TT-554 -- Personal Imports to Test Market, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, February 21, 2010 Issue No. 554

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

Despite what you may be reading in the newspapers about
improving GDP figures, don't be misled. Everything is not
alright in the world of Japanese business. Sure, most
exporter-manufacturers are doing fine, largely thanks to
stimulus spending in China, but at about 16% of Japan's
GDP they do not represent the bulk of the economy. Instead,
you need to look at the 58% of GDP which is domestic
consumption to see that things are not nearly as rosy.
Domestic growth is flat, and that is AFTER record government
stimulus measures to increase spending -- which is counted
into GDP despite the fact that it represents debt for future
generations. Take away the stimulus, as the U.S. is getting
ready to do, and it's easy to imagine the economy taking
another dive.

Rather than GDP, we would look at consumer spending and the
Consumer Price Index (CPI) as a better indication of what
is going on and providing an indication of trends,
particularly deflation. The Nikkei ran a story today
stating that excluding food and energy, in 2009 the CPI
fell 0.7% to 98.6, the lowest level since 1992. For some
items such as furniture and kitchenware the CPI was just
93.9, the lowest since 1973!

So while this rampant level of deflation may look good for
consumers, if it guts the earnings of domestic firms they
will have no choice but to lay off more staff, shutter
stores, cut suppliers, and thus the economic outlook won't
be rosy for long.

[Continued below...]

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[...Article continues]

Of course there are some winners, and turning saving money
into a fun exercise for consumers has paid off well for
smart players such as Fast Retailing, Nitori, and others.
Foreign retailers with this business model are also doing
really well. For example, despite losing money seven years
in a row, Seiyu/Walmart in the last quarter of last year
did notably better than their domestic competitors. Every
day low prices and global procurement are starting to make
a difference. Likewise, Ikea, H&M, and Zara are also
reportedly doing well.

It is only natural then, that foreign firms not yet arrived
in Japan are seeing all the market changes going on are
considering jumping in. We have heard of a number of
major foreign retailers seriously eying up a foray into the
Japan market and considering investments of many tens
of millions of dollars. Such investments are a huge risk,
so how are firms de-leveraging that risk?

One way which is a proven model is to start selling online
from abroad and just marketing the brand in Japan. This is
entirely legal, so long as the products are not actually
sold in Japan and the user imports the products in
themselves. This model has been a proven one for many firms
who have since established operations here. They typically
started their marketing campaigns in a low key online
manner, monitored their online audience take-up and shipping
volumes, then used those numbers to extrapolate how they
would do if they set up in Japan itself. Amongst the
product segments that have used this approach have been
apparel, food, nutriceuticals, cosmetics, kitchen products,
computer goods, home goods such as bedding and interior
decorations, and many others.

This offshore selling approach has been possible because so
long as the retailers are willing to smooth out the
international freight handling, support, and subsidize the
shipping costs, then Japan's Personal Import ("kojin
yunyu") system works really well. The Personal Import
system allows for the simple import of private consumption
mail order goods without complex and time consuming
paperwork and lots of tax. Just to repeat, the Personal
Import system cannot be used for resale, just for personal
consumption. It's been around for more than 15 years, and
it works great.

We've been watching the progress of one particular health
food company in California, which discovered the Japanese
market about two years ago. They started experiencing a big
pickup in orders after they made their website available in
Japanese and established a Japanese help desk. Their prices
are about 50% that of similar goods in Japan, and of course
there are a lot of things they stock that you can't even
get here. The website works well, offering buyers incentives,
and taking Japanese credit cards.

But the real kicker is that they have a deal with Yamato
that allows them to ship product to Japan in just two days
for just US$8/kilo! That price/time frame is favorably
competitive with online product deliveries made within
Japan, even though the goods have to come all the way from
the USA and have to go through customs.

Intrigued, we did some checking and found at that the firm
was probably getting a bulk rate of US$11/kilo from Yamato
(something Yamato wouldn't confirm) and that it was
subsidizing the other US$3/kilo. This is incredibly smart,
because now Japanese residents can order from this firm
just as easily and cheaply as if they were buying online
from someone down the road. And with orders averaging more
than US$60 (customer incentives kick in at this price), then
the extra US$3 is not a major burden.

If you are located in Japan and you want goods from abroad,
you should check out the Personal Import system, which you
can use to import almost anything other than controlled
substances, narcotics, firearms, etc. There are a few
simple rules that appear on the Customs site at:

http://www.customs.go.jp/english/c-answer_e/customsanswer_e.htm.

