TT-657 -- Printing Industry in Upheaval, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, April 08, 2012, Issue No. 657


- What's New -- Printing Industry in Upheaval
- News -- Golden Week travel bookings surge
- Upcoming Events
- Corrections/Feedback
- Travel Destinations Picks -- Kumamoto and Kanazawa
- News Credits

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February was a "happening" month for the printing industry
in Japan, with multiple major firms in the industry
predicting losses on ordinary operations before the
end-of-March fiscal year close, and restructurings all
around. There are essentially three sectors involved in
printing, not counting the industry's customers such as
publishers, marketers, and packaging firms. Those three
sectors are: printing equipment firms, paper companies, and
the actual printing services firms themselves.

Of the three, the equipment and paper companies are the
easiest to follow, since most of the big boys are public
and also tend to focus on their main domain of expertise.
These firms were doing fine before the Lehman Shock, and
have tried to counter the last 3-year downturn by
exporting their way out of trouble, with mixed success.
Printing services firms such as Dai Nippon Printing,
however, were already under tremendous pricing pressure
before the Lehman downturn, and so have been building an
alternative future. As a result, they have diversified
into other industries that ride on "printable"
technologies, such as resin moldings, integrated circuits,
RFID, etc.

Unfortunately for all players, though, the story for FY2011
has pretty much been the same: a huge pool of red ink or at
very least, substantial falls in profit.

There have been a number of contributing factors to the
current mess: the high yen has probably been the biggest
problem, but not far behind has been the relentless move of
content publishing from paper to online, and more recently
the rising quality and price competitiveness of foreign
players trying to penetrate the market. Chinese firms
aren't really a threat yet, but within 3-5 years they will

Then, in March last year, the Tohoku earthquake dealt
severe blows to the paper and ink industries, as a number
of major manufacturing plants were knocked out in the area.

[Continued below...]

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[...Article continues]

Representative of the difficulties is Dai Nippon Printing,
which announced in February that it expects net profit for
FY2011 to fall 68%, far below the original forecast. The
company says that global trends in the electronics sector
are hurting profits and it expects difficulties for a while
to come. Competitor Toppan is also forecasting earnings for
FY2011 of about 50% less than originally projected,
although this is much better than their shock net profit of
just JPY557m on JPY895bn of sales in FY2010. Seems like
they got their licks early.

On the paper side of things, business is also tough all
around. Mitsubishi Paper Mills said in February that its
sales fell 11% in FY2011 and it would book a net loss of
JPY3.7bn just for the April-December 9 month period, far
greater than the JPY900m loss they had in the same period
in FY2010. A lot of this red ink has come from damage to
the firm's Hachinohe factory in Aomori, but given that they
were already losing money the year before, it's pretty
clear that in any case, Mitsubishi is struggling to
compete. We see them as a merger candidate in coming years.

Mitsubishi's bigger competitors, Oji and Daio, are both
down remarkably this year as well. Daio in particular is
suffering as it not only has to deal with global and
national trends but also a damaging in-house feud between
the paper company management and the founding Ikawa family.
You may recall that the grandson of the founding family was
caught borrowing JPY5.5bn from group companies without
board approval, after blowing JPY9bn on gambling in Las
Vegas, Singapore, and Macao.

On the printing equipment side, the ills of the industry
are easy to see in the largest domestic printing machine
maker, Komori. This company is no slouch and exemplifies
Japanese manufacturing and merchandising prowess. They own
about 50% market share in Japan and 30% in both the USA and
China (for imported equipment to that country).
Unfortunately they are in a sector that is looking more and
more like photographic film did for Fuji Film, and they
need to find a way out, soon. They are bleeding lots of red
ink, losing JPY7bn in 2009, JPY10bn in FY2010, JPY5.4bn
last year, and will probably lose around JPY6bn this year
-- that's a lot of shareholder cash down the tubes...

But at least Komori is smart enough to figure out a cure.
Over the last couple of years they have found profit in
high-end printing of bank notes and securities
certificates, both in Japan and abroad. They have also been
pushing into digital printing and their shares bounced
upwards last month after they announced that they were
tying up with Konica Minolta Holdings, to sell OEM digital
printers to smaller printing firms for short-run work.
According to the Nikkei, Komori is expecting to see its Q4
results go back into the black -- which will be quite a
turn-around if they manage to achieve it.

