INTEC INC. “Reform as Corporate Culture”case.sfc.keio.ac.jp/cases/20050004intec-e.pdfCSO, Intec...

Keio University Graduate School of Media and Governance

INTEC INC. “Reform as Corporate Culture”

In April 2005, Tetsuo Nakao, Chairman, INTEC Inc. (INTEC) and INTEC Group CEO, stood looking out from his office toward the still snow-capped ridgeline of the Tateyama Mountain Range, deep in thought over future business strategy. INTEC’s 13th Medium Term Business Plan, laid down in April 2004, featured “Reform as Corporate Culture” as the company’s strategic vision. In particular, Nakao planned to discuss, at the next Board of Directors meeting, specific policies to foster a corporate culture where all employees are encouraged to initiate reforms as specialists in their field.

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INTEC is an integrated IT service company based in Toyama City. Since its founding as Toyama Computing Center, Inc. in 1964, INTEC has worked towards its goal of becoming a “computer utility” (detailed explanation below) as an independent firm, avoiding affiliation with particular company groups. Having changed its name to INTEC in 1970, the company showed solid growth. By 1983 the company registered sales of ¥15.8 billion and employed a total of 1364 people, and was ranked No. 43 out of the 1642 companies listed in Nikkei’s Corporate Excellence Ranking. In 1985, INTEC became the first company to be accredited as a Special Type 2 Telecommunications Carrier, and listed on the First Section of the Tokyo Stock Exchange in 1986. Although a number of computing centers were established across Japan in the 1960s, no other company has become a listed company in the telecommunications field (See Appendix 1: History of INTEC). Since its founding, INTEC has expanded its operations from calculation services to VAN and other communications services, and its business performance has improved rapidly. Constructing offices in various parts of the country, it has strengthened security measures and engaged in locally-based services. Meanwhile, the company has balanced decentralization to various regions with functional intensification to develop a nationwide telecommunications business. However, the collapse of the bubble economy brought about a worsening of conditions in the information and telecommunications market, with INTEC seeing a decline in income and profits for the first time in 1992. The sudden death of INTEC founder and then president Koji Kanaoka, who had led the company since its founding, heralded a new era for the company under the leadership of the new president, Tetsuo Nakao. This case study was carried out by Yoshinori Isagai, Lecturer at the Faculty of Environmental Information, Keio University, under the supervision of Professor Jiro Kokuryo at the Graduate School of Media and Governance, Keio University. The objective of this study is not to illustrate appropriate or inappropriate conduct in business administration. The author would like to thank Tetsuo Nakao, Chairman, INTEC Inc.. and INTEC Group CEO; Hideaki Miyaji, President, INTEC Inc.; Koju Takizawa, Director and CTO Senior Managing Executive Officer, INTEC Inc.; Tsuyoshi Ogawa, General Manager, Planning Department, INTEC Inc.; and Ikuo Nakagawa, Director CSO, Intec NetCore Inc. for their cooperation in this study in the form of resources and interviews. (Case study carried out in February 2005, revised April 2005. Translated July , 2005)) Copyright of this case study belongs to Keio University. This case study is available free of charge as teaching material for non-commercial use through the Creative Commons Deed (http://creativecommons.org/licenses/by-nc-nd/2.0/). The use of three or more copies for commercial use as teaching materials in training, fee-based seminars, client-oriented seminars, or fee-based seminars run by non-profit organizations entails a material preparation fee based on the number of copies used and an administrative handling fee. Please contact [email protected] for details.

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In order to meet the needs of the internet era, Nakao successively began R&D into new technologies and set up new businesses, while also aggressively engaging in corporate reform. He targeted for INTEC to play on its strengths as a regional company based in Toyama, and at the same time seek to make dramatic inroads into the rapidly changing and uncertain information and telecommunications market. The 13th Medium Term Business Plan was to be a vital component of this strategy. ■The origins of INTEC’s organizational culture: Toyama Nakao believes that INTEC’s origins and corporate ideals lie in medicine peddling, a traditional Toyama profession, and that the firm inherits the spirit of early medicine peddlers, or the so-called “Baiyaku-san” patronized by locals in olden Toyama. These peddlers, based on the wealth of information gained from their travels to many lands, offered consultation services on disease or health and built up relationships of trust with their customers. This information-gathering and consultation forms the basis of INTEC’s development of its solutions business. In addition, these peddlers maintained detailed records on the description and quantity of medicines issued to patients and money collected, as well as information on clients’ families, which acted as an integrated database. The peddlers actively used this database to carry out their businesses. This constitutes precisely the origins of the CRM (Customer Relationship Management)

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1 business. Furthermore, the regulations followed by these medicine peddlers, as laid out in written guidelines, demonstrate that the peddlers fully understood the responsibilities and ethics involved in handling personal information for commercial purposes. In order to further understand the relationship between the organizational climate and Toyama, it is necessary to first understand the social organization of the prefecture itself. Toyama, located more or less at the center of the Japanese archipelago, is bordered by Niigata and Nagano prefectures to the east, Ishikawa prefecture to the west, and Gifu prefecture to the south. Surrounded by the steep slopes of the Tateyama mountain range reaching to over 3000 m in height, at the center of the prefecture is the fertile Toyama Plain crossed by the Jinzu and Kurobe Rivers. These rivers lead to Toyama Bay, rich with firefly squid, glass shrimp, and other fruits of the sea. Toyama prefecture occupies an area of 4237 square km, (thirty-third largest prefecture in Japan) and its population as of January 2004 was 1,117,191 (thirty-eighth in Japan) Toyama prefecture is well-known for its affluent living environment. For example, it boasts the highest house ownership rate, largest area per house, highest real income per household, and highest public highway maintenance rate in the country2. On the other hand, the prefecture’s residents have also had to endure a harsh natural environment. Toyama experiences the highest annual rainfall in Japan, and some mountainous regions receive over 300 cm of snow due to the effect of seasonal

1 A technique using information technologies to centralize customers information such as orders, inquiries, etc. to increase customer satisfaction and build a long-term relationship with customers. Refer to: “e-Words” at http://e-words.jp/w/CRM.html

This case study is available free of charge as teaching material for non-commercial use through the Creative Commons Deed (http://creativecommons.org/licenses/by-nc-nd/2.0/). The use of three or more copies for commercial use as teaching materials in training, fee-based seminars, client-oriented seminars, or fee-based seminars run by non-profit organizations entails a material preparation fee based on the number of copies used and an administrative handling fee.

2 Toyama Prefecture website: http://www.pref.toyama.jp/

Please contact [email protected] for details. 2

winds that sweep across the mountains in winter3. It is said that these severe conditions have fostered a indomitable perseverance among the local inhabitants4. In addition, Toyama Prefecture has produced a wealth of famous entrepreneurs, such as Soichiro Asano, founder of the Asano Conglomerate, Zentaro Kuroda, founder of Kokuyo, Zenjiro Yasuda, founder of the Yasuda Conglomerate, and Matsutaro Shoriki, former owner of Yomiuri Shimbun. Preliminary figures for 2001 put the value of manufacture shipments from Toyama Prefecture at ¥3.3168 trillion, or twelfth in Japan on a per capita basis and first among the twelve prefectures along the Japan Sea side of the country. Of this figure, 61.4% is made up of the top five industries—metal products and nonferrous metals centered on aluminum-related businesses; the chemical industry, such as pharmaceuticals; electromechanics such as integrated circuits and electronic parts; and general machinery such as bearing and machine tools. In particular, Toyama once boasted the highest shipment value of metal products, such as aluminum window frames, in the country

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5. This industrial development was brought about by the medicine peddling trade. Starting in the Meiji era, the capital amassed by medicine peddlers was put to use in the development of electrical power, the establishment of banking, and other entrepreneurial projects, which laid the foundations for Toyama’s industrial development. The turning point for the development of medicine peddling can be traced to the Genroku Era, when Masatoshi Maeda, the second feudal lord of the Toyama Clan, offered the medicine Hagotan to a feudal lord at Edo Castle suffering from abdominal pain. The feudal lord recovered almost immediately, propelling both Maeda and the remedy to national fame. This incident is said to have led to the development of trade in remedies. Medicine peddlers devised and propagated nationwide a system whereby they provided clients with a standard set of medicines, and charged for the amount used on their next visit. Such peddlers would return to Toyama at year’s end, laden with both capital and information6. ■The establishment of INTEC7

In this historical and regional climate, Toyama Computing Center, INTEC’s predecessor company, was established on January 11, 1964 as a service provider, centering on calculation services for local governments and firms. At its foundation, the company had a capital of ¥10 million, 17 employees (7 men and 10 women), and was equipped with UNIVAC60/120 computers. The first President and

3 “Disaster Prevention in Hokuriku Region”, Hokuriku Regional Development Bureau, Ministry of Land Infrastructure and Transport, http://www.hrr.mlit.go.jp/bosai/hokurikunobosai/hkbosai/ 4 Seiichi Sakai, “History of Toyama”, Yamakawa Shuppansha Ltd, P. 5, 1970. 5 Industry in Toyama Prefecture, Toyama Prefecture website available at http://www.pref.toyama.jp/master/02guide/welcome/sangyo_e.htm 6 Seiichi Sakai, “History of Toyama”, Yamakawa Shuppansha Ltd, P. 6, 1970.


