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.
2010年1月24日日曜日
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.
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.
2010年1月17日日曜日
Can JAL Succeed In Turnaround?
Sunday, January 17, 2010 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported January 13 through 15 2009 that long-discussed turnaround of JAL (Japan Air Line) is finally to start. On condition that Corporate Reorganization Act is to be adopted, hurdles to accept support from public institution of “Company Turnaround Aid Institution” have been finally overcome, and the new CEO is appointed. JAL, which had tried to reinvent before in vain, will try again with full support from the government as its last chance.
1. What has been happening until now？
JAL’s turnaround has been under discussion for a long time and it was decided to be done under the Japanese government’s control as explained in the previous article JAL to be GM of Japan – Turnaround under Government’s Control. However, stakeholders (financial institutions, government, JAL employees retired and currently working, etc.) could not come to a consensus the methodology of the turnaround, especially financing, and revision of turnaround plan and negotiation had been ongoing even after the policy of government’s interference was announced on October 24.
2. What had been the hurdles to proceed with the turnaround?
In short, there were the following 4 topics that had been under discussion.
1) What the framework of turnaround methodology to be?
There are a number of methodologies of turnaround of a company, including usage of Chapter 11 equivalent law/Corporate Reorganization Act, or other options, which would determine action plan. It took a while to finalize this point.
Stakeholders finally agreed to adopt Corporate Reorganization Act, which is to be the perquisite to gain support from public institution of “Company Turnaround Aid Institution”.
2) Which turnaround strategy/option to adopt?
3 turnaround strategies/options were proposed, each with different amount or capital needed for turnaround depending on the degree and details of restructuring. The biggest issue under discussion was review of unprofitable international flights. The most drastic option was integrating international flight with ANA (All Nippon Airways), which required minimum capital investment for turnaround.
JAL having been the primary international flight company of Japan, the most drastic option was neglected and was agreed to minimize investment for turnaround by improving cost structure with measures including cutting some affiliates, flights, jobs and pensions, and replacing half the jumbo jet engine airplanes with smaller, more energy-saving airplanes.
3) Will employees, retired and currently working, agree to reduction in pension benefit?
Reduction in pension has been another hot topic for discussion. Reserved amount of JAL’s corporate pension (including post-receipt of retirement allowance by installation, interest rate much higher than average bank interest rate) is insufficient by approximately 450 billion yen at present, and has been requesting 15,700 employees and 8,900 retired employees to accept reduction in pension. If they agree to accept the reduction, the reduction of pension benefit would be 30% in average for retired employees and 50% in average for current employees. And if two-thirds or more of them do not agree, the pension system could not be revised and the reduction of pension benefit would be much greater.
Despite the critical management situation of the company, many retired employees in particular were reluctant to agree to reduction in pension benefit. This probably attributes mainly to their old, conservative mindset, believing that JAL will never go bankrupt, cannot forget the good old days of JAL and not really aware of the hard reality of today’s struggling JAL, and also how corporate pension is managed. Since corporate pension includes retirement benefit to be paid by installation, reduction in corporate pension means reduction in retirement allowance, and retired employees may well need to drastically change their family financing plan.
Employees currently working accepted the reduction relatively straightforwardly, then they made maximum efforts in persuading the retired employees to accept the reduction until the last minutes of deadline of January 11. They finally managed to win the minimum two-thirds of agreement.
4) How to overcome financing and avoid shortage of working capital?
To overcome financing (i.e. avoiding shortage of working capital), the government asked financial institutions to write-off the debts similarly to previous turnarounds initiated by IRCJ (Industrial Revitalization Corporation of Japan) and to assist in bridge financing. It was natural for the financial institutions not to easily agree on this point when the satisfactory turnaround plan had not been presented to them.
On January 12, the 3 major financial institutions (The Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corporation) finally changed their stance/policy and agreed to accept the support from public institution of “Company Turnaround Aid Institution” on condition that Corporate Reorganization Act is to be adopted, after Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism presented them with the government’s policy of supporting turnaround methodology of pre-package (coordinated beforehand).
And the government is to provide JAL of capital support, which was finalized as much as 1 trillion yen.
3. What is the business restructure framework/plan of JAL?
JAL is to accelerate developing revival action plan based on the following business restructure framework.
1) Apply Corporate Reorganization Act simultaneously with 2 affiliate business companies.
Apply for adoption of Corporate Reorganization Act simultaneously with JALI (Japan Air Lines International) and JAL Capital. The three companies will be integrated immediately after the application and other procedures for reorganization are complete and make back office etc. streamlined.
