has already been seen in the United States and many other countries.
However, different developments are taking place in the Japanese financial industry.
Japanese online securities market has attained the largest amount of trades worldwide,
and the number of individual investors, which showed almost no presence at one time,
has grown. Traditional securities firms that run over-the-counter services have also
started to demonstrate their unique operations, which are noticeably different from thoseof American firms.
As we examine this situation, these striking differences should be attributed tocompetitive strategies based on business systems representative of each country, not to
the factor derived from macroeconomic policy, i.e. deregulation. In order to gain a solid
understanding of these industrial innovations, this paper examines the concept ofcompetitive value in use, which is a subject of much debate among Japanese marketingstudies. We will both examine the concept and expand upon it.
2. Emerging competitive value in use
It is true that any product or service has some inherent value. However, attempting todefine its exact value is exceedingly difficult. A typical example is the paradox between
value in exchange and value in use. Take water as an example. Its value in exchange islow (it is cheap); its value in use is high (it is essential to human beings). People,
especially in Japan, did not consider the idea of buying water until recent years, andthey did not have a mineral water market. In contrast, jewelry is high in value inexchange, but low in value in use.
This paradox can be viewed from the perspective of how to relate the relativity of1

value in exchange with the universality of value in use based on human desires.
Economics regards the universality of value in use as a “black box” when utility ofresources is considered. So the only scarcity of the resources determines the value inexchange to achieve Pareto optimum. Jewelry is high in value in exchange because of
its scarcity as a resource. Water could have, especially in Japan, much utility but lessscarcity, which results in a relatively low value in exchange. In the current mature
market, however, the scarcity of resources can be strategically created just like
production adjustments of cultivated pearls. In consumer society today, utility also
cannot be adjusted in accordance with circumstances. Water’s marginal utility may be
reduced but not in the case with jewelry as some people want as much jewelry as
possible. In contrast, some sociologists have often argued that a symbolic value exists.
These sociologists focus on meaning that customers find within products, and they areskeptical of the universality of value in use itself (according to Jean Baudrillard’s bookin 1972)1.
Japanese marketing researchers have advocated the concept of “competitive value inuse” in the context of these value assessments (Ishihara 1982).2 The focus of this idea
converges on the following two points. First, customers’ value in use emerges throughthe process of competition. Second, the materiality of products is considered in thisprocess.
In regard to the first point, value in use for customers emerges from the competition
process of differentiated business efforts among competitors.3,4 This means that value
in use is not rooted in specific substantial need but is rather evoked as a result ofcompetition.5 For example, Japan’s water market was quite small at first. Only small
1

In Marketing Studies, It has been argued in particular in 1980's. Show Sahlins,1976, Holbrook&Hirschman,1982,
Solomon,1988, McCracken,1988.
2 Originally, competitive value in use can be approached with a positive reinterpretation of Marxism. You should not
address value in exchange by formulating the value of labor as the principle, but should base competitive value in use
on the value extracted from exchangeability. In Marxism, these arguments are examined as the ones related toespecially reification.
3 In strategic management theory, the differentiation is defined as the strategy that enables companies to get ahead of
their competitors by providing customers with products and services whose value exceeds the prices. However, thedifferentiation in the process of emerging competitive value in use not only includes corporate differentiation strategy
on value for customers, but also goes beyond it from a broader perspective. Value for customers is supposed to be
judged by the customers themselves who get completed products and services provided as a result of corporate
differentiation strategy. Customers’ judgments are necessary for differentiation strategy to succeed in order to create
great value for them.
4 Polanyi(1966) termed as “Emergence” the creation of traits that could not be found at such subordinate levels as theboundary between non-organisms and forms of life. What is important about this fact is that this process of creationthat Polanyi showed was not based on a specific scientific and objective truth but was the process that would establish
comprehensible matters observed by researchers. By the same logical thread, competitive value in use is not
automatically created by competition among companies but is judged and produced by customers that get products
and services.
5 This kind of argument is close to the concept of “dependent effect” that Galbraith (1976) explained. He points outthat people’s wants today are not intrinsic but are controlled and contrived by corporate advertising. The argument2