7 Data from 40th Anniversary Special Issue No. 1, INTEC, vol. 9, pp. 12-15, May 2003 and 40th Anniversary Special Issue No. 2, INTEC, vol. 10, pp. 12-15, August 2003.


CEO was Taizo Nishi, former Vice President of Hokuriku Electric Power Company; members of the board of directors included Toyama Mutual Bank President Matazaemon Kanaoka, Executive Director of Toyama Regional Railways Kiyohiro Naruse, Japan Sea Gas President Shichiro Nitta, Tonami Transportation Chairman Tamisuke Watanuki (formerly Speaker of the House of Representatives, currently a member of the House of Representatives), Kitanihon Broadcasting President Ryoichi Yokoyama, and Kitanippon Shimbun President Yuken Fujii , demonstrating the great expectations held by Toyama’s business community towards the company’s founding (see Appendix 2: Makeup of shareholders at time of establishment).

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Founder Koji Kanaoka (Executive Managing Director), who later became President and CEO, went from Azabu Junior High School to a military air force academy and saw the end of the war in Mukden, China. Kanaoka then entered the School of Engineering at Tokyo University and studied under Professor Jiro Yamauchi, then an authority on data processing. After graduation, Kanaoka worked at Toko Electric Corporation while continuing research in applied mathematics at a Tokyo University research laboratory. He also served as a lecturer at the Tokyo University of Science and Shibaura Institute of Technology. Toyokazu Ishizaka , Kanaoka’s grandfather, served as a member of both the House of Representatives and House of Councilors, as well as the Mayor of Toyama, while his father Shuichi was a judge of the Supreme Court. In 1954, Kanaoka married the eldest daughter of a well-established businessman in the medicine trade, Matazaemon Kanaoka, who also headed the Toyama Chamber of Commerce and Industry, and took on the family name. Around four months after the establishment of the firm, Kanaoka traveled to America to meet with J. P. Eckert of the University of Pennsylvania, developer of the world’s first electronic computer—the ENIAC—which earned him the title “Father of Computing.” There, Kanaoka was struck by the concept of “computer utility.” The concept suggested that computers should not be dominated by a select few, but should be available to anyone, anywhere, at any time, just like electricity or water. The history of INTEC after this meeting can be seen as a quest to achieve computer utility (See Appendix 3: Achieving computer utility). In 1966, the firm made available computers that could be shared among local governments in Toyama Prefecture, going on to open offices in Niigata, Tokyo, Nagoya, Sendai, Osaka, Sapporo, and Kanazawa. In 1970, Kanaoka assumed the position of CEO, and the company changed its name to INTEC., The company then had a vision to look “from the local to the national, and from the national to the international”. The firm took its name from INformation TEChnology (IT), and in an era where very few company names were based on English, the choice embodied the firm’s strong resolution to become a global company in the information sector. Japan in the 1970s was headed for recession, induced by the so-called oil shocks. To achieve its goal of providing computer utility, INTEC now looked for ways out of batch processing calculation

This case study is available free of charge as teaching material for non-commercial use through the Creative Commons Deed (http://creativecommons.org/licenses/by-nc-nd/2.0/). The use of three or more copies for commercial use as teaching materials in training, fee-based seminars, client-oriented seminars, or fee-based seminars run by non-profit organizations entails a material preparation fee based on the number of copies used and an administrative handling fee. Please contact [email protected] for details.

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services. In 1973, it introduced a large-scale computer at its Tokyo Calculation Center, and introduced the first private Time Sharing System service8 in Japan. In the same year, the firm employed 661 people in 10 offices across Japan, and sales reached ¥2.368 billion. In its nationwide expansion, INTEC paid great attention to its relationship with local firms and calculation centers. Under Kanaoka’s philosophy, that a company should serve and prosper together with its surrounding region, INTEC increased its operational bases through business alliances and mergers with local calculation centers. These bases would later provide the foundations for its telecommunications business. 10

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It was Nakao who actively took on the development of these bases. After working at Nikko Securities, Nakao served as a management supervisor at the Toyama Chamber of Commerce and Industry. He had also cooperated in the foundation of Toyama Computing Center at the request of Kanaoka, an old friend. As the business expanded, Kanaoka had made avid requests for Nakao to join the company. Nakao finally joined INTEC in 1973. In 1975, Toyama Mutual Bank (currently First Bank of Toyama) introduced an integrated online system. This system, which centralized the management of the bank’s cash dispensers and customer information, was revolutionary for its times and was later introduced to the Commercial Bank of Korea, as well as First Bank of Korea. This integrated online system, constantly incorporating new functions, was adopted by a succession of major city banks, as well as regional banks. In addition, INTEC, following the business practices of medicine peddlers years ago, sought to construct offices that incorporated foolproof security systems. In 1975 it completed a building designed specially for computers in Toyama City, and in 1979 completed its office in Tokyo. These structures were authorized as business establishments fully equipped with safety measures by the then Ministry of International Trade and Industry. While ISMS (Information Security Management Systems)9 are attracting attention today, it was rare for a company to attach such great importance to security in the 1970s. ■Entry into the telecommunications sector10

In order to make the provision of computer utility a reality, INTEC aimed for a full-scale entry into the telecommunications sector from an early stage. This was back in the era that only small-scale

8 An approach to interactive computing in which a single computer is used to provide apparently simultaneous interactive general-purpose computing to multiple users by sharing processor time. Japanese definition available at e-Words website http://e-words.jp/w/TSS.html 9 A comprehensive system used by firms, etc. to appropriately manage their information. It includes not only the security of their computer system but also basic guidelines, specific plans, actual operations, regular review of the guidelines and plans. Japanese definition available at e-Words website http://e-words.jp/w/ISMS.html


10 Data from 40th Anniversary Special Issue No. 2, INTEC, vol. 10, pp. 12-15, August 2003 and 40th Anniversary Special Issue No. 3, INTEC, vol. 11, pp. 12-15, November 2003.


TSS services existed even the United States, the global network leader. Moreover, the Nippon Telegraph and Telephone Public Corporation (now NTT) enjoyed an almost complete monopoly of the market under the Public Telecommunications Law. A History of the First Fifteen Years of INTEC , makes a passionate argument that “A communications policy that has remained unchanged since the Meiji Era, unseen in developed countries such as the United States, and certain people and telecommunications companies who attempt to guard this policy to continue their easy existence as monopolizers, has hindered the growth of Japan’s information processing industry, and lowered its international competitiveness11. Kanaoka took the lead within the industry to actively call for the complete liberalization of telecommunications lines within government and at the Diet. At the same time, with an eye toward the opening up of commercial telecommunications businesses to private firms in the near future, Kanaoka completed an independent telecommunications grid, TecAce Net, in 1980. Linking over ten large computers from various regions, INTEC then started a nationwide online service. Because networks between private firms still centered on data exchange between large computers, large-scale investment was necessary to achieve economies of scale.

