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?

Hardly.

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]

Nissan's Carlos Ghosn: Steering Through Crisis, Driving Into The Future

Nissan CEO Carlos Ghosn. Via.

Carlos Ghosn has a laundry list of crises that he has faced as the President and CEO of Nissan. Recent events including the post-Lehman collapse, the March 11 earthquake and tsunami in Japan, the Thai floods and European economic turmoil have all presented huge challenges for the automaker. However, according to Ghosn, the yen’s rise is exacerbating the impact of all the other crises and is forcing even profitable companies to stop investing in Japan. Endaka--or strong yen--is affecting the long-term future of Japan and it needs fixing immediately.

“The yen is appreciating at the worst moment for the Japanese economy,” Ghosn told a packed auditorium at the Japan Society recently [full video here]. “The problem is we are making money, everywhere except Japan,” he said.

Ghosn said that the appreciation of the yen means that Japan cannot compete on cost, despite the “indisputable” quality of goods, skilled workforce and wealth of talent. “We are surrounded by countries who are making sure the exchange rate is competitive, how can we face a tsunami, a flood, a financial system collapse and on top of this have to have a re-evaluation of the currency of 35 or 50 per cent? We can’t.”

Ghosn has taken his concerns about the yen right to the top. When the Japanese Prime Minister Yoshihiko Noda visited the Nissan plant in Yokohama recently, Ghosn said he decided not to overwhelm him with a long list of problems.

“When the Prime Minister said, “What can I do for you?” I said, “One thing, fix the exchange rate.”

But Ghosn clearly subscribes to the school of what doesn’t kill you makes you stronger. Carlos Ghosn was brought in to Nissan in 1999 to save the company. And he did. He quickly implemented the Nissan Revival Plan and the carmaker returned to growth and profitability--it now ranks third behind Toyota and Honda in the U.S. car market. In 2005, he was also named CEO of Renault and the combined companies have 350,000 employees and global sales of 7.2 million units in 2010. Nissan’s latest innovation is the Leaf electric car, the market leader in 100 per cent gas free cars with about 15,000 units sold worldwide.

His prescription for crisis management starts with a clear assessment of the scale of the problem. The next step is to make a plan that selects a few priorities to get through the crisis but also maintains some longer-term projects. In Nissan’s case, after the collapse of Lehman Brothers in 2008, everything except electric car production and expansion in China was put on hold while the company concentrated on maintaining cash flow.

Ghosn also emphasized the importance of empowering the workforce to deal with adversity. “There is no way, you’re going to get through a crisis alone,” he said. “The one key which explains why we recovered faster than our competitors after the tsunami and the Thai flood is because we empower people.” Naturally for empowerment to work, top management also needs to be committed to and engaged in the plan.

Ghosn does however believe that Nissan has an “anti-crisis” weapon in the form of the electric car. Some predict that electric cars will be 10 per cent of the market by 2020. “Everybody knows I am the most optimistic,” he joked. “Which is obvious because we’re the only one with the car.”

Diversity In East Asia: The Value Of Women And Foreign Workers

Chickens reframing diversity. Via.

At the just-concluded G20 Summit  in Seoul South Korea, 20 of the most powerful economic countries and unions discussed geo-economically issues. The news focused on the hot button "Currency Wars"   pushing aside other important issues deserving discussion. One of those issues important to many of the world leaders was urging global co-operation. President Obama stated, "no one country can achieve our joint objective of a strong, sustainable, and balance recovery on its own".  World leaders don't want to solely address import, exports and currency; they also want to reframe diversity in the global market.

Major European and American companies have realized that diversity in their markets and employments increase healthy competition. Within the Asian region "BBC Newshour reported that South Korea is a global success because although they honor their roots, they realized the need to diversify their workforce.

Today Japan Society and Asia Society co-host Reframing Diversity Management for a New Global Economy (taking place at Asia Society). The program is twofold, addressing gender equality as outlined by Commission on the Status of Women (sub-commission under the Commission on Human Rights, UN), and the use of using different cultures, languages and values to reforge a the global workforce.

