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Political Violence Scares Japanese Investors, Acrimony Flows Instead Of Money, But It Doesn't Stop Japan Inc.
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
Softbank’s announcement to buy 70% of Sprint Nextel Corp. for $20.1 billion caused its stock to plunge 17% in Japan that day. Investors had been through it before: a company pays way too much to accomplish its CEO’s megalomaniac goals, only to get mired in a corporate culture clash, faulty execution, and other overseas nightmares. Past performance isn’t exactly an endorsement: from 2000 to 2011, the net amount of market value lost by Japanese acquirers a year after deal announcement was $330 billion—a “terrible” track record.
The Softbank announcement was the most visible part of Japan Inc.’s pursuit of foreign interests. But in its shadow, Japanese companies are quietly heading hand-in-hand with the Japanese government into iffier areas, like Bangladesh, where they struggle with the most basic impediments to investment.
“Political violence scares investors,” said Shiro Sadoshima, the Japanese Ambassador to Bangladesh, during a discussion on October 15. Investors were worried about the next election. And they have to deal with energy shortages and blackouts. Yet, by the end of September, 135 Japanese companies had a base of operation in Bangladesh, up from 113 a year ago. “It has doubled over the last five years,” the ambassador said. These corporate trailblazers include Honda, which has an assembly plant in Bangladesh and is planning to build a manufacturing plant.
The reason: rising labor costs in Southeast Asia where Japanese companies have invested heavily. So poor, low-wage Bangladesh is becoming a “golden opportunity,” the ambassador said, despite the chilling risks. Japan would be involved in developing energy projects and a deep-sea port perhaps, he said—and funding the metro rail project in Dhaka, well, Tokyo would give its response soon.
Japan Inc. at work. The government greases the wheels, and it promotes and helps fund projects overseas that Japanese companies then execute. The irony is that the government has become the most indebted in the world with no chance of being able to back out of its cul-de-sac. Even the Ministry of Finance isn’t hiding it anymore [Japanese Ministry of Finance To Japanese Bondholders: You’re Screwed!].
But it’s not just the central government that is intertwined with business. Local governments as well. For example, those that have been involved in developing and maintaining advanced water treatment systems are now scrambling to get their share of a worldwide market that is expected to reach $1.1 trillion by 2025.
One of them is Tokyo Suido Service Co. (TSS), of which the Tokyo government owns 51%. It has developed a water leakage detector that, when placed on the pavement, locates the sounds of water leaking from underground pipes. A device that the Metropolitan Waterworks Authority of Thailand could use. Its system is in such a state that about 36% of the water that goes into it leaks out before reaching the end user—”nonrevenue water,” it’s called. During a demonstration last year, the company identified 10 leaks and 50 malfunctioning water meters. Subsequent repairs allowed the Thai waterworks company to cut nonrevenue water to 3% in the tested areas. And two weeks ago, TSS inked a maintenance contract.
Japan Inc. has also been a formidable investor in China, and a major trading partner. Then the Senkaku Islands conundrum blew up. Japanese business leaders with experience in China were shocked by their government’s incompetence. China responded with state-encouraged ruckus, accompanied by mob violence and vandalism not only against Japanese businesses but against Chinese-owned ones that sell Japanese brands, such as car dealerships, and against Chinese individuals and their property if it happened to be a Japanese brand. This was followed by saber rattling on all sides.
A phenomenal mess. Japanese plants in China have been shut down. Chinese workers have been furloughed. Demand for Japanese products, particularly cars, has collapsed—at least temporarily. Intimidated Japanese businesspeople, if they’re still in China, are trying to keep a low profile, staying indoors, nurturing second thoughts, and perhaps dreaming about Bangladesh.
Japan had been flooded by Chinese tourists and their money. Suddenly ... mass cancellations, empty rooms, dreadful calm instead of loud, and for Japanese ears chaotic, Chinese voices that came with the glitter of credit cards and the rustling of always pristine and nearly sacred ten-thousand-yen notes.
Instead of money, acrimony is once again flowing both ways. Japanese investments in China may become scarcer, as Japan Inc. sorts through its options. While this happened before, and was resolved before, this time the damage appears to be deeper. It’s a textbook case of how Japan Inc.’s normally slick strategies can descend into complete disarray.
“Pauperization,” the word, became infamous when three executives of huge consumer products companies voiced it as the new challenge in Europe. To market their products in the new environment, they applied what worked in poor countries. In Japan, a similar process has hounded the economy, but for much longer. And nothing shows this better than the plight of the ubiquitous but hapless salaryman. Read.... The Pauperization Of Japan.