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In 1982, then board member Nakao traveled to the United States to conclude a business alliance agreement with the leading packet transfer communication firm, GTE Telenet. In addition, a partial revision of the Public Electric Communications Law now allowed for telecommunications lines between different sectors, and lifted the ban on VAN (Value Added Network)12 services for small- and medium-sized companies. INTEC was accredited by the then Ministry of Posts and Telecommunications as the county’s first VAN service provider for small- and medium-sized companies, and constructed the first private nationwide packet transfer data communications grid, Ace Telenet. Packet transfer services were launched the following year. In 1982, in its 19th year, INTEC was listed in the Second Section of the Nagoya Stock Exchange. In 1983, sales in the information and telecommunications industry as a whole topped one trillion yen for the first time. With the introduction of Ace Telenet, INTEC’s information and telecommunications services were becoming one of the firm’s main pillars of growth. Furthermore, in 1984, the company was listed in the Second Section of the Tokyo Stock Exchange. In 1985, the Telecommunications Business Law finally came into effect, and the Nippon Telegraph and Telephone Public Corporation was privatized to become NTT. At the same time as receiving accreditation as Japan’s first Special Type 2 Telecommunications Carrier13 from the then Ministry of Posts and Telecommunications, INTEC launched its long-awaited full-scale large VAN business

11 A History of the First Fifteen Years of INTEC, INTEC Inc., p. 35, 1979. 12 Value Added Network. Service for firms to hire value-added networks from mass communication line holders for their data transmission. Japanese definition available at e-Words website http://e-words.jp/w/VAN.html 13 A type of telecommunication carrier which is stipulated in the Telecommunications Business Law.


Special Type 2 Telecommunications Carriers lease lines from Type 1 Telecommunications Carriers and provide services. Firms are categorized as Special Type 2 if they exceed holding 2000 line (64Kbps/line) or provide exclusive international telecommunication services. Others are categorized as General Type 2.


based on Ace Telenet. August 1985 saw the launch of Japan’s first industrial VAN, Planet, featuring cosmetics and daily products. In November, GTE Telnet and Sumitomo Corporation jointly established Ace Telemail International, entering the international electronic mail industry. In April 1986, INTEC participated in the setup of Finet , a VAN catering to the liquor and processed foods industry. In September, the firm was listed in the first sections of both the Tokyo and Nagoya Stock Exchanges. In 1987, INTEC, together with Japan Airlines, launched an international VAN service before starting a PC communications line provision service, Tri-P, in 1989. INTEC also established a New York office and began Japan’s first international fax service in the same year. 10

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Furthermore, in 1991, followed NTT to become the first Special Type 2 Telecommunications Carrier to offer ISDN (Integrated Services Digital Network)14 services in Japan. Together with Brother Industries, INTEC then developed a network karaoke system, JOY SOUND, which used ISDN connections. In order to strengthen its information security policy, the company constructed office buildings in Osaka, Yokohama, Niigata, Sapporo, and other cities, all equipped with switching facilities. These acted as strategic bases for the provision of locally-targeted services. ■The second challenge15

Although INTEC had shown steady growth since its founding, it saw decreased income and profits for the first time in FY1993, after the collapse of the bubble economy. Intense competition in the market drove down the unit value of orders, while investment in new business areas such as ISDN, as well as surging interest payments, weighted down the company’s balance books. Furthermore, Kanaoka’s death on July 30, 1993, deprived not only INTEC, but the whole information services industry, of a visionary leader. Kanaoka had believed in the principles of service and creation, place corporate emphasis on the development of a relationship based on trust with local society, and contributed greatly to the vitalization of Toyama Prefecture (See Appendix 4: My Principles). Serving as a member of Toyama Prefecture’s Board of Education for 5 years from 1972, Kanaoka also served as Chancellor of Toyama Women's Junior College from 1981. In 1984, Kanaoka created the Society for the Study of Universities of the 21st Century , and Toyama International University was launched in April 1990. Kanaoka was appointed Chancellor of Toyama International Academy. Looking for the integration of broadcasting with telecommunications, Kanaoka also established Television-U-Toyama in 1989 (now Tulip TV), and served as President.

14 A type of digital communication circuit which integrated different types of media such as telephone, fax and data communication. Japanese definition available at e-Words website http://e-words.jp/w/ISDN.html


15 Data from 40th Anniversary Special Issue No. 3, INTEC, vol. 11, pp. 12-15, November 2003 and 40th Anniversary Special Issue No. 4, INTEC, vol. 12, pp. 12-15, February 2004.


Kanaoka’s ideals were to be carried forward by Nakao, who became president of INTEC on August 9. At this time, the information and telecommunications industry was experiencing negative growth, with the domestic production of computers seeing an yearly decrease for the first time in 17 years. Nakao, aiming to relaunch INTEC anew, actively took on challenges in the form of new technologies and businesses, taking the company into fields other than the telecommunications business to achieve growth. Firstly, in 1994, which marked 30 years since the company’s founding, Nakao constructed a new headquarters in Toyama City dubbed Tower 111 (Triple One) (See Appendix 5: Overview of Tower 111). The name of this new tower was taken from the fact that INTEC was founded on January 11, 1964, and became a listed company on November 1, 1982. The tower was also designed to stand 111m tall

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16. This tower came to be a suitable symbol for the new INTEC. In 1995, INTEC adopted the meaning, “Interlink with clients” into its company name, which developed into Our Action Agenda: INTERLINK 6C (See Appendix 6: Our Action Agenda: INTERLINK 6C). Interlink with Cooperators, a part of this agenda, formed the basis for the 1997 launch of the genome informatics business in cooperation with The Institute of Medical Science, The University of Tokyo. This later developed into the core business carried out by the INTEC Web and Genome Informatics, Inc. Meanwhile, the rapid spread of the internet since the mid-1990s spurred INTEC to enter into IT-based marketing services in 1998, together with McKenna Group of the United States. In the same year, INTEC’s network engineering division was spun off as INTEC INC. Communications (hereinafter, INTEC Communications) with capital from Mitsubishi Corporation, Nippon Life Insurance Co., and Telstra of Australia. INTEC then launched a series of new projects in rapid succession. In 1998, INTEC was involved in an outsourcing tie-up with IBM Japan, while in 2000 it established in Tokyo one of the largest internet data centers in the world—@Tokyo—together with Tokyo Electric and other companies. In 1998, INTEC was selected by the then Ministry of International Trade and Industry to test launch the Toyama Internet Shiminjuku, or a public internet academy designed to provide a forum for lifelong learning through the active use of internet technology. The first courses were offered in 1999, and by 2002 the Toyama Internet Shiminjuku Promotion Council had been established. Internet Shiminjuku user numbers, which stood at a total of 13,000 in 1999, rocketed to over 100,000 by 2002. In April 2001, Nakao announced INTEC’s Strategy for the 21st Century, its 12th Term Business Plan which centered on the slogan “Make a Change” The plan called for the establishment of a security operations department, and the INTEC Security Solutions Service was


16 Information on Tower 111 (Triple One) available at http://www.intec.co.jp/tower111/tower.html


soon launched with full ISO17799 compliancy. INTEC also went on to establish an internet-based on-demand print service provider called NEPRI INC., together with Marubeni Corporation and Kokuyo Co. Also in April 2001, a Group Management Promotion Department was newly established to bolster the overall strength of the INTEC Group, while the Corporate Planning Department, previously located in Toyama, was merged with the Marketing and Sales Department in Tokyo to further reinforce the functions of the Tokyo Head Office. Furthermore, divisions within departments, as well as ranks such as section chiefs or managers, were abolished in favor of the treatment of highly specialized employees as system or marketing specialists. Annual wage plans were introduced at the managerial level, and stock options became available to employees based on their qualifications. In addition, operating officers and board members were required to have mastered a set level of English to enable INTEC to better respond to globalization.

