Asia Business Drives Recovery of Japanese Companies

Osaka – Sunday, June 27, 2010

Nikkei, Japanese newspaper specialized in business/economy, reported today that Asia business is driving revenue recovery of Japanese Companies. It came clear that Asia is the engine of generating revenue (profit) for one out of four companies when they analyzed operating revenue of financial data by region for fiscal year ending March 2010.

Operating profit from Asia business has recovered to the level of 82% of those of before the worldwide financial crisis in 2008. This is far greater than Americas (43%) and Japan (30%). It is true that there are risks such as increase in personnel cost of China. However, the Japanese government has developed the new growth strategy as explained in the previous article Japan's New Growth Strategy Approved - What Is It? making the most of growth in Asia economy and therefore it is likely that further shift in Asia business will take place among Japanese companies.

1. How did Nikkei come to the conclusion?

Nikkei collected and analyzed financial data of 419 listed companies (excluding financial and new companies) that are:- a)fiscal year ends in March; b)discloses revenues by region; and c)sequent data is available since 2000.

2. How much was the operating profit generated by Asia business?

Operating profit generated by Asia (including Oceania) business was 1.8814 trillion yen in total, which covers 26% of total operating profit generated worldwide. Although this percentage is behind Japan, which was 52%, it is far greater than Americas (11%) and Europe (3%).

3. How is Asia business driving recovery of major companies?

Companies covering 25% of 419 companies analyzed have been recovering driven by Asia business. Most of them are of major manufactures of automobile and electronics. Operating profit generated by Toyota’s Asia business was the greatest, totaling 203.5 billion yen. This attributed to Toyota’s consolidated operating profit returning to black even though their America and Europe business still remains in red.

Major Companies Generating Revenue/Profit Primarily from Asia Business
(Source: Nikkei, translated by the author)
Company Name / Amount of Operating Profit from Asia Business (billion yen) / % of Operating Profit from Asia Business*
Toyota / 203.5 / 139
Denso / 75.3 / 54
TDK / 65.9 / 251
Suzuki / 56.1 / 67
Toshiba / 46.1 / 41
Daikin / 37.9 / 88
HOYA / 34.1 / 58
Seiko Epson / 27.2 / 158
Hitachi Construction Machinery / 26.5 / 219
Rohm / 26.5 / 108
* above 100 = the total operating profit from business in other regions are negative (i.e. loss)

Suzuki’s business is strong in India, where they have market share of approximately 50% in passenger cars. Card produced locally topped 1 million for the first time. The top management commented “operating profit generated by business in India covers almost 70% of consolidated operating profit”.

Toshiba’s operating profit from Asia business doubled from previous year totaling 46.1 billion yen. This was because of business growth in their infrastructure and digital consumer electronics businesses.

4. How is Asia business recovery compared?

Revenue and profitability recovery from Asia business is outstanding. Sales have recovered to 70% and operating profit has recovered to 82% of the level of fiscal year ending March 2008, i.e. before the worldw ide financial crisis. Profitability of Asia business is also high compared with other region. Operating profit of Asia for the analyzed companies turned out to be 9% in average, which is far greater than Japan (45), Americas (3%) and Europe (1%).

This is because profit tends to expand in the process of market recovery for Asia where cost is comparatively low and inflation is comparatively high, compared with, for example Japan, whose profitability is more difficult to improve with high yen and deflation.

5. What is the outlook for fiscal year ending March 2011?

Asia is assumed to remain the engine of further business/financial performance recovery of Japanese companies for fiscal year ending March 2011.

For example, UniCharm Corporation estimates to increase its operating profit by 19%. For sales increase, third plant in China has been constructed in the end of 2009. TOTO plans to generate approximately 70% of assumed worldwide operating profit from China business. To achieve this, they will strengthen sales of housing equipment in inland area.

The government’s new growth strategy leading to strengthening economic relationship with Asia countries could mean positive effect on Asia business of Japanese companies. However, there are risks such as devaluing of the Chinese yuan (RMB) and increase in personnel cost of factory workers in high growing market of China, which has big impact on management. In addition, competition with strong companies of the west and Korea is severe. It is high likely that the quality of Asia business strategy determines how their Asia business further grows.