Comment by Turner

April 14, 2007 @ 1:58 am

Nice one.

I believe that the entire business takeover warning system isn’t exclusive to foreign takeovers (although foreign companies clearly are the majority doing so in Japan). Heh, at its core, this may just be a case over the pride of your beer.

As far as the eikaiwa is concerned, we still see that salesman mentality being distilled into the staff and management. Foreign teachers are brought in under the false assumption that their jobs exist for the purpose of teaching. In actuality, the company places more of an emphasis on sales. It’s rather deceptive.

Comment by ken

April 14, 2007 @ 3:53 am

Hey Turner, thanks! Historically, Japanese companies have tended toward mergers, and often have had difficulties in reducing their redundancies when combining operations. Takeovers (or acquisitions) are by no means completely alien to Japanese business, but have tended to come about in time of rescue. Especially since the war, and when MITI was really pushing things on companies, consolidation was mainly achieved through mergers, and often under the watchful eye of Kasumigaseki. It took quite a bit of pressure for the banking industry, for example, to warm up to the necessity of consolidation (and we have Mr Yanagisawa to thank for that). At any rate, just looking at the failed Volvo/Renault merger in the early 90s shows how nationalist sentiment can really get in the way of shareholders attempting to maximize the value of their holdings - though I by no means intend to imply that Steel Partners would be the best firm to take over Sapporo’s operations.

I agree with you 100% on the eikaiwa situation. The focus is not on education, and it does not take long for employees to figure that out. One thing we didn’t mention was that the senior management of both NCB and Lado cited price competition as their downfall (see NCB’s Koyama Shacho here: http://www.youtube.com/watch?v=DH9yFQUD4OQ - too bad he can’t speak like a man!) In other words, they couldn’t clear the overhead on their bloated companies.

Most disturbingly, both shut down suddenly. Koyama says that one day he just didn’t have money to pay his employees, so he closed. Huh? Then he says they owe out 10 million dollars. How did they not foresee that cashflow crunch coming? Clueless, bad businesspeople.

When sales and sales targets are everything, and customer satisfaction and retention mean nothing, companies have the recipe to brew shit rather than a successful business.

Comment by Turner

April 14, 2007 @ 3:39 pm

That’s why I agree with you - NOVA may be the next to go, despite their capital.

Comment by DeOrio

April 15, 2007 @ 12:43 am

Nova, though, is pretty good at getting re-signs.

Ken, Alby, do I sense a bit of bitterness?

Comment by ken

April 15, 2007 @ 1:37 am

Bitterness? I think Sapporo’s shareholders did not make the best long-term decision in their own interest, but I wonder if there would be a way for the vote to be reversed in the future. Financially, it does not effect me whatsoever, so there’s definitely no bitterness from me.

Comment by DeOrio

April 15, 2007 @ 2:42 am

Ken, no more secrets. I’ve been to your house. I know you have a fridge full of Keystone Light.

Comment by ken

April 15, 2007 @ 2:52 am

Keystone Ice.

Comment by John S

April 18, 2007 @ 4:58 am

Any update on the Russian? I wish we knew what he bought!

Seriously, though, I don’t get the Dodge thing at all. If you’re not BMW or Mercedes, or some niche maker like Ferrari, the Japan market seems a pretty bad idea for any foreign badge.

Comment by DeOrio

April 18, 2007 @ 3:38 pm

I agree, John. It makes me wonder who Daimler-Chrysler has on the ground here. They’ve done well with Benz, but bringing big Dodges here just seems destined for failure.

Comment by Adamu

April 19, 2007 @ 4:28 pm

On AU - the expat services by Japanese companies are all over the place wherever there are a lot of Japanese expat - there are insurance companies, newspapers, all sorts of things. Part of the AU strategy may be more about brand recognition/loyalty. The expats almost always come back to Japan at some point and if they remember their great service in the US they might stick with AU later.

Comment by DeOrio

April 19, 2007 @ 4:39 pm

Good point. Given the generally positive impression people in the US have of Japanese technology in general and the almost mythical powers attributed to Japanese cell phones in particular, though, why isn’t AU going for the wider market or bringing those super nifty handsets to the US market?