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Nakao’s father had been a naval officer who honored his public duties over personal ones. Thus influenced, Nakao strongly believed in the importance of a firm’s societal responsibilities. The 12th Term Business Plan incorporated countermeasures against the falling birthrate: INTEC would now present employees with ¥200,000 as a one-off gift at the time their third child enters elementary school; moreover, all employees’ children were to benefit from ultra-low interest loans in the case that they entered university. Moreover, the INTEC Family Scholarship Fund was established through the voluntary contribution of directors and employees to provide orphans of any INTEC workers who lost their lives with educational funding; hereafter, orphans would receive ¥200,000 a year until their graduation from senior high school. These initiatives received due recognition, first with the awarding of the Toyama Labour Bureau Director’s Family Friendly Company Prize in 2001, and then with the accreditation of INTEC as an Office Engaged in the Promotion of Gender Equality in 2003. From April 2005, INTEC has also improved its child-care leave scheme to further enhance employee welfare. INTEC has taken the lead among Japanese companies in this respect since 1975, by enabling employees to take 12 month’s leave for childcare. This period was extended to 18 months in 1997, and now, employees are able to take a total of 36 month’s childcare leave, 18 months longer than the period stipulated under the Childcare Leave Law. INTEC has also decided to actively encourage its male employees to take childcare leave. ■Rapid changes in the business environment: increased openness and the internet Total sales for the telecommunications business in FY2002 reached ¥18.6599 trillion, a 0.2% decrease from the previous year. Of the total figure, sales by Type 2 Telecommunications Businesses reached ¥1.8319 trillion, which marked a 26.6% increase. A further breakdown shows that Special Type 2 Telecommunications Businesses registered sales of ¥209.3 billion, or a 24.6%


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decrease from FY2001, whereas Standard Type 2 Telecommunications Businesses registered sales of ¥1.6226 trillion, up 38.8% (see Appendix 7: Telecommunications business sales figures). The information and telecommunications sector, which centers on digital contents, e-business, platform, broadcasting, and communications services, is expected to grow on average by 15% a year from FY2002, to reach a market worth more than ¥25 trillion by 2008 (see Appendix 8: Predictions of market scale across 5 areas). Of this sector, annual growth in e-business and digital contents (in particular, fee-based mobile phone contents) is expected to top 25% for a relatively high rate of growth; however, negative growth is expected in conventional leased lines businesses (see Appendix 9: Annual growth rates in the main sectors). In particular, it is predicted that the earnings structure of telecommunications services businesses catering to corporate clients is set to destabilize in the future due to the move from Frame Relay

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17 and other conventional leased lines toward IP-VPN18 or broad internet services (see Appendix 10: Priority investment/cost-cutting areas for network businesses). The Law Concerning Broadcast on Telecommunications Services, which came into force in January 2002, made it possible for firms to enter the broadcasting market without owning their own transmission channels. This spurred several companies to start broadcasting services, and since the latter half of 2003 there has been increasing fusion between telecommunications and broadcasting. In the future, the proliferation of broadband and increasing use of IP technology has spurred expectations for the rapid development of a ubiquitous network that would enable the exchange of information via network connections anytime, anywhere. In particular, new technologies such as RFID (Radio Frequency Identification)19 and IPv6 (Internet Protocol version 6)20 have attracted considerable attention. Moreover, the movement of production facilities to India or China has gradually become the norm in the information services industry. On the other hand, the spread of open systems has brought about intense price competition, aversely affecting the earnings of some companies (see Appendix 11: Comparisons between the earnings of information services companies).

17 A type of packet transfer communication technique. With the improvement of transmission techniques using optic fiber, etc., it has been developed by simplifying the old X25 standards to speed up data transmission. Japanese definition available at e-Words website http://e-words.jp/ 18 Virtual Private Network that is used over wideband IP communications network of telecommunication carriers. By using remote networks over IP-VPN, access becomes similar to operating on LAN. Japanese definition available at e-Words website http://e-words.jp/w/IP-VPN.html 19 A technique used to identify a person or manage objects with tiny wireless chips. Japanese definition available at e-Words website http://e-words.jp/w/RFID.html


20 Internet Protocol of the next generation that is to replace Ipv4 to make wider addressing and routing and to add further security techniques. Japanese definition available at e-Words website http://e-words.jp/w/IPv6.html

Please contact [email protected] for details.

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■Emergence as a company of specialists INTEC, since its founding, has placed great importance on employee education. In 1990, it linked up with Toyama International University to complete the Oyama Training Center, a venue available widely to the region with accommodation facilities for international conferences and symposiums. The firm also actively promoted INTEC College, its internal employee education system. In 2004,INTEC College underwent fundamental revisions and was relaunched as the New INTEC College. Nakao worked to banish the preconceived perception, which had prevailed in an era when education involved the slow but steady development of human resources through on-site experience, that education was something to be provided by the firm to its employees. To rid employees of this passive notion, Nakao banished the term “education” from INTEC’s vocabulary, instead seeking to create a corporate structure appropriate for a technologically cutting-edge company, whereby all employees take the initiative to actively enrich their expertise, and work autonomously as specialists in their field. Nakao also put added emphasis on the traditional INTEC strategy of engaging in research and development to take the lead in cutting-edge technologies.

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Today, INTEC, as well as group companies such as INTEC Communications, INTEC Web and Genome Informatics, and INTEC Netcore, have produced worked closely together to build up extensive range of research findings. For example, INTEC Netcore has played a central role in research into IPv6. INTEC Netcore was established in May 2002 by INTEC, INTEC Communications, and INTEC Web and Genome Informatics, with Nakao serving as President. INTEC Netcore has contributed to the drawing up of IPv6 deployment guidelines as head of IPv6 Deployment Working Group of the IPv6 Promotion Council of Japan, and the coordination of the IPv6 deployment trials, one of major IPv6 research projects of the Ministry of Internal Affairs and Communication, as the advisor. As part of a joint Sino-Japanese project led by Japan’s Ministry of Economy, Trade and Industry and China’s National Planning Committee, INTEC Netcore also collaborated with NEUSOFT, a leading Chinese software group based in Shenyang, to enable the world’s first joint collaboration of IPv6 security functions in December 2004. Furthermore, an IPv6 interconnection experiment was carried up with INTEC Wuhan, established in November 2003, which enabled INTEC and INTEC Netcore to explore possibilities in video conferencing and P2P applications21. Based on this expertise, INTEC Group plans to actively introduce IPv6 into its internal systems in January 2005, and engage in the development of pioneering systems development to further bolster its position as market leader.


21 INTEC website, January 11, 2005, “Deployment of Ipv6” available at http://www.intec.co.jp/news/n_050111_1.html


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■Future developments The performance of INTEC in its 12th Term Business Plan was forced to decrease in profits due to effects of constraints on investment in information technology (see Appendix 12: INTEC business performance). Although INTEC’s systems integration business was showing solid results, sales in network-related businesses was on an downward trend (see Appendix 13: Breakdown of sales). In April 2004, Nakao adopted the concept “Make a Change” as the central component of his three-year strategy as outlined in the 13th Term Business Plan. Dubbed the “Fresh start plan,” the plan aims to reestablish INTEC’s business standing. The main themes of the plan were embodied in the slogans “IT in all” and “Based on IT,” and strongly sets out the view that the dawn on a society based on information technology enables infinite business opportunities. Meanwhile, in order to meet the needs of society today, including solutions to environmental problems and sound security measures, INTEC has adopted the conservation of the earth’s environment, as well as compliance, as part of its corporate philosophy. A new Audit and Compliance Department has been set up as part of this policy (see Appendix 14: INTEC’s corporate philosophy).

