Monday, December 28, 2009 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Saturday 26th the Japanese government’s finalized 2010 budget plan, from which it became quite prominent that realizing the DPJ (Democratic Party of Japan) Manifest and acquiring its financial resources is incompatible. The government is to solve by issuing new government bond meaning drastically increasing the debt, but this is likely to have negative impact on the overall economy. It is high time for the government to develop and execute growth strategy, aligning with the Japan and worldwide current trend, and the high time for all parties (politicians and bureaucrats, academic world and all other public sector, companies and all other private sector and citizens) to change their mindset and tackle the problem of recovering the economy together.
1. What is the big picture of the finalized 2010 budget plan and how unsound is the financial condition?
General accounts totaled 9.2 trillion yen (+4.2% vs. PY), which is the biggest in the history. Looking in details, general expenditure increased from 51.7trillion yen to 53.5 trillion yen, local allocation tax etc. increased from 16.5 trillion yen to 17.5 trillion yen, and debt servicing cost increased from 20.2 trillion yen to 20.6%. Moreover, adjustment cost for settlement of 0.7 trillion yen was added.
With budgeting policy emphasizing local and family budget, the total expenditure expanded. Public projects was cut 1.3 trillion yen (-18%) and reviewing respective business and budget by task force members which was a first trial in Hatoyama administration contributed to cost reduction of 1 trillion yen. However, local tax allocation increased by 1 trillion yen, social security cost increased by 10% due to aging society, and 3 trillion yen was added as costs to realize major measures of DPJ (Democratic Party of Japan)’s Manifest such as family budget assistance*.
Regarding budget revenue, tax revenue is expected to decrease from 46.1 trillion yen to 37.4 trillion yen, so although non-tax revenue is expected to increase from 9.1 trillion yen to 10.6 trillion yen, the government decided to increase government bond from 33.3 trillion yen to 44.3 trillion yen to cover-up the insufficient financial resources. This means that dependence of the national budget on government bonds will be extremely high, almost 50%.
Major Expenditure Items by Ministries
(Source: Nikkei, translated by the author)
Ministry Name / Budget (trillion yen) / Increase/Decrease (vs PY) / Concept of Budgeting
MHLW (Ministry of Health, Labour and Welfare) / 27.56 / Increase / Drastic increase with “family budget assistance” Increase by 2.4 trillion yen attributing to “family budget assistance” including allowance for children, lower medical expense and assistance of household with single parent.
MLIT (Ministry of Land, Infrastructure, Transport and Tourism) / 5.61 / Decrease / Expenditure for FOC motorways shrunk to 0.1 trillion yen. Public projects expenditure decreased drastically. Expenditure for FOC motorways cut from original request of 0.6 trillion yen to 0.1 trillion yen.
MIC (Ministry of Internal Affairs and Communications) / 18.60 / Increase / Tax allocation increased by 1.1 trillion yen. Increase in local tax allocation received by local governments by 1.1 trillion yen, first time in 11 years. IT related budget focuses on promoting IT use.
METI (Ministry of Economy, Trade and Industry) / 0.99 / Decrease / Focuses on supporting financing of SMB businesses. Focuses on supporting financing of SMB businesses. Increase in budget for supporting technical development for global warming countermeasures.
MAFF (Ministry of Agriculture, Forestry and Fisheries of Japan) / 2.28 / Decrease / Drastic decrease in land improvement business. Full requested expenditures related to the Manifest including system to assist rice farmer households were booked. Drastic cut in expenditure for land improvement business supported by LDP.
MOFA (Ministry of Foreign Affairs of Japan) / 0.66 / Decrease / Increase in supporting Afghanistan etc. Drastic increase in supporting Afghanistan and Pakistan. Cut in grant aid for third sector facilities.
MEXT (Ministry of Education, Culture, Sports, Science and Technology) / 5.60 / Increase / To free tuition fee for public senior high school students. To free tuition fee for public senior high school students. Assist 120 thousand yen/child for private senior high schools. Increase students benefiting from interest-free scholarship by 5000. Decrease outlays for promoting science and technology for the first time.
DA (Ministry of Defense) / 4.79 / No change / To defer Futemma base relocation related cost. Drastic increase in expenditures related to realignment of U.S. forces in Japan. To defer Futemma base relocation related cost. Implement new naval escort.
MOE (Ministry of the Environment) / 0.21 / Decrease / Focus on biodiversity conference.
Focus on biodiversity conference to be held in Nagoya City in October 2010 and on natural energy proliferation.
With efforts to minimize annual spending by freezing a few minor Manifest items, major items of the DPJ’s Manifest will be implemented from 2010, but with current financial resource outlook, whether the government would be able to continue the implementation 2011 onwards is a question. Primary balance**, a barometer for soundness of the country’s financial condition, is expected to reach minus 23.65 trillion yen for 2010, with the biggest increase in deficit from the previous year in history. Combined total of outstanding debt for both central and local governments is expected to reach the biggest in history of 862 trillion yen at the end of 2010. Hatoyama administration needs to immediately get the balance sheet of annual spending and revenue in shape.
2. What is the possible effect on the economy?
The author views that the finalized budget is unlikely to contribute to improving the economy as expected, and the government’s economic policy management may well needs to be improved to meet the expectation of the citizens, economic and industry experts and the stock market.
1) 10 economy experts view differently but in general they are rather pessimistic.
According to Nikkei’s interviews to 10 economy experts, although their views varied, they agreed on the fact that the actual rate of GDP’s growth is expected to remain low. Their average outlook was 1.2%, which is below the government’s outlook of 1.4%. Effect on the economy ranged from +0.4% to -0.3%. 4 people said that there would be some positive effects because “family budget assistance” stimulates the economy, 3 people said that the total effect will be zero, and the remaining 3 people said that there would be negative effects because of the reduction of public projects.
With low GDP growth outlook and deflation to continue as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?, strong growth strategy to drive investment and stimulate consumer spending is inevitable, which requires economic policy management aligning with to the current global economy environment and Japanese competitiveness. However, many experts seem to feel that the current economic policy management is not up to date, based on the concept that was valid 20 years ago before the burst of the bubble economy (i.e. when the economy and domestic demand continued to grow), to which the author agrees.
2) The government is not taking appropriate and sufficient actions to make Japan strong and its economy grow.
Today, Japan is suffering from low GDP growth and deflation, and its financial status is one of the worst among developed countries, so what really should be focused on is, similarly to turnaround of ailing companies, eradicate unnecessary cost and debt, improve global competitiveness, and develop and execute growth strategy. However, the message of the finalized budgeting is NOT putting priority on improving environment for companies to compete in the global economy, and consequently to pass the burden to succeeding generations by issue of government bonds. The government intends to stimulate consumer spending but measures and actions to eliminate from citizens anxieties of their after-retirement life, the perquisites to stimulate consumer spending, are insufficient. The government needs to focus on expanding the total pie of the economy, i.e. growth, in order to create employment and establish sustainable social security systems.
Domestic demand expansion needs regulation revolution to promote entering industries with great needs such as healthcare, nursing care and child-care, which requires tough national coordination. Tough national coordination is also required for FTA conclusion meaning opening of agriculture market and so forth. However, with, the House of Councilors election coming up in summer 2010, it is highly unlikely that the government would take actions in these kinds of issues.
In the current economic environment in which Japan cannot possibly expect growth in domestic demand, Japan would need to rely on external demand, expanding business in emerging markets, and the prerequisites would be to create the environment in which Japanese companies improve competitiveness in the global market so that they can compete with their global counterparts. Such possible measures include decreasing corporate tax rate (currently 40%), which is far greater than other countries, and concluding FTA (Free Trade Agreement) with EU and other regions/countries similarly to what Korea is trying to do. Such measures had always been advocated by Japan Business Federation (Nippon Keidanren) and other experts but the government does not seem to take actions.
What the government needs to do is take measures strategically to attract talents, technologies, capital, information and so forth from around the globe just like what Singapore is doing, as well as taking measures to create environment and systems mentioned above and focus on education to level up the skills and competencies of its citizens to make them competitive in the global economy. Unless the government first acknowledge that the world is flat as Thomas L. Friedman depicts in his book “The World Is Flat 3.0: A Brief History of the Twenty-first Century" and change mindset to take actions accordingly, it is unlikely that the citizens acknowledge the reality and change their mindset.
3) Japanese companies and TSE started to take actions for survival at last. Are other players to follow?
Of course, Japanese companies also need to change their mindset; they seem to lack in “hungry and fighting spirit” unlike Korean counterparts who are fully aware that they need to win in the global market to survive with the small economy size of Korea. This may well be because as Mr. Toshihiko Fukui, the former Bank of Japan Governor, says in the interview with Nikkei according to the article of the newspaper dated December 27, that Japan has been enjoying the position of the second largest economy. The author fully understands what Mr. Fukui says and agrees; she worked in a Japanese electronics giant for many years until 2006 and during that time the Korean counterpart actually became more competitive in the global market, as company ranking of Forbes clearly indicated for example as well as other signs of defeat. But the position is soon likely to be replaced by China, and the global battle for survival is becoming tougher and tougher. Therefore, companies need to revive their fighting spirit to go back to the basics and strengthen product development and marketing (including branding) meeting customer needs and generate business by step by step sales, similarly to what they have done in the recovery period after the World War II.
The initiatives of Japanese FMCG (Fast Moving Consumer Good) companies mentioned in the previous article "Japanese Food and FMCG Giants to Foster "Global Brands"is a sign that they are changing their mindset and starting to take actions. TSE (Tokyo Stock Exchange) to revise listing regulation as mentioned in the previous article "With Slow Japanese Stock Market Recovery TSE to Revise Listing Regulation" is a sign that TSE also started to take their action. In order for such initiatives to bear fruit, optimum environment needs to be created by all public sector players as well as mindset change and actions from all parties including the community and citizens. They all need to acknowledge the reality, and all players, public and private, need to tackle the problem together, from total optimization perspective.
* DPJ’s “Family Budget Assistance” (Source: Nikkei, edited and translated by the author)
Key economy boosting measures that the DPJ promised as their Manifest to win the General Election held on August 30 2009. The scenario is to increase disposable income by directly providing benefits to family budget etc. and stimulate consumer spending. The DPJ intends to change from the LDP’s economic policy focusing on supporting companies to realize economic growth driven by domestic demand.
Main items of “family budget assistance” include providing allowances for children, freeing tuition fee for senior high school students, freeing motorways, abolishing temporary tariff rate etc. Their positive effects may well be converted to savings instead of being consumed unless anxieties for post-retirement lives and distrust of social security system are eliminated from citizens.
Items of “family budget assistance” / Measures to be implemented from 2010
Allowance for children / 13,000 yen/child per month to be provided.
Free tuition fee for senior high school students / Tuition fee for public senior high school students to be made free. Assistance to private senior high school students to be provided as well.
Income indemnity for farmer households / To be executed to nationwide rice farmer households.
Free motorways / Test demonstration for pilot regions.
** Primary Balance (Source: Nikkei, translated by the author)
Balance of payments calculated by subtracting new government issuance (new debt) from debt service cost (nation’s debt). If the calculation is in black (i.e. positive), fiscal condition is good, and if it is in red (i.e. negative), fiscal condition is bad. Japan has always been negative and its big challenge had always been to make a balance mid/long-term.
2009年12月20日日曜日
Japanese Food and FMCG Giants to Foster “Global Brands”
Sunday, December 20, 2009 – Osaka, Japan
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japanese food and FMCG (Fast Moving Consumer Good) giants are to roll out their major Japan domestic brand products worldwide, fostering them as global brands. For example, Asahi Beer plans to double their overseas sales of “Asahi Super Dry” in 3 years, the sales equivalent to approximately their 10% of their Japan domestic sales. Lotte will establish a sweet manufacturing plant in Thailand to sell in Asia. Lion will position such brands as “Top”, brand of detergent for clothes, as their strategic brand and increase manufacturing plants in Asia. With shrinking domestic market and expanding middle income group in emerging markets, domestic demand oriented industries/companies start to foster global brands in earnest.
1. What are “Global Brands”?
Global brands are brands of products (& services) that have been taken root and enjoy good sales in major countries and regions worldwide. An excellent example includes Coca Cola,
Major Global Brands of Food and FMCG
(Source: Nikkei, translated by the author)
Brand Name / Products / Company Name
Kikkoman / Soy sauce / Kikkoman
Nabisco / Biscuit / Kraft Foods
Pepsi / Cola beverage / PepsiCo
Avian / Mineral water / Danone
Budweiser / Beer / Anheuser-Busch
Pampers / Diapers & nappies / Proctor & Gamble
Lux / Healthcare / Unilever
2. How are western giants enjoying global brand business?
Western giants have been focusing their resources to global brands and have been enjoying excellent revenue and profitability. For example, Global foods leader of Nestle enjoys business of approximately 30 global brands including KitKat, each of which generates over 1 billion USD (90 billion yen) revenue. Nestle’s annual total sales amounts 9.6 trillion yen, which is 2-1/2 times of the sum of Japan’s No.1 & No.2 beverage companies (now negotiating for M&A) yet net profit amounts to 14 times of 1.6 trillion yen.
3. What are the trends of Japanese food and FMCG giants in fostering global brands?
Global brands are fostered targeting Asia and other emerging market. Asahi Super Dry overseas sales is planned to double from current 5 million cases (1 case = 20 big bottles) to 10 million cases. In China Asahi invested 20% to establish a Joint Venture company with China’s 2nd beer company Tsingtao Brewery to utilize manufacturing plant and distribution channel. For Thailand market, Asahi will expand production and sales entrust to its alliance, Thailand’s beer leader. And for western market, Asahi will exploit local city market to bottom-up their business.
Lotte plans to expand current business focusing on Japan and Korea to other market at a stroke. Lotte plans to invest 3.5 billion yen to establish a manufacturing plant of “Koara-no-march”, a sweet brand, in Thailand, and start selling in South East Asia including Thailand, Vietnam and Indonesia, and then expanding its business to the Middle East and Americas. Lotte thus plans to increase its current sweet sales of approximately 10 billion yen to 90 billion yen by 2012.
Lion plans to position “Top” and “Systema”, tooth brush and tooth paste brand, as their strategic brands for Asia. Lion plans to invest 1 billion yen to strengthen their manufacturing plant in Thailand and Indonesia in 2010. Thus Lotte plans to increase their overseas sales from 15% in 2008 to 30% in 2012.
Trend of Brand Globalization
(Source: Nikkei, translated by the author)
Company Name / Plan
Morinaga / Start business of “Haichu”, candy, in Asia and North America, followed by Europe, Russia and Brazil within 2 or 3 years.
Lotte / Foster total of 5 brands including sweet brands of “Koara-no-march”, “Ghana” and chewing gum brand of “Xylithol” as global brands.
Nisshin Oillio / Started business of low fat cooking oil brand “Healthy resetter” in China and Taiwan, followed by Korea this autumn.
Kao / Position total of 7 brands including brand for clothes detergents “Attack”, facial wash ”Biore” and healthcare “Asience” as strategic brands for Asia market.
Shiseido / Started business of high end make-up SHISEIDO global brand products in approximately 70 countries and regions worldwide in January this year. Targets to achieve sales of 100 billion yen/year for 2013.
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japanese food and FMCG (Fast Moving Consumer Good) giants are to roll out their major Japan domestic brand products worldwide, fostering them as global brands. For example, Asahi Beer plans to double their overseas sales of “Asahi Super Dry” in 3 years, the sales equivalent to approximately their 10% of their Japan domestic sales. Lotte will establish a sweet manufacturing plant in Thailand to sell in Asia. Lion will position such brands as “Top”, brand of detergent for clothes, as their strategic brand and increase manufacturing plants in Asia. With shrinking domestic market and expanding middle income group in emerging markets, domestic demand oriented industries/companies start to foster global brands in earnest.
1. What are “Global Brands”?
Global brands are brands of products (& services) that have been taken root and enjoy good sales in major countries and regions worldwide. An excellent example includes Coca Cola,
Major Global Brands of Food and FMCG
(Source: Nikkei, translated by the author)
Brand Name / Products / Company Name
Kikkoman / Soy sauce / Kikkoman
Nabisco / Biscuit / Kraft Foods
Pepsi / Cola beverage / PepsiCo
Avian / Mineral water / Danone
Budweiser / Beer / Anheuser-Busch
Pampers / Diapers & nappies / Proctor & Gamble
Lux / Healthcare / Unilever
2. How are western giants enjoying global brand business?
Western giants have been focusing their resources to global brands and have been enjoying excellent revenue and profitability. For example, Global foods leader of Nestle enjoys business of approximately 30 global brands including KitKat, each of which generates over 1 billion USD (90 billion yen) revenue. Nestle’s annual total sales amounts 9.6 trillion yen, which is 2-1/2 times of the sum of Japan’s No.1 & No.2 beverage companies (now negotiating for M&A) yet net profit amounts to 14 times of 1.6 trillion yen.
3. What are the trends of Japanese food and FMCG giants in fostering global brands?
Global brands are fostered targeting Asia and other emerging market. Asahi Super Dry overseas sales is planned to double from current 5 million cases (1 case = 20 big bottles) to 10 million cases. In China Asahi invested 20% to establish a Joint Venture company with China’s 2nd beer company Tsingtao Brewery to utilize manufacturing plant and distribution channel. For Thailand market, Asahi will expand production and sales entrust to its alliance, Thailand’s beer leader. And for western market, Asahi will exploit local city market to bottom-up their business.
Lotte plans to expand current business focusing on Japan and Korea to other market at a stroke. Lotte plans to invest 3.5 billion yen to establish a manufacturing plant of “Koara-no-march”, a sweet brand, in Thailand, and start selling in South East Asia including Thailand, Vietnam and Indonesia, and then expanding its business to the Middle East and Americas. Lotte thus plans to increase its current sweet sales of approximately 10 billion yen to 90 billion yen by 2012.
Lion plans to position “Top” and “Systema”, tooth brush and tooth paste brand, as their strategic brands for Asia. Lion plans to invest 1 billion yen to strengthen their manufacturing plant in Thailand and Indonesia in 2010. Thus Lotte plans to increase their overseas sales from 15% in 2008 to 30% in 2012.