And here is my book about Japan. It all started in France with a Japanese girl—a “funny as hell nonfiction book about wanderlust and traveling abroad,” a reader tweeted. BIG LIKE: CASCADE INTO AN ODYSSEY. Read the first few chapters for free on Amazon.
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And here is my website about Japan. It all started in San Francisco with a Japanese girl—a “funny as hell website about wanderlust and traveling with a broad”
www.japan-whores.com
Everything you need to know about in-vesting in Japan.
jb
I am currently reading the book <u>Big Like </u>. I'm probably overly interested in the topic since I've lived and worked in Japan and I have a lot of contact with Germans. But i find it a page turner. At $3.99 for the kindle version, why not download it and see? Then I linked to your website www.japan-whores.com more-or-less on autopilot and got the big pulsing warning message from my corporate firewall that I was attempting to access porn and would be reported. Damn.
Well, yeah! Dude....who would ever think a website with "whores" in the url would be porn. That's just too deceptive, man.
Thanks for your insights and perspective.
Wolf, I always like your perspectives. Nice piece!
I was in Japan in late May (Osaka), to visit one of our suppliers. I had been once before to Japan, but a long time ago. Our supplier was a very "westernized" (he was not scandalized by my typical American-ness) and an all around good guy. We talked kind of a lot even though I was just there three days.
He told me that Japan seems to be kind if in a daze. That the children are NO LONGER (edit) busting their butts in school. I got this feeling that they are giving up... That maybe Fukushima was the last straw, and that they seem to think that they are finished as a world power. NO, I did not see them "glowing in the dark", but, there was a palpable feeling that Japan seems to have seen their best days behind them.
I also had a chance to visit one of my wife's friends, a lovely Japanese lady. Her two children do not have what we would call "plum jobs".
Maybe I over-read the situation there, could be. But, my overall feeling was that they have kind-of given up.
As a "native" Osakan mukoyoshi, I'm glad to hear you enjoyed your time in Japan's greatest region! Osakan's are more more earthy than their other Japanese compatriots. Oldsters always complain about kids not busting their butts, but a lot of that is attributed to a reform attemptof the schools in the past 20 years (think Japanese NCLB).
Osaka being a distinctly working class city has been particularly hard hit by the 3 decade long decline in manufacturing, so that accounts for what I've seen of the malaise in that city. But we "westerners" also fail to take into account the cultural aspect of the "Nobility of Failure." Japan is always going through these cycles phoenix-like existence.
Hope they treated you to okonomiyaki.
Vlad, thanks for sharing your experiences in Osaka. I did find them to be less formal (I took off my tie when I went to his (very small) bearing plant there in Osaka).
Your explanation that manufacturing being so hard hit may indeed explain the vibe that I picked up while there. At least Mr. Maekawa seems to be doing OK, one of his problems is that his plant is located in the city, so he cannot run his plant after 7:00 PM (residential zone, but he has been there for decades). He would like to move his plant to the country or suburbs, but told me he would have a hard time staffing his plant from so far from town. And his son is only 9 years old (family owned company), so he does have issues and headaches as a small manufcaturer in a business that is usually large scale.
But, his company has a core competency in making various popular sizes that his (worldwide) customer network buys, as he can price these items lower than the competition (very tough), as he does not make a full line of bearings, he can "cherry-pick" the most popular replacement pieces...
One of his pieces is doing very well for us (rear wheel bearing for Toyota Probox), it is our FOURTH best selling piece (out of over 600 line items) in 2012.
So there is hope, I hear you re the Phoenix rising...
No, re okonomiyaki (at least I think I did not eat that...). He did take me out for a NICE steak place though, mmm...
Uhm, we got it. You're selling a book.
hey has he written fifty shades of gray??
Now thats a book worth a thousand images!
Too funny...and true.
The irony is, I might be interested in his book on Japan. What I'm not interested in is yet another trite autobiography about a round-eye's adventures with his quirky, yet, adoring, but always kawaii Japanese girlfriend...wherever they are.
The Yakuza are not happy at the japanese political class for allowing Fukushima to bleed Japan to death. They will take over and clean up the mess, and in the process those responsible will be faced with extintion.
The Japs should hope & pray for a Yakuza coup. I have no doubt the tattooed gents could clean the stables, turn the joint around, and be in the black in 5 years or less. Ask any Vegas oldtimer 'who ran the casinos/city of Las Vegas better, the Mob or the current Corporatocracy?', and every single one of 'em will answer, "The Mob." No reason it shouldn't be the same over there.