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Interview: Japan woos offshore capital

Posted: 15 Nov 2007 ?? ?Print Version ?Bookmark and Share

Keywords:JETRO? offshore capital? Japan?

Japan External Trade Organization (JETRO) President Tadashi Izawa discussed the Japan market with EE Times.

EE Times: Can you tell us about JETRO's work and your plans for the future?
Tadashi Izawa: JETRO is a government-related organization that works to promote mutual trade and investment between Japan and the rest of the world. JETRO's core focus in the 21st century has shifted toward promoting foreign direct investment into Japan and helping small to medium-size Japanese firms maximize their global export potential.

Many people believe Japan's strengths in manufacturing, engineering and design, as well as those of other developed economies, are being eclipsed by other nations. Why should foreign firms be paying attention to the Japanese market?
First, Japan is a promising market, with a market scale ranking near the top of developed nations. Second, partnerships with Japanese companies enable foreign-affiliated companies to leverage their respective talents, which is vital to remaining globally competitive. Japanese companies emphasize enhancing product development and manufacturing efficiency, making Japan the ideal arena for innovation. And third, Japanese companies continue to expand their market reach throughout the East Asia region. Their established networks provide foreign-affiliated business partners smooth access to these growth markets.

Japan's core strengths lie in highly developed industry clusters represented by the automobile and information and communication technology (ICT) industries, where companies throughout the value chain, from basic materials to final products, are competing to develop and launch high value-added products.

As the speed of worldwide product development gets faster, the complexities increase. To maintain competitiveness, some Japanese companies are entering strategic alliances across industries. The automobile and ICT industries are good examples. The two industries are converging fast, following the launch of hybrid automobiles.

In a research study that EE Times published on expansion plans, we saw a shift in U.S. firms from focusing on "supply" to seeking to access "demand." How does Japan fit into that paradigm?
As you know, Japan is the second-largest economy in the world. Taking an example of the high-end market, the Japanese luxury-goods market for high-end fashion, accessories and gifts is essentially twice the size of the luxury-goods market in the U.S. Furthermore, Japanese consumers are early adopters and move fast to stay on the cutting edge of the latest technologies. In Asian countries, including China and India, Japan is a trendsetter in consumer products, from fashion to mobile handsets.

The level of performance required by Japanese consumers and industrial customers is very high. Most companies in Japan listen carefully to consumer and customer demands when developing new products. Such companies incorporate this feedback right away and launch new products and services with high customer satisfaction. Their close communication with demanding customers allows them to shorten the product development cycle and produce value-added products.

In fact, many products in common use around the world have originated in Japan. Japan thus makes an ideal test market for new products and services.

Foreign direct investment in Japan: U.S. share declines as overall FDI continues to rise.

As Japan's Asian neighborsespecially Chinabecome "the world's factory," what advantage, if any, exists in Japan's extensive manufacturing base, both within and beyond its domestic market?
Cooperation in the supply of components is increasing in the Asian region, in particular in the field of electrical machinery. Horizontal, intra-industry trade involving movement of components between Japan and the rest of the Asian region is also progressing. And Japan is playing an important role as a supplier of core components. East Asia is moving closer to the establishment of an East Asian free business zone, as governments in that region work to conclude free-trade and economic partnership agreements. This will help further trade in the region.

What emerging technologies does Japan see on the horizon for which Japan can take the lead in global innovation and market development? How can foreign firms benefit and participate in these developments?
There are numbers of examples. Advances in technological innovation that are readily apparent include environmentally friendly eco-cars, various types of leading-edge technology robots, and mobile phones that incorporate GPS and TV-reception functions.

Can you talk about the growth of foreign direct investment (FDI) in Japan, and the attitudes of Japanese workers and the public about increased foreign ownership of Japanese assets? In addition, can you tell us about the new rules that have been passed to facilitate merger and acquisition activity?
With regard to the total value of FDI into Japan, over the past 10 years it has tended to increase. In May, restrictions were eased regarding the use of shares as payment in triangular merger deals. Because of this, such cross-border merger and acquisition transactions have now become possible.

On Oct. 2, the first example of such a triangular merger transaction was announced, with Citigroup and Japan's Nikko Cordial Group agreeing to Citigroup's turning Nikko Cordial into a wholly-owned subsidiary. Citigroup will use one of its Japanese subsidiaries to acquire the approximately 30 percent of Nikko Cordial that it had failed to obtain in an earlier offer.

In planning international expansion, firms commonly need to decide whether to enter into joint ventures or alliances, make greenfield investments or consider acquisitions of existing firms or assets. Can you tell us about the prospects of each of these potential strategies for foreign firms in Japan?
It depends on the firm. What's important is to understand the market and to choose the best option. Every year, roughly 1,000 companies around the world are identified as potential investors in Japan and receive JETRO's support and services. Of those, about 100 actually set up operations in Japan.

Taking the auto industry in Japan as an example, more foreign auto-parts companies are entering Japan and establishing subsidiaries than ever before. As Japanese automakers expand their production in both domestic and overseas markets, their favorable production attracts foreign-affiliated auto-parts companies seeking business opportunities with the headquarters of Japanese automakers. The headquarters are intimately involved in new-product developments, and the technical and procurement departments evaluate auto parts and decide to implement them in a new model car in the market.

In recent years, we have begun to see a recognition of Japan's "soft power" and an appreciation for its sense of style, design and its ability to act as a trend leader. Can you tell us a little about this development?
As East Asia grows, economies are becoming more service-oriented. Common tastes are developing, and lifestyles are converging, in particular in urban areas. Many consumer products that gain popularity in Japanincluding movies, anime, game software, clothing and cosmeticsgo on to become popular in East Asia in general. For example, Korean online-game developers are looking at Japanese animations because of their popularity, especially in Asian markets. They are developing online games by utilizing Korean programming skills and Japanese animation for game characters. As a result, a successful launch in Japan is a litmus test for success in East Asia.

EE Times readers include many small- to medium-size firms that are trying to expand internationally. Can you tell us where you see the biggest opportunities for such firms in Japan, as well as the type of support JETRO is able to provide to assist them in better understanding and establishing a presence in the Japanese market?
Major Japanese electronics firms, such as Canon, Fuji Film, Mitsubishi and Ricoh, are all currently enjoying good business results, and their R&D investment projections are increasing by two-digit percentages. They are open for small and medium-size firms. According to a foreign software developer that has established a base in Japan, "Japanese firms are not concerned about the fame of a company or its brands. They are genuinely interested in seeing a sample, making it easy to get right down to business."

As you may know, to help foreign firms discover opportunities in the Japan market, JETRO holds various business partnering events in Japan and also offers an Invest Japan Invitational Program, in which participating foreign firms come to Japan to take part in a series of industrial tours, seminars and partnering events, typically in one industry.

- Richard Wallace
EE Times




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