Silviase/jgov_v1.4_full_ann huggingface dataset:
### 4. Trends of the Japanese Economy as Seen from ICT-Related Demand (Consumption, Investment, Export)

(1) Trends of the Japanese economy as seen from ICT-related domestic demand

ICT-related consumption’s contribution to consumption expenditure shows that ICT-related consumption has been making a positive contribution in almost all quarters since 2001, indicating that ICT-related consumption has been contributing to the increase of total consumption expenditure (Graph 1-11). As to the contribution of ICT-related investment to businesses’ capital investment, machinery orders, which serve as a leading indicator for business investment, show that ICT-related machinery orders have been making a positive contribution to total machinery orders in almost all quarters from 2003 to the first half of 2006, indicating that ICT-related investment has been contributing to the increase of total investment since 2003 (Graph 1-12)

## (2) Trends of the Japanese economy as seen from ICT-related external demand

ICT-related exports show that while Japan’s ICT-related exports to the United States have been on a decreasing trend since 2000, its ICT-related exports to China have been increasing sharply since 1999 (Graph 1-13). Japan’s ICT-related exports to other Asian countries are also increasing, albeit moderately.

Graph 1-8 Contribution of ICT industry to real GDP growth rate

(Source) “Survey on Economic Analysis of ICT”

Graph 1-9 Production, shipments, and inventory status in the ICT manufacturing industry

$ ^{*} $ Calculating original indexes of production index, delivery index, and inventory index

Source: “Indices of Industrial Production,” Ministry of Economy, Trade and Industry

Graph 1-10 Activity status of the ICT service industry

Source: “Indices of Tertiary Industry Activity,” Ministry of Economy, Trade and Industry
ICT-related exports to China show that Japan’s exports of semiconductors and other electronic components, and intermediary goods for audio and visual equipment, have increased significantly (Graph 1-14). This indicates that the trading structure of the Japanese ICT industry has been shifting to exports of semiconductors and other electronic components, intermediary goods for audio and visual equipment, from exports of final goods, such as electronic computers and communication equipment. As to Japan’s trading partners, the United States had been the main partner, but in recent years, Asian countries, especially China, have become Japan’s important export counterparts.

Graph 1-11 Contribution of ICT-Related Consumption to total Consumption Expenditure

Source: “Family Income and Expenditure Survey,” Ministry offf Internal Affairs and Communications

Graph 1-12 Contribution of ICT-Related Machinery Orders to Total Machinery Orders

Source: "Orders Received for Machinery," Cabinet Office

Graph 1-13 Changes in ICT-Related Exports from Japan

Graph 1-14 Changes in ICT-Related Exports to China from Japan

Source for both graph 1-13 and 1-14, “Trade Statistics” Ministry of Finance
### 1. International Competitiveness of ICT Industry

## (1) Globalization of ICT networks

A. Trends concerning global business development by the world's major telecommunications carriers

The current state of the global business development by the world's major telecommunications carriers reveals that they are actively promoting global expansion by establishing local subsidiaries and through investment in local telecommunications carriers (Graph1-17).

### B. Efforts at home and abroad for the construction and diffusion of next-generation network

Efforts are being made for the construction of next-generation networks in such fields as NGN, wireless communications, digital broadcasting, and network convergence, with various countries participating. And in the field of NGN, standardizing bodies in Asia and Europe and United States are working on global standardization of NGN under ITU-T (Graph 1-18). Development of mobile phone systems standardization following the 3G (third-generation) is in progress, and in terrestrial digital broadcasting, the three standards: of Japan, Europe and the United States have been adopted in the world.

### C. Progress in offshoring through global networks

(a) Background of expanding offshoring

Due to the advancement of global networks and the

Graph 1-17 Status of Overseas Business Development by Major Telecom Carriers Abroad (As of the end of FY2006)

Country	Telecom carrier	Business	Country where business is being operated
Asia	America	Europe
Fixed communications	Mobile communications	Japan	China	South Korea	Others	U.S.	Others	Germany	France	U.K.	Spain	Italy	Others
Japan	NTT	●	●	◎	△	△	○
KDDI	●	●	◎	△	△	○
Softbank	●	●	◎
Americas	AT&T Inc.	●	●	○	○	○	○	◎	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○
Verizon	●	●	○	○	○	◎	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○
Sprint Nextel	●	●	○	○	○	◎	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○
France	FT	●	●
U.K.	Vodafone	●	△	○	△	○	△	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○
BT	●	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○	○
Spain	Telefonica	●	●	△	○	○
South Korea	KT	●	●	◎	△

