TT-532 -- De-ICEing Tsubakimoto, 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, September 6, 2009 Issue No. 532

+++ INDEX

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

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+++ WHAT'S NEW

Some weeks ago we attended the inauguration ceremony for
the new CEO of Honda, Mr. Takanobu Ito. The room was
surprisingly full, given the state of the auto industry,
with suppliers from all over the country present to pay
their respects to what for many is their biggest customer.
It was an ideal opportunity for us to take the pulse of
players in the industry and speculate about what lies
ahead.

Probably one of the more interesting conversations we had
was with the owner of a second-tier 200-person air filter
manufacturing company located in the middle of Honshu. He
shared with us how he started the business 30 years
earlier and that things are about as bad as they have ever
been. Over the years he has jumped through all sorts of
hoops to make the grade with Honda, even to the extent of
opening multiple overseas factories near Honda
manufacturing centers, so as to ensure quick delivery and
troubleshooting. Each location has required significant
amounts of cash investment, but he believes that if you
do your best you'll get the business.

But despite his obvious dedication to quality, price, and
support, there is one problem that he told us he wasn't
going to be able to overcome, and it wasn't related to
outlasting the current auto industry downturn -- indeed,
he has sufficient capital to see the company through for
several years. No, his biggest challenge is that of the
eventual demise of gasoline-driven Internal Combustion
Engines (ICE) as a means of propulsion for consumer
vehicles. As Electric Vehicles (EVs) like the Mitsubishi
iMiEV roll off the factory lines, his market starts to
disappear.

[Continued below...]

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[...Article continues]

His pessimism surprised us, because while electric vehicles
are definitely going to be part of our future, the rate of
development is being hobbled by battery technology, meaning
that any major shift from ICE to EVs is at least five years
away and possibly longer. Granted, someone could come up
with a fantastic new battery technology, in which case the
mass conversion to electric could happen, maybe, one year
earlier. But designing cars and building factories is a
slow business, and even an extreme optimist would be
challenged to imagine the ICE market and all its attendant
technologies being replaced in any less than 10 years.

The problem for our gloomy air filter shacho was that: a)
he doesn't need the ICE industry to collapse to fatally
damage his business. A sustained 10%-15% drop would do it
-- because of his razor-thin profit margins. And b) his
firm is too small to simply go out and create something in
a completely new sector, or to buy out someone else who
has a better future. Whatever he is going to try to do
needs to be incremental and related to his team's core
skills.

This is the reality for many second-tier and smaller ICE
parts suppliers. Companies that are threatened in this way
number in the thousands in Japan, especially if you
include the down-lines of subcontractors, and will
constitute a major industrial change. As we think about it,
those likely to be affected will be anyone manufacturing
engine blocks, timing chains, spark plugs, fuel distribution
and pump systems, fuel tanks, clutches, and even steel
body sheets. This list is a pretty broad slice of the auto
making industry.

We started looking at companies that are active in this
space and which would epitomize the challenge, and came up
with one, called Tsubakimoto Chain. We'd never heard of
Tsubakimoto before, but they are the world's largest
supplier of power transmission systems for autos (37% of
the world market). They are a listed company (6371).

This quite massive and market leading company is a prime
candidate for the EV shock which is likely to hit the
auto industry around 2012, after Nissan and Toyota start
producing mainstream, value-priced EVs.

Actually, Tsubakimoto has already been having a hard time
of it recently. The company lost JPY207MM in Q1 (Apr-Jun)
this fiscal year, versus a JPY2.83bn profit for the same
period last year. The company is further projecting a
loss for the Q2 quarter. So it is surprising then, that
the firm feels ambitious enough to announce that it is
building an JPY800m timing chain plant in South Korea to
supply Hyundai Motor. We understand they're on a global
expansion effort, but if the timing chain market is due to
all but disappear in the next two generations of cars,
we wonder if they wouldn't be better served continuing to
import chains from the Japanese factories.

Anyway, Tsubakimoto appears to us to be a prime candidate
for some preemptive action before EVs become mainstream.
We searched through the company's literature and financial
reports for any hints of new divisions, and to our
surprise found that management is planning to stick pretty
much to the chain making business. True, they have branched
out heavily into conveyor systems for factories, where
their chain systems are highly competitive, and they've
gone international. But in their core market of autos, there
is no sign of any master plan. Accordingly, if we were the
Japanese government (e.g., METI), we'd be out targeting firms
like this and educating them on the technology tsunami that
is about to hit them.

As for our depressed air filter CEO, he shared that he has
told his R&D engineers to start working on ways to take
their air filter technology and use it to make water
filtration products. ICE vehicles may be on the way out,
but he reasons that the clean-up of polluted water and
making fresh water out of saline sources are growth
industries of the future.

We hope he is right, it's a big bet and he was a nice guy.

**************

Do you fancy yourself as an editor-in-chief of Japan's only
commercially available business magazine? If you're a
writer or editor now, and have career aspirations as well
as business savvy, then we want to hear from you.
Check out the VACANCIES section below for details then
contact us at michael@japaninc.com.