Trend of Brand Globalization
(Source: Nikkei, translated by the author)
Company Name / Plan
Morinaga / Start business of “Haichu”, candy, in Asia and North America, followed by Europe, Russia and Brazil within 2 or 3 years.
Lotte / Foster total of 5 brands including sweet brands of “Koara-no-march”, “Ghana” and chewing gum brand of “Xylithol” as global brands.
Nisshin Oillio / Started business of low fat cooking oil brand “Healthy resetter” in China and Taiwan, followed by Korea this autumn.
Kao / Position total of 7 brands including brand for clothes detergents “Attack”, facial wash ”Biore” and healthcare “Asience” as strategic brands for Asia market.
Shiseido / Started business of high end make-up SHISEIDO global brand products in approximately 70 countries and regions worldwide in January this year. Targets to achieve sales of 100 billion yen/year for 2013.
2009年12月13日日曜日
With Slow Japanese Stock Market Recovery TSE to Revise Listing Regulation
Sunday, December 13, 2009 – Osaka, Japan
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japan stock market is still in the plunge when stock prices are at high level worldwide. Japan is the only country whose stock price fluctuation ratio is minus since end of this August (timing of General Election) among 20 major countries and regions. This is said to attribute to high yen, increase in capital investment and investors avoiding to invest in Japan stock from suspiciousness on management of the economy by Hatoyama administration. The Nikkei Stock Average has recovered to over 10,000 yen after having once plunged to far below 9,000 yen at the lowest, but compared to other stock market, it is prominent that Japan stock price has not been recovering sufficiently.
1. Stock prices of countries and regions excluding Japan and Italy have been on the rise since September in line with worldwide economic recovery.
Since the General Election in end of August, The Nikkei Stock Average dropped by 3.7% as of December 11. It has once declined by 13.4% in the end of November due to drastic high yen. On the other hand, stock prices of other major countries have been firmly improving since September with bottom-out of worldwide economy. Italy’s stock price has remained almost constant since September but all others have been rising; +27% for Russia, over +20% for China and Brazil, and the U.S has been steadily improving with approximately +10%.
2. There are several reasons for plunge in Japan stock price.
The first reason is drastic high yen. Since Japan relies much on export-oriented industries, this has huge negative impact on the Japanese economy.
The second reason is many companies have been issuing many new stocks to increase capital and enormous amount of share of stock were supplied to the stock market, leading to dilution of outstanding stocks.
The third reason is uncertainty of government’s economic policy, leading to negative impact on market psychology. Immediate execution of countermeasures for deflation and high yen is critical but Hatoyama administration has other issues such as political donation and transfer of Futenma airbase, and some experts in economy are worried that the priority of economy under Hatoyama administration might be not so high. In addition, finalizing 2010 budget is taking time because the administration is having a tough time in reducing request of budget allocation. With this, on December 11, in bond market, long-term interest rate rose because of the laxing fiscal discipline, and in the stock market, many experts view that the Hatoyama administration has not yet developed long-term growth strategy.
3. Current situation needs to be improved immediately.
Under the severe current situation, Japan needs economic measure to be implemented immediately. Expectation of mid/long-term economic growth of Japan is shrinking among overseas investors. And with ongoing deflation as mentioned in the previous article "How Japan Get Out From 10 Year Deflation?", Japan’s GDP is at one of the lowest level in 19 years.
Under ongoing deflation situation, it would be difficult for companies to increase revenue and profit, and stock price tends to decrease as well. An expert in stock market comments that overseas investors are likely to avoid investing to countries that are going through deflation. And according to a survey executed by the U.S. Merrill Lynch in November, the percentage of investors who are timid to Japanese stocks was the highest since autumn of 2002.
Trading value for 2009 at the TSE (Tokyo Stock Exchange) is assumed to be at the lowest level in 5 years. Also, it is assumed that trading value of Shanghai Stock Exchange of China will be greater than that of TSE. Number of companies that newly listed this year in Japan is 19, which is the least in 31 years.
One of the few positive atmospherics is the fact that Japanese stocks on hand of investors seems to be less than usual. So when investors change their view and judgment on the administration’s management of the economy and/or exchange rate changes, big investors may increase again their Japanese stocks on hand, which would lead to improvement in Japan stock market.
However, in general, many experts view that for the time being, stock market prices will not improve so much because of the anxiety that the economy will plunge again with deflation.
With deteriorating cash flow of Japanese companies as reported in recent articles by Nikkei, it is natural that Japanese companies would need to raise capital and plunge in stock price would be a big negative factor for them. According to a Nikkei’s article of December 12, debt that Japanese companies have on UAE (general construction, trading etc.) of 66 billion yen (approximately 7.5 billion USD out of 15 billion USD) in total are still uncollected, as of December 11. Also, according to another Nikkei’s article of December 10, there is an anxiety that financial situation (especially consolidated cash flow and interest-bearing debt) of Japanese general construction companies, is deteriorating, attributing to factors such as big burden of reimbursed expenses of big overseas projects of UAE and Algeria.
4. TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders.
According to another today’s article of Nikkei, TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders. The objective of the revision is to enhance flexibility of raising capital and to activate plunging stock market.
Under the current environment, capital increased by public offering leads to drastic decrease in EPS (earnings per share), and current shareholders will gain loss from their stock. TSE will revise listing regulation by the end of the year so that companies can flexibly set capital increase and raise capital by allocating new share subscription right to their shareholders. This kind of method is called Right Issue in overseas stock market, and in Europe, this method is used to raise approximately 60% of total capital raised.
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japan stock market is still in the plunge when stock prices are at high level worldwide. Japan is the only country whose stock price fluctuation ratio is minus since end of this August (timing of General Election) among 20 major countries and regions. This is said to attribute to high yen, increase in capital investment and investors avoiding to invest in Japan stock from suspiciousness on management of the economy by Hatoyama administration. The Nikkei Stock Average has recovered to over 10,000 yen after having once plunged to far below 9,000 yen at the lowest, but compared to other stock market, it is prominent that Japan stock price has not been recovering sufficiently.
1. Stock prices of countries and regions excluding Japan and Italy have been on the rise since September in line with worldwide economic recovery.
Since the General Election in end of August, The Nikkei Stock Average dropped by 3.7% as of December 11. It has once declined by 13.4% in the end of November due to drastic high yen. On the other hand, stock prices of other major countries have been firmly improving since September with bottom-out of worldwide economy. Italy’s stock price has remained almost constant since September but all others have been rising; +27% for Russia, over +20% for China and Brazil, and the U.S has been steadily improving with approximately +10%.
2. There are several reasons for plunge in Japan stock price.
The first reason is drastic high yen. Since Japan relies much on export-oriented industries, this has huge negative impact on the Japanese economy.
The second reason is many companies have been issuing many new stocks to increase capital and enormous amount of share of stock were supplied to the stock market, leading to dilution of outstanding stocks.
The third reason is uncertainty of government’s economic policy, leading to negative impact on market psychology. Immediate execution of countermeasures for deflation and high yen is critical but Hatoyama administration has other issues such as political donation and transfer of Futenma airbase, and some experts in economy are worried that the priority of economy under Hatoyama administration might be not so high. In addition, finalizing 2010 budget is taking time because the administration is having a tough time in reducing request of budget allocation. With this, on December 11, in bond market, long-term interest rate rose because of the laxing fiscal discipline, and in the stock market, many experts view that the Hatoyama administration has not yet developed long-term growth strategy.
3. Current situation needs to be improved immediately.
Under the severe current situation, Japan needs economic measure to be implemented immediately. Expectation of mid/long-term economic growth of Japan is shrinking among overseas investors. And with ongoing deflation as mentioned in the previous article "How Japan Get Out From 10 Year Deflation?", Japan’s GDP is at one of the lowest level in 19 years.
Under ongoing deflation situation, it would be difficult for companies to increase revenue and profit, and stock price tends to decrease as well. An expert in stock market comments that overseas investors are likely to avoid investing to countries that are going through deflation. And according to a survey executed by the U.S. Merrill Lynch in November, the percentage of investors who are timid to Japanese stocks was the highest since autumn of 2002.
Trading value for 2009 at the TSE (Tokyo Stock Exchange) is assumed to be at the lowest level in 5 years. Also, it is assumed that trading value of Shanghai Stock Exchange of China will be greater than that of TSE. Number of companies that newly listed this year in Japan is 19, which is the least in 31 years.
One of the few positive atmospherics is the fact that Japanese stocks on hand of investors seems to be less than usual. So when investors change their view and judgment on the administration’s management of the economy and/or exchange rate changes, big investors may increase again their Japanese stocks on hand, which would lead to improvement in Japan stock market.
However, in general, many experts view that for the time being, stock market prices will not improve so much because of the anxiety that the economy will plunge again with deflation.
With deteriorating cash flow of Japanese companies as reported in recent articles by Nikkei, it is natural that Japanese companies would need to raise capital and plunge in stock price would be a big negative factor for them. According to a Nikkei’s article of December 12, debt that Japanese companies have on UAE (general construction, trading etc.) of 66 billion yen (approximately 7.5 billion USD out of 15 billion USD) in total are still uncollected, as of December 11. Also, according to another Nikkei’s article of December 10, there is an anxiety that financial situation (especially consolidated cash flow and interest-bearing debt) of Japanese general construction companies, is deteriorating, attributing to factors such as big burden of reimbursed expenses of big overseas projects of UAE and Algeria.
4. TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders.
According to another today’s article of Nikkei, TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders. The objective of the revision is to enhance flexibility of raising capital and to activate plunging stock market.
Under the current environment, capital increased by public offering leads to drastic decrease in EPS (earnings per share), and current shareholders will gain loss from their stock. TSE will revise listing regulation by the end of the year so that companies can flexibly set capital increase and raise capital by allocating new share subscription right to their shareholders. This kind of method is called Right Issue in overseas stock market, and in Europe, this method is used to raise approximately 60% of total capital raised.
Japanese Tax Haven Application Rule to Change
Sunday, December 13, 2009 – Osaka, Japan
Yesterday on December 12, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that the Japanese government has set policy of reviewing corporate tax system to change application rule of tax haven* with the objectives of eliminating tax dodge 2010 onwards. The government will lower the criteria of corporate tax burden of the regions and countries that the tax haven system is applicable for the first time, from the current 25% to just over 20%. Exceptions of the tax system will be more widely applied after the revision. These are all because emerging countries have been lowering corporate tax rate. This means bigger burden of corporate tax for Japanese companies, which could may well refrain them from starting and expanding their business in emerging countries. By reviewing the system, the Japanese government is to support Japanese companies starting and expanding business in growing markets.
1. Primary objective of changing the current tax haven application rule is to ease burden of Japanese companies.
Primary objective of the Japanese government reviewing the current corporate tax system is ease the burden of tax practices of Japanese companies. In a situation in which emerging countries have been aggressively lowering their corporate tax rate, it is not rationale to set the criteria of corporate rate tax rate for tax haven system application at 25%. And Ministry of Finance estimates that the decrease in corporate tax income by the corporate tax change is not critical.
2. Background of reviewing to change the system is the fact that corporate tax of Japan is the highest among developed countries.
Corporate tax of Japan is 40%, which is the highest among developed countries. And currently in principle, tax haven system is applicable to overseas affiliate companies located in regions and countries whose corporate tax rate is below 25%. When it is applied, a part of profit generated by the overseas affiliates is added to Japan HQ’s domestic income and the 40% of the sum is imposed as corporate tax. Under current criteria, it is quite possible that countries such as China, Korea, Vietnam and Russia, which Japanese companies are aggressive to enter and expand their business, are regarded as tax haven countries.
According to overseas business survey executed by METI (Ministry of Economy, Trade and Industry), out of overseas affiliates and subsidiaries (approximately 17,000 companies) of Japanese companies, half of them are located in tax haven countries under the current system. With problems of a Japanese company being imposed additionally for its affiliate located in Hong Kong which led to court case, Nippon Keidanren (Japan Business Federation) etc. have been requesting the government to review the current system. Therefore, the government has started to study to revise the criteria to just over 20%.
3. Currently there are exceptions to applying tax haven rule.
Under the current corporate tax system, there are exceptions to applying tax haven rule; i.e. there are some cases in which the rule mentioned above is not applied even if the corporate tax rate of countries and regions in which overseas affiliates are located is below 25%. Many companies leverage exceptions when, for example, more than half the trade of overseas affiliate is with non-affiliate companies.
Being exceptions, there are demerits such as companies bearing cost trading with non-affiliate companies. The government is to take this into account as well in reviewing the system. For example, they are to study to review the system so that the regional (e.g. Asia and Europe) HQs of Japanese manufacturers will not need to apply tax haven system even if their trade with non-affiliates is less than half the total trade.
4. The government will study and implement regulation to eliminate tax dodging of companies.
Taking the opportunity of changing the application of tax haven rule, the government will also set regulation to eliminate tax dodge of Japanese companies. The government will study to imposing corporate tax exclusively on incomes from assets such as interest and dividends for exceptions of tax haven system overseas affiliates. This is designed to eliminate tax dodge by Japanese parent company that has earned dividend by investing to overseas companies establishing substantive paper company in a third country. The U.S. has already transferred to this kind of system.
In fact, at the G20 (Pittsburgh) Summit held in September in which 20 regions/countries participated, the participants agreed to strengthen monitoring tax dodge of investors using tax haven system. The Japanese government is to closely collaborate to exchange information with respective countries about tax dodge while strengthening regulation of tax dodge from financial trade.
* Tax Haven
(Source: Nikkei, edited and translated by the author)
Tax haven is country or region whose corporate tax rate and/or tax of interest and/or dividend is zero or extremely low. Well known are Cayman Islands and multi-national companies and financial institutions, hedge funds etc. have been applying tax haven countries in order to making escape from being imposed of corporate tax.
Japanese tax haven system is applicable to countries and regions whose corporate tax is below 25%, thus many people have been pointing out that this system have been applied to regions and countries which cannot be said that it is sufficiently at a low level. In fact, it is possible that this system is applied to countries such as China and Vietnam in which many Japanese companies have started business. The Japanese government has set exceptions but the criteria are too high and Japanese business world has been requesting for review.
Major exceptions for tax haven are as below.
1) Business criteria: Major business is not owning stocks and debts
2) Reality criteria: Offices exists at head office address.
3) Administration and control criteria: Administration and control of business is performed at head office address.
4) Non-affiliate criteria: Business is mainly done with non-affiliate companies.
Yesterday on December 12, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that the Japanese government has set policy of reviewing corporate tax system to change application rule of tax haven* with the objectives of eliminating tax dodge 2010 onwards. The government will lower the criteria of corporate tax burden of the regions and countries that the tax haven system is applicable for the first time, from the current 25% to just over 20%. Exceptions of the tax system will be more widely applied after the revision. These are all because emerging countries have been lowering corporate tax rate. This means bigger burden of corporate tax for Japanese companies, which could may well refrain them from starting and expanding their business in emerging countries. By reviewing the system, the Japanese government is to support Japanese companies starting and expanding business in growing markets.
1. Primary objective of changing the current tax haven application rule is to ease burden of Japanese companies.
Primary objective of the Japanese government reviewing the current corporate tax system is ease the burden of tax practices of Japanese companies. In a situation in which emerging countries have been aggressively lowering their corporate tax rate, it is not rationale to set the criteria of corporate rate tax rate for tax haven system application at 25%. And Ministry of Finance estimates that the decrease in corporate tax income by the corporate tax change is not critical.
2. Background of reviewing to change the system is the fact that corporate tax of Japan is the highest among developed countries.
Corporate tax of Japan is 40%, which is the highest among developed countries. And currently in principle, tax haven system is applicable to overseas affiliate companies located in regions and countries whose corporate tax rate is below 25%. When it is applied, a part of profit generated by the overseas affiliates is added to Japan HQ’s domestic income and the 40% of the sum is imposed as corporate tax. Under current criteria, it is quite possible that countries such as China, Korea, Vietnam and Russia, which Japanese companies are aggressive to enter and expand their business, are regarded as tax haven countries.
According to overseas business survey executed by METI (Ministry of Economy, Trade and Industry), out of overseas affiliates and subsidiaries (approximately 17,000 companies) of Japanese companies, half of them are located in tax haven countries under the current system. With problems of a Japanese company being imposed additionally for its affiliate located in Hong Kong which led to court case, Nippon Keidanren (Japan Business Federation) etc. have been requesting the government to review the current system. Therefore, the government has started to study to revise the criteria to just over 20%.
3. Currently there are exceptions to applying tax haven rule.
Under the current corporate tax system, there are exceptions to applying tax haven rule; i.e. there are some cases in which the rule mentioned above is not applied even if the corporate tax rate of countries and regions in which overseas affiliates are located is below 25%. Many companies leverage exceptions when, for example, more than half the trade of overseas affiliate is with non-affiliate companies.
Being exceptions, there are demerits such as companies bearing cost trading with non-affiliate companies. The government is to take this into account as well in reviewing the system. For example, they are to study to review the system so that the regional (e.g. Asia and Europe) HQs of Japanese manufacturers will not need to apply tax haven system even if their trade with non-affiliates is less than half the total trade.
4. The government will study and implement regulation to eliminate tax dodging of companies.
Taking the opportunity of changing the application of tax haven rule, the government will also set regulation to eliminate tax dodge of Japanese companies. The government will study to imposing corporate tax exclusively on incomes from assets such as interest and dividends for exceptions of tax haven system overseas affiliates. This is designed to eliminate tax dodge by Japanese parent company that has earned dividend by investing to overseas companies establishing substantive paper company in a third country. The U.S. has already transferred to this kind of system.
In fact, at the G20 (Pittsburgh) Summit held in September in which 20 regions/countries participated, the participants agreed to strengthen monitoring tax dodge of investors using tax haven system. The Japanese government is to closely collaborate to exchange information with respective countries about tax dodge while strengthening regulation of tax dodge from financial trade.