* “○”: Headquarters; “○”: Local telecom subsidiary (Equity stake of more than 50%); “△”: Partial investment in local telecom operator (equity stake of more than 1%)

(Source) Compiled based on interviews

Graph 1-18 System to Study the International Standardization of NGN

(Source) “Surveillance Study on the Current Status of Ubiquitous Network Society”
remarkable growth of software-service industries in China and India, the offshore development of software has been progressing rapidly. From the perspective of the development of international communication networks, large-capacity submarine cables have been laid around Japan, extending to China, Southeast Asian countries and even to the western part of India, lowering the charge per capacity (Graph 1-19). Moreover, the size of software-service industries in China and India, the countries that are drawing attention as offshore partners have expanded from 9.7 billion dollars in 2001 to 60.2 billion dollars in 2006 and from 9.5 billion dollars to 37.4 billion dollars, respectively (Graph 1-20).

(b) Outlook of Japan’s offshore development and comparison of characteristics of offshore development between Japan and the U.S.

According to surveys, the size of Japan’s offshore development, which stood at 63.6 billion yen in 2005, is expected to increase to about 200 billion yen in 2010 (Graph 1-21). One of the major purposes of the advancement of offshore development is to complement the shortage of software engineers in Japan. Therefore, as long as increases in the size of software development continue to exceed increases in the size of offshore development, expanding offshore development will not result in decreasing domestic employment (Graph 1-22).

A comparison of Japan and the United States with regard to the main offshoring destination countries, that of Japan is China (about 80%), and that of the United States is India (about 95%) (Graph 1-23). As to the criteria for selecting companies to which they commission offshore development, Japan attaches importance to language and cost reduction, while the United States places emphasis on technical capabilities of engineers and their performance (Graph 1-24).

Graph 1-19 International Undersea Cable Around Japan

Graph 1-20 Changes in the Sales of Software-Service Industries in China and India

(Source for China) China Software Industry Association

(Source for India) Ministry of Communications & Information Technology
(2) Status of international competitiveness of Japanese ICT industry

### A. Profit rate of the world's ICT vendors

The average operating profit rate of major Japanese ICT vendors in the past 10 years is lower than those of their counterparts in the U.S., Europe and South Korea in all of the following fields: terminals and equipment, devices, and software solution. The gap is particularly wide in the fields of devices and software solution (Graph 1-25).

Graph 1-21 Size of Japan's Offshore Development

### B. International comparison of the competitiveness of ICT industries

From 1997 to 2005, Japan saw its global market share and exports share decline in almost all products, indicating that Japanese business competitiveness and location competitiveness as a production base have eroded. On the other hand, the United States, though its location competitiveness declined, has maintained its business competitiveness, suggesting that the country has been shifting its production base to other countries.

Graph 1-22 Size of Japan's Software Development by Type

(Source for graphs 1-21 and 1-22) "Survey Research on the Advancement of Offshoring and its Impact"

Graph 1-23 Countries or Areas to Which Japan and U.S. Commission Offshore Development

Graph 1-24 Bases of Selection for Offshore Development

(Source for graphs 1-23 and 1-24) "Survey Research on the Advancement of Offshoring and its Impact"

Graph 1-25 Average Operating Profit Ratio of Major Information Vendors by Country

Total	Business field
Terminal and machine	Device	Software / solution
Japan	4.1%	4.7%	2.5%	5.6%
U.S.	13.0%	7.2%	20.2%	19.6%
Europe	7.2%	7.1%	4.7%	13.0%
South Korea	12.3%	8.4%	22.9%	—
China, for its part, has rapidly increased its location competitiveness due to the foreign vendors’ moves to concentrate their production bases by the development of the international division of labor (Graph 1-26).

(3) International competitiveness of Japanese ICT industry as seen from competitive factors

A. Business development of Japanese vendors

In recent years, the weight of the Japanese market for communications-related equipment, such as personal computers and mobile phones, and digital video equipment, such as LCD TVs and plasma TVs, has been on a declining trend in the world (Graph 1-27). Nevertheless, Japanese vendors are more domestic market-oriented than their counterparts in Europe and the United States (Graph 1-28).

