* * * * * * * * * T E R R I E 'S T A K E * * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
General Edition Sunday, December 17, 2006 Issue No. 404
- What's new
- Candidate roundup/Vacancies
- Upcoming events
- News credits
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======================= JIC Advisors ======================
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If your company requires innovative advisory assistance
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+++ WHAT'S NEW
2006 has been an eventful and productive year for business
in Japan. This was the year that we marked the longest
period of business expansion since War II, longer even, than
the Izanagi boom in the mid-1960's. Being immersed in the
noise and bustle which is Tokyo, it is easy to forget that
these are the good times that we'll
be reflecting upon over the next few years. Hereunder we
list a number of seminal events that we think will let
readers take the pulse of the economy and opportunities
that have punctuated the year.
-> Japanese and US military announce that they will connect
Japan's missile radar and command systems. The deadline for
the new system will be March 2007, and over the last 12
months, both countries have been rapidly rolling out PAC-3
missiles around Japan at a cost of JPY150bn (US$1.28bn).
The impetus for setting up the new system was the increasing
concern over North Korea and its supposed nuclear capabilities
-- fears which turned out to be well-founded with North Korea's
October underground test.
A Rodong missile can hit Japan just 10 minutes after launch.
The economic importance of the newly pledged alliance is that
Japan is expected to significantly increase its military
spending and it will start using foreign systems and
technology instead of trying to invent it all at home.
-> High-flying Livedoor president Takafumi Horie is
arrested under suspicion of breaking Japanese tax laws and
the commercial code. Along with 4 of his executive team,
he was accused of window dressing several firms in the
group, to make it appear as if Livedoor had a group pretax
profit of JPY5bn for the tax year through September 2004
when in fact the group lost JPY300m. Horie was eventually
released on bail after an extraordinary 97 days in detention
and his case only went to court in September this year. The
prosecution started out strongly, but it has turned out that
one of the key witnesses, Miyuachi, is less than saintly and
some of his testimony has been called into doubt. Horie's
trial will continue on at least into the first quarter of
2007. The business implications of this trial are that
Japan is finally getting serious about corporate ethics
and insider trading.
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-> Softbank makes the shock announcement that it will buy
out the complete wireless operations of Vodafone Japan, for
a record JPY1.7trn (US$15bn). Just months earlier, Softbank
had successfully tendered for a 3G wireless licence,
indicating that the opportunity to buy Vodafone Japan
happened very quickly. While everyone wondered if Son
could really afford the purchase price, based on both
bank and vendor finance he has so far managed both the
initial short-term payments and the first major refinancing.
17 domestic and foreign banks were involved in the overall
financing consortium, meaning that Japan is now officially
open for mega-mergers. As of writing, Son still hasn't figured
out how to stem the hemorraging of profits from the new brand,
but then neither did Vodafone. He probably has several years
before the losses signficantly impact his other businesses.
-> It's the peak of the Japanese earnings reporting season
and the first half of 2006 has been kind to exporters, who got
so badly hammered by Chinese competition in the 1990's.
Many major companies on the Tokyo Stock Exchange reported
record earnings, and none higher than that of Toyota, which
had a 17.2% year on year increase in profit to JPY1.37trn
(US$12bn) on sales of JPY20trn (US$171bn). Toyota is the
first Japanese company to have sales of JPY20trn. Not that
the others missed out. No less than 43 Japanese companies
had profits of more than JPY100bn (US$855m) for FY2005.
The Japanese tax man is very, very happy.
-> In a conference in Tokyo, the audience is
stunned when a Dell laptop explodes into flames. Hotel
employees flock with fire extinguishers and put the fire
out after about 5 minutes. While the conflagration is not
major, the incident was caught on cell phone video and
within days the world was talking about whether Sony
Lithium batteries are safe. The incident marked the
beginning of a hugely damaging incident for Sony.
The final accounting has not been done yet, but the company
will probably lose more than JPY51bn (US$432m) on the 9.6m
units being recalled, not to mention the losses caused by
damage to the brand.