* Tax Haven
(Source: Nikkei, edited and translated by the author)
Tax haven is country or region whose corporate tax rate and/or tax of interest and/or dividend is zero or extremely low. Well known are Cayman Islands and multi-national companies and financial institutions, hedge funds etc. have been applying tax haven countries in order to making escape from being imposed of corporate tax.
Japanese tax haven system is applicable to countries and regions whose corporate tax is below 25%, thus many people have been pointing out that this system have been applied to regions and countries which cannot be said that it is sufficiently at a low level. In fact, it is possible that this system is applied to countries such as China and Vietnam in which many Japanese companies have started business. The Japanese government has set exceptions but the criteria are too high and Japanese business world has been requesting for review.
Major exceptions for tax haven are as below.
1) Business criteria: Major business is not owning stocks and debts
2) Reality criteria: Offices exists at head office address.
3) Administration and control criteria: Administration and control of business is performed at head office address.
4) Non-affiliate criteria: Business is mainly done with non-affiliate companies.
2009年12月6日日曜日
Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries
December 6, 2009 – Osaka, Japan
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that price drop in service sector such as accommodation and hair dressing is severe in Japan. According to nationwide CPI* (Consumer Price Index), “general service” sector has been minus vs. previous year for 6 consecutive months, and for October the decrease ratio was the biggest in statistic history. With worldwide demand decrease, CPI has been dropping in western countries as well but Japan is the only country whose service price is minus. Ongoing price drop likely leads to stronger pressure for decrease in wages. Economic recovery driven by domestic demand that Hatoyama administration aims at is not easy.
Main Services Whose Price Has Dropped (As of October 2009)
(Source: Nikkei, translated by the author)
Service Name / CPI (vs. October 2008) / Actual Price (In Yen)
Accommodation / -2.0 / 16,032
Beef-on-rice dish / -0.3 / 390
Tatami mat repair / -0.3 / 6,871
Air conditioner installation / -0.4 / 14,043
Cleaning (men’s suit) / -0.2 / 1,108
Package tour (abroad) / -22.8 / 67,080
Monthly fees for English conversation lessons / -0.6 / 20,277
Playing golf / -4.2 / 14,031
Video rental / -12.9 / 317
Esthetic clinic / -0.1 / 13,065
Note: Index is of nationwide. Prices of accommodation, package tour (abroad) are of nationwide. Prices of all the rest is of Tokyo.
Prices of general services have been minus vs. previous year for 6 consecutive months since May this year, and it was -0.6% for October. Overall service including public sector was -0.5%, the biggest drop together with February 2005 since 1971 (statistics are available from 1971). During the 7-year deflation that started in 1998, price drop in service sector such as dining out was prominent but for general service sector, the biggest drop had been 0.3% of February 2001. Looking by industry, culture and entertainment service was -3.1%, accommodation was -2.0%, package tour (abroad) was -22.8%, playing golf was -4.2%, and using karaoke room was -2.6. Among dining out, “symbol of deflation items” of bee-on-rice dish and hamburgers were minus vs. October 2008.
Frequency of using services also is decreasing and expenditure of household is greater than drop in unit price. According to household budget survey executed in October 2009, expenditure for tea and coffee of households with two or more wage-earners was -14.3%. Services related to clothing such as cleaning was -6.6%. Package tour was -8.0% and monthly fee for foreign language lessons was -5.6%.
Price drop for Japan is prominent compared to western countries; service prices was +0.9% for the U.S. and +1.8% for EU. One reason that Japan’s service prices tends to drop easily unlike western countries is difference in employment practice. Large portion of service cost is labour cost. When demand decreases, many western countries immediately cut jobs to align supply capacity with demand decrease and maintain prices. However, Japan still tends to prioritize job preservation. Many Japanese service companies try to preserve jobs in severe competition in their service sector, and therefore they are faced with bigger pressure to lower wages.
Another reason for price drop is the fact that Japan is facing severe demand shortage (over supply). According to estimation of IMF (International Monetary Fund), “demand-capacity gap” between actual demand and potential supply capacity is between -3% and -4% for western countries but is as high as -7% for Japan. In amount, Japan’s demand shortage is as big as 35 trillion yen/year and deflation pressure is large.
Service sector is an important market covering almost 60% of Japan domestic consumption, so price drop in this sector tends to lead to lowering of wages and it cannot be denied that it triggers further deflation. Hatayama administration advocates that it is to stimulate domestic demand by incentives for bringing up children etc. However, if price drop should continue, revenues of companies would not grow and it is quite possible that economy boosting measures as increase in income become ineffective.
* CPI (Consumer Price Index)
(Source: Nikkei, edited and translated by the author)
CPI is an economic indicator used to understand price trend of products and services that consumers pay to purchase. In Japan, MIC (Ministry of Internal Affairs and Communications) announces the index monthly. Index including items whose price fluctuation is large such as fresh foods draws much attention, and this index is an important factor for BOJ (Bank of Japan) in making policies such as interest rate cut. With continuous drop in index, the government also officially announced that Japan is in deflation status in November, as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?
Some experts point out that actual price fluctuation has not been accurately tracked in recent years. This is because the items used in calculating index are mainly regular items traded and distributed nationwide, when market share of PB (Private Brand) products are increasing in super markets, meaning the actual price drop (actual price that consumers pay) is bigger than that of the index.
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that price drop in service sector such as accommodation and hair dressing is severe in Japan. According to nationwide CPI* (Consumer Price Index), “general service” sector has been minus vs. previous year for 6 consecutive months, and for October the decrease ratio was the biggest in statistic history. With worldwide demand decrease, CPI has been dropping in western countries as well but Japan is the only country whose service price is minus. Ongoing price drop likely leads to stronger pressure for decrease in wages. Economic recovery driven by domestic demand that Hatoyama administration aims at is not easy.
Main Services Whose Price Has Dropped (As of October 2009)
(Source: Nikkei, translated by the author)
Service Name / CPI (vs. October 2008) / Actual Price (In Yen)
Accommodation / -2.0 / 16,032
Beef-on-rice dish / -0.3 / 390
Tatami mat repair / -0.3 / 6,871
Air conditioner installation / -0.4 / 14,043
Cleaning (men’s suit) / -0.2 / 1,108
Package tour (abroad) / -22.8 / 67,080
Monthly fees for English conversation lessons / -0.6 / 20,277
Playing golf / -4.2 / 14,031
Video rental / -12.9 / 317
Esthetic clinic / -0.1 / 13,065
Note: Index is of nationwide. Prices of accommodation, package tour (abroad) are of nationwide. Prices of all the rest is of Tokyo.
Prices of general services have been minus vs. previous year for 6 consecutive months since May this year, and it was -0.6% for October. Overall service including public sector was -0.5%, the biggest drop together with February 2005 since 1971 (statistics are available from 1971). During the 7-year deflation that started in 1998, price drop in service sector such as dining out was prominent but for general service sector, the biggest drop had been 0.3% of February 2001. Looking by industry, culture and entertainment service was -3.1%, accommodation was -2.0%, package tour (abroad) was -22.8%, playing golf was -4.2%, and using karaoke room was -2.6. Among dining out, “symbol of deflation items” of bee-on-rice dish and hamburgers were minus vs. October 2008.
Frequency of using services also is decreasing and expenditure of household is greater than drop in unit price. According to household budget survey executed in October 2009, expenditure for tea and coffee of households with two or more wage-earners was -14.3%. Services related to clothing such as cleaning was -6.6%. Package tour was -8.0% and monthly fee for foreign language lessons was -5.6%.
Price drop for Japan is prominent compared to western countries; service prices was +0.9% for the U.S. and +1.8% for EU. One reason that Japan’s service prices tends to drop easily unlike western countries is difference in employment practice. Large portion of service cost is labour cost. When demand decreases, many western countries immediately cut jobs to align supply capacity with demand decrease and maintain prices. However, Japan still tends to prioritize job preservation. Many Japanese service companies try to preserve jobs in severe competition in their service sector, and therefore they are faced with bigger pressure to lower wages.
Another reason for price drop is the fact that Japan is facing severe demand shortage (over supply). According to estimation of IMF (International Monetary Fund), “demand-capacity gap” between actual demand and potential supply capacity is between -3% and -4% for western countries but is as high as -7% for Japan. In amount, Japan’s demand shortage is as big as 35 trillion yen/year and deflation pressure is large.
Service sector is an important market covering almost 60% of Japan domestic consumption, so price drop in this sector tends to lead to lowering of wages and it cannot be denied that it triggers further deflation. Hatayama administration advocates that it is to stimulate domestic demand by incentives for bringing up children etc. However, if price drop should continue, revenues of companies would not grow and it is quite possible that economy boosting measures as increase in income become ineffective.
* CPI (Consumer Price Index)
(Source: Nikkei, edited and translated by the author)
CPI is an economic indicator used to understand price trend of products and services that consumers pay to purchase. In Japan, MIC (Ministry of Internal Affairs and Communications) announces the index monthly. Index including items whose price fluctuation is large such as fresh foods draws much attention, and this index is an important factor for BOJ (Bank of Japan) in making policies such as interest rate cut. With continuous drop in index, the government also officially announced that Japan is in deflation status in November, as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?
Some experts point out that actual price fluctuation has not been accurately tracked in recent years. This is because the items used in calculating index are mainly regular items traded and distributed nationwide, when market share of PB (Private Brand) products are increasing in super markets, meaning the actual price drop (actual price that consumers pay) is bigger than that of the index.
GHG Emission Reduction Outlook of Japanese Manufacturers (13.9%) vs. Government’s Target (25%)
Saturday, December 5, 2009 – Osaka, Japan
On December 3, Nikkei, Japan’s leading newspaper specialized in economy/business and news, reported that according to their survey result of Environment Management, outlook of total GHG (Global Greenhouse Gas) reduction by primary Japanese companies by 2010 is 13.9% vs. 1990. Prime Minister Hatayama had set an extremely aggressive target of 25% and made a speech on it in the at the United Nation’s Climate Change Summit held on September 22 in New York, as mentioned in the previous article Japan Takes Lead in GHG Emission Reduction in the UN’s Climate Change Summit, and therefore there is a big gap between the target and the outlook. If the companies are to achieve the target, it is possible that they are forced to bear heavy burden such as purchasing emission allocation from overseas and therefore they cannot continue production in Japan.
The survey was executed in the beginning of November to which 835 companies including non-manufacturers answered. To the question regarding the degree of GHG emission reduction by 2020 by introducing energy saving equipments etc., 160 manufacturers answered and the weighted average was 13.9% vs. 1990. Industry section including manufacturers covers 37% of total Japan domestic GHG emission. 183 non-manufacturers (excluding electricity and gas companies) answered and their weighted average was 14.3% vs. 1990.
Mid-term target set under the previous Aso administration was 15% reduction vs. 2005, which is equivalent to 8% vs. 1990 and this target can be achieved without problem, but not the target set by the Hatoyama administration. Looking the outlook by industry, the drivers of GHG emission reduction are electronics that expects demand increase of solar batteries and EV cars is 33.1%, and automobile and components is 28.1%. Indeed, companies in such industries are the main players in top 20 of the Environment Management Ranking.
Environment Management Ranking
(Source: Nikkei, translated by the author)
Ranking(2009) / Ranking(2008) / Company Name / Score (500 = max)
1 / 4 / Panasonic / 490
2 / 17 / Sharp / 487
3 / 14 / Mitsubishi Electric / 485
4 / 5 / NEC / 483
5 / 1 / Toyota / 482
6 / 2 / Toshiba / 478
7 / 9 / Kyocera / 474
7 / 11 / Canon / 474
9 / 6 / Fuji Film Holdings / 473
9 / 22 / Nissan / 473
9 / 30 / Canon Electronics / 473
12 / 6 / Denso / 470
13 / 34 / Toyota Boshoku / 469
13 / 29 / Sumitomo Rubber Industries / 469
13 / 12 / Ricoh / 469
16 / 40 / TDK / 467
16 / 13 / Sanyo / 467
18 / 86 / NEC Tokin / 466
19 / 14 / Toyota Gosei / 465
19 / 24 / Dainippon Printing / 465
Scores were calculated in 5 fields: global warming countermeasure, product countermeasure, resource recycling, environment management organization, and countermeasures in contamination and biological diversity. Manufacturers were ranked by total scores of the 5 fields across the industry, and non-manufacturers were ranked by their own industry.
Panasonic, ranked #4 last year, was #1 this year, with highest score in environment management organization, and countermeasures in contamination and biological diversity, and with second highest score in global warming countermeasure. Department specialized in environment management strategy has been established which is directly controlled by the CEO, which has been promoting company-wide purchasing, equipment investment and development. As a result, they succeeded in promoting natural energy equipment installation such as natural gas implementation and use of solar energy to generate electricity to achieve their own GHG emission reduction mid-term target of minus 510 ton vs. 2006 in 2008, 1 year ahead of the original plan. Increasing energy saving products, that are the #1 in energy saving in its product category at the point of launch, totaled 233 in 2008, which was 3 times that of 2007, and Mr. Ohtsubo, the CEO, says that this will be further promoted when the acquisition of Sanyo is complete.
Sharp, ranked #17 last year, was #2 this year, with highest score in environment management organization together with Panasonic. Long term target is set in which by 2020 GHG emission reduction is to be tripled from original plan with new energy saving products by such measures as leveraging solar batteries.
Mitsubishi Electric, ranked #3 this year, has set the target of GHG emission upon production by 2021 by 30% vs. 1990. Representatives for this task have already been located in worldwide production sites and environmental experts from Global & Group HQ have been visiting the sites once every two years. NEC, ranked #4 this year, scored the highest in global warming countermeasures and products.
Toyota, that had been #1 for three consecutive years, was #5 this year. They have been aggressively launching EV cars, accumulating total reaching 2 million cars at the end of August this year. Nissan, which has also been aggressively promoting eco-car strategy, improved its ranking from #22 to #9.
The gap between gap between the outlook from the survey result of 13.9% for manufactures and the aggressive target of 25% set by the government and the current outlook of 13.9% is large and eliminating the gap is extremely tough. However, the author believes that the companies are capable of further driving innovation to drastically decrease GHG emission, eliminating the gap in the end.
On December 3, Nikkei, Japan’s leading newspaper specialized in economy/business and news, reported that according to their survey result of Environment Management, outlook of total GHG (Global Greenhouse Gas) reduction by primary Japanese companies by 2010 is 13.9% vs. 1990. Prime Minister Hatayama had set an extremely aggressive target of 25% and made a speech on it in the at the United Nation’s Climate Change Summit held on September 22 in New York, as mentioned in the previous article Japan Takes Lead in GHG Emission Reduction in the UN’s Climate Change Summit, and therefore there is a big gap between the target and the outlook. If the companies are to achieve the target, it is possible that they are forced to bear heavy burden such as purchasing emission allocation from overseas and therefore they cannot continue production in Japan.
The survey was executed in the beginning of November to which 835 companies including non-manufacturers answered. To the question regarding the degree of GHG emission reduction by 2020 by introducing energy saving equipments etc., 160 manufacturers answered and the weighted average was 13.9% vs. 1990. Industry section including manufacturers covers 37% of total Japan domestic GHG emission. 183 non-manufacturers (excluding electricity and gas companies) answered and their weighted average was 14.3% vs. 1990.
Mid-term target set under the previous Aso administration was 15% reduction vs. 2005, which is equivalent to 8% vs. 1990 and this target can be achieved without problem, but not the target set by the Hatoyama administration. Looking the outlook by industry, the drivers of GHG emission reduction are electronics that expects demand increase of solar batteries and EV cars is 33.1%, and automobile and components is 28.1%. Indeed, companies in such industries are the main players in top 20 of the Environment Management Ranking.
Environment Management Ranking
(Source: Nikkei, translated by the author)
Ranking(2009) / Ranking(2008) / Company Name / Score (500 = max)
1 / 4 / Panasonic / 490
2 / 17 / Sharp / 487
3 / 14 / Mitsubishi Electric / 485
4 / 5 / NEC / 483
5 / 1 / Toyota / 482
6 / 2 / Toshiba / 478
7 / 9 / Kyocera / 474
7 / 11 / Canon / 474
9 / 6 / Fuji Film Holdings / 473
9 / 22 / Nissan / 473
9 / 30 / Canon Electronics / 473
12 / 6 / Denso / 470
13 / 34 / Toyota Boshoku / 469
13 / 29 / Sumitomo Rubber Industries / 469
13 / 12 / Ricoh / 469
16 / 40 / TDK / 467
16 / 13 / Sanyo / 467
18 / 86 / NEC Tokin / 466
19 / 14 / Toyota Gosei / 465
19 / 24 / Dainippon Printing / 465
Scores were calculated in 5 fields: global warming countermeasure, product countermeasure, resource recycling, environment management organization, and countermeasures in contamination and biological diversity. Manufacturers were ranked by total scores of the 5 fields across the industry, and non-manufacturers were ranked by their own industry.
Panasonic, ranked #4 last year, was #1 this year, with highest score in environment management organization, and countermeasures in contamination and biological diversity, and with second highest score in global warming countermeasure. Department specialized in environment management strategy has been established which is directly controlled by the CEO, which has been promoting company-wide purchasing, equipment investment and development. As a result, they succeeded in promoting natural energy equipment installation such as natural gas implementation and use of solar energy to generate electricity to achieve their own GHG emission reduction mid-term target of minus 510 ton vs. 2006 in 2008, 1 year ahead of the original plan. Increasing energy saving products, that are the #1 in energy saving in its product category at the point of launch, totaled 233 in 2008, which was 3 times that of 2007, and Mr. Ohtsubo, the CEO, says that this will be further promoted when the acquisition of Sanyo is complete.
Sharp, ranked #17 last year, was #2 this year, with highest score in environment management organization together with Panasonic. Long term target is set in which by 2020 GHG emission reduction is to be tripled from original plan with new energy saving products by such measures as leveraging solar batteries.
Mitsubishi Electric, ranked #3 this year, has set the target of GHG emission upon production by 2021 by 30% vs. 1990. Representatives for this task have already been located in worldwide production sites and environmental experts from Global & Group HQ have been visiting the sites once every two years. NEC, ranked #4 this year, scored the highest in global warming countermeasures and products.