Basically the system is set up for mail order purchases and
all shipping has to go through either the Post Office or
approved couriers, else you will need to engage someone
from the Personal Import Information Center to do the
paperwork for you at a cost of JPY4,500. There could be
other costs as well. You could also use a proper freight
forwarder, but since these firms are typically handling
large import volumes, they tend to be expensive for
personal stuff.

For Personal Imports, so long as packages are valued at
less than JPY100,000, they are either uniformly taxed at
5% on their CIF value, or in many cases are not taxed at
all -- as seems to be the case with shipments via Yamato
from the USA. While this may seem to be a weird anomaly in
the Japanese bureaucracy, we think this hints at why the
Personal Import system even exists at all.

Some years ago we asked the CEO of a leading U.S.-Japan
Personal Import buying service company called Bargain
America, Mr. Tom Sato, what the most popular personal
import product was. He told us that Rogain, the hair
restorer tonic, was number one and couldn't be purchased in
Japan. So, we imagine that system was established as a kind
of "pressure relief valve" for citizens who insist on using
foreign products and to not make them criminals for doing
so. Just they have to restrict volumes to non-commercial
quantities and of course use those products at their own risk.

Actually, if you think about it, there are probably many
bureaucrats in their 50's who might be losing hair and
needing a bit of Rogain for themselves. Thus, they would
have a practical reason for wanting to retain the system,
despite occasional rumors that it will be discontinued...

;-)

Lastly, take a look at the excellent reader response below
in the Corrections/Feedback section, as to why Japan has a
nursing shortage.

...The information janitors/

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+++ NEWS

- Money laundering reports rise to record
- Personal bankruptcies down 2.5% to 126,000 cases
- U.S. treasury holdings by Japan expected to fall
- Kirin sells agri/biotech units
- Carlyle loses uncool US$330m on Willcom bankruptcy

-> Money laundering reports rise to record

The National Police Agency (NPA) has released statistics
showing that following a 2008 law requiring banks to report
possible money laundering transactions, there were in 2009
272,326 suspect transactions recorded, up 15.8%. Of those
reported, the NPA took action on 337 transactions. ***Ed:
337 police actions doesn't sound like a great result to us.
Maybe someone needs to do a better job of defining what is
suspicious, or at least filtering out the false
positives.** (Source: TT commentary from nikkei.co.jp, Feb
18, 2010)

http://www.nni.nikkei.co.jp/e/fr/tnks/Nni20100218D18JF876.htm

-> Personal bankruptcies down 2.5% to 126,000 cases

Due to the change in the consumer lending laws in 2006
limiting how much people can actually lend and the interest
rates chargeable, personal bankruptcies fell by 2.5% last
year to 126,265 cases from 129,508 in 2008. There were
242,000 such bankruptcies in 2003, thus amounting to a drop
of 48% over the last 6 years. At the same time, the number
of so-called "heavily indebted" individuals, being those
with five or more loans, fell 55% to 798,000 people in
December 2009 from a high of 1.8m people in February 2007.
(Source: TT commentary from businessweek.com, Feb 18, 2010)

http://tinyurl.com/yzt7smc

-> U.S. treasury holdings by Japan expected to fall

In a dubious honor, Japan once again become the number one
foreign holder of U.S. treasuries in December 2009,
overtaking China as the Middle Kingdom sought to sell down
its U.S. holdings. Apparently Japanese buyers sought to
take advantage of a high yen rate during November 2009.
Japan now holds about US$768.8bn in U.S. sovereign debt,
versus US$755.4bn for China. (Source: TT commentary from
wsj.com, Feb 17, 2010)

http://tinyurl.com/yzc768y

-> Kirin sells agri/biotech units

Strangely going against the trend of growing biotech
businesses outside Japan, Kirin Holdings has agreed instead
to sell both its domestic and foreign agri/biotech
subsidiaries to a Dutch private equity fund called H2
Equity Partners. The two units had combined sales of
JPY15.4bn. ***Ed: So is Kirin pulling back from its
international efforts, or simply pulling in more cash to
weather the downturn in the domestic market? If the latter,
this may be a cause for concern.** (Source: TT commentary
from nikkei.co.jp, Feb 18, 2010)

http://www.nni.nikkei.co.jp/e/fr/tnks/Nni20100218D18JF934.htm

-> Carlyle loses uncool US$330m on Willcom bankruptcy

The bankruptcy of the Willcom cell phone company created
some major financial fall-out for private equity firm
Carlyle Group, when it was announced that Willcom's entire
capital would be written off. Carlyle bought 60% of Willcom
from KDDI in 2004, and will lose an estimated US$330m as a
result of the failure. Discussions are now reportedly in
progress for Softbank and Advantage Partners to pick up the
business. ***Ed: We wonder what they can do that Carlyle
couldn't. Willcom is old technology and those 4.3m
customers need to be moved on to a new platform. A new
brand for Softbank's infrastructure perhaps?** (Source: TT
commentary from washingtonpost.com, Feb 19, 2010)

http://tinyurl.com/yjrzsox

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.