-> A review of M&A activity over the previous 6 months
reinforces views that companies are reinvesting their
significant profits not on employee salaries but on
acquiring more assets instead. M&A broker Recof Corporation
puts out a report stating that there were a record 1,409
deals in the first 6 months of the year, up 10% on the
same period in 2005. Half of the top ten transactions
involved overseas businesses, with such buyouts including
Softbank-Vodafone, Toshiba-Westinghouse (Toshiba paid
JPY620bn for the US nuclear power plant maker), and Daikin-OYL
(a JPY232bn takeover of the Malaysian manufacturer). A growing
number of Japanese companies are looking overseas for business
expansion. Accenture says that the trend will continue and
announces plans to increase its M&A advisory team 500% to
-> Architect of Japan's strongest restructuring in some
decades, prime minister Junichi Koizumi, stepped down and
was replaced by conservative politician Shinzo Abe. Koizumi
was an outsider and loner before taking power in April of
2001. He ran against Ryutaro Hashimoto, who was seeking his
second term in office and who represented the "business as
usual" approach to government, despite the impending financial
disaster facing Japan. The factions representing younger
politicians knew that they had to act, and Koizumi became
the nation's poster child for reform. He went on to introduce
many legislative changes which earned him political enemies.
The privatization of Japan Post represented the peak of the
tussle, and Koizumi called a snap election on the issue.
He surprised everyone, including himself, by winning by a
landslide on September 11, 2005. The big question now is
whether Abe will continue the reforms or succumb to the
pleasures of fraternizing with the old boys in the party.
Unfortunately to date, it looks like he is leaning towards
the latter option. Already he has lost a battle with the
"Doro-zoku," politicians who favor using petrol taxes for
roads only, rather than allocating the funds to help reduce
the national debt.
-> Also in September was the listing of Social Networking
Service (SNS), Mixi, Japan's answer to MySpace.com of the
USA. A company which had barely any revenues a year earlier
IPO'd with the unbelievable market capitalization of JPY109bn
(US$947m), after which the shares continued to soar, creating
a market cap of JPY219.9bn (US$1.879bn) just
4 days later. The IPO came at a time when IPO fervor in Japan
was starting to drop off and was seen as an opportunity to
shake a moribund market into activity again.
Unfortunately, that hasn't happened, and more and more IPO
issues are trading at significantly lower prices than the
initial IPO price. Not least of these has been the Cerberus-
sponsored IPO of Aozora Bank. From an IPO price of JPY570
per share, the first trade started 13% lower at JPY495.
Cerberus was happy enough, though, having earned a profit
of JPY100bn (US$850m) on the 3-year deal. Cerberus bought
Aozora off Softbank after the IT company needed the cash
to fund such purchases as Japan Telecom.
-> North Korea announces on October 9th that it has
conducted an underground test of a nuclear bomb, and has
thus entered the nuclear club through the back door. The
only trouble is that no one could tell if the test really
happened or not, because the seismic readings were so weak.
Later the US stated that a test probably did happen and it
was a one-kiloton plutonium device. While you might think
that the Japanese markets would go into a tizzy over the
news, but the fact that the test was so low-key led the
investing public to assume that it wasn't much of a threat.
We believe that North Korea will continue to improve its
technology and that in the near future it will conduct
other tests that will indeed spook the Japanese markets.
This could well be their intention and we wouldn't be
surprised to see some pragmatic horse-trading going on
as Japan tries to buy some peace (and quiet) from the
North Koreans. In the meantime, business is brisk for
military technology companies supplying the Japan Self
-> The government announces that Japan is now
officially in a longer period of economic expansion than the
go-go years of the 1960's -- represented by the 57-month
Izanagi boom which lasted from from 1965 to 1970.
That boom was largely driven by domestic demand, whereas
the current one, which has no name yet, has been driven by
exports. In case you don't see how this is possible, remember
that Japan's exports fall into two categories:
direct, as finished goods to consuming nations, and indirect,
through parts and tools sold to Chinese factories.
-> The game and gadget market is alive and well, as
highlighted by the astoundingly successful release of
Nintendo's JPY25,000 (US$214) Wii video game console on
December 2. Most of the 400,000 units it stocked at major
city retailers in Japan sold out within hours. Nintendo
expects to sell 4m units worldwide by the end of December
and 6m by the end of March, 2007. The special point of the
Wii is its multi-axis motion detecting wireless controller
which lets gamers stand and play motion-oriented sports
such as golfing, tennis, bowling, and sword fights. As of
writing, Nintendo is selling every unit it can produce,
and in November in the USA was the number two selling game
console. It sold 476,000 units, just behind the 511,000
Microsoft Xboxes sold, and 197,000 Sony PS3s. Sony says that
the Wii is simply trading on novelty value and a low price.