amounts of water products were imported from Europe and America. However, in 1982,
it started to import Perrier publicly, and in 1983, House Foods Corp., a domestic foodcompany, launched its Rokkô No Oishî Mizu (delicious water from Rokkô). These newdevelopments gradually shaped the mineral water market in Japan. In the beginning,mineral water was considered a product for special usage, such as for business use
for diluting whiskey. However, it became more popular as a daily drink as more andmore companies entered the new market and competed against each other in theirdevelopment of new products.6 In 1986, people consumed about 80,000 kiloliters (17.6
million gallons) of mineral water annually. As of 2005, consumption increased to 1.42
million kiloliters (312.4 million gallons), about twenty times greater than water
consumption in 1986 and even reached 140 billion yen in domestic market sales.
During the same period, green tea products also appeared in Japan. Green tea had also
been treated as something free of charge like water, with the exception of rare luxury
green tea products. But in 1985, Ito En, Ltd., a domestic beverage company, launched
its Kan Sen-Cha, a canned green tea. Major companies gradually entered the newmarket, and competition intensified. As of 2005, domestic sales of green tea amounted
to almost 500 billion yen. Those numbers not only exceeded sales of mineral water but
also formed the largest share in the overall beverage market. One important aspect about
this phenomenon is that not only did water’s value in exchange change but also
customers’ attitude (value in use) toward water in the process of competition.
The second point is consideration of product materiality. This point underlines thefact that emerging products’ value in use emerges and also gives limited potential to its
relativity. Again, take water as an example. Water also has materiality. Products that use
water as materials, including mineral water and green tea, create a variety of value in
use. This fact does not mean that water’s value increases infinitely. That is because thevalue in use that customers can find within those products is an imperative element ofwater, a substance that actually exists in the world. It is unthinkable that products madefrom water will enter the jewelry market.
This recognition of products’ materiality has been reexamined from the viewpoint ofrobust design in the marketing studies in recent years. In marketing theory, there was aabout competitive value in use also looks at issues from Galbraith’s perspective, but it also gets an insight into
competitive relations among companies. Companies’ manipulation of customers’ wants is impossible because only
when some results are produced will companies know whether their efforts have successfully evoked customers’desires. In addition, Professor Junzô Ishii made public in Japanese his theory incorporating this viewpoint into
marketing study in 1993(translation in English forthcoming). He argued that it was just a “Myth of Marketing” tofollow the determinism that product development in line with market needs would definitely lead to good results forcompanies. In regard to competitive value in use, there is no determinism to corporate marketing activities, but there
are specific different heuristics for different situations.
5 Refer to the research by Rosa, et. al. (1999) on the analyses of these creation processes of new product markets.

3

greater tendency to stress the importance of advertising strategy excessively by looking
at the value in use from an overly comparative perspective and simultaneously, pay lessattention to the materiality of products. In comparison with that tendency, arguments inrobust design have started to take up the inclusion of the materiality of products inmarketing strategy, while paying attention to the return of technological determinism(Swan et al. 2005, Kuriki 2006).
What has been mentioned above is the outline of competitive value in use. To repeat
the definition, products’ value in use is revealed through competition and is found bycustomers. At the same time, value in use is also affected by the materiality of products
and services. The paradox between value in use and value in exchange discussed earlier
no longer makes sense in this context. Each value is formed relative situation.
This paper draws on this concept of competitive value in use in marketing and seeks
to extend the materiality of products to the whole business systems. Because in creatingcompetitive value in use, the materiality is involved with not only completed products
but also competition among companies. Human resources working for companies bearmateriality, as well as typical material resources such as manufacturing technologies
used in business systems. The whole business system comprised of these various kindsof materiality construct companies differentiate and establish the core of theircompetitive strategies.
As long as we examine the competitive process of emerging value across the wholebusiness system, we should consider a new paradigm that adopts more comprehensive
elements of business system in response to the marketing research results on creating
value through the customers’ use (or exchange) of completed products. 7 That is,through the examination of the competitive process of a wider variety of businesssystems, competitive value in use in marketing can be a good viewpoint to deliberate on
the emerging process of competitive value in use beyond services and products as crosssections.

7

Of course, it is necessary to keep in mind that this generalization might undermine the idea that commercial
exchange is the core of value creation. There are already similar concepts in the argument within and among
companies. What is remarkably characteristic of competitive value
in use is that customers’ judgments are involved even within and among companies.