The CSW succinctly states it goal:

to raise the status of women, irrespective of nationality, race, language or religion, to equality with men in all fields of human enterprise, and to eliminate all discrimination against women in the provisions of statutory law, in legal maxims or rules, or in interpretation of customary law

This underscores that women are one of the key agents of change in aspects of life, social, political and economical.  Reportedly there are 6 million more women than men in the world. In that standing we are a pretty affect of change, so global heavy hitters should find it invaluable to have women on the field with them.

The other fold of diversity addressed in the discussion is using the huge cache of knowledge and experience from foreign workers. In 2003 Japan Times stated “It is important for Japan to introduce talented foreign workers in the fields of management, research and technology”, and referenced the METI paper [PDF] that reinforced the notion that Japan needs to think like South Korea and make it easier for foreign workers to live and work in the country. The exchange of ideas would feed innovation and support a better collective standard of living.

Taking on these topics and offering insights, participants in the symposium include: Philip Berry, President of Philip Berry Associates, LLC and Co-Chair of the Corporate Diversity Council for the Asia Society ; Kathryn Komsa, Vice-President, Chief Diversity Officer of Marsh and,McLennan Companies, Inc ; John F. McNulty, Executive Director for People Focus Consulting and Ceo of PFC Asia Pacific; and Moderator  Natsuyo Nobumoto Lipschutz, Managing Principal of ASPIRE Intelligence LLC.



S.H.

Robert Ingersoll, 1914-2010

Ingersoll (far left) during a meeting of Ford's National Security Council, 1974

It was with heavy hearts this week that we learned of the passing of The Honorable Robert Ingersoll.

In 1972 Mr. Ingersoll became the first businessman to be appointed Ambassador to Japan since World War II. As noted in The New York Times obituary:

The appointment came at a time of strained relations between Washington and Tokyo, primarily over economic issues. Mr. Ingersoll’s company had long had joint ventures and licensing arrangements with major Japanese companies.

With Japan’s economy booming, the primary source of tension was its $3.5 billion trade surplus with the United States. In 1972, after negotiations with Mr. Ingersoll, Japan agreed to import $750 million in American manufactured goods and another $390 million in agricultural products.

Mr. Ingersoll served as chairman of Japan Society from 1978 to 1985. He took the helm following John D. Rockefeller's sudden, tragic death and continued the Society's impressive expansion of the 70s into the 80s.

Under Mr. Ingersoll's watch, the Society implemented the massive multi-arts, coast-to-coast Japan Today series in 1979, established the Japan Society Film Program (under the direction of Peter Grilli), dramatically increased activity and visibility in policy and business programming as Japan became America's most important world partner, and celebrated its 75th anniversary in 1981.

In addition to his invaluable contributions to U.S.-Japan relations as a business leader and diplomat, Mr. Ingersoll is remembered for his lasting participation in Japan Society activities, including support of our 2007-08 centennial. Our thoughts are with his family and friends.

Japan's Key To The Future Of Industry

Aaaahhhhhhhhhhhhhhh!

The Ministry of Economy, Trade and Industry (METI) has some concerns. How does Japanese industry get out of the "severely deadlocked" position that has it lagging behind power players and moody market swings? Is it even possible for the country to be globally competitive anymore? Does Japan have a chance to rebound after years of stagnation and the continued aftershocks of the world economic crisis?

In May METI unveiled the "Industrial Structure Vision 2010" as a fresh address to the concerns. The aim is to rev Japan's revenues, drive employment and run circles around the globe with industry. The roadmap first calls for four shifts in the public and private sectors to spur growth: build a new industrial structure, replace stagnant business models, forgo that globalization and domestic employment are mutually exclusive, and realign the role of government.

