Osaka – Sunday, June 27, 2010
Nikkei, Japanese newspaper specialized in business/economy, reported today that Asia business is driving revenue recovery of Japanese Companies. It came clear that Asia is the engine of generating revenue (profit) for one out of four companies when they analyzed operating revenue of financial data by region for fiscal year ending March 2010.
Operating profit from Asia business has recovered to the level of 82% of those of before the worldwide financial crisis in 2008. This is far greater than Americas (43%) and Japan (30%). It is true that there are risks such as increase in personnel cost of China. However, the Japanese government has developed the new growth strategy as explained in the previous article Japan's New Growth Strategy Approved - What Is It? making the most of growth in Asia economy and therefore it is likely that further shift in Asia business will take place among Japanese companies.
1. How did Nikkei come to the conclusion?
Nikkei collected and analyzed financial data of 419 listed companies (excluding financial and new companies) that are:- a)fiscal year ends in March; b)discloses revenues by region; and c)sequent data is available since 2000.
2. How much was the operating profit generated by Asia business?
Operating profit generated by Asia (including Oceania) business was 1.8814 trillion yen in total, which covers 26% of total operating profit generated worldwide. Although this percentage is behind Japan, which was 52%, it is far greater than Americas (11%) and Europe (3%).
3. How is Asia business driving recovery of major companies?
Companies covering 25% of 419 companies analyzed have been recovering driven by Asia business. Most of them are of major manufactures of automobile and electronics. Operating profit generated by Toyota’s Asia business was the greatest, totaling 203.5 billion yen. This attributed to Toyota’s consolidated operating profit returning to black even though their America and Europe business still remains in red.
Major Companies Generating Revenue/Profit Primarily from Asia Business
(Source: Nikkei, translated by the author)
Company Name / Amount of Operating Profit from Asia Business (billion yen) / % of Operating Profit from Asia Business*
Toyota / 203.5 / 139
Denso / 75.3 / 54
TDK / 65.9 / 251
Suzuki / 56.1 / 67
Toshiba / 46.1 / 41
Daikin / 37.9 / 88
HOYA / 34.1 / 58
Seiko Epson / 27.2 / 158
Hitachi Construction Machinery / 26.5 / 219
Rohm / 26.5 / 108
* above 100 = the total operating profit from business in other regions are negative (i.e. loss)
Suzuki’s business is strong in India, where they have market share of approximately 50% in passenger cars. Card produced locally topped 1 million for the first time. The top management commented “operating profit generated by business in India covers almost 70% of consolidated operating profit”.
Toshiba’s operating profit from Asia business doubled from previous year totaling 46.1 billion yen. This was because of business growth in their infrastructure and digital consumer electronics businesses.
4. How is Asia business recovery compared?
Revenue and profitability recovery from Asia business is outstanding. Sales have recovered to 70% and operating profit has recovered to 82% of the level of fiscal year ending March 2008, i.e. before the worldw ide financial crisis. Profitability of Asia business is also high compared with other region. Operating profit of Asia for the analyzed companies turned out to be 9% in average, which is far greater than Japan (45), Americas (3%) and Europe (1%).
This is because profit tends to expand in the process of market recovery for Asia where cost is comparatively low and inflation is comparatively high, compared with, for example Japan, whose profitability is more difficult to improve with high yen and deflation.
5. What is the outlook for fiscal year ending March 2011?
Asia is assumed to remain the engine of further business/financial performance recovery of Japanese companies for fiscal year ending March 2011.
For example, UniCharm Corporation estimates to increase its operating profit by 19%. For sales increase, third plant in China has been constructed in the end of 2009. TOTO plans to generate approximately 70% of assumed worldwide operating profit from China business. To achieve this, they will strengthen sales of housing equipment in inland area.
The government’s new growth strategy leading to strengthening economic relationship with Asia countries could mean positive effect on Asia business of Japanese companies. However, there are risks such as devaluing of the Chinese yuan (RMB) and increase in personnel cost of factory workers in high growing market of China, which has big impact on management. In addition, competition with strong companies of the west and Korea is severe. It is high likely that the quality of Asia business strategy determines how their Asia business further grows.
2010年6月27日日曜日
2010年1月3日日曜日
How Japan’s Growth Strategy Should Be?
Sunday, January 3, 2010 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on December 31 2009 that on December 30 the Japanese government defined basic policy new growth strategy for sustainable economic growth. “Economic management is to be performed, positioning achievement of nominal growth rate* as the most important challenge” is specified. Targets including “By 2010 average nominal growth rate of 3% and bigger growth than actual growth rate of 2%” with engines of industries including environment, healthcare and tourism, and “nominal GDP (Gross Domestic Product) of 650 trillion yen for 2020” were specified. However, according to an article reported today by Nikkei, approximately 60% of 17 economy experts are dissatisfied with the government’s economic policy and estimate that it takes a few years for the economy to recover.