43. Negotiated transformation of business system and online securities market8

By focusing on competitive value in use, this paper seeks to examine the competitivetransformation of the business system that has been restructured amid the rapid
reorganization of Japan’s securities industry since the 1990s. This section first examines
the business system that shaped the conventional securities industry. We hope that ourreaders will pay primary attention to such materialistic factors as salespeople andmanagement methods for themselves and their customers, which comprise the businesssystem under regulations (See section 3.1). These factors were able to shape thebusiness system because they contributed to online securities firms differentiating
themselves from one another (See section 3.2). In the online securities market thatdeveloped due to deregulation and the development of the internet, value in use emerges
from customers that eventually attain services through differentiation efforts based on
the materiality of these business systems (See section 3.3). The establishment of newmarkets and business systems induced further differentiations and led to the competitivetransformation of another business system.
3.1 Conventional business system in the securities industry
The Japanese securities sector was once a perfect symbol of regulated industries. The
Ministry of Finance (MOF) took the initiative in leading Nomura, Daiwa, and Nikkô,
the “big three” securities firms in Japan. Smaller securities companies followed thedecisions made among the three companies. The Institute for Securities Education andPublic Relations, the Japan Securities Dealers Association (JSDA), the Tôkyô Stock
Exchange, the Tokyo Stock Exchange Membership Association, and other stock
exchanges were no exceptions as they played roles as coordinators between the
securities industry and the MOF. These securities firms also hired retired MOF
bureaucrats in a practice known as Amakudari.
Naturally, regulations left those securities firms with no choice other than to provide
uniform products and services at uniform prices. They were denied any leeway when
making decisions concerning organizational management, stockholder dividends,
presidents’ salaries, and the kinds of company-owned cars for their presidents’ use.
They earned uniformed commissions as was stipulated by law. Because they belonged
to a regulated industry, they were more conscious of not destroying the establishedframework of regulations than of meeting the needs of their customers. Securities
companies had a stronger sense of consolidation with one another and put great
Data citation refer from Matsushima and Mizukoshi(2005; 2006).They argue the process of Matsui
Securities Strategy and Joinvest Securities Strategy.

85

importance on taking concerted actions with each other. In those days, theircircumstances made differentiating their products from those of their competitors
completely impossible.
In this situation, salespeople had empowerment. In the case of medium and smaller
securities firms, their registered representatives who received performance-based pay
were in the most advantageous positions.9 They were not fulltime employees of thosesecurities firms. Salespeople had their own customers and worked semi-independently.
In the performance-oriented system, they gave back 60% of their revenues to securities
companies and kept the remaining 40%. In short, they worked in a typicalperson-oriented system where they profited from their efforts. This commission system
was beneficial not only for the registered representatives but also for securities
companies that were under contract with these representatives. The registeredrepresentatives were highly motivated because they could earn salaries commensuratewith their efforts and performance. In addition, the system enabled securities firms tohandle personnel costs as variable ones and avoid suffering considerable losses due tofixed expenses, even in an economic slump where employees’ salaries decreased
accordingly.
The situation did not allow companies to differentiate their products from those of
their competitors, which inevitably induced salespeople to develop strong connections,both good and bad, with their customers. In those days, most customers were
institutional investors and affluent investors. They possessed large assets and exerted
much influence over securities firms. Securities companies put just as much energy into
doing what their competitors did. Consequently, those institutional investors andaffluent investors took advantage of their influence over securities companies and posed
unreasonable demands. For example, they requested that the securities firms buy theirstocks at the day’s high of 310 yen, in spite of the 300 yen closing price. In the short run,declining the unreasonable offers was the better choice for the securities firms. The
companies were afraid that their refusals would eventually carry adverse consequenceson their relationships with those major customers. Securities firms had no other choice
but to absorb the 10-yen loss per stock.
Those securities firms had to compensate for their losses in some way or other. In
some cases, they played a creative maneuver called a scenario market. This maneuver isa kind of market manipulation to ensure that specific investors will gain profits while
9This kind of salesforce is probably more popular in overseas countries. Outsourcing salespeople is very similar to
the method mentioned in this paper. In many Japanese companies, however, it was long customary to keepsalespeople and have them play a pivotal role in developing strong relations with customers. This style is quited i f f e r e n t
f r o mt h a ta b r o a da n di l l u s t r a t e s
p e r f e c t l y
the peculiarity of the Japanese eigyô as compared with sales promotion activities in English.

6others suffer losses by speculating about stock fluctuations with specific intent. Using
this trick, securities firms had their favored customers buy particular stocks. Next,
salespeople aggressively encouraged many other investors to buy those stocks. As aresult, the prices of those stocks rose. Taking advantage of the climax in price, securities
firms had their major, or favored, customers sell these stocks so that they would realize
gains. In the meantime, minor investors, who had been encouraged to buy those stocks
at the end stage at the day’s high, bore the brunt of the trick and suffered huge losses. At
this moment, the securities companies also had to depend on their salespeople’ strong
connections with big customers. These connections enabled the salespeople’ positions togrow more lucrative.
Ultimately, customers and sales know-how, not the securities firms’ resources, were
the true assets of registered representatives and fulltime salespeople. The higher
positions that the salespeople and registered representatives earned and the riskier
dealings they employed, the more the securities companies had to supervise salespeople’
activities. Fundamentally, the securities sector was strictly regulated and completely
noncompetitive, and in such a situation corporate management meant just monitoring
employee work. There was no room for presidents to take the initiative in performing
drastic reforms. Securities firms were unable to innovate themselves, and as a result,they were left with no other option but to rely heavily on the Ministry of Finance.
Government control eventually grew stronger and stronger.
This section is not intended to examine whether these industrial regulations weregood or bad. Instead, it focuses on the fact that the conventional business system of the
securities industry was not an abstract model but under the auspices of the authorities. It
was established based on various kinds of materiality, including strong connections
between salespeople and their customers. In fact, this relationship was later responsible
for the introduction of other business system that could encourage differentiation
efforts.