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Furthermore, to maximize INTEC’s group value, which lies at the core of INTEC’s corporate strength, INTEC has worked to develop INTERLINK 6C, as well as institute INTERLINK 7C (see Appendix 15: INTERLINK 7C). In January 2005, INTEC, INTEC Communications, IUK INC. (hereinafter IUK), and INTEC Solution Power Inc. (hereinafter INTEC Solution Power) were consolidated, merging INTEC Communications with INTEC, and making IUK and INTEC Solution Power wholly-owned INTEC subsidiaries (see Appendix 16: Outline of corporate merger). The constituent firms of the INTEC Group have long expanded their business in respective fields of expertise, while the group itself has pursued a constructive group synergy. However, against a backdrop of severe changes within the information and telecommunications sector, it became impossible to meet the increasingly sophisticated and diverse client needs as individual, specialized companies. Through this merger, INTEC seeks to redefine each firm’s business area, concentrating on reducing overlapping areas while at the same time raising the group’s overall productivity and strengthening each firm’s competitiveness and profitability. With the merger, the Network Solutions Division was established within INTEC to handle INTEC Communications operations, and overlapping areas of the two firms—such as network integration, data center, and system integration—were merged completely. Furthermore, useware operations, previously carried out individually by the four companies, were brought together the operations of IUK, while system operations management and the engineer dispatching businesses were taken on


12

mainly by INTEC Solution Power. In April 2005, INTEC adopted an operating officer system to speed up decision processes and to provide added impetus to the business and affairs of the corporation. Nakao assumed the post of CEO of the INTEC Group, while Hideaki Miyaji became President. INTEC now boasts over 3000 employees across a wide range of fields: IT consulting, system integration, software development, outsourcing, networks, useware, legacy migration22, CRM solutions, information security solutions, e-business solutions, industry-specific solutions (such as manufacturing, distribution services, financial, medical, public sector) (see Appendix 17: Overview of INTEC). The organizational framework of the firm was designed to meet the needs of these areas and regions (see Appendix 18: Organization of INTEC).

10

20

30

It is feared that the future holds more turmoil for the information and telecommunications sector, and INTEC’s goal was to take its business further based on the strengths it had fostered over the years. For example, in legacy migration, for which a great expansion of the market is expected, both the newest technologies and knowledge of past systems is imperative. An independent information systems service company with an extensive track record in the development of large-scale systems, wide-ranging knowledge, and with strengths in cutting-edge technologies, INTEC has the advantage of experience relative to manufacturers or IT startups. In March 2003, INTEC established INTEC LG CNS with Korea’s largest system integrator, LG CNS, to become a market leader. In the meantime, Nakao believed, the further spread of broadband would add to the firm’s reputation—INTEC for Networks—in experience, technology, and know-how. In addition to overseeing the overall line of business, Nakao planned to discuss with the Board of Directors specific measures to make the vision, “Make a Change,” a reality. For example, INTEC’s CRM software F3 (F Cube/Flexible Financial Frontier), used by over 70% of regional financial institutions who have made known their use of CRM, recorded sluggish sales shortly after its release. However, the introduction of knowledge management via the intranet allowed the development and sales divisions to share information, leading to almost a three-fold increase in sales the following year23. In this way, it was necessary to study ways in which effective collaboration between specialists could be achieved for innovation that meets the needs of INTEC’s customers. The 13th Term Business Plan aims to achieve consolidated sales of ¥126 billion (average growth of 6.5%), or unconsolidated sales of ¥108 billion (average growth of 7.0%) by FY2007, the final year of the plan

22 To redesign or migrate legacy system, that has been developed on mainframe computers, to open-platform operating systems such as UNIX and Windows. It is expected to decrease operating costs and higher compatible use; and the business is said to grow into a huge market. Refer to e-Words website http://e-words.jp/ 23 “Reasons Behind Hit Business”, Nikkei Solution Business, April 30, 2003, pp. 52-54. This case study is available free of charge as teaching material for non-commercial use through the Creative Commons Deed (http://creativecommons.org/licenses/by-nc-nd/2.0/). The use of three or more copies for commercial use as teaching materials in training, fee-based seminars, client-oriented seminars, or fee-based seminars run by non-profit organizations entails a material preparation fee based on the number of copies used and an administrative handling fee. Please contact [email protected] for details.

13

(see Appendix 19: Numerical targets of the 13th Term Business Plan). A faint outline of the Tateyama Mountain Range was visible through the cloudy sky. The waves of changes facing the telecommunications industry seemed to be as high as the mountains themselves. INTEC, which expanded its business to a nationwide scale from its origins in Toyama, has now started businesses in other regions of Asia. Meanwhile, approximately 25% of INTEC employees originate from Toyama. Nakao vowed to follow the footsteps of his Toyama ancestors, who seasoned many challenges, and to pursue reforms with an unflinching spirit. Finally, Nakao swore to remain true to his Toyama roots, and to work towards greater achievements in the rapidly-changing information and telecommunications sector. 10


14

Bibliography

- Kazuko Endo, “Toyama no Kusuri-Uri (Toyama’s Medicine Peddlers) - INTEC website, http://www.intec.co.jp/ - A History of the First Fifteen Years of INTEC, INTEC, 1979. - INTEC’s 30th Anniversary; Challenges to the Age of Wisdom, INTEC, 1994. - Keiwa, Memorial Edition No. 69, INTEC, 1993. - Vision to the Future; In Memory of Koji Kanaoka, INTEC, 1993. - INTEC Technical Journal, 40th Anniversary Special Issue No. 2, INTEC, 2003.

10 - INTEC Journal, Vol. 9, INTEC, May 2003. - INTEC Journal, Vol. 10, INTEC, August 2003. - INTEC Journal, Vol. 11, INTEC, November 2003. - INTEC Journal, Vol. 12, INTEC, February 2004. - INTEC Journal, Vol. 13, INTEC, May 2004. - e-Words Website http://e-words.jp/ - InfoCom Research Inc. “Outlook of the Information & Communications Industry 2004; A

Drastic Expansion of the Broadband Business”, NTT Publishing, 2004. - InfoCom Research Inc. “Information & Communications Handbook 2005”, InfoCom Research

Inc., 2004. 20 - Ministry of Economy, Trade & Industry “Information Service Industry White Paper 2004”,

Computer Age Co., Ltd., 2004. - Ministry of Land Infrastructure and Transport, Hokuriku Regional Development Bureau

Website http://www.hrr.mlit.go.jp/ - Nikkei Solution Business, April 30, 2003. - Nikkei Solution Business, December 15, 2004. - Consulting Division, Nomura Research Institute “What Will Happen to the Information &

Communication Industry?”, Toyo Keizai, 2003. - Eitaro Ohta, “The Japanese People: Toyama”, Dai-ichi Hoki, 1974. - Seiichi Sakai, “History of Toyama”, Yamakawa Shuppansha Ltd, 1970.

30 - Ministry of Internal Affairs and Communications “Information and Communications in Japan: White Paper 2004”, GYOSEI, 2004.

- Statistics Dept., Ministry of Internal Affairs and Communications “Statistical Outlook of Prefectures 2004”, Japan Statistical Association, 2004.

- Toyama Prefecture Website http://www.pref.toyama.jp/ - Takashi Umezawa & Ken Uchida, “Venturers in the Software Market – Lives of Information

Service Industry Leaders”, Computer Age Co., Ltd., 2001. - Internet Association Japan, “Internet White Book 2004”, Impress Corporation, 2004.


15

■Appendix 1: History of INTEC

January 1964 Toyama Computing Center established (Capital \10 million)

January 1966 Niigata Center established

April 1967 Tokyo Center established in Setagaya ward

August 1968 Nagoya Center established

July 1970 Sendai Center established

October Company renamed to INTEC Inc.

Osaka Center established

October 1972 Sapporo Center established

February 1976 Kyushu Center established

April 1978 Shikoku Center established

November 1982 Listed on the Second Section of the Nagoya Stock Exchange

Capital 1.75 billion/No. of issued shares: 11 million

Accredited by the Ministry of Posts and Telecommunications as a Small or Medium Enterprise VAN Operator

April 1983 Oita Center established

February 1984 Hiroshima Center established

November Listed on the Second Section of Tokyo Stock Exchange

April 1985 Accredited as Japan’s first Special Type 2 Telecommunications Carrier

(Operations begin September of the same year)

March 1986 INTEC Osaka office building completed

September Listed on the First Section of Tokyo Stock Exchange

March 1989 INTEC System Research Center established (Current INTEC Web and Genome Informatics, Inc.)

October Agency agreement concluded with Northern Telecom

January 1990 INTEC Oyama Training Center completed

August INTEC Yokohama office building completed

October 1991 Begins ISDN service

April 1994 Headquarters building “Tower 111 (Triple-One)” completed

May 1995 ISO9001 assessment and registration in the information technology field

October 1996 Basic contract on an international network service concluded with Telstra of Australia

June 1998 INTEC Communications established

July Alliance with McKenna Group, USA

September Over-the-counter trading of IUK shares

June 1999 INTEC Tokyo office building completed

January 2000 INTEC Fuji No. 6 building completed

February INTEC Sendai building completed

Accredited as a Privacy Mark holding company (Protection of Private Information)

June Internet data center operations company @Tokyo Inc. established with Tokyo Electric Power Co.

