JIN-233 -- GE's Bid for Short-Term Profit Falls Flat

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

Issue No. 233
Wednesday, July 2, 2003


++ Viewpoint: GE's Bid for Short-Term Profit Falls Flat

++ Noteworthy News:
- Magazine Publishers Try to Stamp Out Digital Shoplifting

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++ Viewpoint: GE's Bid for Short-Term Profit Falls Flat

Late last week, when the Nikkei was really getting into its stride on
this current bull-run, an interesting little story broke in the
insurance sector.

General Electric, the mighty American conglomerate, abruptly pulled
out of the turbulent Japanese insurance market by selling its Edison
Life unit to American International Group (AIG).

There was the usual flurry of excitement you'd expect from a market
scene that is presently gasping for even the smallest piece of Merger
and Acquisition activity. There was immediate speculation that the
presence of a newly expanded AIG on the Japanese life insurance scene
would usher in an era of increasingly fierce competition as
long-overdue consolidation at the top of the sector takes shape.

The deal comes at a time when many Japanese life insurers have joined
members of the banking sector on the critical list of companies on the
brink of potential collapse. Despite recent equity rallies, the life
insurers remain badly scarred by the sharp sell-off of stocks earlier
this year and by the recent slump in the bond market.

But what is critical is that it is the ultra-efficient market entrants
that have taken the hardest blows. Earlier this month it was revealed
that eight of the 16 foreign life insurance companies operating in
Japan booked net losses in fiscal 2002. Although most were able to
grow their premium income, the financial burden of winning new
business was even heavier. By far the hardest hit were those foreign
companies which, like GE Edison, had optimistically hoped to snap up a
previously failed Japanese insurer and then use good old Western
know-how to engineer a revival.

The GE Edison Life unit operates at a loss after goodwill amortization
is factored into the numbers; analysts believe that GE was probably
right to make the sale. GE created the unit by grabbing, at bargain
prices, the collapsed Japanese life companies Toho Mutual and Saison

But for all GE's size and sway, it was never able to generate a deep
enough customer base to become a major player in Japan.

AIG, on the other hand, is an established presence in the Japanese
market and has been operating here since 1972. This latest deal will
boost its standing to Japan's sixth largest insurer by policy premium
income -- an estimated level of around 1.1 trillion yen a year.

Lurking underneath all that is a hugely significant lesson for foreign
operators in Japan, and all the more so because the victim is the
world's biggest company. From whichever angle you look at the story,
the deal represents a major reversal of strategy for GE. The US titan
only entered the Japanese life market -- the second largest in the
world -- in 1998, but has not made anything like the impact it
expected to. In its usual way, GE took what it thought was a careful
look at Japan and saw -- as it is not hard to do at a first glance --
a place riddled with gaping inefficiencies.

GE, a supposed master of efficiency and armed with impressive-sounding
management theory phrases like "six-sigma," then broke into this
market seeing the very inefficiency of Japan as the biggest
opportunity. GE should certainly not be decried for this, but Jack
Welch, the legendary CEO in charge at the time, did get it wrong if he
thought GE could reap the rewards overnight.

A little deeper homework on Japan would have revealed the following:
Insurance is just one of many areas where Japanese customer behavior
does not run along US or European lines. Carrefour, the French
supermarket colossus, discovered this to its cost in the retail
sector, as did the British pharmacy chain Boots. Experiments with
self-service petrol stations have been a disaster in Japan. The
solution, as successful foreign entrants have found, is to play the
long game and avoid being mesmerized by the ready ease with which
Japan could be made more efficient.

-- The editors

"Health Care: A Year of Smoke and Mirrors" from our January issue

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** Magazine Publishers Try to Stamp Out Digital Shoplifting

In Brief: The Japan Magazine Publishers Association unveiled a
campaign this week to put an end to what it calls "digimanbiki," or
"digital shoplifting." The publishers say people have been using their
camera-phones to take pictures of magazine pages in bookstores. The
digital shoplifters usually shoot a picture of a page with important
information on it -- say a train guide or a recipe or a particularly
interesting photo -- and leave the bookstore without buying the
magazine.The association will launch a campaign that equates this sort
of act with shoplifting.

The publishers say this new campaign against "digimanbiki" won't
affect the time-honored tradition of "tachiyomi," where shoppers stand
around a bookstore and read for as long as they want, because those
people might just buy the magazine.

TV news reports

"Switched On: The Chewable Digital Camera," from September 2002

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Written and edited by Leo Lewis and Roland Kelts ( editors@japaninc.com


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