7

Totally independent

Ministry of FinanceFollow

Control & regulate

No product differentiation, Depend on sales person

Advantageous and influential
Salespeople

Excessively

closerConnections

Demands

Institutional investors,
affluent investors

No management

Securities firms

Abuse
Individual
investors

Figure 1: The conventional system of the securities industry
3.2 The differentiation of the business system and the evoking of individual
investors
In the beginning of this paper, we have written that the restructuring of Japan’s
securities industry was spurred by the launch of deregulation in 1997. However, thetransformation of the business system had already happened before deregulation was
initiated. The collapse of the bubble economy in the early 1990s caused Japan to plunge
into a prolonged economic slump. In that situation, many securities firms experienced
difficulties finding suitable solutions to their problems. Matsui Securities, which wasthen overlooked by the securities circles, was the pioneer in the innovation of thebusiness system. This section describes the path that the securities forerunner took in
pursuing its unique business system by differentiating it from conventional formulae.
Michio Matsui, who took over the securities company as a son-in-law of his
predecessor, triggered the transformation of its business system. Before starting thesecurities business, he had witnessed deregulation in the maritime transportationindustry, and he strongly felt that conventional business systems should be revised.
However, the viewpoint was not enough to reform those obsolete systems. An importantnote here is the competitive process where Matsui sought to learn how to differentiate
his idea from the concepts behind the established business system of the securities
industry and succeed in building a new one.
Through trial-and-error, Matsui Securities carried out its reform agenda. For example,
in 1990, just after the collapse of the economic bubble, the company opened a gorgeous8branch office in Akebonobashi, Tokyo, so that employees could talk with customers
about investment while relaxing over coffee. Matsui also deliberated on how to
structure a new business system that would enable his company to break away from theold method of dependence upon salespeople. He declared a commitment to abolish
operations using salespeople once and for all and strived to launch a new system
focusing on telephone sales. His novel idea was based on a large-scale strategy featuring
an all-out restructuring measure that eliminated salespeople’ operations and created newmarkets nationwide by setting up call centers. Inevitably, many people in the company
voiced their objections to the transition to telephone sales. In the end, five important
people left the firm, including a sales manager, a deputy manager, and the section chief.
Matsui Securities lost one third of its customers, many of whom had had a close andlengthy relationship with the firm.
These efforts did not produce immediate results. Because Matsui Securities still had
little publicity, its launch of telephone sales attracted little attention from customers andrequired a large amount of advertising costs. At one time, Matsui thought of giving up
on telephone trading because it did not generate sales in spite of its huge promotionalcosts. But the trading gradually increased its sales. In the meantime, the Akebonobashi
office did not produce remarkable results, though it was profitable. The company
decided to close the office in 1994.
A significant factor for the telephone sales getting on the right track was the
emergence of value by customers. The company’s initial target was affluent investors inrural areas. They were thought to be unwilling to go to their local securities firms as
stories about stock dealings quickly traveled around a small town. Considering thesecircumstances, the company speculated that those people scattered around the country
would be prospective customers. However, small individual investors, who had born thebrunt of unfair treatments in the conventional business system, found Matsui Securities’
telephone trading attractive. The new formula greatly fascinated them because it
enabled them to make deals at their disposal without being bothered by unfair
salespeople. In addition, these individual investors lived throughout the country andoverwhelmingly outnumbered affluent investors. The securities firm anticipated that thecollection of those minor investors would comprise a big share of their total customers.
Soon afterward, Matsui Securities implemented a barrage of reforms that broke down
various taboos in securities circles. Among the reforms were the selling of discountbank debentures to individual investors at the market price and the lowering ofcommissions that safeguarded these securities. In the first example, the conventional
business system forced individuals to buy discount bank debentures at a9disadvantageous rate compared with the market price. However, the revision by the
securities firm enabled the individuals to buy those debentures at the market price.
Second, the company reviewed fees charged in the name of account maintenance costs
and eventually decided to no longer charge them. Both revisions produced fierce
opposition from the securities industry. In the beginning, the Japan Securities Dealers
Association took a hard line against the second revision and argued that it would not
accept the company’s stance of abandoning the fees. The two reforms were intended toprovide further value to small investors who found the telephone sales strategy valuable.
While Matsui Securities was on the way to establishing its new telephone trading
system, the Japanese government aspired to reform the financial market drastically inthe post-bubble period and began to consider the liberalization of commissions as partof the “financial big bang.” The “big three” securities firms in Japan voiced opposition
to the government’s stance, fearing that it would reduce their profits. Medium and small
securities firms were reluctant to be involved in a competition. These firms were also
against the government’s attitude because commissions were their essential source ofrevenue. Matsui Securities was the only company in favor of the liberalization ofcommissions.
The securities companies that were unwilling to accept the government’s idea based
their negative stance on U.S. cases. U.S. carried out reforms related to the liberalizationof commissions in the 1970s, much earlier than Japan. These reforms resulted indiscount brokers, some of whom just used low prices as the selling point and neglected
the quality of their products. The attitude of these discount brokers often offended theircustomers, but in the end, commissions rose.
Matsui Securities, however, was confident in its strategy. The company had alreadyeliminated the conventional sales method using salespeople so it did not need to set highcommissions to motivate salespeople. Instead, the company needed to lower
commissions to attract as many small individual investors as possible. Attracting
individual investors,the company paid initial attention to over-the-counter stocks.
Commissions on over-the-counter stocks, unlike listed ones, were not regulated. The
company halved the commission charges on the trading of those over-the-counter stocks
before the commissions had been almost uniform. This company’s insightful approachgarnered much attention from the press, as well as the securities world. Naturally,
securities circles, which were against the liberalization of commissions, voiced
opposition. However, the Ministry of Finance had sought to move toward theliberalization of commissions and did not complain about Matsui’s action. Consequently,
other securities firms followed suit.

