New Market Demand and Business from the Japan Disaster

Osaka - Sunday, May 8, 2011




Nikkei, Japan’s leading newspaper specialized in business and economy, reported on May 7 that with the Japanese government’s policy of reducing energy in the peak of summer to minimize planned blackout, there are some unexpected possibilities of new demand to be created.



In this article, the author would like to explain the background of the policy and introduce the outline of the article with some possible insights at the end.



1. What is the background of the Japanese government’s policy?



The Japan disaster of earthquake and tsunami that broke out on March 11 triggered the Fukushima nuclear plant issue, leading to electricity supply shortage. For this reason, there have been some planned blackouts as mentioned in the previous article The Reality of Japan Disaster – Affecting Nationwide. It has been effective to some extent so far but has been negatively affecting some businesses as reported in recent TV programmes/news.



However, the real challenge comes in daytime of summer, the peak of electricity used because offices and factories are operating and everyone use air conditioner.



For this reason, the Japanese government had set a target of reducing maximum electricity use at the peak by 15% and requested industry parties to take measures to achieve the target. Some companies have been working on it such as shifting summer holiday and operating at night time; however, some experts estimate that the energy saving policy could mean reduction in productivity.



On the other hand, there have been some signs that the policy may trigger creation of new market demand and business.



2. What kind of new marketing demand and business is likely to be created, according to Nikkei?






1) Services targeting “overtime work refugees”



Many companies are to set room temperature at 28℃ or above at summer and turn off the air conditioner after official working hours. This means many business persons working in offices in cities to become “overtime work refugees”, getting out of their offices as soon as the official working hour ends because it is too hot and humid to work in the office after the air conditioner is turned off in Japan in summer.



Taking this opportunity, comic cafes that usually target young generation and other businesses started to exploit market targeting such business persons. For example, business owner that provides study room charging by hour has been providing seminars on accounting mostly at weekends but he is to change operating hours to evenings during week days to attract “overtime work refugees”.



2) Accommodation at summer resorts with discount rate



A business owner of a pension in Nagano, a popular summer resort in Japan, created a new discount plan to attract customers. The customer can benefit from 20% discount if he/she stays more than 5 nights.



The department in Mitsui Fudosan that runs hotels is to discount hotel rates for customers staying 2 or more nights in their hotels in Sapporo in Hokkaido (northern Japan, famous for cool summer) and other hotels located in summer resort area in Japan.



Some companies that use electricity supplied by TEPCO is planning to make their summer holiday longer than previous years as a counter measure of energy saving when many Japanese companies set their summer holiday only 1 week or less, making many Japanese people to enjoy their vacation “near their house, spending less, in short time”.



If more people get longer holidays, it is likely that they enjoy vacation leveraging discount rate of accommodations at summer resorts mentioned above, which could help tourism that is suffering from less revenue/business fewer tourists from outside Japan.



3) Energy saving LED bulbs



Power consumption of LED bulbs is half of LCD so although its price is 2,000 – 4,000 JPY which is higher than LCD bulbs and many people are now buying LED bulbs to benefit from energy saving. This is why recently there has been a crowd of people in LED bulb display corners of a leading mass merchandiser of consumer electronics in Tokyo.



METI (Ministry of Economy, Trade and Industry) has drawn up a blue print of replacing all bulbs in Japan to LED and other energy saving ones by 2030. The electricity supply shortage attributing to the Japan disaster is expected to accelerate popularization of LED.



4) “Energy saving biz” products (vs. “Cool biz” that has already become popular)



“Cool Biz” (the name of an energy-saving campaign the government started in 2005) products such as business casual clothes without neck ties for men has taken root and is a pillar of summer business for department stores, and this year it has started to spread to “electricity saving biz” products. This is because some companies are to approve their employees to come to their offices in polo shirts. Taking this opportunity, a few department stores imported fashionable polo shirts and plan to expand polo shirts　corner by 40%.



In addition, some business men who go to work without jackets started to buy sun screen creams as a counter measures to protect themselves from ultra-violet lights, which is an unexpected demand. Taking this opportunity, Shiseido, a leading maker in the industry, is operating at its maximum to meet such market demand to produce sun screen creams.