The Wii retails for US$250, while the PS3 is US$600 and Xbox
360 is US$400. Whatever the reason, Nintendo is raking in
$100m+ a month in sales on the toy.
Lastly, this is our final edition of Terrie's Take for 2006.
We take 4 weeks off a year, and 2 of them cover the Christmas
and New Year break. So we'll be back on January 7th. We've
truly enjoyed the reader feedback and corrections and look
forward to lots more in 2007. You'll notice that as of this
morning we're at 24,999 subscribers. It would be great if you
let friends know about us, so we can push over the 25,000 mark.
...The information janitors/
========== Logistics: The So-Fast Corporation =============
Why Choose the So-Fast Corporation?
Failed logistics is a frequent reason why foreign import and
retail companies in Japan eventually pull out. In the start-up
phase, management is focused on just getting the business up
and running, and so it is tempting to abdicate the logistics
to a large trading or transportation firm.
But the reality is that the convenience is soon replaced by
frustration -- as any change request, any problem resolution
takes forever and becomes "muzukashii desu ne".
Now, So-Fast Corporation offers its "Start Logistics Package"
1. A reasonable and set price,
2. Simple distribution, and
3. Quick, customer-oriented service to satisfy end-users
- First privately run prison
- Abe's popularity slumps
- Bankruptcy numbers start to rise again
- Tax challenge for Nikko Cordial
- Traditional shrines challenge online versions
-> First privately run prison
Yamaguchi, the western-most prefecture in Honshu, will be the
site of Japan's first privately managed prison. The facility
will open next April (2007) and will be run by security giant
Secom in a joint venture with the government. As of 2005,
there were almost 80,000 prisoners in Japan, up about 20%
from 2001. About 1,000 of them are expected to be housed at
the new facility. Secom has said that it plans to use a lot
of high-tech to run the prison, such as wireless tags on
prisoners to track their whereabouts, and fencing rather
than concrete walls, fitted with infrared and other sensors.
The other unique aspect is that as part of their rehabilitation
therapy, inmates will learn computer skills rather than making
***Ed: Ah, so that's how Japan plans to solve the engineer
(Source: TT commentary from theage.com.au, Dec 7, 2006)
-> Abe's popularity slumps
Media polls show that recent political moves have already
damaged public opinion ratings for new PM Shinzo Abe. Polls
by the Yomiuri, Asahi, Mainichi, and NHK all show that his
ratings plummeted 10% or more after he allowed exiled
anti-postal reform LDP members to rejoin the party. The
Yomiuri says that its poll returned a 55.9% approval
rating, while NHK said their number was 48%.
(Source: TT commentary from ft.com, Dec 12, 2006)
-> Bankruptcy numbers start to rise again
The current boom is still not reaching all sectors of the
economy as can be witnessed by the increasing level of
bankruptcies over last year. According to credit research
company Teikoku Databank, bankrupcies in November rose 6.5%
over 2005, to 754 cases. Most of the bankruptcies were among
small and medium-sized companies and only 56 firms left debts
of more than JPY1bn (US$8.547m). Usually there are a lot more.
(Source: TT commentary from nikkei.co.jp, Dec 14, 2006)
-> Tax challenge for Nikko Cordial
The Livedoor/Horie profits window dressing scandal could
turn out to be the tip of a very large iceberg if the tax
office decides to clamp down on transactions that are less
than arms-length. The possible trend is already showing up
in the form of a tax office challenge to Nikko Cordial over
the latter's use of a special-purpose (LLP) firm to book
losses while the parent investment company, Nikko Principal
Investments, booked profits. The dealings were related to
the sale of Bellsystem24 shares and involved NPI booking
JPY14bn of trading profits while the LLP recorded valuation
losses of a similar amount. Normally group companies are
supposed to consolidate their results, but Nikko Cordial
claims that the LLP is simply a vehicle for investments and
thus should not be consolidated. Clearly the tax office
(Source: TT commentary from nikkei.co.jp, Dec 15, 2006)
-> Traditional shrines challenge online versions
The Tokyo-based Association of Shinto Shrines has decided
that it has had enough of online shrines, and is setting
guidelines as to how they are allowed to operate. The
Association says, "Shinto gods are enshrined in a place
and space of a shrine, and therefore it's fundamental for
worshippers to actually visit the shrine." This therefore
appears to be a challenge to limit what people can do at
online shrines, which currently accept prayers and sell
amulets. There are apparently around 80,000 physical shrines
(Source: TT commentary from gulfnews.com, Dec 17, 2006)
NOTE: Broken links
Many online news sources remove their articles after just
a few days of posting them, thus breaking our links --
we apologize for the inconvenience.