Sounds simple enough. Sustainable industrial structures practically grow on trees! All sass aside, when digging for more detail, one of the most condensed PDF powerpoints ever contained a diamond of an idea in the packed data and dizzying mix of problems, solutions, and fonts. The four herculean shifts mentioned above would incorporate 5 life-enriching, globally expandable sectors:

● infrastructure-related/system export (nuclear energy, water, rail, etc.)
● environment and energy problem-solving industry (smart grid, next-generation vehicles, etc.)
● medical and nursing, health and childcare services
● cultural industries including fashion, content, food, tourism
● frontier fields like robotics, space, etc.

How it all fits together takes an expert explanation. Luckily, METI director Tadao Yanase is at Japan Society July 20 to speak at the roundtable discussion Industrial Structure Vision: The Way Forward for Japanese Industry, presided by the Carlyle Group's Jonathan Colby.

S.J.

'Turnaround King' Wilbur Ross Discusses The Importance Of Business In Japan

Wilbur Ross talks freshness of Japan with The Nikkei.

"Generally speaking, westerners do not recognize the opportunities in investing in Japan, and they overestimate the risks. I hope to correct these misunderstandings through the activities of Japan Society." --Wilbur Ross

As we announced last month, Japan Society's new Chairman Wilbur L. Ross, Jr., CEO of WL Ross & Co. LLC, took the helm on June 9. He recently spoke with The Nikkei, Japan's most prominent business newspaper, about the importance of business in Japan, and common misconceptions investors have about East Asia. The article appears below in translation.


Education, Science, and Finance: The Strengths of Japan
“Japan’s Aging Society Hinders Growth” – Wilbur Ross, The King of Bankruptcy

American investor Wilbur L. Ross (72 years old), who has revived many distressed companies, was dubbed the “King of Turnaround” by Fortune magazine. Based on his 20-year investment history there, he sees a positive future in Japan. What does this influential investor see in Japan?

Nikkei: Rapid growth in Asia’s emerging markets has led to a pervasive loss of self-confidence in Japan.

Wilbur Ross: Because of its large population, it’s only natural that the scale of China’s economy is large.
Being number 2 or 3 is a matter of pride. The United States will eventually lose its number 1 status. Rather, if I were Japanese, I would ask myself, “Am I making full use of my abilities and resources?”

Japan has been doing a great job to maintain a trade surplus with China. There are only a few countries in the world able to do this. Japanese companies have built first-rate production bases in China, and in India, Suzuki holds the largest share of the automobile market. Japan has been contributing to the development of the emerging countries more than America. Although Japan’s economic growth rate is low, the future for Japanese companies is bright.

News Blast

Photo courtesy of Kyodo News PR Wire

Hatoyama Cabinet to continue 'cool biz' campaign this summer

The government on Tuesday confirmed plans to continue this summer the "cool biz" light clothing campaign initiated in 2005 to help reduce air conditioning by setting office temperatures several degrees higher than usual. At a meeting of Cabinet members, Chief Cabinet Secretary Hirofumi Hirano instructed ministers to don traditional Okinawan "kariyushi" open-neck shirts at a Cabinet meeting June 1 to mark the start of the seasonal drive, during which men are encouraged not to wear ties or jackets.

Salmon takes over as top table treat in Japan

Salmon has overtaken horse mackerel as the most popular fish for Japanese people to eat, due largely to improvements in freezing technology that have raised the quality of imports as well as housewives' preference for a fish that is easy to prepare. The government released a study on fish consumption on May 21 in which salmon emerged as the most popular to eat at home, followed by squid and tuna, all of which are straightforward to turn into a meal. In 1965, salmon was not in the top five as it was much harder to find good quality fish because it deteriorated in quality as it was being shipped to Japan.

Cheap rent-a-car services revving up in Japan

Cheap rent-a-car services are starting to gain a foothold in Japan, with some outlets providing vehicles for about half the price charged by major car rental companies. Niconico Rentacar, one of Japan's biggest cheap rent-a-car businesses, operates a membership system with no initial fee or annual charges. Customers can rent a compact car for 12 hours for 2,525 yen or a regular sedan for 4,725 yen -- roughly half the price charged by other major companies. In the two years since its founding in 2008, the business has accelerated rapidly, and now operates 300 outlets.