3. The author’s final thoughts



As Nikkei reports, industrial output index for March dropped by 15.3% from February, which the largest drop in the history attributing mostly to broken link of global supply chain due to the Japan disaster. Many experts say that the recovery of the index is to be in autumn or later. Thus, Japanese companies, especially manufacturers, are facing challenges that they had never faced.



However, “hot summer without sufficient electricity and air conditioning” can mean creation of new market demand meaning new businesses and this would stimulate consumer spending when “jishuku”, restraining from spending money, have been proliferating after the disaster, as mentioned in the previous article Impact of “Jishuku” (Self-Restraint) in the Japan Disaster Aftermath. Stimulation of consumer spending is a requirement for Japanese economy to recover.



The companies operating in Japan, both Japanese and non-Japanese (foreign affiliates), are expected to convert the challenges they are currently facing into opportunities for the growth of themselves and the economy.



As often said, necessity is the mother of invention. The author believes that under the current tough situation, companies will come up with breakthroughs by creativity and innovation to create and develop new products, services and businesses from which consumers and the companies benefit.





Resources:-

The Japan disaster triggering electricity supply shortage has been negatively impacting Japanese economy and businesses but there have been signs of new market demand creation and new businesses. Companies operating in Japan are expected to leverage this opportunity to grow their businesses and the economy with creativity and innovation, to stimulate consumer spending, a requirement for Japanese economy to recover.

Why Production Shift from Japan to Overseas?

Osaka – Saturday, March 13, 2010

From recent reports of March 10 and 11 from Nikkei, specialized in economy/business and politics, production of electronics component and investment by non-Japanese capitals are shifting from Japan to overseas. This reflects worldwide trend of global competition getting more and more severe, and of companies focusing on business in emerging countries, attributing to expected growth in market and business opportunity of emerging countries.

In this article, how electronic component production of Japanese companies is shifting from Japan to overseas is explained.

1. How is electronic component production by Japanese companies shifting from Japan to overseas?

According to Nikkei’s article issued on March 11, Japanese electronic component makers are to accelerate transfer of their production from Japan to overseas. Japan’s production of electronic equipments has been drastically shifting to overseas, and already 90% of PCs and 70% of AV equipments such as TV sets have been manufactured overseas. In line with this, electronic components production of each company will be transferred to overseas with the objective of absorbing rapidly growing demand of emerging market.

Overseas Production of Electronics Component Manufacturers
(Source: Nikkei, edited and translated by the author)
Company Name / Transfer To / Overseas Production (Current, %) / Overseas Production (Target, %) / Timing of Achieving Target / Products
Konika Minolta Holdings / Malaysia / 67 / 81 / Oct. 2010 / Glass base material for HDD
Nippon Chemi-Con / Asia / 40 / 60 / FY* 2010 / Aluminum electrolysis condenser
Murata Manufacturing / China, Malaysia / 15 / 30 / FY* 2012 / Ceramic condenser
Fuji Electric Holdings / Malaysia / 50* / 70 / March 2010 / Electric disc for HDD
* FY = Fiscal Year
** Current overseas production of Fuji is of April – June 2009

Konika Minolta will construct a new plant in Malaysia that manufactures glass base material for HDD, investing 11 billion yen. Operation is to start in October 2010. This is because of their assumption that glass demand will steadily grow in emerging countries with promising growth of PC demand in emerging countries. Their production in Malaysia will double to 1.3 million (volume base) per month, and their overseas production will increase from current 67% to 81%.

HOYA, the global leader of glass base material for HDD is investing approximately 15 billion yen to construct their fifth plant in Philippines. The new plant is to start its operation in August 2010 and the production capacity is assumed to increase by 30% to 33 million (volume base). HOYA already manufactures all its products overseas.

Fuji Electric Holdings, a manufacturer of electric discs for HDD, will increase its production capacity of Malaysia in March 2010, to increase their overseas production from 50% to 70%. HDD makers to which Fuji Electric Holdings supply glass base materials has already located their strategic plants in Asia; for example, Toshiba in Philippines and Hitachi Global Storage Technologies in China.

Production transfer of other electronics components will also be driven. Murata Manufacturing will re-locate equipments used in Japan to China and Malaysia where their volume zone products such as condensers will be produced. As a result, their overseas production will be increased from 15% to 30%.