Comment by Adamu

April 19, 2007 @ 4:55 pm

On beef - Don’t count on the State Dept - they apparently think that the beef industry’s interests equals the American national interest, which is just flat wrong. If Japan really cares about solving this issue and wants to get its US beef back safely (or at least for the issue to go away sometime soon), they should get the Japanese embassies to mobilize consumer groups to promote beef safety. I’m amazed at how much the public trusts the USDA/FDA to protect our safety, not only with beef but also with genetically modified foods. The Japanese experience could serve as a wake-up call, and it wouldn’t be the first time the Japanese have tried to rouse American consumer groups as tools in trade fights with the US.

Comment by ken

April 19, 2007 @ 6:38 pm

If Japan really cares about solving this issue and wants to get its US beef back safely

Does it really want to get US beef back safely? I’m not so sure. It’s starting to look as if that’s not really going to be an option. As far as I’m concerned, let the US take it to the WTO.

As far as AU goes, I’d like to see some financial modeling on that. Is it worth the outlay to appeal to a group of people who by the percentages would be about 30% likely to use your product when returning home anyway? They might stick with AU, but is it really worth what it costs to get them as customers?

At any rate, I tend to think this is more about a tech tieup between KDDI and Qualcomm that we’re going to be hearing more and more about in the coming months (CDMA, BREW, etc).

Comment by Adamu

April 20, 2007 @ 9:43 am

Eikaiwa - That was a near-revelation for me- it all makes sense now! I knew they had deceptive sales practices but somehow it never occurred to me that ‘catch sales’ is the PILLAR of the eikaiwa business. No wonder they just import random foreign lackeys to gesticulate in front of middle aged women!

Comment by DeOrio

April 20, 2007 @ 11:38 am

Hey, not so random. You have to be from an ostensibly English^speaking country, or be White, or both. It helps a lot, too, and I’m serious about this, if you haven’t taught much. The big five hate actual EFL teachers.

NCB, in particular, was an exceptional case. I was there on the company’s last day and they signed up a student less than an hour after they told all the staff that they were bankrupt and closing the doors forever at the end of the day (no warning whatsoever, other than the writing on the wall.) They were accepting money for a service they knew they could never provide because they knew they were already out of business. I’m willing to bet that guy never saw at least a fifth of that money again.

Comment by CNote

May 23, 2007 @ 1:30 pm

I would like to make a request for an upcoming show/discussion. Back in April Abe and crew were kicking around an idea to create a zone for foreign financial institutions. It was slow to gain traction in the Foreign and English language press, so I’m suprised that it has been mentioned in some way almost constantly for the last week and a half. Q 1 Do you feel that this is in response to the global competitiveness ranking and Japan fell again because of a relatively closed society, rather opaque accounting procedures, lack of English language ability and a host of other reasons that I can’t exactly remember.In addition The Financial Times ran an article at the end of April about how Japan has or is in the midst of losing its status as a Global Financial Center . Q2 Will this be looked up on favorably in the Global Financial world? Q3 Who is this supposed to help? and will it?

I’ll hold my (very strong) opinion for later.

Comment by ken

May 23, 2007 @ 1:33 pm

CNOTE, thanks! We’ve obviously had a bit of a delay with BizCast, but #3 should be recorded early next week.

I’ve been following this topic as well, and I think it’s a great idea. I will try to get it worked into our next release, and look forward to hearing what you think about it as well.

Comment by DeOrio

May 23, 2007 @ 10:26 pm

CNote, very interesting questions. This a topic that has come up on TPR News and Seijigiri lately as well, so even in our microcosm here, it has broad interdisciplinary appeal.

While there’s a very good reason that Ken and Albrecht are doing BizCast and not me, and I hope they and you will jump in to straighten me out, I’ll toss my two cents in and take a crack at your questions.

Q1. I don’t think the Global Competitiveness Ranking told the government or business leaders much they didn’t know, much less was the sole or even main reason behind the decision, but I think it provided a bit of extra push in the direction of setting up this international business zone. It certainly didn’t impede the idea.
For a few of the weak points in the Global Competitiveness Ranking, such as opaque accounting practices, there’s not much the Zone will do, but it could help in other areas.
The lost of status is almost definitely the main factor leading to such a move. For political as well as financial reasons, Japan does not want to see its status erode. If, for example, the PRC presents more tempting growth opportunities, Japan could still play a central role for foreign companies operating in East Asia, largely due to stability that China and other countries in the region just can’t offer. In that regard, Tokyo would be primarily competing with Hong Kong and Singapore, which can be a bit easier for foreing businessmen to navigate.

Q2. I don’t think it would hurt. If the Zone comes to fruition and actually does offer a largely English-speaking, international business center, it could make things easier for foreign businessmen, which I doubt they’d mind, and it could benefit Japanese businessmen as well.

