We sat down with company president Kunimitsu Sato to discuss his strategy to strengthen Intelligent Wave’s organizational strength and to create new value for society.
Japan appears to be an ideal location for digital transformation due to its advanced population. However, this assumption does not hold true from an outside perspective. Japan consistently ranks 28th or 29th worldwide in digital competitiveness rankings, placing it at the lowest position among all OECD nations. In our interviews conducted for this report, it has become evident that there is a certain misperception in B2B sectors, particularly in areas like cybersecurity. This means that there is potential for Japan to advance in this area. Why do you believe Japan has acquired a reputation for lacking digital competitiveness?
Let’s take as an example Apple products, which I regularly use. While many of their components come from Japanese companies, Japan hasn't been able to match Apple's level of innovation and product creation. While Japan excels at addressing immediate issues, it falls short in terms of reforming, restructuring or revolutionizing the world through innovation. Security concerns require immediate responses, giving Japan an advantage in solving problems and finding solutions. However, digital transformation (DX) focuses more on revolutionizing companies and reforming social structures, which demand significant costs and resources. It's not an immediate process, but it needs to be implemented drastically. Japanese society is proceeding cautiously with DX, as it is seen as a disruptive and innovative action compared to Western societies. I believe that although Japan's adoption of DX has been gradual so far, we are making positive strides towards its implementation. Additionally, we are advanced in cybersecurity, which is a solution for addressing issues like cyberattacks.
Indeed, it is true that Steve Jobs drew inspiration from Japanese culture and products for many of his ideas. For example, the round design of the iMac was influenced by Japanese porcelain and paintings. Moreover, companies like Sony have made significant contributions to revolutionizing the world through their innovative products. Revolutionizing has been an integral part of the foundation of Japanese companies, although there has been a subsequent shift towards solution-oriented firms. However, I hold high expectations that Japan can rekindle its strength in revolutionizing and embark on a path of innovation once again.
I have dedicated over 40 years to working at Dai Nippon Printing (DNP). Since I initially joined the IT team as a young graduate, I had primarily focused on IT throughout my career without any knowledge of the printing industry while DNP grows the IT business. In 2006, I had the opportunity to meet Mr. Adachi, who is the founder of Intelligent Wave. Four years after that opportune meeting, I, from the perspective of DNP, made the decision to carry out a TOB for the company in 2010.
The name Intelligent Wave was chosen with the idea of being at the epicenter of a shock wave that would bring about societal change and shape the future. This concept of revolutionizing society through new methods and creating a better future aligned perfectly with the direction of Intelligent Wave. Through collaboration and establishing a meaningful relationship, DNP and Intelligent Wave were able to build their foundation upon an innovative and revolutionary mindset aimed at shaping the future and society.
Considering Japan's advanced technology, high reliability and the relatively weak Japanese yen compared to the US dollar, it does appear to be an opportune moment for Japanese firms to export their advanced technologies to foreign markets in need. However, Intelligent Wave decided to shut down several of its overseas operations in the past decade. The company closed its operations in the United States in 2012 and in South Korea in 2016. Could you please clarify the reason behind these specific timings for liquidating those operations? Looking back at the past and considering the next 10 years, what is the current direction or focus of your international strategy?
The computer software industry in Japan typically operates with a vertical supply chain, where numerous subcontractors work under larger hardware and software companies. However, when Intelligent Wave was founded in 1984, the founder chose not to be a subcontractor, and that spirit continues to drive the company today. Presently, we engage in direct business with 80% of credit card companies, with only 20% of our business going through major companies. While most businesses choose to collaborate with major companies, we have maintained our independence, despite having a relatively small team of 500 people.
Intelligent Wave's overseas expansion strategy has three phases: product-based, SI-based and cloud-based. About 20 years ago, the J-Sox Act was implemented in Japan to mitigate internal information leakage risks. In response, Intelligent Wave developed CWAT software and established sales bases in not only Japan but also multiple global locations such as the US-New York, UK-London, Korea, Philippines and Thailand. However, our attempt at overseas expansion through product-based sales did not meet with success.
Intelligent Wave specializes in creating and customizing products, particularly for credit card payment authorization system and fraud protection software, which are widely regarded as the number one product in Japan. Recognizing that many Japanese companies with international branches also utilize our software, we believed extending its application to credit card firms overseas would be valuable. However, customizing the software for the overseas market presented challenges due to cultural differences. Additionally, some companies perceived customization as burdensome. As a result, our attempt to penetrate the market and customize the software during the second phase of our international expansion was unsuccessful, leading to the closure of that phase approximately seven or eight years ago.
We are currently embarking on the third challenge in our overseas expansion. We have started to expand our business by offering innovative services specialized for the overseas market, based on our successful cloud services in Japan. This cloud-based offering serves as an inter-industrial platform and operates on the Software-as-a-Service (SaaS) model. Our competitors are primarily from the US and Europe, instead of local companies.