2. Why is electronic component production transfer ongoing?

With global competition getting more and more severe, Japanese electronic makers are shifting their production to overseas drastically. According to JEITA (Japan Electronics and Information Technology Industries Association), overseas production of AV equipments such as TV sets has reached 72% in 2009. Japanese PC makers produce approximately 90% of their PCs overseas.

It is quite logical and rationale for electronic component makers, the suppliers of electronic makers, to also shift their production to overseas. Electronic component overseas production is already 63% in 2009. It is quite possible that production shift from Japan to overseas will be further driven by high yen.


In the next article, how investment of major foreign capitals is shifting from Japan to emerging countries is explained.

Japanese Manufactures Drastically Recovering with External Demand

Osaka – Saturday, January 30, 2010

Nikkei, specialized in economy/business and politics, reported on January 28 that financial performance of many major Japanese manufacturers have started to recover drastically driven by external demand. It seems that Sony’s consolidated operational profit has gone back to black by 1000 billion yen after 5 quarters for October – December 2009. Honda also seems to double its consolidated operating profit for the same period from the previous quarter of July – September 2009. Ongoing revenue improvement attributes to changing to profit structure more optimized for generating profit by fixed cost reduction and productivity efficiency improvement, plus increase in external demand with worldwide economy recovery.

Better Profit Generation with Cost Reduction
(Source: Nikkei, edited and translated by the author)
Company Name / Operating Revenue (billion yen) / Operating Revenue for Previous Year (billion yen) / Factors
Sony / Approx. 100 / -17.9 / Cost reduction. TV and game business recovering
Honda / 120 - 170 / 102.4 / Strong fuel efficient car business in India and Thailand. Japan business getting stronger as well.
Toshiba / Approx. 10 / -158.8 / Improvement in fixed cost and recovery in semiconductor business.
Canon* / 92.1 / 35.8 / Recovering in worldwide camera sales. Expense compressed.
Fuji Film Holdings / Approx. 5 / 1.2 / Improvement in LCD film and business machine business.
TDK / More than 11 / -5.1 / Strong hard disk related business.
Murata Manufacturing Company / Approx. 11 / -3 / Demand increase in electronic components for PC etc.
Note: For October – December 2009. Canon’s data is of announcement, others is of Nikkei estimation.

Sony drastically improved its game and LCD TV business that were in a slump. PS (Play Station) 3 that had reduced manufacturing cost made a big hit with positive effect of price reduction in the U.S. which contributed to returning to black after 4 quarters. LCD TV sales are now strong in the U.S., Japan and China. Job cuts and site integration contributed to improving operating profit and loss to zero level. However, operating profit improvement that had once been estimated to be 20 billion yen for fiscal year ending March 2010 is expected to be limited. This is because there are anxieties such as restructuring expense to accumulate toward the end of March 2010, and uncertainties/risks such as high yen.

Honda is improving its financial performance driven by growth in the emerging market. Fuel efficient small and medium size car business has become strong in Asia such as India and Thailand, and cost reduction measures such as enhancing local content contributed to positive effect. As a result, Honda’s consolidated operating profit for October – December 2009 seems to have doubled from July – September 2009 to 120 – 170 billion yen.

Honda produced approximately 890,000 cars worldwide October – December 2009, which is increase by 80,000 from July – September. Honda’s bicycle business is also strong in emerging market in particular. Operating profit is estimated to reach 190 billion yen for fiscal year ending March 2010, but it is possible that it reaches more than 300 billion yen.

Companies such as Hitachi is benefiting from worldwide automobile sales recovery, which is decreasing its operating loss of automotive equipment business. Hitachi’s flat panel TV business is also improving. As a result, Hitachi’s consolidated operating profit seems to recover reaching 100 billion yen, which is much more than the original plan of 20 billion yen.

Although there are anxieties and uncertainties such as high yen and domestic economy plunging again, it is expected that revenue of major manufacturers continues to improve driven by external demand. Canon announced its financial performance for fiscal year ending December 2009 on January 27, 2010, in which it estimated that consolidated operating profit for fiscal year ending December 2010 is to reach 330 billion yen, which is +52% from previous year. This is due to continuation of strong sales of single-lens reflex camera, which is of high profitability, especially in China.