10

In 1999, all the commissions on securities were finally liberalized. By then Matsui
Securities had lowered all commissions to the greatest extent possible within the scopeof existing regulations. The securities company had made thorough preparations foreliminating account maintenance fees, halving counter stocks, reducing thecommissions on trading investment trusts (known as “mutual funds” in U.S.), andreducing the commissions on option trading and other securities transactions by half.
3.3 The Establishment of the online securities market
In the previous section, we examined how Matsui Securities sought a new securities
business system prior to the launch of drastic deregulation in the financial industry. In
the new market, Matsui drew up a new formula for a securities business system thatdifferentiated from the conventional system where salespeople played a pivotal role inbuilding long-term connections with customers. Customers found emerging value in use
within the new system.
This business system heralded by Matsui Securities was the model for online
securities trading in today’s Japan. The internet began to be popular among PC homeusers just around the time when Matsui Securities launched a drastic reduction ofcommission charges on telephone trading. In the U.S., online securities trading had been
initiated in 1996 was growing rapidly. The web-based trading was also expected to
become the mainstream method of securities dealing in Japan, but people thought thatsome time would pass before it happened.
In those days, Matsui Securities had been preparing to increase its telephone sales
operators to the one thousand levels. In 1998, the company withdrew its plan to enhance
its telephone sales services and shifted its focus to internet sales. Many of its employees
were concerned about the future of Net-based trading, because they knew that online
trading through the Value Added Network (VAN) and telecommunication functions ofhome video games had already failed in the 1980s. People had not yet realized thepotential of the internet. Inevitably, Matsui Securities’ employees were uncomfortablewith the sudden change in plans, and the managing director, the company’s right-handman, left as a result.
The securities company, however, understood that asset flow was more important
than asset stock in the securities system that targets individual investors. The repetitionof short-term trading of small assets will result in the same large profits that are
produced by the long-term management of large assets. This way of thinking is very
common in the current online securities market in Japan.
In 1998, Matsui Securities launched its Netstock, a full-scale online trading service.

11

In those days, major securities firms, such as Nomura Securities and Daiwa Securities,
had started their own Net-based services. In response to this situation, Matsui asked
their contract developer to build a similar system for his company. However, this system
was based on a conventional sales force and branch offices where basic securities
transactions were conducted by people, not based on Matsui’s idea of placing a strong
focus on online trading. These differences in core attitude are easy to understand.
Nomura Securities and Matsui Securities targeted different customers and used different
sales methods. It was quite natural that the two companies with different businesssystems had different evaluation criteria and different methodologies for obtaining
customer satisfaction, even though both provided Net-based services. Major securities
companies with big sales teams cannot eliminate their current methods entirely and shift
to online trading.
In this way, Matsui Securities launched a barrage of new services that challenged
various conventional practices in the securities industry. Listed below are the main
services that this innovative firm offered. Obviously, many of these services were
impossible to carry out because of materialistic restrictions in the conventional
securities world.10 In addition, the internet and deregulation were not the only factorsthat produced these differentiated services. What is important is that theirdifferentiations stemmed from the business system of traditional security firms. Some ofthese changes were realized before the emergence of the internet and would have beenpossible even without deregulation.