Interestingly, even as Komori migrates over to the digital
printing sector, there is no guarantee that this will save
the company. Shares in Ricoh tanked in February after the
company announced its first-ever projected loss for FY2011.
Ricoh says it will lose around JPY46bn, mainly because of
the high yen, goodwill write downs in the commercial
printing business, and the poor economic situation in
Europe. Basically, there is no part of the the printing
business which is safe at present.

The companies that we have mentioned so far are of course
the behemoths of their respective segments, and their
temporary pains are symptoms of a more terminal disease
affecting smaller firms further down the food chain. We
have heard of many printing companies slowly sliding under
water and going out of business. Some are fighting back
with online order taking and off-shoring, but while
absolute demand domestically continues to shrink, there
will be no avoiding the attrition that has to come. We see
palpable fear in the industry about who will go under next,
and paper companies are now demanding much shorter payment
terms from their printing clients (no more of those 6-month
tegata) or even in the case of the smallest firms, upfront
cash. This is of course wreaking havoc on the cash flow of
the little guys and is not sustainable.

So where will the printing industry head? The obvious
answer is: Digital. But how to get there when you're in a
physical business like paper? We don't think paper is going
away any time soon. Rather, it will be used more
strategically, in conjunction with online resources. So
printing clients need to find a way to make their printed
products work in a digital age, connecting the flexibility
and tangibility of paper with the searchability and
indexability of online data.

One very clever app and business model that binds paper and
digital together shows a possible way forward. Oita-based
O-Rid's Kyber SmartMarker service lets people mark up a
newspaper article or other paper-based text of choice,
using a special JPY500 marker pen, then take a photo with a
smart phone of the marked up paper article and submit it to
O-Rid's online digitization service.

The digitization service costs just JPY1,980 for 5,000
Japanese characters, a very reasonable proposition, and as
a result O-Rid already has 10,000 subscribers and recorded
sales of JPY1.89bn last year. The main users of its service
are organizations who need to digitize handwritten
applications and surveys. Great idea, and something that a
printing company needs to be doing.

Yes, we realize that creating apps isn't going to save
every printing, paper, and printing machine maker in Japan.
But the point here is embracing and extending to the
digital sector will be essential for every firm in the
printing business, and those who move quickly will survive,
while those who don't will go the way of other obsolete
industry players (Kodak for example).

Actually, in this respect we see strong parallels between
the photo film industry and printing. Therefore we expect
that some of the bigger players in printing will speed up
their internationalization efforts through M&A and
technology alliances just as Fuji Film has done. The
equipment companies such as Ricoh and Komori are definitely
capable of doing this and are already doing so. However, we
have our doubts about paper firms such as Oji and Daio.
Looking at the printing services companies Dai Nippon and
Toppan, we also think they understand what they have to do
and have the skills to go international when ready. Dai
Nippon in particular just has to be looking at M&A targets


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+++ NEWS

- Civic leaders create anti-nuclear group
- Costly fossil fuels replace nuclear
- Apple/Android smartphones take 60% of market
- World's biggest pension fund reckons JGBs to stay stable
- Golden Week travel bookings surge

-> Civic leaders create anti-nuclear group

In what could be a significant political development, 15
former and current mayors of towns and cities across Japan
have formed a group to lobby against the re-starting of
Japan's many idled domestic nuclear power plants. The
group will hold its inaugural conference on April 28th in
Tokyo and says that it expects about another 40 to join
its ranks by that time. ***Ed: Power from nuclear sources
or power cuts? That's likely to be a tough decision to be
made this summer. Our guess is that the power plants will
be brought back on line, but that there will be significant
backlash for the DPJ. We're thinking this will play into
the hands of Osaka Mayor Toru Hashimoto and may give his
new political party significant clout in the next elections.
That would certainly be something interesting to see.**
(Source: TT commentary from, Apr 8, 2012)