It is a pity that Toyota is not one of the manufacturers that is drastically recovering its financial performance, with recent recalls.

China Business Drives Financial Recovery of Japanese Companies

Sunday, January 24, 2010 – Osaka, Japan

Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on January 23 that according to the outlook of financial performance for fiscal year ending March 2010, China business is to be the driver for many automobile and machinery manufacturing companies. For Nissan and Komatsu, 40%-50% of consolidated operating profit is estimated to be generated from China business and profit by region for China is to be greater than those of developed countries. This shows that Chinese economy is driving recovery of company financial performance when demand of Japan, the U.S. and Europe continues to plunge. Having said that, some experts say that Chinese economy seems to be overheated and competition is getting more and more severe. China is a promising marketing but there are challenges/issues such as risk management and thorough cost reduction.

1. How Chinese economy has been?

Chinese economy has been revitalized with positive effect of the economy stimulation measures implemented by the Chinese government (approximately 53 trillion yen) in November 2008. Chinese economy has recovered to 2 digit growth for October – December 2009 and its presence has been enhancing in the world economy.

2. How have Japanese companies been benefiting from revitalized Chinese economy?

China has become the largest automobile market (unit base) in the world last year, and Japanese automobile companies also have been increasing their sales, in particular Nissan. Nissan was quicker than other Japanese companies in strengthening product lines of small cars and developing sales/distribution network, leading to approximately 750,000 unit sales (almost +40% from previous year) for 2009. Operating profit from China business is expected to reach 50-60 billion yen, which is almost half the consolidated operating profit. Nissan estimates to enjoy consolidated operating profit of 120 billion yen when Toyota is estimated to remain in red. Nissan is quicker in recovering its financial achievement by generating profit in growing marketing of China.

Component manufacturers are also benefitting from demand growth in China. NSK’s business in the developed countries remains in low level and is expected to generate 60% - 70% of its consolidated operating profit from China business.

Chinese Business Outlook of Japanese Automobile and Machinery Manufacturers
(Source: Nikkei, edited and translated by the author)
Company Name / Operating Profit: % of China Business / Consolidated Operating Profit (billion yen) / Vs. Previous Year / Trend of Chinese Business
Nissan / Almost 50% / 120 / Returning to black / Quick in establishing sales distribution network, leading to sales growth of almost 40% for 2009
Honda / +40% / 155 / +13% / Strong sales of Accord in cities on the coast
Komatsu / About 40% / 72 / -53% / Strong hydraulic shovel business, growth by 30%, overwhelming Japan business
Furukawa Electric / +25% / 10 / +3% / With strong infrastructure investment, high voltage cable in full production in China and increase in business growth
NSK / 60% / - 70% / 8 / -64% / Bearing business grows targeting automobile and industry machinery companies, when business in Japan, the U.S. and Europe continues to plunge

Regarding machinery manufacturers, sales of China for Komatsu and Hitachi Construction Machinery are approximately 20% of worldwide business, which is greater than Caterpillar. Reducing cost by manufacturing locally, Komatsu’s operating profit from Chinese business is almost 40% of worldwide business, and Komatsu is quicker than Caterpillar in recovering its financial performance.

More companies in other industries are benefitting from growing Chinese market. For example, Toto’s business of luxurious toilets (using luxurious materials etc.) is strong in China. Their China business is expected to be in black when Japan and other business are expected to remain in red. Operating profit from China business is to reach approximately 30%, the biggest worldwide.

3. What are the anxieties and risks of Chinese economy and business?

Chinese economy seems to be overheated, according to some experts. It is prominent that increase in export of steel material to Chinese market is contributing to consolidated financial performance for iron and steel giants. However, many of the executives in this industry are cautious, commenting that “if credit squeeze measure at to be taken (to prevent overheating), the current strong steel material market trend in China may well change”.

Honda is enjoying strong sales of Accord in China but profit of joint venture business in China is to remain the same with previous year. It is because price erosion is extreme in China, when each company strengthens production and sales organization. As proportion of Chinese business increase, necessity of risk management for business fluctuation and increase in competition in this market increases.

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.