The Osaka 2011 Problem — a historic opportunity?

Osaka has a problem. (Well, OK —it has lots of problems.) But there is one problem out there that is so big it has been called the “Osaka 2011 Problem”—the massive construction of skyscrapers and other major real estate projects across the city. These projects will come online on a rolling basis for years, but 2011 is considered to be the peak year when the market is flooded with too much new real estate. Hence the new buzzword.

Why are new skyscrapers a problem? Osaka’s city economy is a basketcase, effectively two decades behind the times with a tired industrial sector and trading economy that has not evolved into the modern era. It has failed miserably in competing with Tokyo, Yokohama, Nagoya and Fukuoka, all of which have found an important niche in the 21st century global and Asian market. So all this premier real estate in Osaka will be finished, but there will not be enough tenants to provide the demand for this new supply.

Yet I discussed this with a learned friend who knows Japan’s real estate market inside and out. He says that, as they main developers are all the big boys, so they be able to entice key keiretsu companies to take space in their new projects to get a head start on income. There will be a flight to quality, as major companies relocating into new projects will give everyone an opportunity to upgrade, while rent levels will come down (think Dubai!), and owners of old real estate will come under pressure to sell assets.

This is the story of urban development elsewhere. Larger companies have cheaper capital costs and as one area’s development cycle completes they look at another area to buy up and re-develop. Some projects in the pipeline have as their business plan the buy out of seedy businesses (and second-rate businesses) to aggregate land and build something nice. In other words, gentrification! This does create value.

Some of these projects can be highlighted and looked at under the microscope, such as the Kita Umeda Yard—check-out insight on the project from the blog Osaka Insider. This could well become the new hot spot, as Shin Osaka loses tenants to Kita-Umeda. And as Shin-Osaka declines, developers may well buy out land around Shin Osaka and re-develop Shin Osaka area, at the same time that one of the trains is extended from Umeda to Shin Osaka. Once again, the gentrification strategy.

My learned friend also some some further insight—this procession is fair. Japan is similar to Western Europe in that there is a traditional landed class that lives off of rent, but they never reinvest and sad buildings last for years without repairs. The Osaka redevelopment should make the property market more competitive, and those landowners that can’t survive will be forced to sell out.

Will this be good or bad? Only time will tell. But from a macro view, this so-called problem may well be the kick that Osaka needs to re-build a sad economy.

NYT on American expats renouncing citizenship

NYT has an article noting that a sizable number of people every year give up their US citizenship for tax reasons. It seems like they are focused on Americans living in Europe, but I have met a few people in Japan who have at least considered this option. It does seem odd that the US is one of the few countries that tries to tax income earned abroad.

The Geos bankruptcy – what’s next for eikaiwa?

(Updated to change student data)

Geos, one of Japan’s major “eikaiwa” English conversation chains, has entered the bankruptcy process (see Let’s Japan or any number of news reports for more details). Some reactions are declaring eikaiwa dead and encouraging teachers to look for employment outside Japan. It does seem like the old eikaiwa business model is not poised for a serious comeback barring a significant improvement in the Japanese economy. That said, eikaiwa as a concept and attractive learning option for Japanese people isn’t going away.

From the looks of it, some eikaiwa bankruptcies are all but inevitable. Revenue is down, and according to Nikkei “the number of language schools in operation last year remained mostly unchanged from 2008, but the number of new students enrolling in the schools plunged 35.7%.” That’s down 35% from post-NOVA levels!

Let’s see some of those numbers in graph form:

And some indicators of our own:

As overall revenues have fallen, sales of teaching materials have risen in importance, now accounting for around 10% of the language school business.

The industry overall now employs more part-time teachers than full-time, but now both categories of teacher are in decline. Not exactly a good sign for financial health or the job security of teachers.

Revenue per student has risen slightly as the average number of classes per student is down, which suggests to me a slightly lower value for the lessons.

Going forward

Paradoxically, this sort of downsizing is exactly what the industry needs, but when schools collapse so suddenly and spectacularly it scares people away and hurts business even more. Nevertheless, I would not be so intensely pessimistic as some of the commenters I have read. The initial success of these schools has created the “eikaiwa paradigm” that will live on, I think, even if all the big chain schools fall to the wayside. Just as small-time piano teachers can make good money anywhere in the world, any halfway decent teacher who can reliably provide value for his/her services can do OK. Maybe not “tens of thousands of western immigrants descend on Japan” kind of OK, but OK nonetheless. Japanese people still want to learn English and are willing to pay for it. They just can’t afford it as much anymore and don’t want to hand their money to crooks.

