TT-473 -- Mubadala Takes the Plunge, ebiz news in Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, June 15, 2008 Issue No. 473


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- News
- Candidate roundup/Vacancies
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We've heard a lot in the news over the last 6 months about
Middle Eastern and emerging country foreign sovereign
funds. These are investment funds with massive amounts of
cash and which are owned and controlled by foreign
governments. Not only are they potential movers and shakers
in the world of finance, they can also be used for
tremendous political clout. Indeed, as a result of the
Chinese forming their own US$200bn fund last September, the
Japanese have been talking about setting up a sovereign
fund of their own.

The only trouble is, large Japanese government-related
funds have in the past been singularly unsuccessful at
producing worthwhile returns, largely because the
appointees to manage such funds are either political, or
because the minders are far too conservative to do much
more than invest in Japanese government bonds -- the
earnings from which barely pay the funds' administration

Yes, there have been smaller successful government-run
international funds, most notably MOFA's Overseas
Development Assistance (ODA) fund, which has run for
decades. But with even untied loans resulting in business
being recycled back to Japanese companies and now a new
focus on "combating terrorism" through financial
assistance, it is hard to not be a little bit cynical about
Japan's ODA. A good but slightly dated (2006) analysis of
recent Japanese ODA trends can be found at

The interesting thing about the rising sovereign funds is
that many of them are from countries which are becoming
increasingly unhappy with U.S. foreign policy. In our
opinion, these funds will look for opportunities that, in
order: a) pull technology and assets into their growing or
changing economies -- and in such cases they'll invest
where necessary in U.S. companies, b) look for alternate
means (other than the U.S.) to sustain and grow those
technologies and assets once transferred, c) focus on
acquiring continued leadership in such industries through
training of their local R&D staff, and d) look for
long-term returns that help fulfill the public concept of
the funds' activities -- i.e., to make a profit.

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The emergence of possibly U.S.-averse capital could be a
good thing for Japan, since in many parts of the world the
Japanese are considered mercantilist rather driven by
ulterior motives, and thus they're somewhat safe to invest
in. Secondly, Japan is one of the few countries in the
world that has not only the technology but also the means
to produce it, and thus any deal done with the Japanese
comprises convenient one-stop shopping. From auto
manufacturing and food production to medical procedures and
water purification, the Japanese have home-grown technology
which when sold for cash is both untied and accessible. The
only real exception here is where the technologies in
question are on a list of weapons technologies that are
forbidden from export due to U.S. pressure.

So here we are entering an age of massive national
investment funds, and Japan can certainly be considered one
of the prime shopping targets. The power of the sovereign
funds was well demonstrated the last week, Abu Dhabi's
Mubadala Development fund announced that it would invest
JPY10bn (US$93.4m) into a new hospital yet to be built in
Kobe. Apparently the fund decided to go into business with
the Kobe International Frontier Medical Center (KIFMEC)
after high level discussions between the governments of
both countries earlier this year. That is, this deal is
most likely a case of good old fashioned back scratching
-- despite the fund manager's protestations earlier this
year that his team was all about financial returns.

What's our justification for saying KIFMEC is a cosy deal?
Well, the premise for the investment was that KIFMEC will
create a medical facility focusing on organ transplants,
tissue engineering, and advanced medical services -- then
by way of training of Abu Dhabi doctors, help transfer this
know-how back to Abu Dhabi.

But think about this for a moment. If you were going to
invest in a country's medical sector, wouldn't you pick a
country with a vibrant and proven ability to package and
transfer know-how? In this case, and outside of the USA, it
would have made a lot more sense for Mubadala to invest in
Singapore, Thailand, or even India, where medical tourism
is well established, doctors are well trained and
plentiful, and where the hospitals are eagerly looking for
tie-ups and opportunities to turn their businesses into
international suppliers.

By contrast, and with very few sexy exceptions in the
regenerative medicine and research fields, Japan's medical
sector is very inward looking and financially troubled.
There is very little faith in Japan's medical sector by
domestic investors because most money men here feel that
the nation is plagued with short-sighted rules arranged by
and between the LDP and the Japan Medical Association, and
which favor doctors over patients. Rules such as mandating
Physician-owned hospitals -- for-profit corporations may
only be financial partners, the "addiction" of hospitals to
public funding through medicine reimbursements, and the
lack of medical practitioner accountability and retraining
requirements, all mean that medicine in Japan is inflexible
and quality control is inconsistent. Botched operations and
death through hospital infections are all too common.

The media reports we have seen say that although the KIFMEC
project managers were hoping to establish their hospital as
a base for surgery for visitors around the region, flown
in via the new Kobe airport. But, as of early this year,
they were still struggling to find local funding for their
hospital -- basically because no one was interested. Then,
suddenly, not only did they have a lifeline of
international funding, but also a partner who could provide
them with an entire project life cycle of asset aggregation
and knowledge transfer. This had to have been a god-send
to the KIFMEC organizers and was an inspired introduction
by whichever Ministry was responsible for it.

Mubadala is certainly an impressive fund to kick off a
politically motivated Japan investment with. It is one of
two major Abu Dhabi funds, and known as the "active" side
of the asset management business for the nation-state. It
has assets of around US$17bn (approx. JPY1.8trn) and until
now it has typically invested in energy and
telecommunications projects.