2) Request banks to support financing for refunding refinanced loans etc. that are to accrue from autumn 2010.
This is in addition to DBJ (Development Bank of Japan) is to loan 200 billion yen on January 15 in order to stop capital outflow from credit uncertainty of JAL. (With a rumour of delisting of JAL, JAL’s stock price had dropped drastically by 30 JPY from 37 JPY in a day, which recovered a little after the government announced the policy that shareholder special benefit plan and frequent flyer programme will be valid for a certain period after the application of the act).
After application of Corporate Reorganization Act、JAL is to gain bridge financing of total of 600 billion yen from the assisting organizations etc. And if the revival plan is approved, JAL is to request total of 50.6 billion yen to DBJ and the 3 major banks as capital used to refunding of refinanced loans of bridge financing. JAL also would like to raise capital of 21 billion yen in 5 years to purchase airplanes for the plan mentioned in 3) below.
3) Accelerate replacement of half the jumbo jet airplanes with smaller energy-saving airplanes.
By the end of 2012, JAL aims to own 46 jumbo jet planes, 76 middle size planes and 107 small size planes.
4) Reduce 53 affiliate companies from current 110 companies.
This includes selling out and/or liquidation of 24 affiliates.
5) Cut additional domestic and international flights, 25 in total.
13 international flights and 12 domestic flights will be additionally reduced.
6) Review of cargo flight business will include studying of closure
The operation deficit of cargo flight business is estimated to expand to 23.3 billion yen by the end of current fiscal year ending March 2010 and therefore is reviewed including option of closure of the business.
A part of affiliates that have domestic flights to isolated islands have already finalized its policy of terminating such business.
7) Cut 15,000 jobs.
This is equivalent to one-thirds of the total current employees.
8) Amortize pension liability of 100 billion yen over 5 years.
Since more than two-third of employees, retired and currently working, agreed to accept reduction in pension benefit, continuation of pension fund will be specified in the revival plan. Approximately 100 billion yen of serve for pension fund will be minus but JAL is to amortize over 5 years.
9) Turn back into black in 2011.
With drastic loss of passanges, revenue for current fiscal year is estimated to be 1.4 trillion yen, which is -27% from the previous year, with operation loss of 32.91 billion yen. However, with extreme restructuring, 2 years later (i.e. by the end of fiscal year ending March 2012), JAL aims to return to black by 23.4 billion yen and 3 years later by 85.2 billion yen.
4. Who will be driving the JAL turnaround?
Mr. Kazuo Inamori, founder and chairperson emeritus of Kyocera （77 year old）, was requested to be the new CEO of JAL from the government and Company Turnaround Aid Institution, and he accepted on January 13. Having reached advanced age and being responsible for other roles, he will be working 3 or 4 days a week with no rewards. He is expected to initiate restructuring and then the key coordinator with internal and external stakeholders. He will soon choose COO from short-listed internal candidates of 45-55 years old, to lead operation, supporting Mr. Inamoti.
Mr. Inamori has no experience in transportation business but was appointed with his management ability of having founded and made Kyocera into a global company, and entered telecommunication business by starting up another company (now KDDI）, himself balancing the two businesses to be successful in both.
Mr. Inamori has been supporting the DPJ long before it won the general election on August 30 2009 and has strong ties with key politician of the DPJ including Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism and Mr. Ozawa, Secretary-General of the DPJ.
Some experts say that Mr. Inamori is the ideal person to drive the turnaround but some others say that he is not because he has no experience of turnaround. Mr. Inamori believes that turnaround is quite possible as long as the revival plan is executed steadily. The key for execution is clarification of CEO’s authority and responsibility, and supporting organization/environment. And last but not least, change in culture, and mindset and behaviour (action) of employees determine whether JAL will succeed in its turnaround.
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported January 13 through 15 2009 that long-discussed turnaround of JAL (Japan Air Line) is finally to start. On condition that Corporate Reorganization Act is to be adopted, hurdles to accept support from public institution of “Company Turnaround Aid Institution” have been finally overcome, and the new CEO is appointed. JAL, which had tried to reinvent before in vain, will try again with full support from the government as its last chance.
1. What has been happening until now？
JAL’s turnaround has been under discussion for a long time and it was decided to be done under the Japanese government’s control as explained in the previous article JAL to be GM of Japan – Turnaround under Government’s Control. However, stakeholders (financial institutions, government, JAL employees retired and currently working, etc.) could not come to a consensus the methodology of the turnaround, especially financing, and revision of turnaround plan and negotiation had been ongoing even after the policy of government’s interference was announced on October 24.