September INTEC Communications listed on the Mothers Market of Tokyo Stock Exchange

December INTEC Web and Genome Informatics, Inc. listed on the Mothers Market of Tokyo Stock Exchange

April 2001 Introduction of new corporate logo

November ISO14001 assessment and registration (CRM Solution Div.)

June 2002 Intec NetCore Inc. established as a new generation internet research and development company

October Established Advertisement EDI Center Inc. with 12 advertising agencies, including Dentsu and Hakuhodo

March 2003 INTEC LG CNS Inc. established together with LT CNS Co., Ltd Korea

May Obtained ISMS certification (Outsourcing Service Center)

July Obtained ISMS certification (Hokuriku Region Headquarters Outsourcing Center)

October Opened Dalian Center in Liaoning Province, China

Ehime Center established

November Established INTEC Wuhan in Wuhan, Hebei Province, China

January 2004 Celebrated INTEC’s 40th anniversary

July Obtained ISMS certification (Kansai Region Headquarters Outsourcing Center)

September Obtained ISMS certification (Chubu Region Headquarters Outsourcing Center)

January 2005 Merger by absorption of INTEC Communications

; IUK and INTEC Solution Power become wholly-owned subsidiaries

April Introduction of operating officer system Source: INTEC Website http://www.intec.co.jp/cov/enkaku.html (partly amended)


16

■Appendix 2: Makeup of shareholders at time of establishment

Name of Shareholders Number of Shares Name of Shareholders Number of SharesToyama Mutual Bank 5,800 Taizo Nishi 200Toyama Chihou Tetsudou Inc. 4,000 Koji Kanaoka 200Nihonkai Gas Co., Ltd. 1,800 Matazaemon Kanaoka 200The Kitanippon Shimbun 2,000 Shichiro Nitta 200Hosokawa Kigyo 1,000 Kojiro Shioi 200Nihon Lemington Univac 1,000Tonami Transportation Co., Ltd. 1,000Kokando Co., Ltd. 800Kitanihon Broadcasting 600Toyama Toyota Co., Ltd. 500Toyama Kotsu 500

Source: A History of the First Fifteen Years of INTEC, p. 4, INTEC, 1979.

10

30

Initial communications launched 1971

1973

■Appendix 3: Achieving computer utility

20

Packet switching services (US) 1974

1981

Secondary communications launched 1982

1983

Tertiary communications launched, NTT privatized 1985

1986

Enters domestic NCC market 1987

1991

NTT enters mobile network market 1992

1995

NTT launches OCN services 1996

1997

1999

2001

2002

2003

Leased line grid TecAcenet online services launched

Alliance with GTE Telenet

Packet switching service AceTelenet launched

Industry VAN (B2B) service launched

Packet switch AcePlex Series developed

Data exchange system AIRS developed

ISDN network AceAinet service launched

ISDN network AceAitel & AceVips launched

Internet service IIC launched

Frame Relay Service AceFR launched

IP network solution EINS service launched

New data exchange system EDIServ launched

IP-VPN, wide area LAN service launched

Web-EDI service launched

Secure mobile and VPN service launchedDevelopments in the telecommunications industry

INTEC’s Telecommunication ServicesInitial communications launched 1971

1973

Packet switching services (US) 1974

1981

Secondary communications launched 1982

1983

Tertiary communications launched, NTT privatized 1985

1986

Enters domestic NCC market 1987

1991

NTT enters mobile network market 1992

1995

NTT launches OCN services 1996

1997

1999

2001

2002

2003

Leased line grid TecAcenet online services launched

Alliance with GTE Telenet

Packet switching service AceTelenet launched

Industry VAN (B2B) service launched

Packet switch AcePlex Series developed

Data exchange system AIRS developed

ISDN network AceAinet service launched

ISDN network AceAitel & AceVips launched

Internet service IIC launched

Frame Relay Service AceFR launched

IP network solution EINS service launched

New data exchange system EDIServ launched

IP-VPN, wide area LAN service launched

Web-EDI service launched

Secure mobile and VPN service launchedDevelopments in the telecommunications industry

INTEC’s Telecommunication Services

Source: Yoshiyuki Suzuki, “Challenges towards Realization of a Computer Utility Society“, INTEC Technical Journal, 40th Anniversary Special Issue No. 2, p.6, Table 1 “History of Computer Utility Challenges“, INTEC, 2003. (partly amended)


17

■Appendix 4: My Principles

Service is my duty Creation is my joy

The world is my workplace Prosperity is my hope

Permanence is my way President

10

20

30

40

Source: INTEC Keiwa Commemorative Issue No. 69, 1993

■Appendix 5: Overview of Tower 111

Source: Tower 111 (Triple-One) website http://www.intec.co.jp/tower111/tower.html


18

■Appendix 6: Our Action Agenda: INTERLINK 6C

● Interlink with Clients ● Interlink with Consumer ● Interlink with Cooperaors ● Interlink with Colleague


● Interlink by Communication 10

20

● Interlink with Communication

Source: INTEC, vol. 12, p. 12, February 2004. (partly amended)

■Appendix 7: Telecommunications business sales figures

1995 1996 1997 1998 1999 2000 2001 2002

100,289 121,370 133,048 138,615 155,783 169,826 172,453 168,280

(17.9%) (21.0%) (9.6%) (4.2%) (12.4%) (9.0%) (1.5%) (-2.4%)

6,193 7,499 8,190 9,687 9,188 13,751 14,468 18,319

(-10.2%) (21.1%) (9.2%) (18.3%) (-5.2%) (49.7%) (5.2%) (26.6%)

(Of which) Special Type 2 Telecommunications 4,237 6,023 2,241 2,468 2,301 2,946 2,777 2,093

Business (Change from previous year) (-17.8%) (42.2%) N.A. (10.1%) (-6.8%) (28.0%) (-5.7%) (-24.6%)

(Of which) Standard Type 2 Telecommunications 1,956 1,476 5,949 7,219 6,886 10,805 11,691 16,226

Business (Change from previous year) (12.2%) (-24.6%) N.A. (21.4%) (-4.6%) (56.9%) (8.2%) (38.8%)

106,482 128,869 141,238 148,302 164,971 183,577 186,921 186,599

N.A. (21.0%) (9.6%) (5.0%) (11.2%) (11.3%) (1.8%) (-0.2%)

Total

(Change from previous year)

Type 1 Telecommunications Business


Type 2 Telecommunications Business


Source: Ministry of Internal Affairs and Communications “Information and Communications in Japan: White Paper 2004”, p. 142 Figure 1. “Change of telecommunications business sales figures” (current data: MIC “Trends of Type 1 Telecommunications Business” & “Basic Survey of Communications Industry”

30


19

■Appendix 8: Predictions of market scale across 5 sectors

81,576 86,579 90,592 93,861 97,213 99,173 100,822

4,1205,086

6,3758,407

11,50215,816

20,843

3,2874,264

5,2686,239

7,1998,022

8,840

26,850

47,100

67,200

85,900

105,500

123,000

142,000

2,067

3,670

4,541

5,729

7,099

8,663

10,014

0

50,000

100,000

150,000

200,000

250,000

300,000

2002 2003 2004 2005 2006 2007 2008

Digital Contents Industry

e-Business Industry

Platform Industry

Broadcasting Industry

Communication Service Industry

（year）

（in millions of yen）

Source: Consulting Division, Nomura Research Institute “What Will Happen to the Information & Communication Industry?” p. 10 Figure 1 “Predictions of market scale of five main IT sectors” Toyo Keizai, 2003.

10 ■Appendix 9: Annual growth rates in the main sectors

Industry Annual growth rates

Digital Contents Industry 25.1%e-Business Industry 32.0%Platform Industry 17.9%Broadcasting Industry 31.0%Communication Service Industry 3.6%

Source: Consulting Division, Nomura Research Institute “What Will Happen to the Information & Communication Industry?” p. 11 Figure 2 “Annual growth rates in the main sectors; 2002-2008” Toyo Keizai, 2003. (partly amended)


20

■Appendix 10: Priority investment/cost-cutting areas for network businesses

-30 -20 -10 0 10 20 30 40 50%

Connection expansion

LAN devices

Leased line

IP-VPN

Wide area Ethernet

Network, etc.