Toyota, that had been #1 for three consecutive years, was #5 this year. They have been aggressively launching EV cars, accumulating total reaching 2 million cars at the end of August this year. Nissan, which has also been aggressively promoting eco-car strategy, improved its ranking from #22 to #9.
The gap between gap between the outlook from the survey result of 13.9% for manufactures and the aggressive target of 25% set by the government and the current outlook of 13.9% is large and eliminating the gap is extremely tough. However, the author believes that the companies are capable of further driving innovation to drastically decrease GHG emission, eliminating the gap in the end.
2009年11月29日日曜日
Japanese Companies Refraining from Equipment Investment
November 29, 2009 – Osaka, Japan
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that according to their survey result, total equipment investment* for 2009 is -17.6% from 2008 which is the biggest drop since 1990, and is also -2.7% from the original plan made in the beginning of 2009. Although business environment seems to started to improve and many companies have been making upward revision their financial performance estimation, economy outlook is not bright with drastic high yen etc. Thus in general, Japanese companies are refraining from aggressive investment, especially major manufacturers such as automobile and consumer electronics.
2009 Revised Equipment Investment Plan (In million yen)
(Source: Nikkei, translated by the author)
Industry / No. of Companies / 2009 Revised Plan (vs. 2008) / Vs. the Original Plan / 2008 Performance (Vs. 2007)
Total Industry / 1,598 / 22,668,971 (-17.6) / -2.7 / 27,525,633 (-6.1)
(Excluding Electricity) / 1,589 / 20,137,434 (-19.9) / -2.9 / 25,137,427 (-7.8)
Manufacturers / 810 / 11,715,060 (-26.1) / -3.2 / 15,847,995 (-8.2)
The survey of equipment investment trend (based on revised plan of 1,598 companies) was executed in October. According to the result, the total equipment investment has decreased from previous year for 2 consecutive years; 2008 was -6.1 from 2007 and 2009 was -17.6% from 2008. This is primarily because manufacturers’ drop is as big as -26.1%. Non-manufacturers’ is -6.2% which is comparatively small but it is second to -9.1% in 2002 when IT bubble collapsed.
Looking by industry, among 17 manufacturers, 15 excluding food and pharmaceuticals are minus from 2008, among which 7 industries including automobile, machinery and electronics are decrease in more than 30%. For non-manufacturers, 4 industries including electricity (+6%) and transportation (+10.3) are plus from 2008 but the remaining 12 industries including telecommunications and retailers are minus.
In addition, many companies are further cutting investment from the original plan. For example, Nippon Steel Corporation cut its original plan of investment for production capacity increase by 50 billion yen to 340 billion yen, and Toyota cut by 70 billion yen to 760 billion yen, leading to -3.2% from the original plan for overall manufacturers. Non-manufacturers’ is -2.2% from the original plan, which is minus in 11 years, attributing especially to maritime transportation (-30.7%) and land transportation (-10%).
According to the government, flash report of July-Sep GDP is +4.8% from the previous quarter which is plus for 2 consecutive quarters and equipment investment also increased after 6 quarters. This may well mean that production that had once dropped due to global economic crisis started to recover; however, there are anxieties of another plunge in economy and high yen. When looked by yearly, it is quite possible that companies are really tightening their investment.
If this circumstance should continue, an expert points out that with companies relying more on their revenue from external demand, it cannot be avoided that equipment will be invested overseas.
* Equipment Investment and Economy
(Source: Nikkei, edited and translated by the author)
Equipment investment of companies is an important constituent of GDP, and is a metrics of business climate outlook. Increase in investment means that economy is expanding, and decrease in investment means plunge in economy. In general, GDP growth rate and equipment investment increase-decrease rate are linked in many cases.
Primary objectives of investment include increase in production, renewal of old equipment and countermeasures of safety and environment. Investments such as new factory construction and implementation of large machinery have big positive impact on related industries and leads to economic expansion.
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that according to their survey result, total equipment investment* for 2009 is -17.6% from 2008 which is the biggest drop since 1990, and is also -2.7% from the original plan made in the beginning of 2009. Although business environment seems to started to improve and many companies have been making upward revision their financial performance estimation, economy outlook is not bright with drastic high yen etc. Thus in general, Japanese companies are refraining from aggressive investment, especially major manufacturers such as automobile and consumer electronics.
2009 Revised Equipment Investment Plan (In million yen)
(Source: Nikkei, translated by the author)
Industry / No. of Companies / 2009 Revised Plan (vs. 2008) / Vs. the Original Plan / 2008 Performance (Vs. 2007)
Total Industry / 1,598 / 22,668,971 (-17.6) / -2.7 / 27,525,633 (-6.1)
(Excluding Electricity) / 1,589 / 20,137,434 (-19.9) / -2.9 / 25,137,427 (-7.8)
Manufacturers / 810 / 11,715,060 (-26.1) / -3.2 / 15,847,995 (-8.2)
The survey of equipment investment trend (based on revised plan of 1,598 companies) was executed in October. According to the result, the total equipment investment has decreased from previous year for 2 consecutive years; 2008 was -6.1 from 2007 and 2009 was -17.6% from 2008. This is primarily because manufacturers’ drop is as big as -26.1%. Non-manufacturers’ is -6.2% which is comparatively small but it is second to -9.1% in 2002 when IT bubble collapsed.
Looking by industry, among 17 manufacturers, 15 excluding food and pharmaceuticals are minus from 2008, among which 7 industries including automobile, machinery and electronics are decrease in more than 30%. For non-manufacturers, 4 industries including electricity (+6%) and transportation (+10.3) are plus from 2008 but the remaining 12 industries including telecommunications and retailers are minus.
In addition, many companies are further cutting investment from the original plan. For example, Nippon Steel Corporation cut its original plan of investment for production capacity increase by 50 billion yen to 340 billion yen, and Toyota cut by 70 billion yen to 760 billion yen, leading to -3.2% from the original plan for overall manufacturers. Non-manufacturers’ is -2.2% from the original plan, which is minus in 11 years, attributing especially to maritime transportation (-30.7%) and land transportation (-10%).
According to the government, flash report of July-Sep GDP is +4.8% from the previous quarter which is plus for 2 consecutive quarters and equipment investment also increased after 6 quarters. This may well mean that production that had once dropped due to global economic crisis started to recover; however, there are anxieties of another plunge in economy and high yen. When looked by yearly, it is quite possible that companies are really tightening their investment.
If this circumstance should continue, an expert points out that with companies relying more on their revenue from external demand, it cannot be avoided that equipment will be invested overseas.
* Equipment Investment and Economy
(Source: Nikkei, edited and translated by the author)
Equipment investment of companies is an important constituent of GDP, and is a metrics of business climate outlook. Increase in investment means that economy is expanding, and decrease in investment means plunge in economy. In general, GDP growth rate and equipment investment increase-decrease rate are linked in many cases.
Primary objectives of investment include increase in production, renewal of old equipment and countermeasures of safety and environment. Investments such as new factory construction and implementation of large machinery have big positive impact on related industries and leads to economic expansion.
2009年11月22日日曜日
How Japan Can Get Out From 10 Year Deflation?
November 22, 2009 – Osaka, Japan
Yesterday Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in November’s Monthly Economy White Paper issued on November 20, the Japanese economy is “in the moderate deflation status”. It is first time in 3 years and 5 months since June 2006 that the Japanese government officially identified deflation in the monthly white paper. Although the domestic economy has started to improve, with decrease in prices, there is a risk that company revenues deteriorate and unemployment increases. Therefore, the government is to speed up to drafting revised budget plan focusing on employment measures etc. The Japanese Economy will be much hobbled by deflation, and Mr. Kan Naoto, the Deputy Prime Minister, requested BOJ (Bank of Japan) also to cooperate to lead out from deflation in the press conference held on November 20. However, financial measure that BOJ can take is extremely.
According to Nikkei, Mr. Shirakawa, the Bank of Japan Governor, refrained from explicitly stating that the Japanese economy is in the deflation status in the press conference held on November 20 after Monetary Policy Meeting, but Mr. Kan judged as deflation for the following three reasons.
1. CPI (Consumer Price Index) is continuously decreasing. (This is conspicuous compared with western countries).
2. Respective index growth rate has been below actual for two consecutive quarters,
3. “Demand-Supply gap”, which is subtracting potential supply capacity from demand, has been minus and the degree of minus has expanded to 40 billion yen/year. This is a huge demand deficit.
The Actual Deflation is Much More Severe than the Statistics
(Source: Nikkei, translated by the author)
Item / Actual Purchasing Price vs. Previous Year / Actual Purchasing Price (yen) / CPI vs. Previous Year / CPI Sales Price (yen)
Men’s Suits / -40.4 / 23,604 / -1.7 / 37,092
TV Sets / -26.6 / 119,900 / -33.6 / 90,914
Skirts / -25.4 / 5,153 / -2.5 / 8,728
Umbrella / -23.3 / 801 / -0.8 / 2,505
Handbag / -19.0 / 7,399 / 0.2 / 15,905
Children’s Shirts / -13.9 / 952 / -2.9 / 637
Blouse / -12.0 / 3,647 / 1.2 / 5,742
Boy’s Socks / -7.8 / 298 / -0.9 / 679
Notes: Actual purchasing price is from purchasing price from family budget survey. Sales price is September’s price of Tokyo retail price statistics survey, which is the original statistics of CPI.
The reason for the government’s judgment is September’s CPI (excluding fresh food) was -2.3 from a year ago, and until August CPI has been dropping for four consecutive months and the degree of the minus for September was the biggest ever. Many private research institutes estimate that for three years the price drop trend continues. In fact, it is quite possible that the deflation has been going on for the past 10 years of so since September 1998.
Actual price drop might well be much more severe than the statistics, because CPI includes only basic items and excludes knockout price PB (Private Brand) and bargain products. For example, for men’s suits, the drop of CPI is 1.7% by statistics but when the government analyzed including knockout price products the actual average price was minus as much as 40%.
With continues drop in price, company revenues would not increase (or rather decrease), meaning household income would not increase. GDP for July-Sep was plus for two consecutive quarters, but respective GDP (assumed to reflect more accurately actual sense of economy) has been minus for six consecutive quarters. Respective item GDP is 479 billion yen/year and income is 254 billion yen/year, both of which are the level of 1992.
Without increase in company revenues and income, solid sense of economy recovery cannot be achieved. This means that government would not be able to gain their revenue from corporate tax, individual income tax and consumption tax, leading to further deterioration in financial situation.
Among major countries, Japan is the only country going through severe deflation. As for “Demand-Supply gap”, Japan is approximately -7%, whereas western countries are 3-4%. This is because market of automobile and consumer electronics, Japan’s primary export products, shrunk drastically, leading to severe over supply. In addition, chronic domestic demand decrease attributing to low birthrate with longevity is also a negative factor.
Outlook of deflation spiral in which price drop is linked with deterioration in economy cannot be denied. Retail giants have jeans with price less than 1,000 yen but sales of super markets have been decline from the previous year’s results for 10 consecutive months. Companies are going through war of attrition in which they cut margin to lower the price. The outlook of bonus for this winter for major companies is minus by 2 digits from a year ago, and downward pressure of employment and income environment is expected to become stronger and stronger.
Demand insufficiency of 40 billion yen needs to be resolved to get out of deflation. Although the government is insisting that this can be achieved by stimulating domestic demand with incentive to households with children, such stimulation is insufficient. Many experts believe that the possible solution is aggressively taking in external demand such as of China and other emerging countries.
Yesterday Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in November’s Monthly Economy White Paper issued on November 20, the Japanese economy is “in the moderate deflation status”. It is first time in 3 years and 5 months since June 2006 that the Japanese government officially identified deflation in the monthly white paper. Although the domestic economy has started to improve, with decrease in prices, there is a risk that company revenues deteriorate and unemployment increases. Therefore, the government is to speed up to drafting revised budget plan focusing on employment measures etc. The Japanese Economy will be much hobbled by deflation, and Mr. Kan Naoto, the Deputy Prime Minister, requested BOJ (Bank of Japan) also to cooperate to lead out from deflation in the press conference held on November 20. However, financial measure that BOJ can take is extremely.
According to Nikkei, Mr. Shirakawa, the Bank of Japan Governor, refrained from explicitly stating that the Japanese economy is in the deflation status in the press conference held on November 20 after Monetary Policy Meeting, but Mr. Kan judged as deflation for the following three reasons.
1. CPI (Consumer Price Index) is continuously decreasing. (This is conspicuous compared with western countries).
2. Respective index growth rate has been below actual for two consecutive quarters,
3. “Demand-Supply gap”, which is subtracting potential supply capacity from demand, has been minus and the degree of minus has expanded to 40 billion yen/year. This is a huge demand deficit.
The Actual Deflation is Much More Severe than the Statistics
(Source: Nikkei, translated by the author)
Item / Actual Purchasing Price vs. Previous Year / Actual Purchasing Price (yen) / CPI vs. Previous Year / CPI Sales Price (yen)
Men’s Suits / -40.4 / 23,604 / -1.7 / 37,092
TV Sets / -26.6 / 119,900 / -33.6 / 90,914
Skirts / -25.4 / 5,153 / -2.5 / 8,728
Umbrella / -23.3 / 801 / -0.8 / 2,505
Handbag / -19.0 / 7,399 / 0.2 / 15,905
Children’s Shirts / -13.9 / 952 / -2.9 / 637
Blouse / -12.0 / 3,647 / 1.2 / 5,742
Boy’s Socks / -7.8 / 298 / -0.9 / 679
Notes: Actual purchasing price is from purchasing price from family budget survey. Sales price is September’s price of Tokyo retail price statistics survey, which is the original statistics of CPI.
The reason for the government’s judgment is September’s CPI (excluding fresh food) was -2.3 from a year ago, and until August CPI has been dropping for four consecutive months and the degree of the minus for September was the biggest ever. Many private research institutes estimate that for three years the price drop trend continues. In fact, it is quite possible that the deflation has been going on for the past 10 years of so since September 1998.
Actual price drop might well be much more severe than the statistics, because CPI includes only basic items and excludes knockout price PB (Private Brand) and bargain products. For example, for men’s suits, the drop of CPI is 1.7% by statistics but when the government analyzed including knockout price products the actual average price was minus as much as 40%.
With continues drop in price, company revenues would not increase (or rather decrease), meaning household income would not increase. GDP for July-Sep was plus for two consecutive quarters, but respective GDP (assumed to reflect more accurately actual sense of economy) has been minus for six consecutive quarters. Respective item GDP is 479 billion yen/year and income is 254 billion yen/year, both of which are the level of 1992.
Without increase in company revenues and income, solid sense of economy recovery cannot be achieved. This means that government would not be able to gain their revenue from corporate tax, individual income tax and consumption tax, leading to further deterioration in financial situation.
Among major countries, Japan is the only country going through severe deflation. As for “Demand-Supply gap”, Japan is approximately -7%, whereas western countries are 3-4%. This is because market of automobile and consumer electronics, Japan’s primary export products, shrunk drastically, leading to severe over supply. In addition, chronic domestic demand decrease attributing to low birthrate with longevity is also a negative factor.
Outlook of deflation spiral in which price drop is linked with deterioration in economy cannot be denied. Retail giants have jeans with price less than 1,000 yen but sales of super markets have been decline from the previous year’s results for 10 consecutive months. Companies are going through war of attrition in which they cut margin to lower the price. The outlook of bonus for this winter for major companies is minus by 2 digits from a year ago, and downward pressure of employment and income environment is expected to become stronger and stronger.
Demand insufficiency of 40 billion yen needs to be resolved to get out of deflation. Although the government is insisting that this can be achieved by stimulating domestic demand with incentive to households with children, such stimulation is insufficient. Many experts believe that the possible solution is aggressively taking in external demand such as of China and other emerging countries.
2009年11月15日日曜日
Japan-US Summit – A Step to a New Japan-U.S. Relationship?
November 15, 2009 – Osaka, Japan
On November 14, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Japan-U.S. summit and on joint press conference of Prime Minister Yukio Hatoyama and U.S. President Barack Obama sharing a firm handshake in front of the cameras at their bilateral meeting, held on Friday evening of November 13. It was the first time for Mr. Obama to visit Japan, and second time for the two leaders to meet since September in New York. The summit was held for 1-1/2 hours, and after dinner, the two leaders had an exclusive discussion for 15 minutes.
The two leaders affirmed the importance of further deepening and developing the Japan-U.S. alliance and agreed on starting discussion between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010. Also, they agreed on making efforts to solve the issue quickly of relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture, which was agreed to by Tokyo and Washington in a 2006 accord, and confirmed on collaboration in aiding Afghanistan and solving nuclear issue of North Korea and Iran. The main points discussed by the two leaders are as below.
Main Points Discussed by the Two Leaders
(Source: Nikkei, translated by the author)
1. Affirmed the importance of further deepening and developing the Japan-U.S. alliance.
2. Discuss for a year between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010, and draw out a conclusion.
3. Agreed on making efforts to solve quickly relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture.
4. Mr. Hatoyama expressed maximum 5 year aid of 5 billion USD to Afghanistan, to which Mr. Obama expressed gratitude.
5. Cooperation on nuclear issue of North Korea and Iran.
6. Agreed on 80% GHG reduction by 2050, and on collaboration to succeed COP 15.
After the discussion, joint press conferment was held, in which, regarding the new discussion between the two governments on the Japan-US Security Treaty, Mr. Hatoyama expressed, “I would like to create future-focused and constructive new alliance” and Mr. Obama added, “I would like to look back on past achievements and proceed the next step.” Mr. Hatoyama also emphasized that “the Japan-U.S. alliance is the fundamental of everything”, and regarding concept of “East Asia Community” that he advocates, expressed that the U.S.’s involvement is inevitable by saying “It is with the firm Japan-U.S. alliance that I advocate this concept.”
It is only once that the Japan- US Summit ended without any agreement. That was in 1994 when President Clinton requested starting discussion on trade framework, to which Prime Minister Hosokawa refused. The U.S. immediately countercharged by such measures as navigating to high yen.
This summit was full of smile, and such issues as elimination of nuclear weapons and global environment were documented; however, inner workings are more serious than 15 years ago. It is highly desired that blue print for each issue is drafted and executed immediately, which requires strong leadership of the two leaders.