10 Whether all these differentiations based on materiality were elaborately planned or just accidentally worked well is
not completely clear. An interview has confirmed that they were strategically deliberated, but it is conceivable that thebackstory of the plan was plausibly described just after it had been performed. An important point is that whether
intentional or accidental, many of the differentiated services from those of conventional securities firms were basedon sheer materiality.

12Table 1: Competitive transformation of business system

1996.4

New services

Differentiation based on materiality

Eliminating stock

The services were impossible in the old system

custodian fee
1997.2

Halving

where salespeople charged major customers foron commissions through strong connections.

commissions

counter stocks
1998.5

Launchingthe

Netstock,full-scale online trading service
1998.5Initiating

onlinemargin(Nomura and Daiwa had already introduced asystem for internet trading.)－

trading
1999.10

Starting

the

Box

Rate

commission service

The price setting was impossible in the old system
where salespeople promoted products through directbusiness negotiations.

1999.12Introducing

theAccount

Protection system
2001.3of insurance premiums for asset protection. The
Account services were unrealizable in the conventional

Applying

theProtection

system

final securities business system where salespeople played aonprofits of margin trades as well2001.4

Salesperson misconduct was key in the evaluation

Introducing Net FX, an online

pivotal role.
－foreign exchange margin trading
service2001.4

Starting

the

Moon

Trade

nighttime service
2003.72006.9The service enabled individual investors to makeafter-hours trading.

Starting unlimited

Legally speaking, the conventional method for

Margin trading

margin trading is supposed to be used. Traditional

Eliminating commissions on securities firms relied on the system to implement
unlimited margin

Tradingsettlements for a particular period of time. They
intended to supervise salespeople handling customers’
money.

As a result, much of Matsui Securities’ reforms on business systems were based on
differentiating its strategy from those that shaped the conventional securities system. As
the innovative company speculated, existing major securities firms could not imitate
Matsui’s practices because of their materialistic restrictions.
Companies in different categories, however, could easily enter the online securities
13business. Matsui’s system needed no salesperson; it just required a web-based system tocoordinate securities trades. In December of that year, when Matsui Securities launched
its Netstock, the securities world saw a conventional licensing system replaced with aregistration system. This system induced many internet-based companies to imitate
Matsui’s business methods and services and enter the online trading sector.
From the beginning, Matsui Securities did not complain about other companies’ entry
into the online business. The company believed that their entry was essential to attract
potential individual investors into the Net-based securities world. For that purpose,collective efforts with other firms would be more helpful than efforts to exploit a newmarket on its own. In fact, the online securities business was powerful enough to change
individual investors. In 1998, when internet trading started, annual transactions
amounted to at most 4.5 trillion yen. In 2005, however, the amount of transactions
increased to 180 trillion yen levels, and now Japan’s online securities market grew thelargest amount of trades worldwide. Animated competition among new online securities
companies generated new value for customers.
Table2.
E-trade(1,000)

Monex

MatsuiRakutenKabu.com

1400
1200
1000
800
600
400
200
0
Jan-99Jul-99

Jan-00Jul-00

Jan-01

Jul-01

Jan-02

Jul-02Jan-03

Jul-03Jan-04

Jul-04Jan-05Jul-05Jan-06

Jul-0614

3.4 Further competitive differentiation efforts
The online securities market was so powerful that it could not be overlooked any
longer. The market enabled individual investors to gain huge profits by transferring theirstock to flow. Internet companies that followed Matsui’s practices, and were notconsidered to be serious competitors by Matsui, eventually surpassed Matsui Securities
in sales and earned the largest amount of trade worldwide.
In the meantime, the online securities system caused excessive competition incommission reduction. Some companies not only provided a free service for accountfees but also reduced their brokerage commissions for stocks to almost free of charge.
Of course, no matter how low these charges were, companies could earn profits as longas individual investors repeated trades many times. Around that time, Japanese economy
showed signs of recovery from the collapsed bubble, and the securities market became
animated. More and more individual investors entered the market in response to a stringof reductions in online securities commissions.
Under these circumstances, the pioneering Matsui Securities was standing at a
crossroads. The company had drastically cut costs, but the cuts were not enough to becompetitive with the entry of internet companies employing basic information systems.
Sales were growing but the company gradually fell behind in the market rankings.
In response to this situation, Matsui Securities sought for further differentiation. Itscompetitors were no longer major securities firms but other online securities companies.
Matsui had already taken various steps against other online newcomers when it was
preparing its products for the Netstock. These steps included managing underwriting
services for the Initial Public Offering (IPO) and margin trades. To offer these services
required the track records of stock trading, which made undertaking Matsui Securities
impossible for emerging internet companies. However this comparative advantage could
be overcome through growing experience in securities trading amid the rapid
development of the online market.It was not effective enough to materialistic
restrictions against other online companies from keeping up with Matsui Securities.
In 2005, Matsui began to build up its telephone operations again, even though it had
once abandoned the plan to set up call centers nationwide because its focus on Netstock.
Behind this change lay the emerging new value in use for customers evoked by the
rapid development of the internet market, contrary to Matsui’s expectations. The
business system for Matsui and other online securities companies was based on theelimination of salespeople and the principle of stock trading based primarily on
individual investors’ decisions. Therefore, these companies solely provided information
requisite for trades on the internet. They did not send out any information that might15