-> Costly fossil fuels replace nuclear

With just 1 nuclear reactor producing power for the
national grid, Japan has had to make a huge move back to
fossil fuels for power generation. As a result, the country
is spending US$1.9bn more year-on-year on LNG, crude oil,
and heavy fuel oil -- all of which are up by 15% to 30% in
volume. ***Ed: Fuel is being shipped in from up to 12
different supplying countries and it has become a national
priority to secure supplies. No wonder the Amir of Kuwait
was welcomed to Japan with such fanfare just a couple of
weeks back...** (Source: TT commentary from, Apr 8, 2012)

-> Apple/Android smartphones take 60% of market

Cell phone research firm MM Research Institute says that
the Japanese mobile phone market grew for the second year
in a row, with 41m units shipped in FY2011. Most of this
growth was in smartphones, and overall 60% of the sales
were by either Apple, or Samsung and other foreign
companies running Google's Android operating system.
Significantly, Toshiba sold its cell phone business to
Fujitsu last week and so has withdrawn from the market. As
a result, Japan's initial 11 handset makers have fallen to
just 6. ***Ed: Not hard to see where this is all going...
Those Japanese firms still making phones must surely be
following Microsoft's fight-back strategy in the USA, to
see if there is anything to be learned there.** (Source:
TT commentary from, Apr 7, 2012)

-> World's biggest pension fund reckons JGBs to stay stable

Japan's Government Pension Investment fund, which at
US$1.3trn is the world's largest, has said that it thinks
yields (and thus pricing) for domestic government bonds
are likely to be stable for some time. Their reasoning is
apparently that the nation is still in deflation and is
expected to stay that way for a while, and at the same
time, domestic banks have plenty of cash on hand and will
continue buying bonds as a result. ***Ed: Good news for
the government, which can keep issuing debt, but bad news
for Japan's future generations of tax payers...** (Source:
TT commentary from, Apr 6, 2012)

-> Golden Week travel bookings surge

Travel company JTB has said that the number of people
looking to travel abroad has increased by 4.8% over last
year, to 563,000 people, the highest number since 2000. At
the same time, the number of people traveling domestically
is also up by 4.2%, with trips to both the Kanto and Kyushu
doing well. JTB's numbers come from a survey of customers
about their intentions this year. ***Ed: The high yen is a
big part of this recovery, but our sense is that it's also
a rebound from consumers breaking out of their
self-restraint mode after the Tohoku disaster last year.
Could be a good summer for consumers and merchants.**
(Source: TT commentary from, Apr 6, 2012)

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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Thursday April 12 -- Sunday April 15 11:00AM -- 19:00PM

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Tel: 5524-3060


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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

*** No feedback this week.



=> Kurokawa Onsen, Kumamoto-ken, Kyushu
One of the best hot spring resort towns in Japan

The appeal of Kurokawa Onsen is it's tranquil, quaint
atmosphere and natural outdoor hot springs ("Rotenburo").
Since there are so many different kinds of hot springs in
Kurokawa, you can purchase a "nyuto tegata", a hot spring
pass that costs just 1200 yen and gives you access to 3 hot
springs. They are available at the Kurokawa Spa Hotel
Association Information Center and remember to pick up a
map to see all the participating hotels and inns that
accept the nyuto tegata... (

=> Chiyomoto, Kanazawa, Kanagawa-ken
Foreign Footsteps in Yokohama – Felice Beato

Chiyomoto is an authentic Japanese restaurant that
regularly showed up in Hiroshige's ukiyoe woodblock prints
in and around 1834 and then later in the photos of
Italian-British photographer Felice Beato in 1864.
Chiyomoto has stood for almost 200 years in the midst of
what used to be a very famous scenic place — Kanazawa

When Chiyomoto first began doing business, Edo culture was
flourishing and people enjoyed trips of pleasure in the
Kanagawa area using worship as a pretext for their travels.
The standard and most popular course was a 4-to-5 night
trip moving from Edo to Ohyama to Enoshima to Kamakura and
finally to Kanazawa. Except for Kanazawa, all the other
places were holy precincts and people were supposed to be
"pure" for the duration of their stay in those towns. This
meant no alcohol, no singing and dancing, and no women.
Chiyomoto was a thriving, high rank, expensive teahouse
that stood on a piece of land with the best view of
Kanazawa Inlet. But beside the view, her guests also
enjoyed drinking and carousing... (



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