**************

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+++ NEWS

- FDI plummets 63%
- Alico credit card leaks could be due to internal culprit
- Couple wins major tango competition
- Sampling at LCAFE
- Dainippon to buy Sepracor

-> FDI plummets 63%

The Nikkei says that new balance of payments statistics
indicate that foreign direct investment (FDI) into Japan
fell by a massive 63% in the first half of this year.
Purchases of companies, land, and other fixed assets by
foreigners came to JPY1.71trn, about 1/3 of the same
period in 2008. The government's target for FDI is 5% of
GDP by the end of 2010, and at the current level the
amount is 3.6%. ***Ed: As we keep telling local government
heads, they need to set up M&A education centers in their
local cities, so that companies in trouble seek buyers
long BEFORE they have to close their doors. Japanese
company owners may be xenophobic, but having a foreign
owner is infinitely better than having to throw everyone
out on the street because of a bankruptcy.** (Source: TT
commentary from nikkei.co.jp, Sep 5, 2009)

http://www.nni.nikkei.co.jp/e/ac/tnks/Nni20090904D04JFF03.htm

-> Alico credit card leaks could be due to internal culprit

Alico Japan, part of the AIG insurance group, has revealed
that it believe the recent leaking of the credit card and
other details of 130,000 policy holders may be due to
someone inside the company stealing the data and selling it
to organized crime groups, rather than an external hacker
breech. Alico started receiving fraudulent usage claims
from credit card companies in July, and so far about 4,000
illegal transactions have occurred. (Source: TT commentary
from nikkei.co.jp, Sep 4, 2009)

http://www.nni.nikkei.co.jp/e/ac/tnks/Nni20090903D03JFA14.htm

-> Couple wins major tango competition

When the Japanese put their minds to it, there isn't any
human pursuit they can't be best at, be it hamburger eating
world records, the number of contiguous mountain ascents for
a 70-year old, or tango dancing. In the last category, a
Japanese married couple have just taken top honors, to the
surprise of the local contestants, for the 7th World Tango
Championship held in Argentina. The south americans
consider the dance to be their own, and Argentinian
couples have held the world title for years -- until
Saturday, when it was lifted by 33-year old Kyoko and
36-year old Hiroshi Yamao. (Source: TT commentary from
google.com, Sep 2, 2009)

http://tinyurl.com/kqvzhn

-> Sampling at LCAFE

We can't find it referred to in the local press, but
according to inventorspot and several other online reports,
a new cafe is starting a free sampling service at their
stores for qualified customers. Following the footsteps of
Sample Lab! and Club-c, LCAFE allows young women in their
20's and 30's to pre-register by cell phone, then go try
out various cosmetics and other products whenever they
visit the cafe. ***Ed: Dubbed "Tryvertising" by U.S. trend
magazines, the idea is for consumer products makers to
provide the samples free of charge to the desired
demographic (in Japan, usually young and middle-aged women)
and to get their feedback in lieu of conventional market
research.** (Source: inventorspot.com, Sep 5, 2009)

http://tinyurl.com/n395s3

-> Dainippon to buy Sepracor

Prodded by soon-to-expire patents and falling government
reimbursements for drugs at home, the M&A push by
Japanese pharma firms continues. This time it is
conservative Dainippon Sumitomo Pharma, which agreed on
Thursday to buy out Sepracor of the U.S. for US$2.6bn. The
acquisition will give Dainippon a 1,200-person sales
footprint in the key U.S. market. ***Ed: Dainippon will pay
a premium of 27.6% over the previous day's share price --
a much better deal than some of its counterparts who have
made acquisitions over the last 18 months.** (Source: TT
commentary from reuters.com, Sep 3, 2009)

http://tinyurl.com/npjuzk

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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***------------------------****-------------------------***

+++ CANDIDATE ROUND UP/VACANCIES

=> BiOS, a Division of the LINC Media group, is actively
marketing the following positions for customers setting up
or expanding in Japan, as well as other employers of
bilinguals.

** HIGHLIGHTED POSITION(S)

BiOS is urgently looking for an articulate and confident
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As with any sales orientated position, you will need to
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as is prior experience dealing with customers of all
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Remuneration is JPY3.5m – JPY5m + generous commission,
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- Country Manager, telecoms provider, JPY15m + incentives
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To apply, please send your resume, cover letter and any
relevant clippings to: michael@japaninc.com

-----------------------------------------------------------

+++ UPCOMING EVENTS/ANNOUNCEMENTS

------------- Japanese Tax Seminar by CCH -----------------

Theme: 'Multinational corporations face tax Issues
- The authorities are always watching you'

This economic crisis has influenced the interpretation of
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For more details, please contact us at: support@cch.co.jp,
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-----------------------------------------------------------

------------------ ICA Event - Sept 17 --------------------

Speaker: Joseph E. Wenig, VP Prof.
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Title: Enhance Business Intelligence with Integrated
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Details: Complete event details at http://www.icajapan.jp/
(RSVP Required)

Date: Thursday, September 17, 2009
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members)
Open to all. Venue is Foreign Correspondents' Club of Japan

http://www.fccj.or.jp/aboutus/map
-----------------------------------------------------------

***------------------------****-------------------------***

+++ 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.

No feedback this week. We guess that everyone was satisfied
with the iPhone commentary!

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-----------------------------------------------------------

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+++ ABOUT US

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