A comparison of the product structure of major vendors in various countries shows that Japanese vendors tend to deal in a wider range of products than their coun-

Graph 1-26 Changes in the Market Shares and Exports of Main ICT Machines and Devices Exports 1997 (some in 1999)

$ ^{*} $ Export share is the ratio of each country's exports to total exports by the world's major countries.

(Source) Compiled from research firms' materials

Graph 1-27 Weight of the Japanese Market in the World Market

(Source) Compiled from Fuji Chimera Research Institute materials

Graph 1-28 Domestic Sales Ratio of Japanese and Overseas Vendors

(Source) Compiled from vendors' financial statements
### C. R&D and human resources in the ICT field

A comparison of the ratio of R&D spending to sales at major ICT vendors in Japan and other countries show that the R&D spending ratio of Japan is lower than that of the U.S. and European countries (Graph 1-32). That of South Korea has been drastically increasing in recent years and almost the same level as that of Japan in FY2005. Moreover, the number of Japanese college graduates majoring in ICT-related subjects has remained flat in recent years, while the number of graduates majoring in similar subjects is on the increase in the United States, China and India, resulting in Japan falling behind other countries in terms of human resources as well (Graph 1-33).

(4) Status of international competitiveness in each product

### A. Network equipment (router/switch)

Among the network equipments that are expected to play an essential role in the establishment of next-generation networks are routers and switches. However, Japanese vendors' share of the world market for the two equipments is extremely small, with a dominant share held by North America. (Graph 1-34 and 1-35).

In the future, the demand for high-end products

Graph 1-30 Technological Capability of Each Country to Produce Main ICT-Related Products (areas of strongest advantage)

Graph 1-31 Comparison of Technical Features of Product Groups in which Japanese, U.S. or European Countries Have Technical Capabilities

Importance of elemental technology used

Number of important elemental technologies (average per unit of product)

(Source for graphs 1-30 and 1-31) "Survey Research Concerning Elemental Technology in Major Japanese Products/Parts in the ICT Field"
Graph 1-32 Average Ratio of R&D Spending to Sales at Major ICT Vendors in Japan and Other Countries

(Source) Compiled from companies' annual reports

Graph 1-33 Number of Graduates Majoring in ICT-Related Subjects by Country

Japan: Basic Survey on School (Ministry of Education, Culture, Sports, Science and Technology)

U.S.; Digest of Education Statistics (U.S. Department of Education)

China: China Software Development Research Report, 2003, 2004, 2005

India: Strategic Review 2002, 2003, 2004, 2007 (NASSCOM)

Graph 1-34 Changes in the Country-by-Country Share of the World Market for Routers (in shipment value)

Graph 1-35 Changes in the Country-by-Country Share of the World Market for Switches (in shipment value)

* Graphs 1-34 and 1-35 show country-by-country total of the shares of top five vendors.
of broadband network is expected to expand the demand for high-end products for high-speed and large-capacity broadband. Therefore, Japan, which has realized the world's most advanced country in terms of broadband infrastructure, is expected to become a testbed for state-of-the-art products. It is likely to provide a significant opportunity for Japanese vendors to lead the diffusion and development of leading-edge network equipments in the world market (Graph 1-36, Graph 1-37).

### B. Mobile handset

In the global market of mobile handset, key termi-

Graph 1-36 Changes in the Capacity-by-Capacity Composition Ratio and Market Size of Routers in the World

Graph 1-38 Changes in the Country-by-Country Share of the World Mobile-Phone Market (production base)

nals in a ubiquitous network society, shows that Finland, to which Nokia belongs, tops the list. South Korea has increased its share in recent years. On the other hand, Japanese vendors' share has been decreasing (Graph 1-38). With the center of the mobile handset market growth shifting from advanced countries to developing countries, the world mobile handset market has been expanding faster than the Japanese market (Graph 1-39).