We wonder if Mubadala has really thought through the
business model that KIFMEC is putting forward --
particularly their idea that medical tourists will flock to
the center. For this to happen, KIFMEC would have to
compete both on service quality and pricing with India,
Singapore, and Thailand, where hundreds of thousands of
people already go to have surgery. In India, medical
tourists receive treatment at just 30% of the cost of
equivalent services in the USA, and an estimated 100,000
patient-visitors spend around US$330m annually there. In
Singapore, there are about 410,000 patient-visitors a
year, and over 40 hospitals cater to virtually any type of
surgery known. Some of these hospitals even have Japanese
language interpreters. Does KIFMEC really think they can
compete against such pricing and proven quality of

Further, if Mubadala really is investing into Japan because
they believe there is value to be unlocked here, then they
have many other investment opportunities here to look at,
also in the hospital services sector. Right now, there are
approximately 9,000 hospitals (versus clinics) in Japan,
and an increasing number of these are in financial trouble.
In 2007, 17 hospitals went bankrupt, an increase of 240%
over 2006 each year. Teikoku Databank reckons that this
number will accelerate following the FY2006 government
medical charging changes which have knocked almost 20% off
hospitals' profit margins. Mubadala should just set up an
acquisition fund and start doing a roll-up of institutions
around the country, with a view to modernizing,
internationalizing, and making them profitable. For
operational expertise, they should turn to an experienced
and internationally competitive private hospital operator
in Japan, such as Kameda Hospital out in Chiba. See more
about Kameda at

In our opinion this would make a lot more sense than a
pie-in-the-sky international "medi-port" for rich
foreigners wanting heart surgery in Kobe. But then, using
commonsense wouldn't increase visitor traffic through Kobe
airport, would it?

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+++ NEWS

- Tokyo office vacancies rise
- New 108-inch LCD TV hits the market
- Consumer loans at just 6.8% p.a.
- 10mn more foreigners by 2058?
- Microbubble shower to replace dog shampoo

-> Tokyo office vacancies rise

Realtor Miki Shoji has just issued office occupancy data
for Tokyo, and has said that office vacancies rose from
3.03% in April to 3.29% in May. Although only a 0.26%
increase, the figure represents some thousands of newly
vacant offices throughout Tokyo. The average rent rates
within the Yamanote line were JPY22,826/tsubo (3.3 sq. m.),
up from JPY22,687, but showing a clear slowing of the
market. This trend is in line with the fact that corporate
profits fell by the greatest amount in FY2007 for 6 years.
(Source: TT commentary from, Jun 12, 2008)

-> New 108-inch LCD TV hits the market

Sharp has put on sale the world's largest LCD TV, and
possibly the largest to be released by that company for the
next few years. The 108-inch LCD TV sells for JPY11m
(US$102,000) and offers full HD resolution, although some
of the specs, such as contrast ratio, are not as high spec
as existing home theater units. The new LCD unit is the
largest that Sharp can produce on its new Kameyama
production line, and so unless they build another factory
(takes 3-4 years), it represents the maximum size possible
from Sharp. (Source: TT commentary from,
Jun 13, 2008)

-> Consumer loans at just 6.8% p.a.

In what seems to be an inevitable migration to the realties
of the market, the money lenders are finally becoming
competitive. Aiful has just launched a new category of
unsecured personal loan which starts with an annual
interest rate of 6.8% per annum, about half that of their
existing loan rates, and also about half that charged by
your average credit card company. Aiful is screening
lenders for creditworthiness and is keeping loans to around
JPY500K or less. ***Ed: You can expect a lot more
competition between the lenders as they realize that they
can still make money so long as they are more
discriminating about who they lend to. Yes, this impacts
high-risk lenders, but perhaps now those people will be
more encouraged to go find professional help.** (Source:
TT commentary from, Jun 13, 2008)

-> 10m more foreigners by 2058?

As improbable as it seems, a group of LDP politicians is
having the difficult discussion about what to do as Japan's
population drops over the next 40 years. Top of their list
of solutions is to increase the number of foreign residents
to 10% of the anticipated overall population in 2050, or
around 10m people. Among the recommendations are: increase
the number of exchange students to 1m a year, ban racial
discrimination, establish a new immigration agency and give
the head of that agency a cabinet post, make it easier to
get permanent residence, and make it easier to get Japanese
nationality. The recommendations of the group go to PM
Fukuda this coming week. **Ed: On the nationality side of
things, Japan would get a lot more takers if they allowed
people to have multiple nationalities.** (Source: TT
commentary from, Jun 12, 2008)

-> Microbubble shower to replace dog shampoo

Many dog owners worry about whether dog shampoo is safe for
their animals. Now there is an alternative from IDEC, which
has modified an industrial wastewater machine into a dog
washing device. The unit creates a wave of
ion-saturated microbubbles which are gentle to the skin but
remove dirt and grease clinging to the animal hair.
At JPY600,000-JPY700,000, the new washers are expensive and
are targeted at pet stores, but we think it won't be long
before home versions become available. (Source: TT
commentary from, Jun 12, 2008)

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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-> In TT472 we implied that Talbots, a clothing company
taken over by Aeon, was British in origin. In fact, while
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