45

45

37

31

11

6

31

35

12

15

1

2-2

-2

-6

-6

-5

-5

-22

-18

-6

-4

-4

-5

Cost-cutting areas High priority areas

plan of this yearthe estimated plan for next year

-30 -20 -10 0 10 20 30 40 50%

Connection expansion

LAN devices

Leased line

IP-VPN

Wide area Ethernet

Network, etc.

45

45

37

31

11

6

31

35

12

15

1

2-2

-2

-6

-6

-5

-5

-22

-18

-6

-4

-4

-5

Cost-cutting areas High priority areas

plan of this yearthe estimated plan for next year

10

20

Source: Japan Users Association of Information Systems, “User Firms IT Trend Survey 2003”

■Appendix 11: Comparisons between the earnings of information services companies

Name of Company Sales

% growth fromsame periodof previousyear

Operatingprofit


Ordinaryprofit


Operatingprofit ratio

NTT Data 3817.90 6.8% 169.94 ▲ 28.8% 135.30 ▲ 30.6% 4.5%

CSK 1757.65 3.1% 118.05 10.2% 135.44 12.2% 6.7%Daiwabo Information System 1705.38 7.0% 14.40 90.3% 13.92 177.1% 0.8%Nihon Unisys 1389.07 1.6% 36.67 221.2% 37.78 79.0% 2.6%NEC Fielding 1182.32 ▲ 2.0% 44.79 ▲ 45.3% 46.80 ▲ 43.5% 3.8%Nomura Research Institute 1151.67 1.6% 123.19 1.8% 129.26 3.8% 10.7%TIS 1067.33 33.4% 72.31 36.1% 73.98 35.8% 6.8%Itochu Techno-Science 1036.48 ▲ 11.0% 60.94 ▲ 2.8% 60.28 ▲ 0.1% 5.9%Hitachi Software Engineering 939.83 ▲ 7.2% 35.89 ▲ 40.3% 45.45 ▲ 32.8% 3NEC System Integration & Constru

.8%c 871.32 5.1% 17.81 15.4% 17.79 14.3% 2.0%

Hitachi Information Systems 853.08 10.4% 47.11 6.6% 47.51 2.9% 5.5%Fujisoft ABC 819.18 18.6% 61.16 14.6% 63.20 17.1% 7.5%Fujitsu Business Systems 785.72 1.5% 6.65 ▲ 25.9% 2.66 ▲ 36.1% 0.8%NS Solutions 657.23 1.8% 42.12 15.1% 42.72 15.7% 6.4%NEC Soft 594.06 9.7% 34.76 ▲ 3.5% 29.78 ▲ 0.6% 5.9%Net One Systems 573.34 12.9% 43.53 32.6% 43.35 30.5% 7.6%Marubeni Infotec 555.30 3.1% ▲ 0.40 - ▲ 1.11 - -Hitachi Systems and Services 529.03 16.1% 23.30 42.0% 22.67 35.6% 4.4%INTEC 517.46 6.0% 27.95 5.5% 19.04 11.4% 5.4%

transcosmos 460.70 20.7% 13.09 44.3% 34.63 220.7% 2.8% Source: “Special Report: September 2004 Six Months Closing of Account”, Nikkei Solution Business, p. 55 Table, December 15, 2004. (partly amended)


21

■Appendix 12: INTEC business performance

Unconsolidated Consolidated Unconsolidated Consolidated Unconsolidated Consolidated Unconsolidated Consolidated Unconsolidated Consolidated

Sales 99,929 114,227 93,880 109,125 91,947 108,062 88,227 104,375 93,000 110,000

Operating profit 5,813 8,111 4,857 6,961 4,847 6,994 5,078 6,427 5,200 7,000

Ordinary profit 4,468 6,162 3,453 5,402 3,669 4,712 3,616 4,275 3,400 5,200

50th term 51st term 52nd term

(in millions of yen)

53rd term 54th term

　　　2000年度 2001年度 2002年度 2003年度 2004（estimate）

Source: Constructed from INTEC financial statements

■Appendix 13: Breakdown of sales


2000 2001 2002 2003

Software 35,662 35,872 34,052 31,995

System Integration 20,603 23,570 28,617 26,413Outsourcing 17,771 18,995 19,235 19,815

Network 25,891 15,261 10,042 10,003

Total 99,929 93,880 91,947 88,227 10

20

Source: Constructed from INTEC financial statements

■Appendix 14: INTEC’s corporate philosophy

We - the management and staff of INTEC - are committed to using our expertise in information technology to contribute to the growth and development of our clients.


Moreover, we pledge to - ・Maintain a high ethical standard in our conduct of business ・Work to protect the global environment ・Contribute to society as a whole ・Secure an appropriate level of profit ・Meet our shareholders' expectations ・Provide a workplace where our employees can find self- fulfillment, and ・Strive for the Company's sustained growth and development far into the future

Source: INTEC website http://www.intec.co.jp/english/cov/philosophy.html


22

■Appendix 15: INTERLINK 7C

Interlink with Corporate-holder Interlink with Colleague

Interlink with Community

Interlink with CooperatorsInterlink with Clients

Interlink with Consumer

Interlink by Communication

お客さまのむこうにはいつも”Consumer”が

常にお客さま満足を考える”お客さま第一主義”

パートナーとともに新たなビジネスを創造

社員・グループの固い連帯

株主のご期待に応えて

お客さま、パートナー、そしてグループ間の理解を深めるコミュニケーション

地域社会との共生

Source: INTEC website http://www.intec.co.jp/cov/kiso.html

■Appendix 16: Outline of corporate merger 10

Location of headquarters the City of Toyama Kouto Ward Chiyoda Ward Shibuya WardRepresentative CEO 　Tetsuo Nakao CEO 　Takayuki Fukagawa CEO 　Satoru Tada CEO 　Takashi OnoCapital

No. of Company Shares Issued 3350000 506,100Equity

No. of Employees 2,731 184 141 1,3392002 2003 2004 2001 2002 2003 2001 2002 2003 2001 2002 2003March March March DecemberDecemberDecemberDecemberDecemberDecemberDecemberDecember December

Net sales(in millions of yen)Recurring income(in millions of yen)

213,000,000 253,000,000

46,179,000,000 5,847,000,000 1,351,000,000 454,000,00040,462,355 14,200,000

Intec Communications INTEC Solution Power Inc.Trade name

INTEC Inc. IUK Inc.

Joint company, Parent company （Predecessor company）（Wholly-owned subsidiary）（Wholly-owned subsidiary）System center operation service

Software business Solutions business Useware business Network operation serviceOutsourcing business Communications service business Multivendor business

On-site serviceNetwork business System development service

Years ended

Main businesses System integration business Outsourcing business

20,455,000,000 3,725,000,000

93,880 91,947 88,227 12,503 13,082 12,674 11,357 12,195 12,261 9,364 9,654 9,891

3,453 3,669 3,616 743 840 896 287 333 383 215 240 231

Source: INTEC Journal, Vol. 13, p.11 “Outlook of 4 Companies”, INTEC, May 2004.


23

■Appendix 17: Overview of INTEC Company Name INTEC INC. Founded January 11, 1964

Current Paid-in-Capital(as of April 2005)

20 Billion Yen

Revenue (Year endedMarch 2004)

88.22 Billion Yen

Public Company Listed on Tokyo & Nagoya Stock Exchange

Employees 3,042 (as of April 2005) 　(Including subsidiaries, over 5,000)Offices Offices in 24 cities in Japan, and 2 cities in China

Main business Independent Service Provider - Integrator of Multi-vendor systems- Neutral selection of Hardware & Software- Coordination in all aspects

Leading Company in Telecommunication Business - Telecommunications Carrier- Sophisticated value added network services

Coupling Business Provider - Wide variety of industry experience and know-how- Creation of new business channels as a coordinator

Provisioning of Total Solutions - Comprehensive service provider covering from consultation,system development, installation, operation, maintenance

Prime Contractor for Large-scale Projects - Overall management ability for large-scale projects

Source: INTEC Website http://www.intec.co.jp/cov/kiso.html (partly amended)

10

20


24

■Appendix 18: Organization of INTEC


10

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30

40

Source: INTEC DATA FILE

Sales Dept.Kobe Office

Ge

ne

ra

l M

ee

ting

o

f S

ha

reh

old

ers

Group management Dept.Planning Dept.General Affairs Dept.