Osaka seeks special business zone

Osaka Gov. Toru Hashimoto called on the central government Sunday to designate his prefecture as a special business zone that would serve as an entry point for businesses across Asia. The government has been considering legislating a system for special business zones, and during a meeting Sunday with Hashimoto, Senior Vice Cabinet Office Minister Motohisa Furukawa unveiled the administration's intention to submit the bill to the Diet early next year.

Is Japan becoming more insular?

With so much talk of globalization, it might seem counterintuitive to suggest that Japan is turning inward, but that's what some have concluded. The Washington Post recently focused on one example: the dwindling number of Japanese students studying abroad. Roughly 80,000 Japanese students now study outside the country, far fewer than, say, South Korea with less than half Japan's population. The fall has been particularly sharp in the United States, where Japanese undergraduate enrollment in universities is down by over a half since 2000.

Perfect Timing

One of Asia’s largest food and drinks fair, Foodex is the go-to event for Japanese and foreign companies to network and show off their products. Foodex Japan is held annually, welcoming 2,400+ exhibitors from 60+ countries and regions. It generally draws over 85,000 visitors over the 4-day show period. With over 30 years serving as Japan's top trade food and beverage show, the event is a platform for exhibitors and visiting buyers to meet and interact, offering key opportunities for dynamic discussions and business possibilities to enter Asian and global markets.

While j-CATION might not be able to host over 85,000 people (the Japan Society building isn't quite THAT large), you'll definitely be able to sample a feast's worth of foods and beverages. And of course, dance!

Since j-CATION is about a month away, a lot of my coworkers are buzzing about it and working hard to make it the best it can be. Even I've been called upon to lend a hand in thinking up mouthwatering tag lines for some of the workshops and events j-CATION is going to feature.

It looks like it's going to be pretty exciting!

Japan-U.S. Security Treaty turns 50 years old!

Japan Society couldn't let such an important date pass by with dedicating an event to it. On January 19th, we hosted an entire panel of experts (including Hugh Patrick, the Director of the Center on Japanese Economy and Business and Ryo Sahashi from the University of Tokyo). The group represented the next generation of Japan-U.S. relationship thinkers, along with U.S. Japan watchers, who shared some really interesting perspectives on the state of the Japan-U.S. Security Treaty.

You can watch the entire event via our webcast.

Tobias Harris of MIT was also supposed to be one of our panelists too but he unfortunately fell ill at the last minute. However, he did write an insightful article on the Japan-U.S. Security Treaty for East Asia Forum, which is definitely worth a read. Here's a short excerpt:

"To a certain extent, the position is the same as it has been for decades and can be summarized in a single word: more. As a superpower that is facing burdens and challenges that will increasingly overwhelm its capabilities, the U.S. needs allies like Japan to share the load now more than yesterday, and tomorrow more than today. More can be greater military spending or new military capabilities, constitution revision or reinterpretation, higher levels of foreign aid, or greater involvement in peacekeeping...Without substantial economic reform Japan may not be able to commit the material resources the U.S. would prefer — and without serious economic reform the Japanese people will continue to have little or no interest in constitution revision."

Japan doomsday fears premature

“Many people in the financial world - not all of them kooks - have managed to convince themselves that Japan is hurtling towards some kind of fiscal doomsday, and that no matter what the Yukio Hatoyama government does or doesn’t do, it’s already too late - Japan, they say, will be defaulting on its pension obligations. Or defaulting on its debt. Or will find itself unable to halt a string of bank failures that will bring the financial system to its knees. Or some combination thereof.” (Asia Times Online)

Lucky for us, Sir Deryck Maughan, the head of KKR’s Global Financial Institutions Group and Chairman of KKR Japan and John Paulson, President and Portfolio Manager, Paulson & Co. Inc. are coming to Japan Society next month to discuss the future of economics in Japan and the United States. So we’ll know for sure whether fire is really going to rain from the sky or not.
P.S.
If you’re looking to come to any of our upcoming Corporate Events, be sure to check out this fun video for tips on how to properly exchange business cards or meishi (名刺) with a Japanese business person!