On November 14, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Japan-U.S. summit and on joint press conference of Prime Minister Yukio Hatoyama and U.S. President Barack Obama sharing a firm handshake in front of the cameras at their bilateral meeting, held on Friday evening of November 13. It was the first time for Mr. Obama to visit Japan, and second time for the two leaders to meet since September in New York. The summit was held for 1-1/2 hours, and after dinner, the two leaders had an exclusive discussion for 15 minutes.
The two leaders affirmed the importance of further deepening and developing the Japan-U.S. alliance and agreed on starting discussion between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010. Also, they agreed on making efforts to solve the issue quickly of relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture, which was agreed to by Tokyo and Washington in a 2006 accord, and confirmed on collaboration in aiding Afghanistan and solving nuclear issue of North Korea and Iran. The main points discussed by the two leaders are as below.
Main Points Discussed by the Two Leaders
(Source: Nikkei, translated by the author)
1. Affirmed the importance of further deepening and developing the Japan-U.S. alliance.
2. Discuss for a year between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010, and draw out a conclusion.
3. Agreed on making efforts to solve quickly relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture.
4. Mr. Hatoyama expressed maximum 5 year aid of 5 billion USD to Afghanistan, to which Mr. Obama expressed gratitude.
5. Cooperation on nuclear issue of North Korea and Iran.
6. Agreed on 80% GHG reduction by 2050, and on collaboration to succeed COP 15.
After the discussion, joint press conferment was held, in which, regarding the new discussion between the two governments on the Japan-US Security Treaty, Mr. Hatoyama expressed, “I would like to create future-focused and constructive new alliance” and Mr. Obama added, “I would like to look back on past achievements and proceed the next step.” Mr. Hatoyama also emphasized that “the Japan-U.S. alliance is the fundamental of everything”, and regarding concept of “East Asia Community” that he advocates, expressed that the U.S.’s involvement is inevitable by saying “It is with the firm Japan-U.S. alliance that I advocate this concept.”
It is only once that the Japan- US Summit ended without any agreement. That was in 1994 when President Clinton requested starting discussion on trade framework, to which Prime Minister Hosokawa refused. The U.S. immediately countercharged by such measures as navigating to high yen.
This summit was full of smile, and such issues as elimination of nuclear weapons and global environment were documented; however, inner workings are more serious than 15 years ago. It is highly desired that blue print for each issue is drafted and executed immediately, which requires strong leadership of the two leaders.
2009年11月7日土曜日
Japanese Companies to Bottom-Out Fiscal Year Ending March 2010, but Demands Caution
November 7, 2009 – Osaka, Japan
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that financial performance of Japanese listed companies in total to bottom-out by the end of the fiscal year (FY) ending March 2010, according to estimation of head quarters of the companies. Consolidated profit for FY ending March 2010 is estimated to be +0.7% vs. previous year, although the estimation in August was -9%. This is because of reduction in fixed cost* and economy-boosting measures of governments of various countries, which led to drastic improvement in profit and loss (P/L) of consumer electronics and automobiles. However, there are anxieties such as ongoing high yen situation and improvement of business climate likely to terminate after January 2010. Therefore, some experts view that outlook demands caution.
Increase/Decrease of Consolidated Profit by Industry: Consumer Electronics and Automobile are the Drivers of Recovery
Source: Nikkei (translated by the author)
Increase From Previous Year
Electronics / 1 .484 trillion yen
Oil / 734 billion yen
Automobile and Components / 50.63 billion yen
Electricity etc. / 1.263 trillion yen
Decrease From Previous Year
Steel / -1.2145 trillion yen
Trading / -61.84 billion yen
Machinery / -36.91 billion yen
Marine Transportation etc. / -1.478 trillion yen
Nikkei reports that the data used are of 940 companies who have finished making financial announcement for first half of 2009 (April-September 2009) by November 6, 2009 (excluding financial institutions). These companies cover 78% of total market value.
According to the current analysis, consolidated profit for FY ending March 2010 is expected to be +0.7% from previous year, which is 9.8 trillion yen. Some experts view that the speed of recovery is more than anticipated and it is possible that the final performance achievement would be better than this. Consolidated profit of listed companies was directly and negatively impacted by the worldwide economic crisis, resulting in decrease in profit first time in 7 quarters, by more than 60%.
Improvement in revenue by quarter has been evident since January this year. January-March in loss was the bottom, and it went back in black in total for April-June, and the profit increased for July-September, meaning consecutive improvement. This is the reason for the favourable outlook for the total FY year ending March 2010.
The driver for the performance improvement is reduction in fixed cost. Sales are estimated to be approximately 343 trillion yen which is -13% from previous year but the profit is estimated to be about the same with previous year because cost reduction by companies is ongoing with the greater speed than originally assumed. For example, Komatsu is to double the amount of fixed cost reduction to 50 billion yen. Thus, profit ratio of listed companies in general is to improve, highlighting the recovery driven by rationalization.
Economy-boosting measures by the government played as a driver for the performance improvement as well. Consumer electronics that posted large amount of loss benefited from eco-point system, an economy-boosting measure implemented by the Japanese government, and their sales (e.g. TV) increased, leading to increase in profit by almost 1.5 trillion yen. Automobiles and components are also estimated to increase their profit by approximately 500 billion yen, going back to black. For example, Nissan is benefiting from positive effect of government’s economy-boosting measures designed to promote buying new cars to replace old ones, to revise its original outlook of increasing loss to 20 billion yen in profit. Improvements in oil attributing to increase in resource price are also evident.
On the other hand, financial performance of steels and machinery are deteriorating. This is because their primary customers of automobile and electronics are still cautious of facility investment and production increase. Trading companies are also to decrease their profit because their automobile and steel businesses are struggling.
The outlook for the future remains uncertain. There are many companies that out-perform vs. original plan for April-September but estimation for total year remains the same. For example, VP of JFE Holdings comments that it is doubtful whether the improvement in steel stock demand continues, and that high yen is also an anxiety factor. Many management executives are not confident in sustainable business improvement because of doldrums of consumer spending and employment.
* Brief Explanation on Fixed Cost (source: Nikkei, edited and translated by the author）
Fixed Cost is the cost that is constant regardless of fluctuation in sales of a company such as employment cost of back office department and depreciation cost of plant and equipment. On the other hand, cost that fluctuates linking with by production volume and sales such as raw material cost and operating labour cost are called “variable cost”. Many companies cut fixed cost to quickly recover their profitability when they face drop in sales.
Sales equaling total of fixed and variable cost is called break even point. Dividing this by sales is break even point ratio. According to Nikkei’s analysis of 1633 listed companies (non-consolidated), this ratio was about 80% before 2007 but for 2008 it increased to more than 89% because the reduction in fixed cost was not in par with drastic drop in sales and revenue.
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that financial performance of Japanese listed companies in total to bottom-out by the end of the fiscal year (FY) ending March 2010, according to estimation of head quarters of the companies. Consolidated profit for FY ending March 2010 is estimated to be +0.7% vs. previous year, although the estimation in August was -9%. This is because of reduction in fixed cost* and economy-boosting measures of governments of various countries, which led to drastic improvement in profit and loss (P/L) of consumer electronics and automobiles. However, there are anxieties such as ongoing high yen situation and improvement of business climate likely to terminate after January 2010. Therefore, some experts view that outlook demands caution.
Increase/Decrease of Consolidated Profit by Industry: Consumer Electronics and Automobile are the Drivers of Recovery
Source: Nikkei (translated by the author)
Increase From Previous Year
Electronics / 1 .484 trillion yen
Oil / 734 billion yen
Automobile and Components / 50.63 billion yen
Electricity etc. / 1.263 trillion yen
Decrease From Previous Year
Steel / -1.2145 trillion yen
Trading / -61.84 billion yen
Machinery / -36.91 billion yen
Marine Transportation etc. / -1.478 trillion yen
Nikkei reports that the data used are of 940 companies who have finished making financial announcement for first half of 2009 (April-September 2009) by November 6, 2009 (excluding financial institutions). These companies cover 78% of total market value.
According to the current analysis, consolidated profit for FY ending March 2010 is expected to be +0.7% from previous year, which is 9.8 trillion yen. Some experts view that the speed of recovery is more than anticipated and it is possible that the final performance achievement would be better than this. Consolidated profit of listed companies was directly and negatively impacted by the worldwide economic crisis, resulting in decrease in profit first time in 7 quarters, by more than 60%.
Improvement in revenue by quarter has been evident since January this year. January-March in loss was the bottom, and it went back in black in total for April-June, and the profit increased for July-September, meaning consecutive improvement. This is the reason for the favourable outlook for the total FY year ending March 2010.
The driver for the performance improvement is reduction in fixed cost. Sales are estimated to be approximately 343 trillion yen which is -13% from previous year but the profit is estimated to be about the same with previous year because cost reduction by companies is ongoing with the greater speed than originally assumed. For example, Komatsu is to double the amount of fixed cost reduction to 50 billion yen. Thus, profit ratio of listed companies in general is to improve, highlighting the recovery driven by rationalization.
Economy-boosting measures by the government played as a driver for the performance improvement as well. Consumer electronics that posted large amount of loss benefited from eco-point system, an economy-boosting measure implemented by the Japanese government, and their sales (e.g. TV) increased, leading to increase in profit by almost 1.5 trillion yen. Automobiles and components are also estimated to increase their profit by approximately 500 billion yen, going back to black. For example, Nissan is benefiting from positive effect of government’s economy-boosting measures designed to promote buying new cars to replace old ones, to revise its original outlook of increasing loss to 20 billion yen in profit. Improvements in oil attributing to increase in resource price are also evident.
On the other hand, financial performance of steels and machinery are deteriorating. This is because their primary customers of automobile and electronics are still cautious of facility investment and production increase. Trading companies are also to decrease their profit because their automobile and steel businesses are struggling.
The outlook for the future remains uncertain. There are many companies that out-perform vs. original plan for April-September but estimation for total year remains the same. For example, VP of JFE Holdings comments that it is doubtful whether the improvement in steel stock demand continues, and that high yen is also an anxiety factor. Many management executives are not confident in sustainable business improvement because of doldrums of consumer spending and employment.
* Brief Explanation on Fixed Cost (source: Nikkei, edited and translated by the author）
Fixed Cost is the cost that is constant regardless of fluctuation in sales of a company such as employment cost of back office department and depreciation cost of plant and equipment. On the other hand, cost that fluctuates linking with by production volume and sales such as raw material cost and operating labour cost are called “variable cost”. Many companies cut fixed cost to quickly recover their profitability when they face drop in sales.
Sales equaling total of fixed and variable cost is called break even point. Dividing this by sales is break even point ratio. According to Nikkei’s analysis of 1633 listed companies (non-consolidated), this ratio was about 80% before 2007 but for 2008 it increased to more than 89% because the reduction in fixed cost was not in par with drastic drop in sales and revenue.
2009年11月1日日曜日
Financial Improvement in Japanese Listed Companies
November 1, 2009 – Osaka, Japan
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in general financial performance of Japanese listed companies has been continuously improving for two consecutive quarters. Nikkei analyzed financial performance of listed companies for July-September 2009, and the result was that the total consolidated profit was 2.3 times that of April-June 2009, meaning improvement for two consecutive quarters. The improvement is because of rationalization/cost reduction efforts especially of manufacturers and termination of sales drop attributing to economy-boosting measures* by the government of respective countries. Having said that, whether the performance improvement continues is a question because the positive effect of government policies has taken a round and the high yen still continues.
Consolidated Profits of Major Companies (100 million yen)
Source: Nikkei (translated by the author)
Company Name / July-September / April-June
Increase in Black Companies
Honda / 661 / 54
Mitsubishi Corporation / 831 / 619
Komatsu / 97 / 87
Returning to Black Companies
Panasonic / 253 / -517
JFE / 98 / -672
Mitsui OSK Lines / 14 / -114
Decrease in Red Companies
Hitachi / -293 / -808
Nippon Steel / -302 / -556
Sony / -170 / -329
Deterioration in Performance Companies
Nintendo / 457 / 648
Japan Tabacco / 563 / 788
Kawasaki Kinsen / -271 / -227
Notes: EBIT (Earnings before Income Tax) for companies using GAAP, profit in Japan auditing principle for others
Nikkei reports that the data used for analysis is of 527 companies that have finished making financial announcement for 2009 Q3 by October 30, 2009 (excluding financial institutions). These companies cover 63% of total market value industry-wide.
Their performance was negatively impacted by the worldwide economic crisis and went to red January-March. It went back to black in total April-June (97.49 million yen in black) with rationalization but manufacturers remained in red in total by 25.47 billion yen. And for July-September their performance in total was in black by 2.2021 trillion yen, and manufacturers in total also returned to black after three quarters by 81.58 billion yen. 68% of companies have improved from April-June.
Increase in sales was the driver for performance improvement. Consolidated sales for July-September increased by 10% from April-June, marking the first sales increase of a quarter (vs. previous quarter) after four quarters. Revenue of manufacturing companies increased by 12% from the previous quarter.
Favourable Japan domestic market sales also contributed to performance improvement. This was driven by economy-boosting measures designed to promote consumer purchase of environmentally-friendly products. Honda increased its sales by 3% and Mazuda by 31% from previous quarter with the economy-boosting measures, leading to favourable sales of fuel-efficient cars benefiting from tax reduction of eco-friendly cars (eco = ecology & economy). Panasonic also benefited from economy-boosting measures and its domestic sales/revenue of TV and washing machine increased by 9%. Steel giants that supply materials including Nippon Steel and other three companies increased their sales/revenue.
Aggressive demand of China and other emerging countries also contributed to performance improvement. LCD sales of Sharp for July-September were 22.23 billion yen which was 26% increase from the previous quarter. This highly attributes to Chinese government’s measures designed to promote penetration of consumer electronics in which 13% cash back is given as subsidy to consumers who purchase consumer electronics.
Further rationalization efforts by manufacturers also greatly contributed to performance improvement. Fujitsu reduced cost by 40 billion yen which led to returning to black for July-September. Toshiba originally planned to cut fixed cost by 67 billion yen but increased the amount of fixed cost cut to 200 billion yen for April-September.
Although the performance has been improving, performance for 2009 for total industry is still at low level compared with previous year of 2008 and there are still concerns; therefore, the outlook is not necessarily bright. 2009 sales is 23% and profit is 42% of 2008. Demand recovery of developed countries is still ongoing, and Sony’s CFO comments that Christmas season also needs to be promoted with cautiousness. Senescence of economy-boosting measures and high yen are also concerns. Since incentives of respective countries designed to promote buying new cars to replace old ones is to end soon, it is quite possible that there comes a “rebound” after April 2010, as Honda’s VP comments. Three ship giants including NYK Logistics made downward revision of their performance outlook for fiscal year ending March 2010, but they may need to further make downward revision because of high yen.
*Brief Explanation on Economy-Boosting Measures
(source: Nikkei, edited and translated by the author）
This is policies by the government including financial policy with the objectives of stabilizing economic situation. With worldwide economic crisis, government of respective countries one after another adopted policies to stimulate consumer spending, leading to economic recovery. In Japan, incentives to promote consumers purchasing environmentally-friendly products were given for 2009 (due to end March 2010). Tax reduction and subsidies were given for consumers buying eco-friendly cars. Also in Japan, eco-point system in which points achieved by purchasing energy-saving consumer electronics can be changed with local specialty products. In the U.S, subsidy for buying fuel-efficient cars to replace old ones was provided (ended August 2009). Germany also adopted the same incentive (ended September 2009). And China adopted a tax incentive measure for consumers buying small cars (due until end of 2009) and a subsidy incentive for consumers buying consumer electronics (due until 2012).
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in general financial performance of Japanese listed companies has been continuously improving for two consecutive quarters. Nikkei analyzed financial performance of listed companies for July-September 2009, and the result was that the total consolidated profit was 2.3 times that of April-June 2009, meaning improvement for two consecutive quarters. The improvement is because of rationalization/cost reduction efforts especially of manufacturers and termination of sales drop attributing to economy-boosting measures* by the government of respective countries. Having said that, whether the performance improvement continues is a question because the positive effect of government policies has taken a round and the high yen still continues.
Consolidated Profits of Major Companies (100 million yen)
Source: Nikkei (translated by the author)
Company Name / July-September / April-June
Increase in Black Companies
Honda / 661 / 54
Mitsubishi Corporation / 831 / 619
Komatsu / 97 / 87
Returning to Black Companies
Panasonic / 253 / -517
JFE / 98 / -672
Mitsui OSK Lines / 14 / -114
Decrease in Red Companies
Hitachi / -293 / -808
Nippon Steel / -302 / -556
Sony / -170 / -329
Deterioration in Performance Companies
Nintendo / 457 / 648
Japan Tabacco / 563 / 788
Kawasaki Kinsen / -271 / -227
Notes: EBIT (Earnings before Income Tax) for companies using GAAP, profit in Japan auditing principle for others
Nikkei reports that the data used for analysis is of 527 companies that have finished making financial announcement for 2009 Q3 by October 30, 2009 (excluding financial institutions). These companies cover 63% of total market value industry-wide.
Their performance was negatively impacted by the worldwide economic crisis and went to red January-March. It went back to black in total April-June (97.49 million yen in black) with rationalization but manufacturers remained in red in total by 25.47 billion yen. And for July-September their performance in total was in black by 2.2021 trillion yen, and manufacturers in total also returned to black after three quarters by 81.58 billion yen. 68% of companies have improved from April-June.
Increase in sales was the driver for performance improvement. Consolidated sales for July-September increased by 10% from April-June, marking the first sales increase of a quarter (vs. previous quarter) after four quarters. Revenue of manufacturing companies increased by 12% from the previous quarter.
Favourable Japan domestic market sales also contributed to performance improvement. This was driven by economy-boosting measures designed to promote consumer purchase of environmentally-friendly products. Honda increased its sales by 3% and Mazuda by 31% from previous quarter with the economy-boosting measures, leading to favourable sales of fuel-efficient cars benefiting from tax reduction of eco-friendly cars (eco = ecology & economy). Panasonic also benefited from economy-boosting measures and its domestic sales/revenue of TV and washing machine increased by 9%. Steel giants that supply materials including Nippon Steel and other three companies increased their sales/revenue.