Public Relations Dept.Accounting Dept.Corporate Staff Division

Corporate Information Dept.Personnel Dept.

Oyama Learning InstituteTechnology and Marketing Division

e-JAPAN business promotion Dept. Audit & compliance Dept.

Bo

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co

rp

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rs

PresidentE

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ittee

Commerce & Service Solutions Division

Business Solutions Division

Systems Division

Sales Dept. Sales Dept No.1 Sales Dept. No.2 Niikawa OfficeTakaoka Center Hokuriku Center Fukui CenterNiigata Center Nagano CenterNagano Public Data Processing Dept.Solution Product Systems Dept.Financial Systems Dept.

Outsourcing Division

Manufacturing Solutions Division

Financial Solutions Division

Chubu Headquarters

Nishinihon Headquarters

Hokuriku Headquarters

Regional Government Division Sales Dept.e-Regional Government Dept.Regional Government CenterPublic Systems Dept.Tohoku Public CenterChubu Public Center

Sapporo CenterKushiro CenterObihiro Office

Administration Dept.

Sales Dept. No.1Sales Dept. No.2Outsourcing CenterSystem Solutions Dept.IT Systems Dept.Financial Systems Dept.

Financial Solutions Dept. No.1Financial Solutions Dept. No.1Insurance Solutions Dept.

Financial Systems DivisionDevelopment Dept. No.1Development Dept. No.2

NI DivisionNI Development Dept. No.1NI Development Dept. No.2

Commerce Solutions Sales Dept. No.1Commerce Solutions Sales Dept. No.2Service Solutions Sales Dept.Public Solutions Dept. Medical Solutions Dept. BML Dept.

SY Dept.Manufacturing Solutions Sales Dept. No.1Manufacturing Solutions Sales Dept. No.2Manufacturing Solutions Sales Dept. No.3

In-Dia DivisionDevelopment Dept. No.1Development Dept. No.2

Services Business Dept.Partner Business Dept.Cosmo CenterOutsourcing Services CenterSOHO Image Entry Center

Yokohama Administration Dept.

Solutions Business Dept.Enterprise Solutions Dept.CRM Dept. No.1CRM Dept. No.2IT Products Dept.

Systems Development Promotion Dept.Systems Development Dept. No.1Systems Development Dept. No.2Systems Development Dept. No.3Network Systems Dept.

Tokyo Administration Dept.

Medical Systems Dept.

System Support Services DivisionSAS Center

Outsourcing CenterBuilding Systems Dept.

Network Solutions Division Network Business Planning Dept.B2B-ix Dept.Ｎetwork Solutions Sales Dept. No.1Ｎetwork Solutions Sales Dept. No.2Ｎetwork Systems Dept. No.1Ｎetwork Systems Dept. No.2Ｎetwork Systems Dept. No.3Customer Services CenterNetwork Technical CenterNetwork Technologies Dept.

Intec group CEO

Chairm

an

Consulting Dept.

Sendai CenterYamagata Office

Hokuriku Software Factory Sales Dept.Development Dept. No.1Development Dept. No.2Development Dept. No.3Kanazawa development Dept.Dalian Center


AI Dept. Keiji OfficeHiroshima Center Shikoku Center Ehime CenterKyushu Center Oita CenterOutsourcing CenterSystem Solutions Dept.Financial Systems Dept.Industrial Systems Dept.Advanced Technology Systems Dept.



Sales Dept.Kobe Office

Ge

ne

ra

l M

ee

ting

o

f S

ha

reh

old

ers

Group management Dept.Planning Dept.General Affairs Dept.

Public Relations Dept.Accounting Dept.Corporate Staff Division

Corporate Information Dept.Personnel Dept.

Oyama Learning InstituteTechnology and Marketing Division

e-JAPAN business promotion Dept. Audit & compliance Dept.

Bo

ar

d

of

Dir

ec

to

rs

Bo

ar

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of

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Commerce & Service Solutions Division

Business Solutions Division

Systems Division

Sales Dept. Sales Dept No.1 Sales Dept. No.2 Niikawa OfficeTakaoka Center Hokuriku Center Fukui CenterNiigata Center Nagano CenterNagano Public Data Processing Dept.Solution Product Systems Dept.Financial Systems Dept.

Outsourcing Division

Manufacturing Solutions Division

Financial Solutions Division

Chubu Headquarters

Nishinihon Headquarters

Hokuriku Headquarters

Regional Government Division Sales Dept.e-Regional Government Dept.Regional Government CenterPublic Systems Dept.Tohoku Public CenterChubu Public Center

Sapporo CenterKushiro CenterObihiro Office


Sales Dept. No.1Sales Dept. No.2Outsourcing CenterSystem Solutions Dept.IT Systems Dept.Financial Systems Dept.

Financial Solutions Dept. No.1Financial Solutions Dept. No.1Insurance Solutions Dept.

Financial Systems DivisionDevelopment Dept. No.1Development Dept. No.2

NI DivisionNI Development Dept. No.1NI Development Dept. No.2

Commerce Solutions Sales Dept. No.1Commerce Solutions Sales Dept. No.2Service Solutions Sales Dept.Public Solutions Dept. Medical Solutions Dept. BML Dept.

SY Dept.Manufacturing Solutions Sales Dept. No.1Manufacturing Solutions Sales Dept. No.2Manufacturing Solutions Sales Dept. No.3

In-Dia DivisionDevelopment Dept. No.1Development Dept. No.2

Services Business Dept.Partner Business Dept.Cosmo CenterOutsourcing Services CenterSOHO Image Entry Center

Yokohama Administration Dept.

Solutions Business Dept.Enterprise Solutions Dept.CRM Dept. No.1CRM Dept. No.2IT Products Dept.

Systems Development Promotion Dept.Systems Development Dept. No.1Systems Development Dept. No.2Systems Development Dept. No.3Network Systems Dept.

Tokyo Administration Dept.

Medical Systems Dept.

System Support Services DivisionSAS Center

Outsourcing CenterBuilding Systems Dept.

Network Solutions Division Network Business Planning Dept.B2B-ix Dept.Ｎetwork Solutions Sales Dept. No.1Ｎetwork Solutions Sales Dept. No.2Ｎetwork Systems Dept. No.1Ｎetwork Systems Dept. No.2Ｎetwork Systems Dept. No.3Customer Services CenterNetwork Technical CenterNetwork Technologies Dept.

Intec group CEO

Chairm

an

Consulting Dept.

Sendai CenterYamagata Office

Hokuriku Software Factory Sales Dept.Development Dept. No.1Development Dept. No.2Development Dept. No.3Kanazawa development Dept.Dalian Center


AI Dept. Keiji OfficeHiroshima Center Shikoku Center Ehime CenterKyushu Center Oita CenterOutsourcing CenterSystem Solutions Dept.Financial Systems Dept.Industrial Systems Dept.Advanced Technology Systems Dept.




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■Appendix 19: Numerical targets of the 13th Term Business Plan


Unconsolidated Consolidated Unconsolidated Consolidated Unconsolidated Consolidated Unconsolidated Consolidated

Sales 93,000 110,000 10,000 117,000 10,800 126,000 7.0% 6.5%

Operating profit 3,400 5,200 4,100 6,400 4,700 7,600 9.1% 21.1%

Ordinary profit 1,800 2,600 2,300 3,600 2,600 4,500 19.8% 28.1%

the rate of growth （an average）　　　　2004年度　　　　2005年度　　　　2006年度

Source: INTEC Journal, Vol. 13, p.12 Figure, INTEC, May 2004.


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Questions for the Class Discussion

What strategies should INTEC continue in this era of change, and what should it change? Discuss this question in light of regional and global perspectives.


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