2. What had been the hurdles to proceed with the turnaround?
In short, there were the following 4 topics that had been under discussion.
1) What the framework of turnaround methodology to be?
There are a number of methodologies of turnaround of a company, including usage of Chapter 11 equivalent law/Corporate Reorganization Act, or other options, which would determine action plan. It took a while to finalize this point.
Stakeholders finally agreed to adopt Corporate Reorganization Act, which is to be the perquisite to gain support from public institution of “Company Turnaround Aid Institution”.
2) Which turnaround strategy/option to adopt?
3 turnaround strategies/options were proposed, each with different amount or capital needed for turnaround depending on the degree and details of restructuring. The biggest issue under discussion was review of unprofitable international flights. The most drastic option was integrating international flight with ANA (All Nippon Airways), which required minimum capital investment for turnaround.
JAL having been the primary international flight company of Japan, the most drastic option was neglected and was agreed to minimize investment for turnaround by improving cost structure with measures including cutting some affiliates, flights, jobs and pensions, and replacing half the jumbo jet engine airplanes with smaller, more energy-saving airplanes.
3) Will employees, retired and currently working, agree to reduction in pension benefit?
Reduction in pension has been another hot topic for discussion. Reserved amount of JAL’s corporate pension (including post-receipt of retirement allowance by installation, interest rate much higher than average bank interest rate) is insufficient by approximately 450 billion yen at present, and has been requesting 15,700 employees and 8,900 retired employees to accept reduction in pension. If they agree to accept the reduction, the reduction of pension benefit would be 30% in average for retired employees and 50% in average for current employees. And if two-thirds or more of them do not agree, the pension system could not be revised and the reduction of pension benefit would be much greater.
Despite the critical management situation of the company, many retired employees in particular were reluctant to agree to reduction in pension benefit. This probably attributes mainly to their old, conservative mindset, believing that JAL will never go bankrupt, cannot forget the good old days of JAL and not really aware of the hard reality of today’s struggling JAL, and also how corporate pension is managed. Since corporate pension includes retirement benefit to be paid by installation, reduction in corporate pension means reduction in retirement allowance, and retired employees may well need to drastically change their family financing plan.
Employees currently working accepted the reduction relatively straightforwardly, then they made maximum efforts in persuading the retired employees to accept the reduction until the last minutes of deadline of January 11. They finally managed to win the minimum two-thirds of agreement.
4) How to overcome financing and avoid shortage of working capital?
To overcome financing (i.e. avoiding shortage of working capital), the government asked financial institutions to write-off the debts similarly to previous turnarounds initiated by IRCJ (Industrial Revitalization Corporation of Japan) and to assist in bridge financing. It was natural for the financial institutions not to easily agree on this point when the satisfactory turnaround plan had not been presented to them.
On January 12, the 3 major financial institutions (The Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corporation) finally changed their stance/policy and agreed to accept the support from public institution of “Company Turnaround Aid Institution” on condition that Corporate Reorganization Act is to be adopted, after Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism presented them with the government’s policy of supporting turnaround methodology of pre-package (coordinated beforehand).
And the government is to provide JAL of capital support, which was finalized as much as 1 trillion yen.
3. What is the business restructure framework/plan of JAL?
JAL is to accelerate developing revival action plan based on the following business restructure framework.
1) Apply Corporate Reorganization Act simultaneously with 2 affiliate business companies.
Apply for adoption of Corporate Reorganization Act simultaneously with JALI (Japan Air Lines International) and JAL Capital. The three companies will be integrated immediately after the application and other procedures for reorganization are complete and make back office etc. streamlined.
2) Request banks to support financing for refunding refinanced loans etc. that are to accrue from autumn 2010.
This is in addition to DBJ (Development Bank of Japan) is to loan 200 billion yen on January 15 in order to stop capital outflow from credit uncertainty of JAL. (With a rumour of delisting of JAL, JAL’s stock price had dropped drastically by 30 JPY from 37 JPY in a day, which recovered a little after the government announced the policy that shareholder special benefit plan and frequent flyer programme will be valid for a certain period after the application of the act).
After application of Corporate Reorganization Act、JAL is to gain bridge financing of total of 600 billion yen from the assisting organizations etc. And if the revival plan is approved, JAL is to request total of 50.6 billion yen to DBJ and the 3 major banks as capital used to refunding of refinanced loans of bridge financing. JAL also would like to raise capital of 21 billion yen in 5 years to purchase airplanes for the plan mentioned in 3) below.
3) Accelerate replacement of half the jumbo jet airplanes with smaller energy-saving airplanes.