Aggressive demand of China and other emerging countries also contributed to performance improvement. LCD sales of Sharp for July-September were 22.23 billion yen which was 26% increase from the previous quarter. This highly attributes to Chinese government’s measures designed to promote penetration of consumer electronics in which 13% cash back is given as subsidy to consumers who purchase consumer electronics.
Further rationalization efforts by manufacturers also greatly contributed to performance improvement. Fujitsu reduced cost by 40 billion yen which led to returning to black for July-September. Toshiba originally planned to cut fixed cost by 67 billion yen but increased the amount of fixed cost cut to 200 billion yen for April-September.
Although the performance has been improving, performance for 2009 for total industry is still at low level compared with previous year of 2008 and there are still concerns; therefore, the outlook is not necessarily bright. 2009 sales is 23% and profit is 42% of 2008. Demand recovery of developed countries is still ongoing, and Sony’s CFO comments that Christmas season also needs to be promoted with cautiousness. Senescence of economy-boosting measures and high yen are also concerns. Since incentives of respective countries designed to promote buying new cars to replace old ones is to end soon, it is quite possible that there comes a “rebound” after April 2010, as Honda’s VP comments. Three ship giants including NYK Logistics made downward revision of their performance outlook for fiscal year ending March 2010, but they may need to further make downward revision because of high yen.
*Brief Explanation on Economy-Boosting Measures
(source: Nikkei, edited and translated by the author）
This is policies by the government including financial policy with the objectives of stabilizing economic situation. With worldwide economic crisis, government of respective countries one after another adopted policies to stimulate consumer spending, leading to economic recovery. In Japan, incentives to promote consumers purchasing environmentally-friendly products were given for 2009 (due to end March 2010). Tax reduction and subsidies were given for consumers buying eco-friendly cars. Also in Japan, eco-point system in which points achieved by purchasing energy-saving consumer electronics can be changed with local specialty products. In the U.S, subsidy for buying fuel-efficient cars to replace old ones was provided (ended August 2009). Germany also adopted the same incentive (ended September 2009). And China adopted a tax incentive measure for consumers buying small cars (due until end of 2009) and a subsidy incentive for consumers buying consumer electronics (due until 2012).
2009年10月25日日曜日
JAL to be GM of Japan – Turnaround under Government’s Control
October 25, 2009 – Osaka, Japan
Today Nikkei, Japan’s leading newspaper specialized in economy and politics, reported that on October 24, the Japanese government finalized the policy of aiding turnaround of JAL (Japan Air Lines) by making JAL leverage public institution of “Company Turnaround Aid Institution”. Related ministers will discuss this issue and officially announce the policy by the end of this month, with the objective of reducing excess debt under the government’s control and develop drastic restructuring plan. The institution will execute bridge financing etc. to abolish credit uneasiness of JAL. The government will wait for the restructuring plan then study increase capital by public funding as a last resort. More drastic solution is to be studied and developed for pension debt reduction which is currently very slow in progress. Restructuring plan development under strong government’s control is to start at last.
According to Nikkei, the outlook of the JAL turnaround is as below.
Capital increase: Current restructuring plan is 300 billon yen including public funding. The government’s policy includes leveraging Company Turnaround Aid Institution to insert capital by the end of 2009.
Debt write-off: Current plan is 220 billion yen. The government’s policy is to convincing syndicates of banks to accept debt write-offs, on condition that JAL will drastically restructure with public funding.
Debt-for-equity swap: Current plan is 30 billion yen. The government’s policy is to convincing syndicates of banks to accept debt-for-equity swap, on condition that JAL will drastically restructure with public funding.
Bridge financing: Current plan is 200 billion yen. The government’s policy is to execute this by the end of November 2009.
Pension debt reduction: Current plan is reducing insufficient accumulation to 100 billion yen from 330 billion yen. The government’s policy is change to more drastic plan.
Restructuring: Current plan includes cutting almost 9000 jobs and abolishing 45-50 routes by 2014.
Capital deficit: Current estimation is up to 270 billion yen.
JAL’s turnaround has been going through a trial and error process as below.
June 30: 100 billion yen financing agreement with Development Bank of Japan etc. froze.
August 7: April-June consolidated financial result was in red by 99 billion yen.
August 21: Starting negotiation of integrating air cargo business with NYK (Nippon Yusen Kaisha) Line.
Beginning of September: Alliance negotiation with Delta and American Airlines including financing came to light.
September 15: Draft of management improvement plan with pillars of cutting 68000 jobs and abolishing total of domestic and international 50 routes proposed at blue-ribbon panel.
September 25: A task force directly controlled by Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism established, marking the start of reviewing the current turnaround plan.
October 13: The task force proposed a turnaround plan draft to financial institutes etc. requesting them to accept debt write-offs of 300 billion yen in total.
October 20: The task force made the revised draft including increase of capital of 300 billion yen by public funding etc.
The Japanese government finalized the policy of aiding turnaround of JAL (Japan Air Lines) by making JAL leverage public funding by Company Turnaround Aid Institution because of the tough reality that they would not be able to win understanding and support from syndicates of banks without strong control and interference from the government. Under a situation of extreme funding difficulties, the government decided to back-up in full scale. Hatoyama administration cannot fail this turnaround with wall at their back; as Mr. Maehara states, we cannot have a situation in which we do not have flights and allow inconvenience to travellers. However, there are many hurdles and obstacles to overcome and the outlook is not necessarily bright.
The turnaround is not only about financing and debt write-offs. It is really all about whether the mindset of current JAL employees and retired workers, and the whether the system and culture of the entire company change from the current “the government will foot the bill” culture. It is only when the company totally change from inside to an organization that it will start creating value to generate revenue with optimum cost so that financing/cash flow management will be a sound one.
Today Nikkei, Japan’s leading newspaper specialized in economy and politics, reported that on October 24, the Japanese government finalized the policy of aiding turnaround of JAL (Japan Air Lines) by making JAL leverage public institution of “Company Turnaround Aid Institution”. Related ministers will discuss this issue and officially announce the policy by the end of this month, with the objective of reducing excess debt under the government’s control and develop drastic restructuring plan. The institution will execute bridge financing etc. to abolish credit uneasiness of JAL. The government will wait for the restructuring plan then study increase capital by public funding as a last resort. More drastic solution is to be studied and developed for pension debt reduction which is currently very slow in progress. Restructuring plan development under strong government’s control is to start at last.
According to Nikkei, the outlook of the JAL turnaround is as below.
Capital increase: Current restructuring plan is 300 billon yen including public funding. The government’s policy includes leveraging Company Turnaround Aid Institution to insert capital by the end of 2009.
Debt write-off: Current plan is 220 billion yen. The government’s policy is to convincing syndicates of banks to accept debt write-offs, on condition that JAL will drastically restructure with public funding.
Debt-for-equity swap: Current plan is 30 billion yen. The government’s policy is to convincing syndicates of banks to accept debt-for-equity swap, on condition that JAL will drastically restructure with public funding.
Bridge financing: Current plan is 200 billion yen. The government’s policy is to execute this by the end of November 2009.
Pension debt reduction: Current plan is reducing insufficient accumulation to 100 billion yen from 330 billion yen. The government’s policy is change to more drastic plan.
Restructuring: Current plan includes cutting almost 9000 jobs and abolishing 45-50 routes by 2014.
Capital deficit: Current estimation is up to 270 billion yen.
JAL’s turnaround has been going through a trial and error process as below.
June 30: 100 billion yen financing agreement with Development Bank of Japan etc. froze.
August 7: April-June consolidated financial result was in red by 99 billion yen.
August 21: Starting negotiation of integrating air cargo business with NYK (Nippon Yusen Kaisha) Line.
Beginning of September: Alliance negotiation with Delta and American Airlines including financing came to light.
September 15: Draft of management improvement plan with pillars of cutting 68000 jobs and abolishing total of domestic and international 50 routes proposed at blue-ribbon panel.
September 25: A task force directly controlled by Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism established, marking the start of reviewing the current turnaround plan.
October 13: The task force proposed a turnaround plan draft to financial institutes etc. requesting them to accept debt write-offs of 300 billion yen in total.
October 20: The task force made the revised draft including increase of capital of 300 billion yen by public funding etc.
The Japanese government finalized the policy of aiding turnaround of JAL (Japan Air Lines) by making JAL leverage public funding by Company Turnaround Aid Institution because of the tough reality that they would not be able to win understanding and support from syndicates of banks without strong control and interference from the government. Under a situation of extreme funding difficulties, the government decided to back-up in full scale. Hatoyama administration cannot fail this turnaround with wall at their back; as Mr. Maehara states, we cannot have a situation in which we do not have flights and allow inconvenience to travellers. However, there are many hurdles and obstacles to overcome and the outlook is not necessarily bright.
The turnaround is not only about financing and debt write-offs. It is really all about whether the mindset of current JAL employees and retired workers, and the whether the system and culture of the entire company change from the current “the government will foot the bill” culture. It is only when the company totally change from inside to an organization that it will start creating value to generate revenue with optimum cost so that financing/cash flow management will be a sound one.
2009年10月12日月曜日
Promoting Health and Well-Being Through Sports on National Sports Day
October 12, 2009 – Osaka, Japan
The second Monday of October is National Sports Day/Health-Sports Day in Japan. Its purpose is to promote health and well-being through sports, and this is the day for sports and to foster a sound mind and body. The day was originally celebrated on October 10th, the day that is most likely to be sunny at this time of the year according to statistical research result, to commemorate the opening ceremony of the 1964 Tokyo Olympics. In 2000, it was changed to the second Monday of October by a new law, and for this year, it is today, October 12. This is one of the background for Japan (Osaka, Nagoya, Tokyo) announcing its candidacy to host Olympic game, and today it was reported by mass media that Hiroshima and Nagasaki, the two prefectures that are the sites of nuclear bombing in World War II, are planning to announce their joint-candidacy for 2020 Olympics.
Around this time of the year sports festival is held in schools, sometime in other places such as companies. Sports festival, a whole day event, had really been a big event for the school, community and society. For example, whole family joins the school sports festival and enjoy, and parents take so many photos and videos of their children. There used to be a TV programme of it in which TV stars participated in the festival.
Usually participants are divided into 2 groups/teams of red and white to compete, and variety of games are played at the festival, some are common worldwide such as 100m sprint race, relay race and tug of war, and some other are rather Japan unique. The rather Japan unique ones are as below:-
- “Tamaire” (ball games): During a defined time, participants throw beanbags of their team colour into their team’s basket as many as they can like basket players shoot.
- Obstacle race: Participants compete the speed of going through obstacles such as going over balance beam, running under mats etc.
- Mock cavalry battle: Participants, usually boys of around 11 years old, get into teams and compete for battle.
- Three-legged race: Two people make a team. A leg of each is tied to make three legs and teams have a face of usually 100 metres.
- “Pan-kui-kyoso” Eating bread race: Bread is tied with a rope which is hung, and participants take a big bite to the bread and race to the goal with the bread.
- Centipede race: About 10 participants make a team. Their right and left foot are tied to a board (something like a ski), and the teams walk as quickly as possible toward the goal. Teamwork really counts!
- “Karimono-kyoso” borrowing race: Participants race to pick a card which states something (e.g. girl with red skirt) that he/she is asked to borrow from people present at the festival and take it/that person to the goal as quickly as possible.
In addition, there is team work gymnastics. Children practice this hard for the festival under the guidance from their teachers and on the day, they perform this to show their efforts to their family. And there is also cheering group that liven up the festival. The group is led by a cheering leader, usually a male, and they also practice a lot for the festival.
National Sports Day is also the timing in which body strength of citizens will be focused. Every year Ministry of Education, Science, Sports, and Culture execute a survey of body strength including stamina and agility. Approximately 70,000 citizens of age 6-75 are parametric model and the survey will be held May-October, whose results are analyze according to age groups and reported on the National Sports Day. According to the result reported today via mass media, the overall result for children started to improve although it had been on the declined since 1985 and therefore had been an issue. An expert, a member of the analysis team, commented that it is probably the result of step-by-step efforts of schools of increasing opportunities for exercise and sports. On the other hand, results for adults were mixture. Female of age 20-30 deteriorated but male and female of age 40+ and 65+ improved. The overall trend of body strength level is concluded that both male and female increase from 6 years old, and male reach the peak around 17 years old and female around 14 years old; however for grip strength, male reach the peak 30-34 years old and female 40-44 years old.
The survey result and analysis clarified that regular exercise and participating in sports highly contribute to maintaining high level of body strength; however, people in 20s are doing less exercises and enjoying sports compared to 15 and 30 years ago and their body strength level has dropped. Possible reasons for this include the fact that people in their 20s grew up playing indoors, with gaming, Internet and comics, too busy with their work and has insufficient time to regularly enjoy exercise and sports, and so forth. It might well need “fundamental” measures and actions to change and improve this trend and it would take time for tangible results to come out.
The second Monday of October is National Sports Day/Health-Sports Day in Japan. Its purpose is to promote health and well-being through sports, and this is the day for sports and to foster a sound mind and body. The day was originally celebrated on October 10th, the day that is most likely to be sunny at this time of the year according to statistical research result, to commemorate the opening ceremony of the 1964 Tokyo Olympics. In 2000, it was changed to the second Monday of October by a new law, and for this year, it is today, October 12. This is one of the background for Japan (Osaka, Nagoya, Tokyo) announcing its candidacy to host Olympic game, and today it was reported by mass media that Hiroshima and Nagasaki, the two prefectures that are the sites of nuclear bombing in World War II, are planning to announce their joint-candidacy for 2020 Olympics.
Around this time of the year sports festival is held in schools, sometime in other places such as companies. Sports festival, a whole day event, had really been a big event for the school, community and society. For example, whole family joins the school sports festival and enjoy, and parents take so many photos and videos of their children. There used to be a TV programme of it in which TV stars participated in the festival.
Usually participants are divided into 2 groups/teams of red and white to compete, and variety of games are played at the festival, some are common worldwide such as 100m sprint race, relay race and tug of war, and some other are rather Japan unique. The rather Japan unique ones are as below:-
- “Tamaire” (ball games): During a defined time, participants throw beanbags of their team colour into their team’s basket as many as they can like basket players shoot.
- Obstacle race: Participants compete the speed of going through obstacles such as going over balance beam, running under mats etc.
- Mock cavalry battle: Participants, usually boys of around 11 years old, get into teams and compete for battle.
- Three-legged race: Two people make a team. A leg of each is tied to make three legs and teams have a face of usually 100 metres.
- “Pan-kui-kyoso” Eating bread race: Bread is tied with a rope which is hung, and participants take a big bite to the bread and race to the goal with the bread.
- Centipede race: About 10 participants make a team. Their right and left foot are tied to a board (something like a ski), and the teams walk as quickly as possible toward the goal. Teamwork really counts!
- “Karimono-kyoso” borrowing race: Participants race to pick a card which states something (e.g. girl with red skirt) that he/she is asked to borrow from people present at the festival and take it/that person to the goal as quickly as possible.
In addition, there is team work gymnastics. Children practice this hard for the festival under the guidance from their teachers and on the day, they perform this to show their efforts to their family. And there is also cheering group that liven up the festival. The group is led by a cheering leader, usually a male, and they also practice a lot for the festival.
National Sports Day is also the timing in which body strength of citizens will be focused. Every year Ministry of Education, Science, Sports, and Culture execute a survey of body strength including stamina and agility. Approximately 70,000 citizens of age 6-75 are parametric model and the survey will be held May-October, whose results are analyze according to age groups and reported on the National Sports Day. According to the result reported today via mass media, the overall result for children started to improve although it had been on the declined since 1985 and therefore had been an issue. An expert, a member of the analysis team, commented that it is probably the result of step-by-step efforts of schools of increasing opportunities for exercise and sports. On the other hand, results for adults were mixture. Female of age 20-30 deteriorated but male and female of age 40+ and 65+ improved. The overall trend of body strength level is concluded that both male and female increase from 6 years old, and male reach the peak around 17 years old and female around 14 years old; however for grip strength, male reach the peak 30-34 years old and female 40-44 years old.
The survey result and analysis clarified that regular exercise and participating in sports highly contribute to maintaining high level of body strength; however, people in 20s are doing less exercises and enjoying sports compared to 15 and 30 years ago and their body strength level has dropped. Possible reasons for this include the fact that people in their 20s grew up playing indoors, with gaming, Internet and comics, too busy with their work and has insufficient time to regularly enjoy exercise and sports, and so forth. It might well need “fundamental” measures and actions to change and improve this trend and it would take time for tangible results to come out.
2009年10月11日日曜日
Japanese Manufacturers’ Main Businesses Returning to Black
October 10, 2009 – Osaka, Japan,
Nikkei, Japan’s leading newspaper specialized in economy and politics, reported today that main businesses of Japanese manufacture giants especially high-tech companies that once fell in the red have been going back to black. This is because of Japanese manufactures’ efforts in cost reduction, together with digital consumer electronics and automobile sales hitting the bottom attributing to demand increase of emerging markets and positive effect of government policy such as eco-point system (incentive for consumers purchasing eco-friendly consumer electronics and automobiles). Price hovering at appropriate level due to supply volume control is also a contributor of the recovery. Continuous improvement in operational income by sector would be the overall performance support for such companies in the process of recovery, although there are some uncertainty factors such as high yen.
Market recovery is conspicuous in semi-conductors, HDD and precision component. Toshiba’s flash memories used in mobile audio music players and PC recording media have returned to black for fiscal quarter of July-September instead of original expectation of October-December. Toshiba had been cutting production by 30% January-June this year. And decrease in price stopped and then demand started to recover. Hitachi’s HDD business has also been recovering; its operation income was minus 9 billion yen for April-September but is expected to return to black for October-December.