induce investors to make particular decisions. This practice caused many Japaneseindividual investors to become speculative-oriented, meaning that they often maderepeated short-term trades based on simple market information. This kind of event wasexactly what online securities companies had expected. However, not all individual
investors wanted the online securities market to get that speculative. Making deals bysimply clicking online did not become popular with, among others, older generations
with huge assets that included their retirement bonuses. (The baby-boom generation thatwill be retiring around 2007 is estimated to receive a total of 80 trillion-yen in
retirement bonuses.) In response to this situation, Matsui Securities decided to resume
enhancing telephone sales operations that target this older generation.
On the other hand, the online securities market, which had grown dramatically, wasalso what existing big securities firms intended to seize. But these firms were working
out strategies to put themselves in advantageous positions against materialistic
restrictions in the online securities market and were considering going beyond justentering the market. In the online market where stock trades took on a tone of
speculative game, there were marginalized customers other than the older generation. In
2002, limits on deposit insurance were introduced as part of the large-scale financial
deregulation. This deregulation meant that blanket government protection of deposits ofmore than 10 million yen was eradicated. In response to the change, financial circles
paid sharp attention to the high probability that bank deposits would be redistributed toother financial institutions. Many of those bank depositors were stable investors andsensitive to risks in the face of this new situation. As such, they were reluctant toparticipate in unpredictable, speculative games.
In response to these events, Nomura Securities, which had not been very active in the
online market, made a move11. It founded the Joinvest Securities Co., Ltd., a full-scale
online securities firm. Like other online firms, this new company, financed by the
Nomura Holdings, Inc, lowered its commissions to attract customers. The company
even offered lower fees than those of other online securities firms. Now, did thecompany intend to target the individual investors’ market just because it had become so
big?
The answer is “No.” It drew up a differentiated business system plan based on the
Nomura Group’s perspective that its competitors are existing online securities firms.
The plan first focused on the differentiated advantage of a latecomer to the online
Nomura Securities initially had been concerned for analysis of the trend of market, because they
had become not be able to predict the movement of financial market that is affected by active
individual investors. Joinvest Securities, therefore, started by the stuffs of analyst from the Nomura
Research Institute Ltd.
11

16

securities field. According to Carr (2004), a latecomer in online investing should
formulate an all-out cost-cutting strategy, because information systems and software
have themselves become commodities and are no longer significant enough to put an
online trading company in an advantageous position, whether the company is apredecessor or latecomer to online investing does not matter. Based on this recognition,
latecomers can enjoy valuable cost competitiveness due to the prevalence of
information systems. Today, Joinvest Securities can build its system at only about one
tenth of the cost that preceding online firms paid.
In addition, online securities firms did not have their own automated systems for alltransactions on stock trading. They depended partially on major securities companies
that coordinated trades in the conventional system. The Tôkyô Stock Exchange (TSE)
operated special systems: the system for facilitating the buying and selling of stocks; thesystem for providing market trading information; and the settlement system with batchprocessing for exchanging data on executed trades with securities companies and the
Bank of Japan. Internet-based companies could themselves build, at a relatively low
cost, the online system for receiving trading orders from customers and the system for
maintaining customer information and calculating commissions, just as they could
develop web servers on their own. However, in regard to the settlement system withbatch processing, the conventional system worked well and the TSE outsourced thesystem development and management to the Nomura Group and Daiwa Group. Joinvest
Securities could make use of the system managed by the Nomura Research Institute,Ltd.
Joinvest Securities envisioned a different strategic outlook from online securities
firms by looking beyond the system cost efficiency. The focal point was shifting its
mindset back “to stock from flow.” Matsui and other online securities companies
reduced commissions in an effort boost turnover rates of trades made by individual
investors. Joinvest Securities of Nomura Group put a strong focus on different points
from its reliance on the speculative aspect of individual investors. Specifically, one
example was investment trusts. In offering investment trusts, the securities firm could
get financial products from the Nomura Group companies. Nomura Securities had thelargest share of investment trusts in Japan and the rate was growing year by year. As of
September 2006, trusts accounted for 22% of the total sales of the Nomura Group.12 In
12 Nomura Securities also made active efforts to outsource its sales of investment trusts. The company had
reorganized its sales divisions and started to educate employees two months before the decision was made that inAugust 2005, the Japan Post would launch a service to sell investment trusts at 575 post offices nationwide. As of
September 2006, investment trusts provided by the post offices accounted for 68.1% of all the trusts provided byfinancial institutions.