The problem is that these major players set up large-scale businesses that profited by essentially gouging customers – promising stellar results and pressuring them into long-term contracts only to give sub-standard lessons to people who may not have really been able to benefit from them in the first place. Now, a combination of factors – tighter laws, the bad economy, rise of the Internet as a study tool, people generally getting wise to the con – has come crashing down on Geos.What the numbers don’t show is that the major operators seem to be offering more or less the same product as before – if anything, they are diluting the product with less value and more part-time teachers – and customers just aren’t as interested anymore.

(The stats above can be had at the METI website (bilingual Excel file))

Are the Japanese crazy like us? (And by “us”, I mean “Americans”)

Ethan Watters is the author of “Crazy Like Us: The Globalization of the American Psyche,” and recently appeared for a six minute interview on the US comedy show The Daily Show. Curiously, much of what he talked about focused on Japan:

The Daily Show With Jon StewartMon – Thurs 11p / 10c
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The author raises this question: Is the American focus and treatment on understanding mental health (depression, schizophrenia) a “cultural” export? His answer is yes, and describes how, in treating symptoms that are believed in American culture to be “mental sickness,” we replace some symptoms that are in fact cultural characteristics in other societies. He ends up spending much of his six minutes on the Daily Show interview talking about Japan and criticizing the American “export” of mental health treatment to Japan. He says:

“Japan is actually a very sad culture. They think of sadness… almost as a religious state, as a way to get moral guidance…”

I read more about Watters book, and found some of the numbers that he uses to back his book. One is that GlaxoSmithKline and other drug makers funded favorable medical studies to sell treatments for depression in the Japanese market, with huge success—GlaxoSmithKline’s sales in Paxil went from nothing in 2000 to topping $1 billion in 2008. 27 books were published on depression from 1990 to 1995, but 177 were published from 2000 to 2005. Meanwhile, the Crown Princess is reported to be suffering from depression. So “depression” as a disease and syndrome, as opposed to a result of Japanese cultural characteristics, is now widely recognized in Japan, although I would argue that there is still much more stigma attached to it than in America.

Yet he goes on to say that Japan is perhaps the biggest copier of the American model. This seems to be absolute lunacy to me. Yes, Japan is a sad culture. The Japanese people are much more pessimistic and cynical about their future and their country’s future than any other Western developed nation. (I’ve seen stats to this effect but nothing that I can link to—feel free to weigh in on this point.) But first of all, they are still no where close to institutionalizing mental health on the educational, social, corporate, and government level. And second of all, is this the “Americanization” or “modernization” of mental health? While I think there is an excessive and too broad a focus on mental health in the United States, where everything is deemed to be an issue of mental health, I think that Japanese culture and society still has far too little emphasis on psychology, counseling and mental health.

“Adam Richards” to appear on Japanese TV

According to Yahoo, Adam “Swamp Donkey” Richards, the cruiserweight boxer, will appear on Japanese pay channel Wowow tonight at 8pm, when they will show highlights from his March 13 attempt to take the WBO cruiserweight title away from current champion Marco Huck in Germany, Huck’s home turf:

アンドレ・ディレル vs アルツール・アブラハム マルコ・フック vs アダム・リチャーズ アレクサンデル・ポベトキン vs ファビエル・モーラ
[初][HV][W] エキサイトマッチ~世界プロボクシング #3 激戦の”スーパー・シックス”、ディレルvsアブラハム! ・S・ミドル級12回戦  アンドレ・ディレル vs アルツール・アブラハム ~3月27日/アメリカ・ミシガン州 ・WBO世界クルーザー級タイトルマッチ  マルコ・フック vs アダム・リチャーズ ・ヘビー級10回戦  アレクサンデル・ポベトキン vs ファビエル・モーラ ~3月13日/ドイツ
解説:ジョー小泉、浜田剛史 実況:高柳謙一 進行:中島そよか

I won’t ruin the match for anyone planning to watch, but suffice to say Huck is still the champion. The Wowow synopsis of the fight notes that while Richards won several titles as an amateur and boasts a fairly impressive professional career, he has so far not gone up against many powerful fighters.

I am happy someone with my name is having some success, but if he ever wins and gets famous it could complicate my life a little bit. From this video he seems like a pretty down to earth guy who can remember every detail of his fights. Also watch for how much exercise he can do without breaking a sweat (it’s a lot more than me):