================= You're Vending What? ====================
Japan is home to the highest density of vending machines
in the world, with about 5.6m machines, or one for every
23 people. You can buy almost anything, and the Japanese
do, with about JPY6.67trn (US$56bn) being spent every year.
Yet, apart from the obvious players such as major soft drinks
companies, there have been no foreign owners of this massive
direct sales medium - until now.
Market Pioneer Japan is proud to announce that as of October,
2006, it has built a network of 1,000 vending machines placed
nationwide, selling stickers and print logos. We invite
owners of licenceable characters to contact us with a view
to distributing your IP assets into the Japanese market.
+++ CANDIDATE ROUND UP/VACANCIES
=> The following position is for LINC Media's BiOS Division.
Interested parties should contact: email@example.com
-> Desk-side engineers
Large multinational bank looking for Desk-side support
engineers to work in their Tokyo office. Must have
experience in Desk-side support, be flexible, and have strong
work ethic. All candidates must have strong command of
written Japanese. Successful applicants will enjoy very
competitive salary and benefits.
Responsibilities will include:
- Level One Support - Troubleshooting PC-desktop problems
- Problem management
- Escalation POC for the Help Desk.
- Installation, troubleshooting, configuring, support of
- Testing and evaluation of automated desktop builds
- Software deployments, upgrades, etc.
- English/Japanese language ability
(Fluent: candidate MUST have superior written Japanese ability)
- 1+ Years working experience in NT/XP/Windows 2000
- Knowledge of the Microsoft Office product range
- MCSE (Microsoft Certified Systems Engineer) Preferred
- Good communication and organizational skills
- Ability to work well under pressure in large foreign firm
For more information or to submit your resume,
please email firstname.lastname@example.org
+++ UPCOMING EVENTS/ANNOUNCEMENTS
No event announcements this week. For many the countdown
to Christmas has begun and dragging families overseas is
enough. If you're leaving Japan's fair shores,
enjoy your holiday.
IT events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com
In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to email@example.com.
-> TT 401 -- Tsutaya and VOD. We ran a news commentary
about Tsutaya, Japan's version of Blockbuster Video,
finally starting Video on Demand (VOD) services. The company
has such a huge customer base, more than 19.3m members, that
when they make a move like this, it probably heralds the
birth of VOD as a legitimate service medium in Japan --
and eventually the death of video rental stores.
*** Our reader says: Regarding Tsutaya starting VOD, I've
been loving Netflix in the US and wondering whether the
same thing is becoming popular in Japan too? Since the US
is still bandwidth-challenged, Netflix sends the DVDs
through the mail, but with the 3 DVDs at-a-time service
(for $18/month), I get a peak rate (including time for
mailing) of about 1 DVD per day, which is more than I have
time to watch. The Netflix web interface, with its ratings,
recommendations, and wide selection, is a key component, but
most important (and the reason I quit Blockbuster's competing
service) is Netflix's high availability of DVDs and fast
turn-around time from nearby distribution centers.
The following service in Japan looks similar, but is it
as fast or popular?
*** Our response: Posren is a unit of Livedoor and is doing
pretty much the same thing in Japan as Netflix does in the
States. The only problem is that Japan is much better serviced
by broadband, and thus Video on Demand is already a practical
solution here. Even the most innovative postal-based DVD
service can't compete against instant (streaming, not
download), no-delivery charge, infinite-selection service.
And that is just what VOD in Japan will offer.
...The information janitors/
SUBSCRIBERS: 24,999 as of December 17, 2006
(We purge our list regularly.)
+++ ABOUT US
Written by: Terrie Lloyd (firstname.lastname@example.org)
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