Foreign Correspondents’ Club of Japan, Tokyo, 3/24/10, 12:30pm
Good afternoon everyone. Thank you for this chance to tell our story to FCCJ members.
Actually, one key part of the story is the fact that FCCJ is the only media forum in Japan that would give us this chance.
As mentioned, I am founder and CEO of Kenko.com, Japan’s largest online drugstore. Starting in May, 2000 we were one of Japan’s e-commerce pioneers. Since then, we have grown continuously on average 36% each year. We’ve grown by offering customers:
・more choice than local pharmacies
・and detailed product information
In June 2004 we had a successful IPO on the Mothers Section of Tokyo Stock Exchange.
Last year filling nearly 2-million orders for customers all over Japan we passed a key milestone in our growth: annual sales of 10 billion yen ? or about $100 million.
We have an excellent record in consumer safety. We are a Japanese company ? founded in Japan by Japanese citizens.
But, in effect, our own government is trying to force us out of Japan. So we have sued the Government of Japan in Tokyo District Court
By arbitrarily restricting the online sale of non-prescription pharmaceuticals we allege that Health Ministry bureaucrats abused their power and violated our constitutional rights.
I want to tell you the story before the court’s judgment on March 30th because I believe its impact goes way beyond our ability to sell aspirin on the Internet.
This is a “test case” that will show what kind of country Japan is going to be.
Is Japan going to build a new global future in the digital economy? Are we going to create a new wave of great companies? Or will this country just keep going down and down?
Is Japan going to suffocate its own children just to prevent change? That’s what this is about!
But let me start from the beginning.
Today there are online drugstores all over the world. Just like brick-and-mortar drugstores most sell personal items like cosmetics, hair and dental care products, and so on.
In many countries ? but not Japan ? online drugstores can also fill prescriptions.
Between personal items and prescriptions you have OTC, “over-the-counter products” that need no prescription: mild pain relievers, cold remedies and things like pregnancy tests.
Most countries divide OTC into two categories:
・Items you can take from the shelf ? like aspirin.
・And “behind-the-counter” items you must get from the pharmacist ? typically products that can be abused, like sleeping pills.
In Japan, now we also have a third category that includes items like vitamins and iodine.
Online drugstores across North America and Europe, sell all OTC categories ? and prescriptions, as well. They have operated for 10 years or more with no problems.
When we started Kenko.com in 2000, prescriptions were not part of the business plan for two reasons.
・Unlike other countries Japan has no prescription refill system.
・And because costs are split 70-30 between the national health system and consumers…it was just too complex.
But under the Pharmaceutical Affairs Law of 1960 there was no barrier to online OTC sales. So we focused on OTC.
In May 2004, the government formed an advisory council to consider revising the 1960 law ? which was clearly outdated.
No online drugstores were invited to join this process. And there was almost no discussion of online sales. So when the advisory council made its report in December, 2005 there was no suggestion to restrict online sales.
Next step came in 2006 when the Diet passed the “Revised Pharmaceutical Affairs Law.”
The new law did not even mention online OTC sales ? and did nothing to restrict them.
For Category 1 “behind-the-counter” drugs the new law did set the principle that consumers must be warned- in writing- of any possible side effects. But this is easy to do online ? so we had no objection.
Anyway, the law set out basic principles that were to take effect in June 2009.
During the three-year interim period Ministry officials had to draft detailed regulations consistent with the principles of the law. Bureaucrats call these “ministerial ordinances”.
This is where the tricks started.
In February 2008 the Ministry created an “ordinance research panel” to draft revised rules for OTC sales. Again no online drugstores were invited to join.
But Ministry bureaucrats certainly did invite the Japan Association of Chain Drug Stores. In fact the bureaucrats did much more than that. They invited, or at least allowed, someone from the Japan Association of Chain Drug Stores to actually write the ordinances.
We know this, because the association makes no secret of this. They almost boast that they wrote the regulations.
This association does not represent independent pharmacies or online drug stores or convenience stores. It certainly does not represent consumers.
It represents only drug chains that have a huge vested interest in keeping competitors out of the 628-billion yen OTC market.
This was like asking a fox to write safety rules for chickens.
I have to give them credit because they were clever as a fox. They made it look like OTC was being opened up to convenience stores. And that was the headline in the newspapers.
But look closely at the details and you can see how ? in practical terms ? they made it difficult for konbini to actually sell OTC. Very clever!
With online sales what they did was to bend the principle that consumers should be notified about side effects.
The law requires written notification only for Category 1. The ordinance cleverly extended this to require “face-to-face” notification for all categories.