By the end of 2012, JAL aims to own 46 jumbo jet planes, 76 middle size planes and 107 small size planes.
4) Reduce 53 affiliate companies from current 110 companies.
This includes selling out and/or liquidation of 24 affiliates.
5) Cut additional domestic and international flights, 25 in total.
13 international flights and 12 domestic flights will be additionally reduced.
6) Review of cargo flight business will include studying of closure
The operation deficit of cargo flight business is estimated to expand to 23.3 billion yen by the end of current fiscal year ending March 2010 and therefore is reviewed including option of closure of the business.
A part of affiliates that have domestic flights to isolated islands have already finalized its policy of terminating such business.
7) Cut 15,000 jobs.
This is equivalent to one-thirds of the total current employees.
8) Amortize pension liability of 100 billion yen over 5 years.
Since more than two-third of employees, retired and currently working, agreed to accept reduction in pension benefit, continuation of pension fund will be specified in the revival plan. Approximately 100 billion yen of serve for pension fund will be minus but JAL is to amortize over 5 years.
9) Turn back into black in 2011.
With drastic loss of passanges, revenue for current fiscal year is estimated to be 1.4 trillion yen, which is -27% from the previous year, with operation loss of 32.91 billion yen. However, with extreme restructuring, 2 years later (i.e. by the end of fiscal year ending March 2012), JAL aims to return to black by 23.4 billion yen and 3 years later by 85.2 billion yen.
4. Who will be driving the JAL turnaround?
Mr. Kazuo Inamori, founder and chairperson emeritus of Kyocera （77 year old）, was requested to be the new CEO of JAL from the government and Company Turnaround Aid Institution, and he accepted on January 13. Having reached advanced age and being responsible for other roles, he will be working 3 or 4 days a week with no rewards. He is expected to initiate restructuring and then the key coordinator with internal and external stakeholders. He will soon choose COO from short-listed internal candidates of 45-55 years old, to lead operation, supporting Mr. Inamoti.
Mr. Inamori has no experience in transportation business but was appointed with his management ability of having founded and made Kyocera into a global company, and entered telecommunication business by starting up another company (now KDDI）, himself balancing the two businesses to be successful in both.
Mr. Inamori has been supporting the DPJ long before it won the general election on August 30 2009 and has strong ties with key politician of the DPJ including Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism and Mr. Ozawa, Secretary-General of the DPJ.
Some experts say that Mr. Inamori is the ideal person to drive the turnaround but some others say that he is not because he has no experience of turnaround. Mr. Inamori believes that turnaround is quite possible as long as the revival plan is executed steadily. The key for execution is clarification of CEO’s authority and responsibility, and supporting organization/environment. And last but not least, change in culture, and mindset and behaviour (action) of employees determine whether JAL will succeed in its turnaround.
2010年1月11日月曜日
What Does It Mean To Join Adult Society?
Monday, January 11, 2010 – Osaka, Japan
Taking opportunity of celebrating Japan’s national holiday of “Coming-of-Age Day” today, the second Monday of January, the author would like to discuss joining adult society.
January 15th used to be Coming-of-Age Day which honors young people who have reached the age of 20 as new members of adult society, and ceremonies are held nationwide by local governments. And to make people easier to attend ceremonies in their hometown the date was changed to second Monday of January. In some cases ceremonies are held on different day such as Saturday January 9 to encourage people including those working in service sectors (i.e. likely to be working on the national holiday) to participate the ceremony.
The event often doubles as a great occasion to catch up with old friends. Many women celebrate by wearing elegant long-sleeved kimono, while a majority of male attendees are dressed in suits. Traditionally, government officials and other distinguished guests give speeches at the ceremony. However, many organizers are now reviewing the event program to make it more appealing to new adults. Some local governments now allow young people to organize the ceremony by themselves, while others hold a concert or a party instead of a ceremony. The Coming-of-Age ceremonies nationwide are usually reported in TV news but it is sad to see a few participants ill-behave from over excitement.
People who have reached the age of 20 are celebrated as joining new members of adult society because it is at the age of 20 that under the Japanese law, enacted after World War II as a part of the Constitution of Japan, people are legally have right and responsibility as adults.
- 16 years old: Can get married with the approval from parents. Can start to drive motor bicycles.
- 18 years old: Can get married with agreement among the new couple. Can start to drive a car.
- 20 years old: Can start drinking and voting. The Juvenile Act is no longer applied.
The Constitution of Japan was enacted based on the situation at the time of post World War II, and due to change in situation, some people say that age of joining adult society should be made younger (e.g. 18 years old) whereas some others say that it should be made older.