Q3. Ultimately, I think it’s supposed to benefit Japan and Japanese businesses in terms of keeping foreign investment here and attracting more. It would also help Tokyo keep its leadership position. In the short term, it could remove minor nuisances for foreign businessmen, those holding conferences or conventions in the area, etc.

Will it? Well, it could, but, as you mentioned, there are a lot of complementary obstacles that would also have to be overcome, some a lot more entrenched in the local business culture than having English-speaking staff could overcome. If it does work, it’ll take years, even decades - just hiring the right people or offering some incentives won’t be enough. It could signal the lengths to which Tokyo is ready to go to accomodate globalization and attract foreign investment, though.

All in all, it’s no silver bullet and could have drawbacks, mostly in the form of high costs, but I don’t see how it would hurt the city’s position.

Comment by ken

May 24, 2007 @ 3:06 am

Garrett, I wasn’t planning on saying much more about it yet, but why not? First on to the reasons from that list from IMD…

CNOTE, I’ve blogged the reasons at Japan Economy News. This was the full list:

• Japan’s high budget deficit (ranking 56th out of 61 economies at -6% of GDP)
• persistently high debt levels (at more than $5,000bn, nearly 120% of GDP)
• high corporate tax rates (59th)
• costly levels of remuneration (58th for the services professions)
• Entrepreneurship is not widespread (57th)
• business managers are not characterized as having much international experience (52nd)
• low participation of women in business (47th)
• Skepticism about the effective implementation of auditing and accounting practices (51st)
• a national culture that is closed to foreign ideas (54th)
• strict immigration laws (55th)

Comment by ken

May 24, 2007 @ 3:17 am

Garrett, getting back to your comment…

All in all, it’s no silver bullet and could have drawbacks, mostly in the form of high costs, but I don’t see how it would hurt the city’s position.

But…I think the potential harm is that policymakers could actually see the “Foreigner Zone” (Can I call it “Project Dejima”?) as an actual solution. This would be stopping short of what is actually beneficial for Japan.

Now, I also think the two issues are very separate, though in places related. Yes, Japan is afraid of losing ground as an international finance hub. Headlines like this from the Nikkei give a hint at what’s going on:

Singapore boosting ties with Mideast
ANALYSIS: Japan Hedge Funds Leave Tokyo For Hong Kong, Singapore
Govt-Led ‘All-Round Bourse’ Idea Draws Mixed Response

And so on…the number of articles referring to this problem keeps growing. And today we saw:

MARKET SCRAMBLE: New Financial District Plan Evokes Deja Vu, which included this:

“The statements by Financial Services Minister Yamamoto were probably not just lip service,” a representative at a real estate firm says, reflecting the general view in the industry.

Morgan Stanley is said to be close to raising the planned 8 billion dollars — or roughly 960 billion yen — for a real estate fund, 40% of which is targeted for Japan. And according to U.S. property investment manager Jones Lang LaSalle Inc., the spread between interest rates and the return on Tokyo’s office rents came to 1.95% last year — higher than for London or New York. With vacancy rates close to zero, concrete steps toward forming the new financial hub would likely buoy stocks in the real estate sector and related industries.

Which is exactly what I’ve said: Morgan is in on this somehow, as well they should be. 40% of an $8 billion REIT means some peeps are going to have to be on the ground, and most likely more than what’s in Ebisu now. I don’t think there’s much of a chance of them brining their entire Asia operations to Tokyo, but we’re talking about something.

And this nugget was in the article as well:

“In 1985, the National Land Agency estimated that ‘Tokyo will need 5,000 hectares of office space — or the equivalent of 250 skyscrapers — by the year 2000,’” the book states.

“‘International Financial Center Tokyo’ was a phrase that captured the attention of the media in the 1980s … ’service-oriented economy’ and ‘knowledge-intensive economy’ became part of the popular vernacular at the time,” according to the book, depicting Japan before the asset bubble. Without the references to the years, this could describe Tokyo today.

Ok, time for a “Part 2″ comment

Comment by ken

May 24, 2007 @ 3:29 am

The “Foreigner Zone” is about making money. Big money. This is huge construction money. This is also bound to drive up land values. Real estate funds will like the idea.

I don’t think the Global Competitiveness Ranking told the government or business leaders much they didn’t know

The Prime Minister talked about making improvements in almost all of these points in his initial address to the Diet in late September. Nothing much has come of what he talked about.