The Ministry used this to claim online sales were not safe because there is no face-to-face communication.
Then - suddenly - in December 2008 a story appeared in the Yomiuri about a tragic case in 2006 where a 19-year-old man tried to kill himself with sleeping pills.
The story claimed online OTC sales were unsafe because the man bought 24 boxes of sleeping pills from an online drugstore. Not from us, by the way.
What the original story did not say was that this poor young man also bought six boxes of sleeping pills from two brick-and-mortar drug stores. Although we cannot confirm it we believe these were chain drug stores.
OK, right now let me face the safety issue head on. If you go out right now and walk down Ginza you can visit maybe six drugstores in the next hour.
On crowded shelves you won’t find much information ? just tiny notices on each box. If you pay cash there’s no record. And if the young part-time cashier asks you anything chances are it’s going to be “Do you have a point card?”
What happens if you buy a product that gets recalled? Like when Tylenol got recalled in 1982. A chain-store could not find you. And they’d have no idea if you bought the same thing at five other stores.
Compare this to what happens if you go online right now and visit Kenko.com.
You find full information on each product. We help you choose the right one for your needs. When you order to prevent problems we ask questions like: Do you have allergies or high blood-pressure? Are you pregnant?
Because we have to deliver, we need your name and address. So we can see if you order too many sleeping pills… and we will say “no.”
If the product gets recalled we will contact you immediately!
We may not communicate face-to-face but for many consumers online is less embarrassing.
Imagine a teenager in a small town who fears that she’s pregnant. The last person she may want to ask is the local pharmacist who may know her parents or teachers. Using Kenko.com she can get all the information and advice she needs ? anonymously.
By any rational measure online OTC sales are not only as safe as chain drugstores, we are, in fact, much safer.
But this story is not about safety. This is about collusion. It’s about bureaucrats colluding with companies that they regulate.
What do the bureaucrats get in return? Maybe you can tell me. But I think we’ve all heard about Japanese bureaucrats and amakudari.
“Face-to-face contact” belongs on the list of excuses Japanese bureaucrats once used to keep out imports. Maybe you remember how they used to say “Japanese can’t eat imported beef because our intestines are longer.” Or, “we can’t use imported skis because Japanese snow is different.”
In any case, in February 2009 the Ministry announced the new ordinance on OTC products that took effect last June.
On one hand it seemed to open the door for konbini to sell OTC products in two out of three categories. But in practice the rules were so difficult to meet that konbini were effectively shut out of all categories.
On the other hand, the online sale of OTC was restricted to Category 3 ? effectively freezing us out of the business.
This was not done by a law passed in Japan’s Diet. It was not done to protect consumers. This was not the outcome of a fair and transparent process. It was a decision made behind closed doors by unelected officials. It was a decision made by bureaucrats to support their friends.
The most shocking thing is that they barely tried to hide it. Why? Because in businesses regulated by Japanese bureaucrats this is normal.
They can do this because they know most Japanese will say shikata-ga-nai ? nothing we can do about it.
Maybe I’m just ganko - stubborn. But we oppose this as an abuse of bureaucratic power as a gross violation of our constitutional rights.
For this reason along with Wellnet Corporation, on May 25, 2009 Kenko.com sued the government in Tokyo District Court.
When the court decides on March 30th we expect a ruling in our favor. I have confidence in Japan’s courts. Unlike bureaucrats and politicians, I believe our courts uphold the rule of law. But if the court rules against us it will be a bitter disappointment.
From a base in Japan, as a Japanese company, we dream of making Kenko.com the number-one online drugstore across Asia. We want to serve Asian consumers with the high standards we offer in Japan. We want to open new global markets for Japanese manufacturers.
If we lose our dream will not die. Instead of a “Made in Japan” dream we may have to grow through our subsidiary in Singapore.
But that’s not what we want. If we let this happen to us it’s going to happen again and again to every new business that challenges Japan’s status-quo.
Japan will suffocate its children to prevent change.
I cannot accept this and that’s why I’m speaking out today. But here is the last bitter irony.
We took our story to all the reporters who cover the Ministry of Health. It’s easy to find them because they all belong to one kisha club. Unfortunately all of them had reasons why they could not tell this story.
Isn’t that odd? Don’t you think that’s a strange coincidence?
That’s why I’m very grateful to the FCCJ for the chance to come here today. I leave this story to your professional judgment. But I hope you can show the world ? and foreign investors who own more than 30% of Japanese stocks ? how our system really works.
Now, I look forward to your questions. Thank you.