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+++ CORRECTIONS/FEEDBACK

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 editors@terrie.com.

*** In response to our TT553 commentary about the sorry
economic state of many Japanese hospitals, a reader
submitted the following interesting commentary about why
there is a shortage of nurses:

=> Reader: Why there is a shortage of nurses in Japan.

Japan is of course not unique in having "Everyone says so,
so it must be true" myths with no basis in fact. But it
does provide a few truly breathtaking examples. Your
excellent article on medical tourism reminded me of the
"nurse shortage" in Japan. This is not a "correction" to
anything in your article, just something to support the
premise that Japan is often not able to fix problems
because it refuses to face reality.

Japan in fact has a HUGE SURPLUS of registered nurses. It
has for decades. There is only a perceived "shortage"
because most quit early. They quit at a staggering rate,
many after just one or two years, vowing never to return.
The exact number of "stay-at-home-nurses" is kind of
taboo, but it HAS to be in the many hundreds of
thousands. Japan's own Nursing Association admits that 1
out of every 10 nurses quits the profession after working
less than TWELVE MONTHS.

Japan's 1,025 two/three/five-year nursing schools can turn
out 64,000 nurses a year (although they only turn out
around 45,000 annually these days; www.nurse.or.jp). Let's
say that there have been 2.2m new nurses over the last 40
years. Japan currently has 1.1m or so nurses actually
working, so that's a 50% attrition rate! What other
profession that requires a degree and a national exam
loses more than half its members? Doctors? Lawyers?
Pilots...? Hardly.

Japan doesn't want to focus on attrition, but when forced
to says that since most nurses are female they can't work
while pregnant. This is dumb because pregnant nurses do
just fine in the world's 220 or so other countries. The
real reasons why Japanese nurses quit are not discussed
but clear. They include include unmitigatedly hard work, low
pay, inhumanly inflexible work schedules, practically no
vacation, power harassment by superiors (the worst horror
stories I have ever heard of workplace misery involve
backstabbing among nurses themselves), and other harassment
in various forms, including what you might expect by this
country's famously haughty physicians.

But the #1 reason for their leaving is night work. Japan's
unwritten nursing code of conduct demands lifetime sleep
deprivation, even though it is dangerous
(http://joh.med.uoeh-u.ac.jp/pdf/E43/E43_3_07.pdf).
Marriage and children and nursing are incompatible, which
explains why nearly every nurse in Japan seems to be either
22 or 62. I suspect (there are no statistics) that 70%-90%
of all working nurses in Japan are either unmarried,
childless, or over 50.

The solution to this problem is simple, obvious, and will
never be implemented: more flexible working hours. Many
nurses would return to the workforce if they could work
when it was convenient for them and their families. More
flexible salaries would also mean nurses would be happy to
work nights if it was financially lucrative. Basically the
powers that be need to tell the doctors and senior nurses
controlling the profession to loosen their strict
attitudes a little, to match the change in societal values.
But I suspect that nothing will be done because, as with
JAL, those who control the culture like it the way it is
and will never change voluntarily. Rather than admit the
real problems and fix them, their "answer" is to import
foreigners they think will accept treatment that Japanese
themselves will not put up with. Unfortunately, importing
foreign nurses is as stupid now as it was 20 years ago with
the Senreikei experiment, which brought a dozen Filipina to
Japan at astronomical cost. In the end exactly two ended up
passing their required examinations - and even those two
both soon quit Japan anyway...!

Trying to supplement a workforce with numbers in the
millions by importing a handful of foreigners is bad policy
in of itself, but since the odds against a foreigner
passing a Japanese national examination are well known, the
policy looks cynical to the point of being deliberately
anti-foreign. I predict that one of these days, a patient
will die from a medical error involving a foreign nurse.
Japan will then forbid all foreigners from participating in
the medical professions, and the Japanese will somehow
muddle through, out of necessity, with some kind of
solution that involves only themselves.

***********************************************************
END

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+++ ABOUT US

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