If, for example, the PRC presents more tempting growth opportunities

You’re not going to base your Asian headquarters in mainland China…not anytime soon. Your people won’t live there, not to mention the other risks.

It would also help Tokyo keep its leadership position.

What leadership position do you mean? Yes, it has the largest single stock market in Asia, but it also has the world’s #2 economy. Other than that, there is no leadership in terms of providing an environment for business to happen - I mean for newcomers and outsiders to set up shop.

What could help “Project Dejima?”

How about getting NYCE and Cirrus cash cards to work in town? WTF is with Japan still being 20 years behind on this?

How about an airport that executives who fly out 3-4 times a month don’t have to waste at least 10 hours a month getting to?

How about an airport with international-level services?

How about getting the Tokyo Stock Exchange on a computer system that works?

Labor productivity in the financial services industry?

Deregulation of the financial services industry?

A Financial Services Agency with the power to uphold the law?

Consolidation of the myriad of exchanges that exist?

Local workers well-trained in international finance?

And on and on…I think those things would cause people to take notice over having restaurants where they can order in English.

Comment by CNote

May 25, 2007 @ 12:56 pm

A little quickie for now, more later…I think their little Foreign Enclave idea is retarded and just because they brought it up, Japan should be knocked a few more notches lower. I know nothing about Korea but I remembered reading about the squeeze they are in by being located between China w/ low cost production and Japan’s high-tech global consumer companies. To counter this in 2004 S.Korea set up FEZs(Free Economic Zones) Incheon, Busan-Jinhae, and Gwang Yang, with the dream of becoming the business hub of NE Asia. Specifically in Incheon they created Songdo City. Songdo City is S.Korea’s bilingual city of English & Korean, with international schools and hospitals so foreigners can go about business and their daily life in English. In October of last year the Financial Times’ magazine Foreign Direct Investment did a study on the FDI numbers-they are up for Korea. But why hasn’t anyone called Japan to task for ripping off someone else’s idea? Could this line of thinking be why they are losing if not lost their status as a global financial center? Should they even ever have had that status? I think not. It was just effect of the inflated economy of the 80’s that shoe horned them into the status of global anything. I have to go but more to come.

Comment by DeOrio

May 25, 2007 @ 4:12 pm

I’m a little confused, CNote.

1. Are you implying that Korea was the first country to come up with the idea of economic zones or encouraging the use of a foreign lingua franca within such a zone?

2. Are saying that countries should not use or be influenced by the ideas of other countries?

3. Japan is still the world’s second-largest economy by a rather wide margin and, while it may no longer be the only choice for a Western firm setting up shop in East Asia, it still has a lot of advantages over most other locations.

If you think the Bubble is the even a primary reason that Japan reached a high global position, you are simply sadly mistaken.

If Japan should not be and should never have been a global financial center, what area would have taking that role? South Korea? Not yet. Hong Kong? Hurting, possibly becoming less attractive.

If Korea’s FDI is up, even partially as a result of FEZs, it would seem that that was a point in favor of Japan’s International Business Zone.

I don’t think it’s the greatest idea in the world, and I don’t think it will achieve quite what it’s being touted as achieving, but that’s to be expected - it’s in a promotional phrase now.

I don’t understand why the plan would engender such vitriol.

Comment by ken

May 25, 2007 @ 4:13 pm

CNOTE, good points. I agree that we can get into this more later, and it’s a fascinating issue. You said:

Could this line of thinking be why they are losing if not lost their status as a global financial center?

Which is pretty much my thinking as well. If anyone in a national-level decision making process actually believes that this “Foreigner Zone” is a panacea for Tokyo’s loss of status or prestige (which the very existence of you rightfully call into question), they are fools.

When politicians say they’re going to consult with foreign executives on what they ‘want from a city’ - they want opportunities to make money. And this could be a big one for investors, with the rise in land values that it is bound to bring, however temporary they may be.

DeOrio:

I don’t think CNOTE is saying #1 or #2 at all, but I’ll let him reply.

Also, despite Japan’s obvious success (in fact, dominance) in several manufacturing industries - notably autos, electronics, steel and shipbuilding - it is not, and never really has been, a global finance center, which is what this is about.

These steps will not remedy that situation.

Comment by CNote

May 25, 2007 @ 8:35 pm

This is in response to question#1. No, I’m not implying that Korea was the first country to come up with the idea of economic zones. I was just highlighting the way Japan seems to go about doing things; which to me appears like they are never trying to do better for the sake of doing better but its more of a reactionary sort-a silly attention getting me too game of youth.