(Source) Compiled from Fuji Chimera Research Institute materials

As to market size by communication system, the mobile handsets that utilize GSM, a communication system originally developed in Europe, accounted for more

Graph 1-37 Changes in the Share of Routers of More Than 2.5 Gbps in the World Market

(Source for Graphs 1-34~37) Compiled from Dell' Oro Group materials

Graph 1-39 Changes in the Number of Subscribers to Mobile Phones and their Ratio in the World
than two-thirds of the world market in 2006 (Graph 1-40). Japanese vendors, who fell far behind others in the world market share of second-generation mobile phones, are competitive in the global market of the W-CDMA kept for third-generation mobile phones and have a certain market share (Graph 1-41). It is important for them to promote global business development strategically by taking advantage of their strong competitiveness.

### C. Flat-screen TVs/Flat Panel Display

By the progress in technological innovation, such as

Graph 1-40 Percentage of Communication Methods Utilized in Mobile Phones in the World (production base, in 2006)

Graph 1-42 Changes in the Type-by-Type Share of TVs in the World Market

liquid crystals and plasma, television as a key digital video equipment has been making a major shift from CRT-TV to flat-screen TV (Graph 1-42). In particular, the market of LCD-TV has been expanding rapidly, with LCD-TV accounting for nearly half of the TV market on a shipment value basis. Meanwhile, South Korean and Taiwanese vendors have emerged as major players in the LCD-TV market and Japanese vendors' share has been declining (Graph 1-43).

Since prices of flat panels have been declining rapidly, it is necessary to seek economies of scale by making

Graph 1-41 Share of W-CDMA Terminals in the World Market (production base; in 2006)

(Source for Graph 1-40 and 1-41) Compiled from Fuji Chimera Research Institute materials

Graph 1-43 Changes in the Country-by-Country Share (Shipment-Value Base) of Liquid Crystal Panels (10-inch or larger) in the World Market

(Source for Graph 1-42 and 1-43) Compiled from DisplaySearch materials
a large investment in a short cycle (Graph 1-44). Furthermore, in order to cope with rapid technological innovations, promoting collaboration with material manufactures with international competitiveness may be one of the future options (Graph 1-45).

### D. Semiconductor

A semiconductor is an important component that defines the performance of various ICT equipment. While semiconductor shipment volume in the global market has been expanding drastically, Japan’s share in

Graph 1-44 Changes in the Price of Flat Panel for TV (price per sheet)

(Source) Compiled from DisplaySearch materials

Graph 1-46 Country-by-Country Share of the World Semiconductor Market (sales base)

$ ^{*} $ Total of country-by-country share of top 20 vendors

the world has been declining consistently, and instead, South Korea has been increasing its share (Graph 1-46).

As to memory, Japan held a dominant share in the 1980s but it lagged behind some countries in terms of low-cost production such as a high yield rate and fine-processing technology, and large-scale investment capability. In the DRAM market, South Korea vendors hold a market share of more than 40% (Graph 1-47). The market of system LSIs is expected to shift from those for specific products to those for unspecified products, such as digital consumer electronics. Therefore, one of the

Graph 1-45 World Market Share of Liquid Crystal Panel Components (in 2005)

(Source) Nihon Keizai Shimbun, April 4, 2007 edition

Graph 1-47 Share of World DRAM Market (sales base; in 2006)

(Source for Graph 1-46 and 1-47) Compiled form Gartner Dataquest
challenges of major Japanese semiconductor vendors with home appliances with a certain advantage in that they can produce system LSIs for their own use is how to standardize them for unspecified products.

### E. Software

In the Japanese software industry, the percentage of packaged software is low and as a result Japanese vendors' world market share of software products is low, although they have a slightly high share in the system development/integration market (Graph 1-48 and 1-49). Since Japanese vendors are mainly engaged in custom software, they cannot expect the merit of mass production, unlike in the case of packaged software, and their labor productivity is low.

The progress in ubiquitous networks has produced new movements: diffusion of open source software (OSS) and software as a service (SaaS) (Graph 1-50). They are likely to have a major impact on the business model of the conventional software industry in that OSS leads to a sharp price decline and SaaS targets small and mid-sized corporate customers who have been way behind in introducing software.