Some people insist lowering the age of joining adult society because it has been noted that in recent years violent crimes such as serious wounding and murder are being committed by persons of younger and younger, in some cases prominently abusing the Juvenile Act. Under the current Juvenile Act, name of the criminal under 20 years old is not disclosed and he/she will not be punished. For this reason, some people insist that the age of joining adult society should be lowered so that such criminals would be legally responsible for their crime and get punished.
Some other people insist lowering the age of joining adult society to 18 years old from financial and voting reasons. Although majorities of people studying at universities and colleges unlike post World War II, there are some who do start working at 18 years old upon graduation from high school, meaning they become financially independent and start paying taxes. However, it is until they become 20 years old that they have right to vote, i.e. responsibility and right is not balanced, which is the reason why some other people insist making the age of joining adult society 18 years old.
Financial and voting is also the reason for some other people insist making older. This is because many people study at college and university and do not start working until 22 or older, and in Japan because parents pay for all school fees etc. they are still financially dependent on their parents at 20 years old.
Adult is someone who is financially and mentally independent. Defining the age of people becoming financially independent case by case, and defining the age of people becoming mentally independent is even more case by case and is almost impossible. Moreover, revision of law requires accountability and vast amount of procedures and therefore it is unlikely that the law will be revised. What can be said is that all citizens should obey the law, and become independent at an appropriate age to redeem his/her responsibilities while having given appropriate rights, regardless of at what age he/she becomes financially independent.
Taking opportunity of celebrating Japan’s national holiday of “Coming-of-Age Day” today, the second Monday of January, the author would like to discuss joining adult society.
January 15th used to be Coming-of-Age Day which honors young people who have reached the age of 20 as new members of adult society, and ceremonies are held nationwide by local governments. And to make people easier to attend ceremonies in their hometown the date was changed to second Monday of January. In some cases ceremonies are held on different day such as Saturday January 9 to encourage people including those working in service sectors (i.e. likely to be working on the national holiday) to participate the ceremony.
The event often doubles as a great occasion to catch up with old friends. Many women celebrate by wearing elegant long-sleeved kimono, while a majority of male attendees are dressed in suits. Traditionally, government officials and other distinguished guests give speeches at the ceremony. However, many organizers are now reviewing the event program to make it more appealing to new adults. Some local governments now allow young people to organize the ceremony by themselves, while others hold a concert or a party instead of a ceremony. The Coming-of-Age ceremonies nationwide are usually reported in TV news but it is sad to see a few participants ill-behave from over excitement.
People who have reached the age of 20 are celebrated as joining new members of adult society because it is at the age of 20 that under the Japanese law, enacted after World War II as a part of the Constitution of Japan, people are legally have right and responsibility as adults.
- 16 years old: Can get married with the approval from parents. Can start to drive motor bicycles.
- 18 years old: Can get married with agreement among the new couple. Can start to drive a car.
- 20 years old: Can start drinking and voting. The Juvenile Act is no longer applied.
The Constitution of Japan was enacted based on the situation at the time of post World War II, and due to change in situation, some people say that age of joining adult society should be made younger (e.g. 18 years old) whereas some others say that it should be made older.
Some people insist lowering the age of joining adult society because it has been noted that in recent years violent crimes such as serious wounding and murder are being committed by persons of younger and younger, in some cases prominently abusing the Juvenile Act. Under the current Juvenile Act, name of the criminal under 20 years old is not disclosed and he/she will not be punished. For this reason, some people insist that the age of joining adult society should be lowered so that such criminals would be legally responsible for their crime and get punished.
Some other people insist lowering the age of joining adult society to 18 years old from financial and voting reasons. Although majorities of people studying at universities and colleges unlike post World War II, there are some who do start working at 18 years old upon graduation from high school, meaning they become financially independent and start paying taxes. However, it is until they become 20 years old that they have right to vote, i.e. responsibility and right is not balanced, which is the reason why some other people insist making the age of joining adult society 18 years old.
Financial and voting is also the reason for some other people insist making older. This is because many people study at college and university and do not start working until 22 or older, and in Japan because parents pay for all school fees etc. they are still financially dependent on their parents at 20 years old.
Adult is someone who is financially and mentally independent. Defining the age of people becoming financially independent case by case, and defining the age of people becoming mentally independent is even more case by case and is almost impossible. Moreover, revision of law requires accountability and vast amount of procedures and therefore it is unlikely that the law will be revised. What can be said is that all citizens should obey the law, and become independent at an appropriate age to redeem his/her responsibilities while having given appropriate rights, regardless of at what age he/she becomes financially independent.
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.
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