We have four cloud-based solutions which we can deliver to the overseas market: CWAT, an internal information leakage prevention solution, IFINDS, IGATES and FARIS, which are payment solutions. IFINDS is a card fraud detection service, IGATES is network switching and authorization solution, and FARIS is an AI-based fraud detection system. Clients can combine or use both solutions separately, depending on their specific needs and preferences.
What are the key advantages or strengths of your cloud-based services that will attract potential clients in these four main markets and persuade them to choose your international line-up over European or American alternatives? How are you branding these?
In the field of fraud detection, we face competition from European and US companies. Our strength lies in a similar rationale to why Japanese components are utilized in the iPhone. Our products possess a remarkable level of refinement due to our process of developing the software first and then seamlessly integrating it into the cloud, ensuring a complete solution. The software we collaborate on with our clients is characterized by its superior functionality, quality and well-established nature. In contrast, I believe that the solutions created by European and US-based companies are incomplete. Therefore, we hold a significant advantage in delivering a comprehensive solution.
Another unique aspect of our product is its ability to operate 24/7. To my knowledge, no other cloud-based solutions offer such continuous functionality. While some may argue that operating round the clock is unnecessary, there are distinct advantages if such functionality were available. Take, for instance, the sensor in an iPhone; it may look the same, but the variation in functionality and advancement, albeit slight, holds significance in the overall performance. These nuances matter in the end. This strength defines our product, and we are committed to pushing forward and maintaining our competitive edge.
Given our strong market position and quality software assurance, we are poised to expand our cloud-based system to Asia and other regions worldwide. Asia represents our initial target market for expansion.
This year you won the 2023 Partner Award from Solace. How did you find them, or how did they find you? How do you connect with these clients and potential customers in the overseas market?
Intelligent Wave is a company highly focused on technology. Engineers consistently seek and explore emerging technologies worldwide. Solace technology stood out as unique, leading us to consider the potential of integrating our technology and the messaging technology to develop an advanced solution for the securities industry. By successfully forming a partnership, we created a new product. For cybersecurity business, we are constantly seeking new partnerships and closely monitoring technology companies worldwide. We position ourselves as early adopters of innovative efforts with global companies.
The Solace technology is more event-driven rather than messaging-based. As a Japanese company, we established a partnership with Solace early on and entered the market together. As a result, we have been awarded the Partner of the Year award, the only one of its kind in Japan. What sets us apart from other Japanese companies is our commitment to product development, which lies at the core of our business. While many Japanese firms engage in product development, they typically rely on overseas software and solutions, acting primarily as system integrators within Japan. In contrast, we merge our technology with overseas technologies to develop new solutions. Our engineers had in-depth discussions with Solace to explore the creation of a new system by combining our technologies. These innovative, technology-driven solutions make our company unique.
We have collaborated with Robust Intelligence, a venture company based in California that specializes in developing technologies to safeguard AI against attacks and potential harm. The company possesses the necessary technologies to mitigate such risks. By acting swiftly, we integrated their technology into our fraud detection system.
Imagine we come back in exactly three years and have this interview again for your sixth anniversary as the President. What dreams and goals would you like to have achieved by then that you would like to tell us in that new interview?
Branding holds significant importance for our company. One of my primary objectives is to establish a global presence for our brand. Companies that excel in product development gain a strong foothold in the market through their product names. While breaking into the B2C market may pose challenges, our aspiration is to achieve global recognition, particularly in the B2B sector. Initially, our focus will be on the Asian markets, where Intelligent Wave can become known for its technological capabilities. Although our presence in Europe is yet to be established, prioritizing the Asian markets will lay a strong foundation for our brand's reputation.
We have taken on the role of sponsor for F.C. TOKYO. Some of the purposes of the sponsorship is to enhance our branding efforts and instill a sense of pride among our employees. This sponsorship is a testament to our company's indispensability within the industry. While many of companies recognize our presence, our objective is for Intelligent Wave to be well-known, widely acknowledged and valued by society as an essential player. F.C. TOKYO's aspiration to aim to be a global football club team resonates with our own ambitions to be a global company. Already shining in our specific field, we aspire to illuminate the global stage and become recognized across Asia and the world in the future. Although achieving this goal may extend beyond the next three years, it remains our steadfast vision for the future.
Earlier this year, I addressed our employees with an important message. We aim to become a leading lifestyle-based platform provider, similar to GAFAM, by developing our own unique technologies and offering the latest innovations to the world. While some employees may not have fully grasped or connected with my previous message, we can likely position ourselves as a platform provider with a focus on payments. I want to emphasize that we possess a multitude of capabilities and possibilities that we are eager to explore and pursue.