When this story broke in April, Abe talked about London’s Big Bang. Then a week later using his invisible hand forced a merger of Tokyo’s commodity markets( another of my beefs). This was followed up with the corralling of the foreigners into one quartre of central Tokyo so they can go about whatever it is they do and not be concerned about Japanese business customs and language. I call this the Korean twist.

Over the centuries Japan has become very good at creating these little empcampments(in Tokyo bay during Edo, Kobe and Nagasaki-pre Edo, Yokohama during Meiji). It makes it a lot easier to masssacre (figuratively & literally) the lot when the feeling arises. It puts “them and us” right out there for all to see. This reeks of ranking #54-a national culture that is closed to foreign ideas. Like I said before I am not at all familiar with Korea and Korean society but as a member of Japanese society believe in assimulation and also believe the nail that sticks out gets hammered down.

Japan talks incessantly of hollow harmony and “Beautiful Country” in populist rhetoric. This retrogressive helter-skelter scheme of theirs should have been laughed right off the table. If harmony means by definition: the pleasant effect made by parts being combined into a whole, then I don’t see it under this plan.

In my opinion, it’s Japanese firms that need international firms. The whole premise for countries seeking out foreign direct investment is the idea of skill transfer.

What gave Japan its international financial center status in the ‘80 were the inflated share prices of Japanese banks and their assets. Coupled with foreign currency controls and a managed exchange rate, like China today, eventually allowed Japan to go on a global shopping spree like nouveau riche. This won them the title of international financial center because deals were happening here. (Note I did not say earn them the title) Japan lacks the knowledge, experience, and wisdom of advanced finance economic applications. An example of this is the over reliance of companies to use loan financing over debt issuance causing an anemic and underdeveloped bond market. You can compare the availability of advanced financial education programs with those on offer in Singapore, London, and NYC. There’s literally a dearth.

So in my mind our dear leaders in Kasumigaseki should be pushing a financial-themed special economic zone. An area of town where financial minds can get together in a deregulated, tax free zone. The zone will represent a place where government sponsored co-operatives are created for advanced financial economic research and the promotion of financial economic education. In addition, the government can run experimental programs in the area of dereg. to be spread throughout the country.

This to me would represent a progressive idea with a Japanese twist.

Comment by ken

May 25, 2007 @ 8:53 pm

CNOTE,

Japan lacks the knowledge, experience, and wisdom of advanced finance economic applications.

I’m in full agreement of that and the rest of that paragraph. To that end, I’m not sure why you’re opposed to the consolidation of the commodities markets, since that’s very much being pushed for by the international finance community and most of the opposition comes from old guard forces within Japan.

I don’t think Japan needs any special zones for financial or economic activities. Reforms should apply to the entire nation, and allow any geographic area to develop. Deregulation needs to happen nationwide. Perhaps I’m misunderstanding what you’re proposing, but it seems as though the worst thing Japan can do is set up a two-system structure, which seems to be why both dislike Project Dejima.

I do agree very much with the sentiment that Japanese firms need the influence of well-experienced foreign financial institutions. The competition will only do them good. Separating them into their own little corner of town isn’t really going to help anyone.

At the same time, don’t forget who’s really looking to profit off the rise in property prices that is bound to follow the building of Project Dejima.

Comment by CNote

May 25, 2007 @ 9:36 pm

- opposed to the consolidation of the commodities markets

I don’t like the government stepping. Japan has a habit of circling the wagons and one can never really be sure of why they suddenly stepped in? Why didn’t they let the market handle the consolidation? Was there a foreign threat? I saw this intervention as a way of keeping the commodities market Japanese verses effecient. As individuals they could have been taken one at a time and no one would have noticed. Now that they are one any approach from the outside will generate nationalistic cries that will make any deal almost impossible.

Comment by CNote

May 25, 2007 @ 9:47 pm

-the worst thing Japan can do is set up a two-system structure

I agree. But being a overly risk-averse country I don’t see a big bang ever happening here-too well orchestrated for that. Thats why I propose Special Economic Zones for one reason only-prototyping. They are not supposed to be indefinite. Set them up, get out of the way, observe and gather data, and impliment nationwide. All happening within a 10year time span.

Comment by CNote

May 26, 2007 @ 7:16 am

After a nights rest I realize the flaw of the previous post. In a new economy physical space is a lot less relevant. A special quartre could very well be virtual and immediately be administered nationwide using one sector of the industry as a prototype.

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