JIN-211 -- Sony Tries to Revive Troubled Aiwa Brand

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J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the Week's Business and Technology News
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Issue No. 211
Wednesday, January 15, 2003
Tokyo

CONTENTS

++ Viewpoint: Sony Tries to Revive Troubled Aiwa Brand

++ Noteworthy News
- METI to Extend Tax, Other Breaks to Investment Funds
- Foreign Buyers Show Interest in Aozora Bank Shares
- Local Governments Protest Golf Tax Exemption Plans

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++ Viewpoint: Sony Tries to Revive Troubled Aiwa Brand

Yesterday's enemy is today's friend, so a proverb says. But, you are
never sure who that friend may be until he comes to you. Sony's Masaru
Hirauchi had never dreamt of becoming the head of his long-time
competitor -- Aiwa. Having been a key person in Sony's overseas
marketing, Hirauchi had always thought of Aiwa as a threat. Aiwa used
to be a rising star, with its reputation of producing relatively
high-value products with lower prices than its competitors. But those
days of glory are over. The Aiwa brand -- or what's left of it -- was
absorbed by Sony last year. Aiwa lost money in fiscal 2000 as it lost
competitiveness in the face of aggressive cost-cutting by Asian
rivals.

Aiwa had gone through a major restructuring; it cut its head count
from 1,200 to 500 last year. After Sony absorbed the company, it
created the new Aiwa Business Center, with 180 employees, in December
and appointed Hirauchi as president.

Hirauchi says the renewed Aiwa brand will focus mostly on audio-visual
products, which have always been its strength. But, how is he going to
differentiate the Aiwa brand from Sony's own? While the AV market as a
whole has been saturated in Japan, the US and Europe, how is Sony
going to expand demand for Aiwa products as well as its own?

Sony explains that the Aiwa brand is focused on PC audio peripherals
and/or AV products in the "private space where you can enjoy your
individual lifestyle." Hirauchi said in a Tokyo press conference
earlier this month: "Users don't necessarily want multifunctional,
high-quality products. They sometimes want something simpler,
something that they could use without reading manuals." Hirauchi
sees Aiwa's image as something like "a naughty boy," or in gadget
terms, a lipstick-sized digital camera. The new Aiwa will rebuild its
supply-demand chain networks in the US so as to focus more on bulk
sellers, he said. A new set of Aiwa-brand products will be released
in February in Japan.

Despite Hirauchi's enthusiasm, industry watchers say they don't know
how Sony could revive the Aiwa brand or how it would benefit Sony as a
whole even if Sony manages to revive it. Since Sony has long been an
Aiwa shareholder, its acquisition of Aiwa was a natural step, but
Sony's intentions for Aiwa are unclear to most industry watchers.

Kun-Soo Lee, senior analyst at WestLB Securities, says he remains
skeptical of Sony's plans. "Aiwa hasn't had a reputation as being
strong in PC peripherals to begin with. Considering the fact that Sony
needs to build the new Aiwa brand image from zero, it doesn't have to
be the Aiwa brand," he said. Lee also said that the Aiwa brand suffers
from the image of being somewhat cheap. While the Aiwa brand remains
strong in Asia and the Middle East, he said, "Historically, Asian
consumers tend to prefer big-name brands, and this trend hasn't really
changed. Consumers (in Asia and the Middle East) would prefer Sony (to
Aiwa) if or when they can afford it," he said.

Hirauchi is faced with the difficult task of differentiating Aiwa
from Sony not just on price. However, Lee sees Sony's commitment to
reviving the Aiwa brand as part of its branding strategy. Every brand
has its life cycle, Lee said, and the Sony brand is feeling its age.
The company may see potential in the Aiwa brand for
attracting younger users, he said.

Shizuo Takashino, executive deputy president of Sony, said, "The role
of the center is to add new values to the Sony group as a whole by
utilizing the Aiwa brand fully. But the restructuring of Aiwa will
cost Sony 30 billion yen this year. Hirauchi also admits that Aiwa's
sales will decline as it has to reduce its inventory.

-- Sumie Kawakami

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++ NOTEWORTHY NEWS
(Long URLs may break across two lines, so copy to your browser.)

** METI to Extend Tax, Other Breaks to Investment Funds

In Brief: The Ministry of Economy, Trade and Industry (METI) is set to
extend preferential tax and regulatory treatment to investment funds
pouring money into corporate reconstruction, the Nihon Keizai Shimbun
reported.

Plans call for exempting such funds from tax payments. Funds buying
financial claims against struggling companies or extending bridge
loans to them will also be eligible for tax-exempt status, according
to the report.

Commentary: So-called buyout funds already exist in Japan, but these
investment funds are mostly located in tax havens outside of Japan. As
Japan's recession continues, more and more funds designed to revive
ailing businesses are being established. The plans, if implemented,
are likely to spur the emergence of similar funds.

Source:
The Nikkei Net (subscription required), January 12, 2003
http://www.nni.nikkei.co.jp/AC/TNKS/Search/Nni20030111D11JF408.htm

Link:
"Doctor in the House," a roundup of buyout funds, from our June issue
http://www.japaninc.net/article.php?articleID=821

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** Foreign Buyers Show Interest in Aozora Bank Shares

In Brief: Three foreign buyers, including the Cerberus Group, an
American investment fund, and GE Capital, want to buy a stake of
Aozora Bank from Softbank, the New York Times reported.

Faced with financial difficulty, Softbank wants to raise cash by
selling its 49 percent stake in Aozora before the fiscal year ends on
March 31.

Commentary: Masayoshi Son has publicly announced his intention to sell
Softbank's stake in Aozora since last year. But policy makers have
expressed their concerns about "foreign" investors buying the bank's
shares and are obviously more happy to see a Japanese bidder like
Sumitomo Mitsui Financial Group get the deal. According to the New
York Times, the finance minister, Masajuro Shiokawa, welcomed Sumitomo
Mitsui's interest in December, saying that "a Japanese bank has shown
its energy."

Source: The New York Times, January 10, 2003
http://www.nytimes.com/2003/01/11/business/worldbusiness/11BANK.html

Link:
"Softbank CEO Son Says Government Pressuring Him to Keep Aozora Bank
Shares in the Family," from our September issue
http://www.japaninc.net/article.php?articleID=888

** Local Governments Protest Golf Tax Exemption Plans

In Brief: Golf is an expensive sport, particularly in Japan. While
government officials last year drew up a new taxation policy to waive
some groups of players from the standard 800 yen golf tax, local
governments are protesting the move, the Asahi Newspaper reported.

According to the report, nationwide revenues from the tax exceed 80
billion yen -- 70 percent of which is redistributed to cities, towns
and villages that have golf courses.

According to the original plan drawn by the national government, the
standard fee will be waived for disabled people, those under 18,
students and teachers over 18 who use the facilities for educational
purposes, persons over 70 and participants in a National athletic
meet.

Source: IHT/Asahi, January 14,2003
http://www.asahi.com/english/national/K2003011400288.html

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