Positive effects of emerging marketing demand and government policy have led to digital consumer electronics sales hitting the bottom. Sharp’s LCD panel business was in the red by 14.7 billion yen April-June but is expected to go back to black by 16 billion yen for fiscal year ending March 2010. With incentive/tax reduction for eco (ecological & economical) cars, sales related to EV car have been good. Koito’s Japan domestic business of light supplied for Toyota’s Prius cars has been drastically improving. Its operating income was minus 1.2 billion yen for April-June but seems to have returned to black by 5+ billion for July-September.
Cost reduction is also a contribution factor for recovery. Hoya transferred its digital camera production to overseas, and together with good new product sales its business for September seems to have returned to black. Digital camera businesses of Fuji Film Holdings and Olympus are expected to return to black as well. Energy plant business of IHI was in the red by 6.2 billion for fiscal year ending March 2009 but is expected to land on 11 billion yen in black for fiscal year ending March 2010, attributing to clearing out unprofitable overseas businesses plus drop in purchasing cost.
The worldwide economic crisis and recession started autumn last year had hit directly revenues of companies, resulting in total of approximately 3.6 trillion yen in red for total of all Japanese manufacturers for fiscal year ending March 2009. Consumer electronics, automobile and component businesses were the hardest hit, with an example of Toshiba’s semiconductor business that went in the red by 280 billion yen. And then amount of red decreased to 730 billion yen for total manufacturers for April-June, which is 1/8 of January-March. Therefore many experts assume that it has hit the bottom and if recovery trend continues it is possible that the complete recovery scenario for fiscal year ending March 2010 becomes a reality.
Some possible risks for such a recovery scenario include high yen for many Japanese manufacturers whose business relies heavily on export, and uncertain business trend for January-March 2010. Machine tool and semiconductor manufacturing equipment sectors relying on increase in production and investment are quite possible to remain in the red because few companies still refrain from increasing equipment investment with the assumption of demand recovery.
The author strongly believes that performance (operational income) recovery of Japanese manufacturers has an impact on feasibility of Japanese government’s new policy and upcoming action plans as well as on overall economic recovery. Government’s revenue (corporate tax) fluctuates by the degree of recovery in their performance, and in fact this is a big topic in recent budgeting of the government for 2010. It is also the requirement for labour market recovery and stable earnings for citizens, meaning it has big impact on consumer spending. Of course, it also greatly influence investment etc.
Nikkei, Japan’s leading newspaper specialized in economy and politics, reported today that main businesses of Japanese manufacture giants especially high-tech companies that once fell in the red have been going back to black. This is because of Japanese manufactures’ efforts in cost reduction, together with digital consumer electronics and automobile sales hitting the bottom attributing to demand increase of emerging markets and positive effect of government policy such as eco-point system (incentive for consumers purchasing eco-friendly consumer electronics and automobiles). Price hovering at appropriate level due to supply volume control is also a contributor of the recovery. Continuous improvement in operational income by sector would be the overall performance support for such companies in the process of recovery, although there are some uncertainty factors such as high yen.
Market recovery is conspicuous in semi-conductors, HDD and precision component. Toshiba’s flash memories used in mobile audio music players and PC recording media have returned to black for fiscal quarter of July-September instead of original expectation of October-December. Toshiba had been cutting production by 30% January-June this year. And decrease in price stopped and then demand started to recover. Hitachi’s HDD business has also been recovering; its operation income was minus 9 billion yen for April-September but is expected to return to black for October-December.
Positive effects of emerging marketing demand and government policy have led to digital consumer electronics sales hitting the bottom. Sharp’s LCD panel business was in the red by 14.7 billion yen April-June but is expected to go back to black by 16 billion yen for fiscal year ending March 2010. With incentive/tax reduction for eco (ecological & economical) cars, sales related to EV car have been good. Koito’s Japan domestic business of light supplied for Toyota’s Prius cars has been drastically improving. Its operating income was minus 1.2 billion yen for April-June but seems to have returned to black by 5+ billion for July-September.
Cost reduction is also a contribution factor for recovery. Hoya transferred its digital camera production to overseas, and together with good new product sales its business for September seems to have returned to black. Digital camera businesses of Fuji Film Holdings and Olympus are expected to return to black as well. Energy plant business of IHI was in the red by 6.2 billion for fiscal year ending March 2009 but is expected to land on 11 billion yen in black for fiscal year ending March 2010, attributing to clearing out unprofitable overseas businesses plus drop in purchasing cost.
The worldwide economic crisis and recession started autumn last year had hit directly revenues of companies, resulting in total of approximately 3.6 trillion yen in red for total of all Japanese manufacturers for fiscal year ending March 2009. Consumer electronics, automobile and component businesses were the hardest hit, with an example of Toshiba’s semiconductor business that went in the red by 280 billion yen. And then amount of red decreased to 730 billion yen for total manufacturers for April-June, which is 1/8 of January-March. Therefore many experts assume that it has hit the bottom and if recovery trend continues it is possible that the complete recovery scenario for fiscal year ending March 2010 becomes a reality.
Some possible risks for such a recovery scenario include high yen for many Japanese manufacturers whose business relies heavily on export, and uncertain business trend for January-March 2010. Machine tool and semiconductor manufacturing equipment sectors relying on increase in production and investment are quite possible to remain in the red because few companies still refrain from increasing equipment investment with the assumption of demand recovery.
The author strongly believes that performance (operational income) recovery of Japanese manufacturers has an impact on feasibility of Japanese government’s new policy and upcoming action plans as well as on overall economic recovery. Government’s revenue (corporate tax) fluctuates by the degree of recovery in their performance, and in fact this is a big topic in recent budgeting of the government for 2010. It is also the requirement for labour market recovery and stable earnings for citizens, meaning it has big impact on consumer spending. Of course, it also greatly influence investment etc.
2009年10月10日土曜日
Digital Convergence to Shape the Ubiquitous Networking Society – From CEATEC Japan 2009
October 10, 2009 – Osaka, Japan,
CEATEC Japan, cutting-edge IT & electronics comprehensive exhibition was held in October 6-10, under the theme “Digital Convergence – Defining the Shape of the Future”. For many IT and electronics companies (perhaps especially Japanese companies), CEATEC is a good opportunity to introduce their cutting-edge technologies and concepts to the media and the general public, and this exhibition draws much attention worldwide. CEATEC Japan 2009 official website has been posting news updates, and there have already been many articles on CNET etc. There was also an evening TV news in Japan on 5th (i.e. before the opening) introducing some of the highlights.
Some highlights include future of mobile phones, new concept TV in which operation can be done without a remote control, future robots that can sing and dance or ride a bicycle, future EV car, and future nursing care products including a bed that can become a wheelchair which can be operated automatically by IT and transport system that is more user-friendly than current wheelchairs. It is amazing to see these includes products and companies not only from the traditional IT and electronics companies but also from automobiles (e.g. Nissan). The bed is of Panasonic group that has always been a major player in this exhibition. As far as the author understands, Panasonic used to introduce nursing care products in exhibition specialized in Home Care and Rehabilitation Exhibition only and not at CEATEC.
What is worth noting is that not only IT and electronics business but also automobile and healthcare business that were out of scope of this exhibition in the past also started to converge, creating new concept products, services and business, which implies the ongoing dramatic transformation of respective industries, shaping new competitive landscape in the new ubiquitous networking society. This can be explained by IT marketing principle and theory. As digitalization gets underway, convergence of products and services gets underway leading to lowering of barriers between business domain and industry. Probably the example easiest to understand for everyone is the convergence of digital camera, mobile phone and mobile application connecting to Internet.
Digital convergence has already been creating new market and business involving players from many industries such as online book, music and news, and is opening the door to the new virtualized world like the one depicted in a recent forbes.com article. The author strongly feels that digital convergence has potential to make our lives more convenient and productive in various settings including home, business, education and healthcare/nursing, opening the door to a new world. Whatever the new world may be, the author is very much fascinated by it and is looking forward to it.
References:-
CEATEC Japan 2009 Official Website (English Version)
http://www.ceatec.com/2009/en/news/index.html
Ceatec--gadget extravaganza in Japan
http://news.cnet.com/8301-1001_3-10367757-92.html?part=rss&subj=news&tag=2547-1_3-0-20
Our Virtualized World
http://www.forbes.com/2009/10/06/software-computers-enterprise-technology-virtualization-09_land.html
CEATEC Japan, cutting-edge IT & electronics comprehensive exhibition was held in October 6-10, under the theme “Digital Convergence – Defining the Shape of the Future”. For many IT and electronics companies (perhaps especially Japanese companies), CEATEC is a good opportunity to introduce their cutting-edge technologies and concepts to the media and the general public, and this exhibition draws much attention worldwide. CEATEC Japan 2009 official website has been posting news updates, and there have already been many articles on CNET etc. There was also an evening TV news in Japan on 5th (i.e. before the opening) introducing some of the highlights.
Some highlights include future of mobile phones, new concept TV in which operation can be done without a remote control, future robots that can sing and dance or ride a bicycle, future EV car, and future nursing care products including a bed that can become a wheelchair which can be operated automatically by IT and transport system that is more user-friendly than current wheelchairs. It is amazing to see these includes products and companies not only from the traditional IT and electronics companies but also from automobiles (e.g. Nissan). The bed is of Panasonic group that has always been a major player in this exhibition. As far as the author understands, Panasonic used to introduce nursing care products in exhibition specialized in Home Care and Rehabilitation Exhibition only and not at CEATEC.
What is worth noting is that not only IT and electronics business but also automobile and healthcare business that were out of scope of this exhibition in the past also started to converge, creating new concept products, services and business, which implies the ongoing dramatic transformation of respective industries, shaping new competitive landscape in the new ubiquitous networking society. This can be explained by IT marketing principle and theory. As digitalization gets underway, convergence of products and services gets underway leading to lowering of barriers between business domain and industry. Probably the example easiest to understand for everyone is the convergence of digital camera, mobile phone and mobile application connecting to Internet.
Digital convergence has already been creating new market and business involving players from many industries such as online book, music and news, and is opening the door to the new virtualized world like the one depicted in a recent forbes.com article. The author strongly feels that digital convergence has potential to make our lives more convenient and productive in various settings including home, business, education and healthcare/nursing, opening the door to a new world. Whatever the new world may be, the author is very much fascinated by it and is looking forward to it.
References:-
CEATEC Japan 2009 Official Website (English Version)
http://www.ceatec.com/2009/en/news/index.html
Ceatec--gadget extravaganza in Japan
http://news.cnet.com/8301-1001_3-10367757-92.html?part=rss&subj=news&tag=2547-1_3-0-20
Our Virtualized World
http://www.forbes.com/2009/10/06/software-computers-enterprise-technology-virtualization-09_land.html
2009年9月27日日曜日
Made In Japan Digital Consumer-Electronics Becomes More Affordable
September 27, 2009 – Osaka, Japan,
Nikkei, Japan’s leading newspaper specialized in economy and politics, announced today that Japanese consumer-electronics giants including Sony and Fujitsu are to start marketing in earnest low-end digital consumer-electronics. This is because demand of low-end digital consumer-electronics with limited features is expanding even in developing countries worldwide, growing as the “volume zone” of the market. Taiwan makers have been leading in this market segment and Japanese makers aim to take the offensive by leveraging EMS (Electronic Manufacturing Service) of Taiwan that has manufacturing plant in China, where the labour cost is low.
For mobile PC, Sony is to commission designing and production of net book, mobile PC of price zone around 50,000 yen utilizing EMS. Section responsible for interacting with EMS will be located in PC Division and people responsible for EMS will be located in China. With this strategy, Sony intends to increase its worldwide PC sales from original plan of 6.2 million units for 2009 to more than 10 million. Fujitsu that entered net book market April this year plans to double for 2009 EMS production from 2008 which was 600,000 units. Fujitsu plans to achieve total worldwide PC sales of 6.5 million, including approximately 300,000 units for net book PCs.
As for video camera, Victor will launch new model(s) with price range of 20,000-30,000 yen, half of the current models, in October for European market, and plans to launch in Japan and the U.S. as well. They do so by utilizing EMS reducing cost. Sony has already launched product(s) with price range of 10,000-20,000 yen this spring in the U.S. and Europe.
As for car navigation systems, Pioneer was the first Japanese maker to use EMS, to successfully market product with price of approximately 50,000 yen, which is half their previous products.
As for flat panel TVs, Toshiba plans to increase low price range LCD TVs to achieve sales target of 1.3 million units in 2009 and in 2010 to achieve 3 million units in 2010 for emerging countries. Sharp has already launched a model with price around 50,000 yen in China this year.
According to Display Research, a U.S. market research company, global net book sales is estimated to reach 3.5 million units for 2009 which is more than double of 2008. This is about 20% of total mobile PC sales. In addition, some experts expect that 40-50% of the U.S. video camera market will be of low-end products for 2009.
Japanese digital consumer-electronics giants have been focusing on high-end products that is usually said to be impacted by price competition. Their strength is “vertical” network, engaging in from developing backbone parts to assembling. However, such companies as Taiwan competitors such as Asus and low-end video camera maker under the umbrella of Cisco Systems have been increasing their presence in the worldwide market. If this trend proliferates in Japanese market as well, it is quite possible that Japanese makers would need to further outsource their production offshore.
To the author, it is high time for Japanese consumer-electronics giants to review and change their strategy as appropriate, applying concept and mechanism of “The Innovator’s Dilemma” and “The Innovator’s Solution” of Clayton M. Christensen.
Nikkei, Japan’s leading newspaper specialized in economy and politics, announced today that Japanese consumer-electronics giants including Sony and Fujitsu are to start marketing in earnest low-end digital consumer-electronics. This is because demand of low-end digital consumer-electronics with limited features is expanding even in developing countries worldwide, growing as the “volume zone” of the market. Taiwan makers have been leading in this market segment and Japanese makers aim to take the offensive by leveraging EMS (Electronic Manufacturing Service) of Taiwan that has manufacturing plant in China, where the labour cost is low.
For mobile PC, Sony is to commission designing and production of net book, mobile PC of price zone around 50,000 yen utilizing EMS. Section responsible for interacting with EMS will be located in PC Division and people responsible for EMS will be located in China. With this strategy, Sony intends to increase its worldwide PC sales from original plan of 6.2 million units for 2009 to more than 10 million. Fujitsu that entered net book market April this year plans to double for 2009 EMS production from 2008 which was 600,000 units. Fujitsu plans to achieve total worldwide PC sales of 6.5 million, including approximately 300,000 units for net book PCs.
As for video camera, Victor will launch new model(s) with price range of 20,000-30,000 yen, half of the current models, in October for European market, and plans to launch in Japan and the U.S. as well. They do so by utilizing EMS reducing cost. Sony has already launched product(s) with price range of 10,000-20,000 yen this spring in the U.S. and Europe.
As for car navigation systems, Pioneer was the first Japanese maker to use EMS, to successfully market product with price of approximately 50,000 yen, which is half their previous products.
As for flat panel TVs, Toshiba plans to increase low price range LCD TVs to achieve sales target of 1.3 million units in 2009 and in 2010 to achieve 3 million units in 2010 for emerging countries. Sharp has already launched a model with price around 50,000 yen in China this year.
According to Display Research, a U.S. market research company, global net book sales is estimated to reach 3.5 million units for 2009 which is more than double of 2008. This is about 20% of total mobile PC sales. In addition, some experts expect that 40-50% of the U.S. video camera market will be of low-end products for 2009.
Japanese digital consumer-electronics giants have been focusing on high-end products that is usually said to be impacted by price competition. Their strength is “vertical” network, engaging in from developing backbone parts to assembling. However, such companies as Taiwan competitors such as Asus and low-end video camera maker under the umbrella of Cisco Systems have been increasing their presence in the worldwide market. If this trend proliferates in Japanese market as well, it is quite possible that Japanese makers would need to further outsource their production offshore.
To the author, it is high time for Japanese consumer-electronics giants to review and change their strategy as appropriate, applying concept and mechanism of “The Innovator’s Dilemma” and “The Innovator’s Solution” of Clayton M. Christensen.
2009年9月23日水曜日
Japan Takes Lead in GHG Emission Reduction in the UN’s Climate Change Summit
Wednesday, September 23, 2009 – Osaka, Japan
Mr. Hatoyama, the new Japanese Prime Minister, made a speech pledging Japan’s mid-term target of 25% GHG (global greenhouse gas = CO2) emission reduction vs.1990 by 2020 at the United Nation’s Climate Change Summit held on September 22 in New York, his debut to the diplomatic setting. He also advocated his initiative of providing to developing and emerging countries Japan’s energy saving technologies and capital aid to help them drive global warming countermeasures. His speech in English won great applause and appreciation in the summit, and it is probably the first time that a speech made by a Japanese Prime Minister won such an applause. However, his aggressive target has not been provoking positive reactions back in Japan.
1. Facts On GHG Emission Reduction Mid-Term Target
Mid-term target of reducing GHG emission is the primary focus of the negotiation among participant countries on post Kyoto Protocol (COP3) after 2013, United Nations Framework Convention on Climate Change / UNFCCC, FCCC. The deadline of the negotiation is COP15 United Nations Climate Change Conference Copenhagen 2009 to be held in Denmark this year.
2. Background of Prime Minister Mr. Hatoyama’s Speech
The target set by the former Prime Minister, Mr. Aso, was 15% reduction vs.2005 (8% reduction vs. 1990); therefore, it is evident that Mr. Hatoyama’s target is extremely aggressive (equivalent to 30% reduction vs. 2005). He had set this target as his policy, mentioned in his speeches in Tokyo earlier this month, and announced to Japanese media on 20th this month, although he may well have been aware that there would be resistances from Japan domestic (industries and economy opinion leaders). His intention is to take the initiative in the upcoming international negotiation settings by advocating aggressive target and supporting measures in his debut diplomacy setting in his own words. (First policy he set was taking the initiative from bureaucrats in making speeches at press conferences etc. so that politicians will be delivering their message in their own words). Such a “performance” in the international community conference symbolizes and delivers strong message on the change in political administration and of his style of politics, which is “politician taking the initiative”.