1. Why “nominal“ instead of “actual” is used to define growth target?
It is unusual for the government to define growth target in “nominal” instead of “actual” excluding effects of price fluctuation. “Nominal“ is used from the sense of urgency of the current economic situation; deflation mentioned in the previous article "How Japan Can Get Out From 10 Year Deflation?" and its negative effect on family budget and company business.
2. How has Japan’s nominal GDP been until today? What are the upcoming plans?
For nearly 20 years since 1990, Japan’s nominal GDP has been hovering at the low level of 500 trillion yen, and therefore 650 trillion yen level is increase by +30% vs. 2008. Growth of nominal growth rate of +3% has not been achieved since 1991.
In order to achieve both nominal growth rate of 3% and actual growth rate of 2%, first, deflation needs to be overcome then control inflation rate under 1%/year. Mr. Naoto Kan, Vice Prime Minister and Head of National Strategy emphasized in the press conference held on December 30 that “these targets are sufficiently achievable”; however, experts feel that it is difficult to achieve the targets, considering the past Japanese economy performances and financial policies.
Prime Minister Mr. Yukio Hatoyama expressed in the press conference on December 30 his determination to achieve the target, saying that he is fully aware that the effectiveness of his administration really counts. The government is to develop growth strategy action plan (roadmap/timeline) for the time span until 2020 by June.
3. Which fields are to be focused to achieve growth strategy?
The following 6 fields are specified as focuses for growth strategy.
1) Environment and energy
Expand environment related market from 70 trillion yen to 120 trillion yen. Create 1.4 million jobs. Leverage Japan’s technologies to contribute to cutting 1.3 billion ton worldwide GHG, equivalent to Japan’s emission volume. Leverage IT to make next generation transmission network pervasive to control electricity supply. Make pervasive eco-friendly housing and expand natural energy use, and LED and other energy saving lighting.
2) Healthcare
Create healthcare, nursing and medical market of 45 trillion yen and 280 jobs by leveraging technologies to create internal and external demand. Initiate R&D of innovative medical and nursing technologies such as regenerative medicine, telemedicine system, nursing robots etc. and provide healthcare related services to Asian markets expected to experience aging society. Strengthen infrastructure supporting aging society such as medical, nursing and housing to eliminate anxieties for the future to promote consumption by elders.
3) Asia
Create demand together with Asia, “the growth centre of the world”, positioning formulation of EFAAP covering 21 countries and regions that are currently members of APEC as its foundation. Develop infrastructure demand of Asia such as transportation, water and energy.
4) Tourism and revitalizing local community
Achieve in line with 1)-3)
5) Science and technologies
Achieve in line with 1)-3)
6) Employment and human resources
Achieve in line with 1)-3)
4. How effective is the growth strategy?
The author basically agrees with views of majority of experts; measures for achievement are not clear and need to focus more on motivating companies and other private sector to invest in growth sectors such as deregulation, tangible growth strategy development and execution, and develop mid-term financial policy outlook/plan. Focusing on assisting family budget, the biggest anxiety lies in whether the Hatoyama administration can educe vitality of companies, the source/engine of economic growth.
Reasons for such evaluation from experts include lack of explanation of concrete policies, and lack of perspective that main player (source/engine) of economic growth is companies. The latter is more critical.
Drivers and engines of economic growth are R&D of companies and equipment investment. It is unlikely to achieve high growth driven by inefficient public sector, and sufficient financial resource cannot be acquired, neither. In fact, in 2008, value added (personnel cost, profit, corporate tax etc.) generated by companies excluding financial institutes reached 26.4 trillion yen. This means that more than 50% of nominal GDP is generated by companies.
5. What is the ideal scenario for economic recovery and achieving the target?
The government is supposed to buy over companies and market, and give incentives and motivation, creating favourable environment for companies and other private sectors to proactively invest in growth sectors. That is the solution to solve the root cause of the ongoing economic plunge. Also minimizing interference of government is necessary and public institutions not to get in the way of private sectors making decisions.
However, from the growth strategy reported, such message is not sufficiently delivered. It does not remove anxieties mentioned in the previous articles "How Japan Can Get Out From 10 Year Deflation?", "Japanese Companies Refraining from Equipment Investmen", "Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries" and "Japan's Debt to Drastically Increase - What is the Effect on Economy?"
