Tuesday, October 1, 2013

From LIXIL To LINE: Japanese Companies Look Outward Despite Uncertainty

LINE's Brown and Cony take on the world. Via. 

Japan's economic uncertainty seems to be provoking a domestic response not unlike that seen in the U.S of late. Just as the war-weary, financially ailing American public recently made clear its unwillingness to take on another international conflict, many Japanese are responding to the current climate by turning inward.

Earlier this year, several thousand rallied in Tokyo to protest Japan’s entry into negotiations surrounding the planned Trans-Pacific Partnership, which would bring the country into "one of the largest free trade areas in the world." In addition, Japanese companies have come under fire for insular vision, with the trade ministry’s Global Human Resource Development Committee dubbing management’s reluctance to hire foreign talent, among other shortcomings, paramount to "waiting to die."

Is Japan sounding the retreat, closing in on itself to return to the isolationist policy of centuries past?


The success of several Japanese companies in bringing their business, and, more importantly, their vision abroad, speaks to a continued understanding of the importance of international involvement. Most recently, LIXIL, Japan’s biggest housing material maker, with products including plumbing fixtures and toilets, secured its place in the German housing equipment market with a $4.13 billion buyout of Grohe, Europe’s premier shower and faucet maker. The move signals LIXIL’s final overseas acquisition for the time being, said LIXIL CEO Yoshiaki Fujimori at a news conference in September, and comes on the heels of two other significant acquisitions: ASD Americas Holding Corp., parent company of American toilet maker American Standard, and Italian architectural contractor Permasteelisa SpA, for a total price of over $1 billion. Fujiomori clearly intends to establish LIXIL as a household name outside of his home country, with a goal of $10.2 billion in overseas sales.

Fujimori's talk at Japan Society on October 2nd comes at a critical time in Japanese history. Already suffering from a sluggish economy that has persisted for the past two decades, Japan continues to work toward recovery from the 2011 earthquake and tsunami. Now, the country waits to see whether Prime Minister Shinzo Abe’s aggressive plan to combat deflation will reestablish Japan’s place on the global stage—how long since the days of Made in Japan!—or whether it will prove to be nothing more than "voodoo" economics.

Any discussion of current expansion into the foreign market by Japanese business leaders must include Akira Morikawa, chief executive of popular messaging service LINE. Allowing users to send messages to each other on their smartphones with the addition of stickers like Brown the bear and Cony the rabbit, LINE is currently installed on 71% of iPhones in Japan. The bulk of the company’s revenue comes from its games, which are free to download but provide the option of in-game purchases. However, a 92 % rise in sales in the first quarter of 2013 and booming business in Japan are not enough for Morikawa, who seeks nothing less than to establish NHN Japan Corp., the company behind LINE, as the top Asian SNS (social networking service) provider.

If LINE’s success in expanding into areas ranging from the Middle East to Spain are any indication, the company could possibly pose a challenge to Facebook, which has long since lost its appeal as youth-only hangout. Then again, LINE’s 240 million users in 230 countries as of September is less than a quarter of Facebook’s whopping 1.15 billion, and the service may find its toughest rival not in the American behemoth, but in the South Korean SNS KakaoTalk. Providing users with a similar array of cute stickers, KakaoTalk even features its own bunny emoticon, the plump Molang.

Another company that is seeking to make further inroads into the global market is Japanese retailer UNIQLO (full disclosure: I am currently employed by the company). Founded by Tadashi Yanai, who has emerged as Japan’s richest man after transforming his father’s tailor shops into Asia’s biggest clothing retailer, UNIQLO has certainly found success abroad. The company currently boasts stores in fourteen countries, including over two hundred in China alone and a prominent location on New York’s Fifth Avenue. Perhaps even more surprising than Yanai’s personal success story is the fact that a Japanese retailer has emerged as such a challenger to ailing giant Gap, which has traditionally been known for basic, functional clothing. Yet, maybe it is precisely UNIQLO’s focus on high-quality constants, such as sweaters and shirts in basic colors and designs, along with its affordability that have so appealed to global consumers. The company seems to have learned this lesson for good after attempts at branching out into more fashion-oriented items in 2010 resulted in plunging sales. Since then UNIQLO has bounced back with plans to open ten new American stores this fall.

Back in 2008, the Japan Times wrote of Japan’s "recent trends toward isolationism—even xenophobia," citing an environment hostile to foreign investment. The nation’s minister of economic and fiscal policy, Hiroko Ota, worried that Japan was no longer a "first class" economy; sure enough, China surpassed it as the world’s second largest only two years later. This was followed, of course, by the devastation of the 2011 Tohoku earthquake and tsunami, with costs of up to $235 billion.

Five years later amid echoes of those "recent trends", companies like LIXIL, LINE, and UNIQLO stand as evidence of the persistence of a globally minded cohort, one that sees participation in the international market as a path to growth rather than an obstacle to it. What people must ask now is whether the next few months, during which Prime Minister Abe continues to press his economic reforms, will prove these companies to be the exceptions to, or the leaders of, Japan’s fortunes.

--Andres Oliver

[UPDATED 10/3/13]

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