- 25% Reduction of CO2, Message to be Delivered in Upcoming Diplomatic Settings by Prime Minister Mr.Hatoyama
http://megoyanagi.blogspot.com/2009/09/new-japanese-government-officially.html
- How Japanese Government to Develop New Information Disclosure System with Media, Achieving Objectives & Promoting Interactive Communication with Media
http://megoyanagi.blogspot.com/2009/09/how-japanese-government-ti-develop-new.html
The new target announced is the most aggressive among all participant countries, as is shown from the table below. (Source: September 23 Japanese article from Nikkei, Japan’s leading newspaper specialized in economy and politics; translated by the author).
GHG Emission Reduction Target by 2020 of Developed Countries
(The reason that some target is not specific is that the target is specified under specific condition such as “in the case which other countries advocate sufficient reduction target”)
Country Name / Reduction Rate (%) / Standard Year / Availability of Purchasing Emission Quotas
Japan / 25 / 1990 / yes
The U.S. / 14 / 2005 -
EU / 20 - 30 / 1990 / yes
Canada / 20 / 2006 / -
Russia / 10 - 15 / 1990 / -
Switzerland / 20 - 30 / 1990 / yes
Australia / 5 - 25 / 2000 / yes
* Composed by Nikkei based on documents on framework of the U.N. climate change agreement owned by the agreement offices
3. How Mr. Hatoyama Was Careful In Making His Speech
Prime Minister Mr. Hatoyama was careful in making his speech, not forgetting to be considerate in presenting such an aggressive target. His speech included concrete measures compared with his previous speeches made in Tokyo, Japan, but he deliberately made the expression regarding “reduction compared with which year“ not to be too specific, using the expression such as “if I would state comparing with 1990” instead of “vs. 1990”, taking into consideration of the U.S. who had set the 2005 as the standard year in setting the target. He also was careful to avoid misunderstanding from other countries that Japan is prominent in presenting such an aggressive target. He did so by encouraging major GHG emission countries including the U.S., China and India to actively join in his initiative, advocating his Hatoyama initiatives including the principles below.
Hatoyama Initiatives
1) Public and private sectors of developed countries will contribute to additional capital aid.
2) Rules for measuring the effectiveness of aid will be developed.
3) Co-existence of capital aid and preservation of intellectual property right will be fulfilled.
4. Positive Reactions From The International Community
The speech was highly evaluated, with positive comments from participants. The overall reaction from the international community is positive from each standpoint.
The U.S. gave positive reaction backed up by President Obama’s positive speech in the summit, who said that countermeasure for global warming is the U.S. focus and is resolved to take actions. Regarding the reduction target he emphasized that both developed and developing countries need to take responsibility to achieve the target. He also showed his intention of reaching international consensus on this issue at CPO15 to be held in December in Copenhagen, Denmark. He advocated the need of making consensus among all countries including emerging countries, stating hat the only solution is all major countries collaborate to take measures, while developing countries (that had been emitting global warming gasses) have responsibilities to initiate the discussion.
EU evaluated the Japanese aggressive target. EU had been positive in activating trading CO2 emission quotas among countries with the objective of reducing CO2 emission globally, and therefore they would like to deepen collaboration with Japan and lead debate on this issue in the international community. Mr. Okada, the new Minister of Foreign Affairs, had meetings with Ministers of Foreign Affairs of Sweden, the current chairperson of EU, and Spain. The EU side agreed on the importance of solving climate change issue and highly evaluated Japan’s mid-term target of 25% reduction of CO2 emission vs.1990. In addition, the Minister of Climate Change and Energy of Denmark also evaluated the aggressive target of Japan.
Reactions from developing and emerging countries are subtle but not negative at all. Emerging countries including China and India have been strengthening initiatives to reduce global warming gasses in individual sectors such as generation of electricity. One point to note is that their consistent stance is that it is the developed countries responsible for the past global warming that should commit to the aggressive reduction target to be achieved by 2020.
5. Negative Reactions from Japan Domestic Opinion Leaders
It is true that aggressive target has been triggering technological innovation and creation of new industry and employment, but the reaction from Japan so far has been rather negative. This is because Mr. Hatoyama has not yet sufficiently explained to industries and related opinion leaders that are to bear the burden in accomplishing the target. Another reason is that whether emerging countries such as China would really participate in this international initiative of GHG emission reduction is still under question.
To achieve the target, industries would need to reduce 20-30% GHG emission from manufacturing plants, which would be a big burden. It is possible that industries whose GHG emission is large such as iron and steel would be forced to reduce its production, which could lead to drastic production shift from Japan to overseas. And if sufficient CO2 emission reduction is not achieved, they would need to purchase GHG emission quotas from overseas. This is estimated to cost more than 1 trillion yen, according to a government official.
Reaction from economy and commerce associations is quite negative because the target would clearly mean increase in cost. There have been critical comments, requesting the new government to set target taking into consideration both fairness among the international community and reasonability of Japanese citizen’s burden. In fact, there are series of evidences that many Japanese industries/companies are still suffering from high cost and are negatively impacted by new government’s policy, so it is more than natural that the industry and other opinion leaders would react negatively. The break even point of many manufacturing companies has been deteriorating drastically which means that their cost competitiveness under current circumstances is tough. And the recent stock pricing trend of Japan imply that Japanese companies are already negatively impacted by new government’s policy, and it is natural that they would give negative reaction.
- Drastic Deterioration in Break Even Point Ratio of Japanese Manufacturers May Well Indicate Further Tough Job Market in Japan
http://megoyanagi.blogspot.com/2009/09/drastic-deterioration-in-break-even.html
- New Coalition Government Policy, High Yen and Supply & Demand Oppressing Japanese Companies, Being Behind Worldwide Stock Prices Trend
http://megoyanagi.blogspot.com/2009/09/new-coalition-government-policy-high.html
6. Upcoming Challenges For The New Hatoyama Administration To Overcome
Having succeeded in debut the highest-level international conference advocating an aggressive target, a practical “international commitment”, Prime Minister Hatoyama needs to tackle tough challenges upon returning to Japan. He would need to minimize domestic resistances, and draft and execute action plans to achieve the target, taking initiative of post COP3 debate in the international community.
Achieving the target is not easy even if the international community’s reaction is positive, because even internationally, the entire environment is quite tough. It was when Mr. Obama changed the U.S. policy on this issue of proactively reducing GHG emission to cooperate and make harmony with the international community that the international negotiation for GHG emission reduction started to drive. However, Mr. Obama also has health care reform issue to handle and the U.S. Diet is now focusing on this issue, so the deliberation in the Diet of bill regarding GHG is behind schedule. If there is no concrete progress in the G20 summit started 24th this month, it is quite possible that the targeted consensus to be made in December becomes rather difficult.
The feasibility of capital aid execution by developed countries is still a question. EU would like to make consensus of reduction target leveraging capital aid of a tens of billions of dollars. However, discussions among developed countries, that are to raise funds for the capital aid, are still ongoing, far behind the original timeline.
And, even if Mr. Hatoyama manages to convince Japanese industries, related associations, opinion leaders and citizens, the hurdle is still quite high. According to the estimation developed during the former Aso administration, it is vital to increase the solar cell implementation by 5500% (55 times the current implementation) and shift 90% of new car sales to EV cars in order to achieve 25% reduction in GHG emission vs.1990.
Achieving an extremely aggressive target would require something very drastic, some kind of breakthrough. It is passive and conservative target that people tend to agree to easily but they are usually not so much energized by such target, not coming up with innovative ideas, thus often failing to achieve the target. But history teaches us that although at first people are negative at first because it seems absolutely unrealistic, they finally agree and support extremely aggressive target set under tough environment. Such a target delivered by a leader with passion energizes and wins support from followers and related stakeholders. They will then get united to exert maximum effort, leading to creation of innovation and break through, and as a result being successful in achieving the target.
Reduction in GHG emission is an issue that each one of us on this planet is required to take action for the sustainability of human kind, and it is possible to convert this issue to business opportunities as well. It has potential to drive innovations and creation of new industry and employment, meaning growth in world economy and sustainable growth. It is highly hoped that the international community and all stakeholders in each country come in consensus and take their own responsibility to achieve their respective goal.
* The information on the summit is based on series of articles in Nikkei, Japanese leading newspaper specialized in economy and politics, dated September 23, 2009.
Mr. Hatoyama, the new Japanese Prime Minister, made a speech pledging Japan’s mid-term target of 25% GHG (global greenhouse gas = CO2) emission reduction vs.1990 by 2020 at the United Nation’s Climate Change Summit held on September 22 in New York, his debut to the diplomatic setting. He also advocated his initiative of providing to developing and emerging countries Japan’s energy saving technologies and capital aid to help them drive global warming countermeasures. His speech in English won great applause and appreciation in the summit, and it is probably the first time that a speech made by a Japanese Prime Minister won such an applause. However, his aggressive target has not been provoking positive reactions back in Japan.
1. Facts On GHG Emission Reduction Mid-Term Target
Mid-term target of reducing GHG emission is the primary focus of the negotiation among participant countries on post Kyoto Protocol (COP3) after 2013, United Nations Framework Convention on Climate Change / UNFCCC, FCCC. The deadline of the negotiation is COP15 United Nations Climate Change Conference Copenhagen 2009 to be held in Denmark this year.
2. Background of Prime Minister Mr. Hatoyama’s Speech
The target set by the former Prime Minister, Mr. Aso, was 15% reduction vs.2005 (8% reduction vs. 1990); therefore, it is evident that Mr. Hatoyama’s target is extremely aggressive (equivalent to 30% reduction vs. 2005). He had set this target as his policy, mentioned in his speeches in Tokyo earlier this month, and announced to Japanese media on 20th this month, although he may well have been aware that there would be resistances from Japan domestic (industries and economy opinion leaders). His intention is to take the initiative in the upcoming international negotiation settings by advocating aggressive target and supporting measures in his debut diplomacy setting in his own words. (First policy he set was taking the initiative from bureaucrats in making speeches at press conferences etc. so that politicians will be delivering their message in their own words). Such a “performance” in the international community conference symbolizes and delivers strong message on the change in political administration and of his style of politics, which is “politician taking the initiative”.
- 25% Reduction of CO2, Message to be Delivered in Upcoming Diplomatic Settings by Prime Minister Mr.Hatoyama
http://megoyanagi.blogspot.com/2009/09/new-japanese-government-officially.html
- How Japanese Government to Develop New Information Disclosure System with Media, Achieving Objectives & Promoting Interactive Communication with Media
http://megoyanagi.blogspot.com/2009/09/how-japanese-government-ti-develop-new.html
The new target announced is the most aggressive among all participant countries, as is shown from the table below. (Source: September 23 Japanese article from Nikkei, Japan’s leading newspaper specialized in economy and politics; translated by the author).
GHG Emission Reduction Target by 2020 of Developed Countries
(The reason that some target is not specific is that the target is specified under specific condition such as “in the case which other countries advocate sufficient reduction target”)
Country Name / Reduction Rate (%) / Standard Year / Availability of Purchasing Emission Quotas
Japan / 25 / 1990 / yes
The U.S. / 14 / 2005 -
EU / 20 - 30 / 1990 / yes
Canada / 20 / 2006 / -
Russia / 10 - 15 / 1990 / -
Switzerland / 20 - 30 / 1990 / yes
Australia / 5 - 25 / 2000 / yes
* Composed by Nikkei based on documents on framework of the U.N. climate change agreement owned by the agreement offices
3. How Mr. Hatoyama Was Careful In Making His Speech
Prime Minister Mr. Hatoyama was careful in making his speech, not forgetting to be considerate in presenting such an aggressive target. His speech included concrete measures compared with his previous speeches made in Tokyo, Japan, but he deliberately made the expression regarding “reduction compared with which year“ not to be too specific, using the expression such as “if I would state comparing with 1990” instead of “vs. 1990”, taking into consideration of the U.S. who had set the 2005 as the standard year in setting the target. He also was careful to avoid misunderstanding from other countries that Japan is prominent in presenting such an aggressive target. He did so by encouraging major GHG emission countries including the U.S., China and India to actively join in his initiative, advocating his Hatoyama initiatives including the principles below.
Hatoyama Initiatives
1) Public and private sectors of developed countries will contribute to additional capital aid.
2) Rules for measuring the effectiveness of aid will be developed.
3) Co-existence of capital aid and preservation of intellectual property right will be fulfilled.
4. Positive Reactions From The International Community
The speech was highly evaluated, with positive comments from participants. The overall reaction from the international community is positive from each standpoint.
The U.S. gave positive reaction backed up by President Obama’s positive speech in the summit, who said that countermeasure for global warming is the U.S. focus and is resolved to take actions. Regarding the reduction target he emphasized that both developed and developing countries need to take responsibility to achieve the target. He also showed his intention of reaching international consensus on this issue at CPO15 to be held in December in Copenhagen, Denmark. He advocated the need of making consensus among all countries including emerging countries, stating hat the only solution is all major countries collaborate to take measures, while developing countries (that had been emitting global warming gasses) have responsibilities to initiate the discussion.
EU evaluated the Japanese aggressive target. EU had been positive in activating trading CO2 emission quotas among countries with the objective of reducing CO2 emission globally, and therefore they would like to deepen collaboration with Japan and lead debate on this issue in the international community. Mr. Okada, the new Minister of Foreign Affairs, had meetings with Ministers of Foreign Affairs of Sweden, the current chairperson of EU, and Spain. The EU side agreed on the importance of solving climate change issue and highly evaluated Japan’s mid-term target of 25% reduction of CO2 emission vs.1990. In addition, the Minister of Climate Change and Energy of Denmark also evaluated the aggressive target of Japan.
Reactions from developing and emerging countries are subtle but not negative at all. Emerging countries including China and India have been strengthening initiatives to reduce global warming gasses in individual sectors such as generation of electricity. One point to note is that their consistent stance is that it is the developed countries responsible for the past global warming that should commit to the aggressive reduction target to be achieved by 2020.
5. Negative Reactions from Japan Domestic Opinion Leaders
It is true that aggressive target has been triggering technological innovation and creation of new industry and employment, but the reaction from Japan so far has been rather negative. This is because Mr. Hatoyama has not yet sufficiently explained to industries and related opinion leaders that are to bear the burden in accomplishing the target. Another reason is that whether emerging countries such as China would really participate in this international initiative of GHG emission reduction is still under question.
To achieve the target, industries would need to reduce 20-30% GHG emission from manufacturing plants, which would be a big burden. It is possible that industries whose GHG emission is large such as iron and steel would be forced to reduce its production, which could lead to drastic production shift from Japan to overseas. And if sufficient CO2 emission reduction is not achieved, they would need to purchase GHG emission quotas from overseas. This is estimated to cost more than 1 trillion yen, according to a government official.
Reaction from economy and commerce associations is quite negative because the target would clearly mean increase in cost. There have been critical comments, requesting the new government to set target taking into consideration both fairness among the international community and reasonability of Japanese citizen’s burden. In fact, there are series of evidences that many Japanese industries/companies are still suffering from high cost and are negatively impacted by new government’s policy, so it is more than natural that the industry and other opinion leaders would react negatively. The break even point of many manufacturing companies has been deteriorating drastically which means that their cost competitiveness under current circumstances is tough. And the recent stock pricing trend of Japan imply that Japanese companies are already negatively impacted by new government’s policy, and it is natural that they would give negative reaction.
- Drastic Deterioration in Break Even Point Ratio of Japanese Manufacturers May Well Indicate Further Tough Job Market in Japan
http://megoyanagi.blogspot.com/2009/09/drastic-deterioration-in-break-even.html
- New Coalition Government Policy, High Yen and Supply & Demand Oppressing Japanese Companies, Being Behind Worldwide Stock Prices Trend
http://megoyanagi.blogspot.com/2009/09/new-coalition-government-policy-high.html
6. Upcoming Challenges For The New Hatoyama Administration To Overcome
Having succeeded in debut the highest-level international conference advocating an aggressive target, a practical “international commitment”, Prime Minister Hatoyama needs to tackle tough challenges upon returning to Japan. He would need to minimize domestic resistances, and draft and execute action plans to achieve the target, taking initiative of post COP3 debate in the international community.
Achieving the target is not easy even if the international community’s reaction is positive, because even internationally, the entire environment is quite tough. It was when Mr. Obama changed the U.S. policy on this issue of proactively reducing GHG emission to cooperate and make harmony with the international community that the international negotiation for GHG emission reduction started to drive. However, Mr. Obama also has health care reform issue to handle and the U.S. Diet is now focusing on this issue, so the deliberation in the Diet of bill regarding GHG is behind schedule. If there is no concrete progress in the G20 summit started 24th this month, it is quite possible that the targeted consensus to be made in December becomes rather difficult.
The feasibility of capital aid execution by developed countries is still a question. EU would like to make consensus of reduction target leveraging capital aid of a tens of billions of dollars. However, discussions among developed countries, that are to raise funds for the capital aid, are still ongoing, far behind the original timeline.
And, even if Mr. Hatoyama manages to convince Japanese industries, related associations, opinion leaders and citizens, the hurdle is still quite high. According to the estimation developed during the former Aso administration, it is vital to increase the solar cell implementation by 5500% (55 times the current implementation) and shift 90% of new car sales to EV cars in order to achieve 25% reduction in GHG emission vs.1990.
Achieving an extremely aggressive target would require something very drastic, some kind of breakthrough. It is passive and conservative target that people tend to agree to easily but they are usually not so much energized by such target, not coming up with innovative ideas, thus often failing to achieve the target. But history teaches us that although at first people are negative at first because it seems absolutely unrealistic, they finally agree and support extremely aggressive target set under tough environment. Such a target delivered by a leader with passion energizes and wins support from followers and related stakeholders. They will then get united to exert maximum effort, leading to creation of innovation and break through, and as a result being successful in achieving the target.
Reduction in GHG emission is an issue that each one of us on this planet is required to take action for the sustainability of human kind, and it is possible to convert this issue to business opportunities as well. It has potential to drive innovations and creation of new industry and employment, meaning growth in world economy and sustainable growth. It is highly hoped that the international community and all stakeholders in each country come in consensus and take their own responsibility to achieve their respective goal.
* The information on the summit is based on series of articles in Nikkei, Japanese leading newspaper specialized in economy and politics, dated September 23, 2009.
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