Mentality of “Economy for human being based on friendship and love” alone is not sufficient to achieve the economic growth. Nikkei introduces varieties of innovative technologies of all sectors and industries (environment and energy, healthcare, IT etc.) in their special reports on January 1 2010. It is with tangible growth strategy, tactics and action plan leveraging such technologies, that create new demand and market in sectors and industries where needs exist in aging society with low birthrate, ubiquitous networking society. And it is with appropriate economic policies mentioned by the economists in Nikkei’s report on January 3 such as deregulation, tangible mid-term financial policy outlook, reduction in corporate tax rate (currently 40%), concluding EPA/FTA with Asian countries/regions, and pension system reform that create favourable environment for the growth strategy to be actually executed.
It is only when companies invest in such growth sectors, (many of them contributing to improving social infrastructure and systems), collaborate with academia and other public sectors in R&D in particular, and operate efficiently with high productivity, that they would be able to generate revenue to improve their financial performance. It is with good financial performance of companies that leads to new job creation, higher salaries for their employees, pensions guarantee etc., which contributes to minimizing anxieties of citizens making their own living and live happily after retirement as well as providing citizens with better lives and society, based on the mentality of “friendship and love”. It is by eliminating their anxieties that citizens utilize allowances for consumer spending instead of setting aside for saving, meaning the government’s economy boosting measures become successful, and as a result Japan will be able to get out of deflation, its economy recovered, and achieve the target.
We would need to wait and see what kind of roadmap and action plan the government will develop and announce in June.
* Nominal Growth Rate (Source: Nikkei, edited and translated by the author)
Nominal growth rate is GDP growth rate including effects of price fluctuation. Almost equals to sum of after-tax pay of workers and profits generated by companies. In general, changes in GDP are measured by actual growth rate (excluding effects of price fluctuation) but nominal growth rate can be said to precisely reflect the actual sensation of business and economy because income and profits are all of nominal value.
Average economic growth rate by decades since 1980
Decades / Nominal Growth Rate (%) / Actual Growth Rate (%)
1980s / 6.1 / 3.8
1990s / 2.0 / 1.4
2000s / -0.5 / 0.7
Rise in nominal growth rate leads to both getting out of deflation and economic growth. In 2000s, actual growth rate was +0.7% but nominal growth rate was -0.5%, which implies that long term economic recovery was achieved but lacked in actual sensation. This was because nominal growth rate was minus.
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on December 31 2009 that on December 30 the Japanese government defined basic policy new growth strategy for sustainable economic growth. “Economic management is to be performed, positioning achievement of nominal growth rate* as the most important challenge” is specified. Targets including “By 2010 average nominal growth rate of 3% and bigger growth than actual growth rate of 2%” with engines of industries including environment, healthcare and tourism, and “nominal GDP (Gross Domestic Product) of 650 trillion yen for 2020” were specified. However, according to an article reported today by Nikkei, approximately 60% of 17 economy experts are dissatisfied with the government’s economic policy and estimate that it takes a few years for the economy to recover.
1. Why “nominal“ instead of “actual” is used to define growth target?
It is unusual for the government to define growth target in “nominal” instead of “actual” excluding effects of price fluctuation. “Nominal“ is used from the sense of urgency of the current economic situation; deflation mentioned in the previous article "How Japan Can Get Out From 10 Year Deflation?" and its negative effect on family budget and company business.
2. How has Japan’s nominal GDP been until today? What are the upcoming plans?
For nearly 20 years since 1990, Japan’s nominal GDP has been hovering at the low level of 500 trillion yen, and therefore 650 trillion yen level is increase by +30% vs. 2008. Growth of nominal growth rate of +3% has not been achieved since 1991.
In order to achieve both nominal growth rate of 3% and actual growth rate of 2%, first, deflation needs to be overcome then control inflation rate under 1%/year. Mr. Naoto Kan, Vice Prime Minister and Head of National Strategy emphasized in the press conference held on December 30 that “these targets are sufficiently achievable”; however, experts feel that it is difficult to achieve the targets, considering the past Japanese economy performances and financial policies.
Prime Minister Mr. Yukio Hatoyama expressed in the press conference on December 30 his determination to achieve the target, saying that he is fully aware that the effectiveness of his administration really counts. The government is to develop growth strategy action plan (roadmap/timeline) for the time span until 2020 by June.
3. Which fields are to be focused to achieve growth strategy?
The following 6 fields are specified as focuses for growth strategy.
1) Environment and energy
Expand environment related market from 70 trillion yen to 120 trillion yen. Create 1.4 million jobs. Leverage Japan’s technologies to contribute to cutting 1.3 billion ton worldwide GHG, equivalent to Japan’s emission volume. Leverage IT to make next generation transmission network pervasive to control electricity supply. Make pervasive eco-friendly housing and expand natural energy use, and LED and other energy saving lighting.
2) Healthcare
Create healthcare, nursing and medical market of 45 trillion yen and 280 jobs by leveraging technologies to create internal and external demand. Initiate R&D of innovative medical and nursing technologies such as regenerative medicine, telemedicine system, nursing robots etc. and provide healthcare related services to Asian markets expected to experience aging society. Strengthen infrastructure supporting aging society such as medical, nursing and housing to eliminate anxieties for the future to promote consumption by elders.