Graph 1-48 Difference in Category-by-Category Composition Ratio between Japanese and U.S. Software Industries

(Source) Japan: “FY2005 Survey on Specific Service Industries,” Ministry of Economy, Trade and Industry U.S.: “Service Annual Survey,” Census Bureau, U.S. Department of Commerce

Graph 1-49 Country-by-Country Share of World Market of Various Software (2005)

* Total of country-by-country share of the companies making top 2 in personal computer OS, Top 13 in DBMS, and top 20 in other software

(Source) Compiled from Gartner Dataquest

Graph 1-50 Number of Companies and People Using Salesforce

$ ^{*} $ Salesforce is a vendor that provides customer management system through SaaS.
### F. Contents

The size of the Japanese content distribution market was 11.3 trillion yen in 2005, with broadcasting contents accounting for about 70% of the image contents. Japanese broadcasters have developed their global business and Japanese broadcasting contents have been broadcast overseas (Graph 1-51 and 1-52).

In some countries, the governments have been imple-menting measures to promote the overseas deployment of broadcasting contents. It is necessary for Japan to fur-ther strengthen its competitiveness by developing new markets and broadcasting channels overseas.

## (5) Status of Japanese ICT Ventures

The number of listed Japanese ICT ventures has increased steadily (Graph 1-53). A comparison of venture capital investment, which is essential for the growth of ventures, in Japan and the United States shows that the annual venture capital investment in Japan is extremely small compared with U.S. venture capital investment, and that the ratio of Japanese venture capital annual investment to GDP is one-fifth to one-sixth that of the United States (Graph 1-54).

*Of the companies classified into the ICT industry and those whose core businesses do not exist without the Internet, the ICT ventures here refer to 185 firms established in or after 1994 and listed on the TSE first section, TSE second section, Mothers, Hercules, or JASDAQ in or after 1999.

The main customers of Japanese ICT ventures are ICT companies, suggesting that their growth depends largely on the existing ICT companies (Graph 1-55). In recent years, the number of Japanese ICT ventures operating abroad has increased and the number of companies affiliated with Japanese ICT ventures has increased mainly in Asia (Graph 1-56).

Graph 1-51 Examples of NHK's Overseas Deployment

Graph 1-53 Changes in the Numbers of Japanese ICT Venture Firms Established and Listed

Graph 1-52 Examples of Private Broadcasters' Overseas Deployment

(Source for Graph 1-51 and 1-52) "Final report on discussions by the ICT International Competitiveness Council")

Graph 1-54 Ratio of Venture Capitals' Annual Investment to GDP in Japan and U.S.

(Source for Graph 1-53 and 1-54) “Survey Research on the Actual State and Growth of ICT Venture Firms”
### 2. Corporate Competitiveness through Use ICT

(1) Effects of corporations' ICT use and business process/organization restructuring

A study on ICT system introduction and accompanying business process/organization restructuring shows that the introduction of ICT systems will have its maximum effect if it is implemented along with business

Graph 1-55 Changes in the Main Customers of Japanese ICT Venture Firms

process/organization restructuring (Graph 1-57).

A comparison of ICT system introduction and business process/organization restructuring by corporate size shows that the larger a corporation is, the higher the level of business process/organization restructuring is (Graph 1-58). It also shows that small and mid-sized corporations are slow in introducing ICT systems.

Graph 1-56 Changes in the Number of ICT Venture Firms Having Affiliated Companies Abroad and the Number of Japanese ICT Venture Firm-Affiliated Companies Abroad

(Source for Graph 1-55 and 1-56) “Survey Research on the Actual State and Growth of ICT Venture Firms”

Graph 1-57 Relationship between the Level of ICT System Introduction and Work/Organization Restructuring and the Level of Implementation Effects

Production development/marketing task
(2) Comparison of the effects of corporations’ ICT use and business process/organization restructuring between Japan and the U.S.

A comparison of the level and effects of corporations’ ICT system introduction and business process/organization restructuring between Japan and the United States shows that Japanese corporations introduce ICT systems mainly in the areas related to business efficiency and that they are slower than their U.S. counterparts in utilizing ICT in the areas to enhance their added value relative to market and customers (Graph 1-59). It also shows that, with regard to business process/organization restructuring

Graph 1-58 ICT System Introduction and Work/Organization Restructuring by Scope of Business and by Corporate Size

(Source) "Survey on ICT Industry's International Competitiveness and Innovation"

Graph 1-59 Comparison of the level and effects of ICT system introduction and work/organization restructuring between Japan and the U.S.