17

addition, investment trusts allowed the group to gain larger profits by the dealing ofcustomers’ assets in custody rather than with commissions on trading. In fact, Major
Securities produced almost 40% of its total profits from the dealing of customers’ assets
in custody.
This reasoning is why Joinvest Securities adopted different approaches with its
customers. Online securities firms were committed to leaving individual investors on
their own while they made investment decisions. This attitude greatly distinguishedthem from major securities companies. In contrast, Joinvest Securities took its group’s
continual growth into consideration and put greater importance on helping people
deepen their understanding of the stock market, rather than spurring individual investors
to go speculative. Based on this philosophy, Joinvest Securities launched sites thatprovided clear-cut explanations about how the stock market was established anddetailed descriptions about the activities of many companies, instead of just trading
information with charts. The securities company believed these websites would make a
new impression on individual investors joining the current online market. More thananything else, these sites would evoke new value for potential customers vigilant
against an excessively speculative-oriented stock market.
4. Conclusion

In the earlier sections, this paper has drawn on the concept of competitive value in
use, which is debated by marketing studies in Japan. This paper has also examined ingreat detail the competitive process with a focus on the materiality of the wholebusiness system. To review briefly, competitive value in use emerges in the framework
where differentiation evokes value for customers. It is worth much attention that such avalue emergence process is involved with materiality. Fundamentally, marketing theory
defines materiality as a characteristic of products provided to customers. This paper has
shown the necessity of focusing on the whole materiality of business system among
companies while also focusing on customers that ultimately allow value to emerge.
Companies have to go through numerous processes before receiving final evaluations
from customers.

18

Business System of the Offline Security② Differentiation

based

on ⑤

Business System of the Online Security① Services (Products) evoke
the Customers
Materiality

with

its

Emerging the Value in
Use by Customers③ Services (Products) evoke
the Customers
Materiality

with

its

④Differentiation between
the Online Securities

Figure.2 The process of emerging competitive value in use in Japanese security market

The following is the summary of this paper. First, the conventional business system
for Japan’s securities firms was involved with materiality, and it enabled value toemerge for customers in its own unique way. It took the form of promoting sales basedon the strong connections between salespeople and their customers. Securities
companies targeted primarily institutional investors and affluent investors and abused
individual investors as their outlet for their frustration concerning impossible demands
from major customers.
Second, the system for the online securities business was built on the differentiationfrom the materiality of such conventional business system. Matsui Securities pioneered
the innovation that resulted in a new type of business system before deregulation was
launched. The materials for web-based trading were also introduced around that time.
The differentiation focusing on materiality prevented existing major securities firms
from entering the online trading market.
Third, the business system for the online securities business gained value in use from
customers. The formula was based on the principle of shifting the company’s mindset
from stock to flow at individual investors’ disposal, along with the reduction ofcommissions. It eventually created a situation where speculators such as day traders ran
rampant. This market earned the largest amount of trades worldwide, and excessivecompetition in cost reduction undermined the profitability of the online tradingbusiness.
Fourth, as the marketplace became bigger, online securities companies began to make19

differentiation efforts that distinguished themselves from their competitors within theirmarket.
Fifth, the online market subsequently became the target of major securities companies.
These companies cleverly used the online investing system to secure theirdifferentiation from Net-based companies. Joinvest Securities, which was founded by
Japan’s largest securities company Nomura Group, took advantage of its position as alatecomer and the cost efficiency produced as such. It created completely different
product line-ups from those of other online securities companies by putting the group’s
resources to the utmost use. Their business system was intended to earn profits for thewhole group with the retransformation of the online market from flow to stock throughthe differentiation of business systems based on materiality.
To summarize, we were not completely sure whether Joinvest’s competitive strategy
would work successfully. Japanese business magazines are critical of Joinvest Securities
because of Nomura’s late entry into the online market and the smaller than expected
number of customers. Much of the criticism, however, looks only at the securities firmfrom the perspective of the existing value in use. Its business system created throughcompetition among companies was intended to produce a value in use different fromthat of the existing online market. Only its customers can make the final judgments
about its success13.
[2007.1.26 796]

After 6month Joinvest Securities started, It already be seen the different trend in Joinvest’s
customers from other online securities’s. .Customers of Joinvest Securities tend to use margin tradingmuch more than the other online customers..
13

20

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