3) Asia
Create demand together with Asia, “the growth centre of the world”, positioning formulation of EFAAP covering 21 countries and regions that are currently members of APEC as its foundation. Develop infrastructure demand of Asia such as transportation, water and energy.
4) Tourism and revitalizing local community
Achieve in line with 1)-3)
5) Science and technologies
Achieve in line with 1)-3)
6) Employment and human resources
Achieve in line with 1)-3)
4. How effective is the growth strategy?
The author basically agrees with views of majority of experts; measures for achievement are not clear and need to focus more on motivating companies and other private sector to invest in growth sectors such as deregulation, tangible growth strategy development and execution, and develop mid-term financial policy outlook/plan. Focusing on assisting family budget, the biggest anxiety lies in whether the Hatoyama administration can educe vitality of companies, the source/engine of economic growth.
Reasons for such evaluation from experts include lack of explanation of concrete policies, and lack of perspective that main player (source/engine) of economic growth is companies. The latter is more critical.
Drivers and engines of economic growth are R&D of companies and equipment investment. It is unlikely to achieve high growth driven by inefficient public sector, and sufficient financial resource cannot be acquired, neither. In fact, in 2008, value added (personnel cost, profit, corporate tax etc.) generated by companies excluding financial institutes reached 26.4 trillion yen. This means that more than 50% of nominal GDP is generated by companies.
5. What is the ideal scenario for economic recovery and achieving the target?
The government is supposed to buy over companies and market, and give incentives and motivation, creating favourable environment for companies and other private sectors to proactively invest in growth sectors. That is the solution to solve the root cause of the ongoing economic plunge. Also minimizing interference of government is necessary and public institutions not to get in the way of private sectors making decisions.
However, from the growth strategy reported, such message is not sufficiently delivered. It does not remove anxieties mentioned in the previous articles "How Japan Can Get Out From 10 Year Deflation?", "Japanese Companies Refraining from Equipment Investmen", "Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries" and "Japan's Debt to Drastically Increase - What is the Effect on Economy?"
Mentality of “Economy for human being based on friendship and love” alone is not sufficient to achieve the economic growth. Nikkei introduces varieties of innovative technologies of all sectors and industries (environment and energy, healthcare, IT etc.) in their special reports on January 1 2010. It is with tangible growth strategy, tactics and action plan leveraging such technologies, that create new demand and market in sectors and industries where needs exist in aging society with low birthrate, ubiquitous networking society. And it is with appropriate economic policies mentioned by the economists in Nikkei’s report on January 3 such as deregulation, tangible mid-term financial policy outlook, reduction in corporate tax rate (currently 40%), concluding EPA/FTA with Asian countries/regions, and pension system reform that create favourable environment for the growth strategy to be actually executed.
It is only when companies invest in such growth sectors, (many of them contributing to improving social infrastructure and systems), collaborate with academia and other public sectors in R&D in particular, and operate efficiently with high productivity, that they would be able to generate revenue to improve their financial performance. It is with good financial performance of companies that leads to new job creation, higher salaries for their employees, pensions guarantee etc., which contributes to minimizing anxieties of citizens making their own living and live happily after retirement as well as providing citizens with better lives and society, based on the mentality of “friendship and love”. It is by eliminating their anxieties that citizens utilize allowances for consumer spending instead of setting aside for saving, meaning the government’s economy boosting measures become successful, and as a result Japan will be able to get out of deflation, its economy recovered, and achieve the target.
We would need to wait and see what kind of roadmap and action plan the government will develop and announce in June.
* Nominal Growth Rate (Source: Nikkei, edited and translated by the author)
Nominal growth rate is GDP growth rate including effects of price fluctuation. Almost equals to sum of after-tax pay of workers and profits generated by companies. In general, changes in GDP are measured by actual growth rate (excluding effects of price fluctuation) but nominal growth rate can be said to precisely reflect the actual sensation of business and economy because income and profits are all of nominal value.
Average economic growth rate by decades since 1980
Decades / Nominal Growth Rate (%) / Actual Growth Rate (%)
1980s / 6.1 / 3.8
1990s / 2.0 / 1.4
2000s / -0.5 / 0.7
Rise in nominal growth rate leads to both getting out of deflation and economic growth. In 2000s, actual growth rate was +0.7% but nominal growth rate was -0.5%, which implies that long term economic recovery was achieved but lacked in actual sensation. This was because nominal growth rate was minus.
2009年12月28日月曜日
Japan’s Debt to Drastically Increase – What is the Effect on Economy?
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.
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.
登録:
投稿 (Atom)