FDI in Japan (Part I)

My previous post on possible linkages between the Livedoor scandal and Foreign Direct Investment in Japan got me curious about the latter topic, so I did a little reading over the weekend.

I started with last year’s report by U.S.-Japan Business Council on expanding FDI in Japan. This is a fascinating and surprisingly easily approachable document that I strongly recommend to anyone with an interest in investment issues is Japan.

Below are a few of the more interesting points from the report, along with some graphical illustrations I worked up using data from the United Nations Committee on Trade and Development’s annual World Investment Report, and the Ministry of Finance‘s on-line FDI data.

Japan’s inward FDI falls well below international standards:

At 2.1% of GDP, the accumulated foreign direct investment (FDI) in Japan is much less than the average of 20% for all developed economies, and G-7 economies such as the United States (14%), Germany (22%), and the United Kingdom (37%).

In spite of the quantitative difference, the composition in terms of type of investment is very similar to other developed countries:

According to the OECD, over 70% of the FDI in developed economies takes place via Mergers and Acquisitions (M&A), transactions in which one company acquires a whole or partial ownership stake in another. Japan is no different. Over 70% of FDI in Japan since 1997 has been through M&A.

Still, Japan still falls far behind the pack in cross border M&As.

Furthermore, a large number of these M&As share a similar characteristic:

Where most of these Japanese/U.S. and U.S./EU transactions can be characterized as “friendly” transactions, most foreign acquisitions in Japan are cases in which U.S. or European firms acquired stakes in financially troubled Japanese companies. The Japanese companies generally agreed to be acquired only because they needed capital to survive.

Regular readers of Japanese news are probably already aware of some of these cases. Two biggies named in the report are Renault/Nissan and Long Term Credit Bank/Ripplewood Holdings.

In spite of these sucessful cases however, attitudes towards FDI in Japan are slow to change:

Japanese attitudes are much like they were in the United States in the 1980s. While foreign companies are much more prevalent now, there is still much uncertainty and suspicion about – and some outright hostility toward – FDI among politicians, the private sector, and the public, particularly with regard to M&A and distressed asset purchases.

To avoid generalization however, it should be noted that not everyone in Japan shares this ambivalence towards FDI:

There are some positive steps being taken by the Government of Japan, particularly METI and JETRO, to overcome this legacy and promote FDI in Japan. Most positive of all, of course, is Prime Minister Koizumi’s January 2003 goal to double FDI in five years, as this for the first time put the government squarely behind the goal of increasing FDI.

Advisory groups such as the Japan Investment Council (JIC) and the Invest Japan Forum (IJF), have also issued reports recommending ways to encourage FDI in Japan.

Nor is ambivalence towards FDI a uniquely Japanese characteristic. I’m sure most readers will recall the fuss Cnooc caused last year when it attempted to purchase the U.S. energy firm Unocal. (Not to mention the Japanese purchases of Pebble Beach, Rockefeller Center, and Columbia Studios in the 1980s.)

Part II of this post will examine why all of this matters.

p.s. I really couldn’t figure a way to work this graph into the post, but since I already made it I may as well append it here. This is a breakdown of investment by the three largest global economic regions.

Did Iran and Japan make the same mistake?

Or to phrase it as another SAT analogy: Israel is to Iran as Norway is to Japan.

I just wrote a post last week, largely about Japan’s illegal whaling, in which I pointed out the absurdity of Japan having voluntarily signed an anti-whaling treaty they had no intention of following and opened up themselves to international criticism, while Norway, who simply never signed the treaty, is perfectly content carrying out their own whaling activities.

For the other half of the analogy, look at this quote from the other day’s NYT:

The resolution was passed after the United States agreed late Friday to a clause indirectly criticizing Israel’s secret nuclear weapons status. Initially Secretary of State Condoleezza Rice had rejected any compromise, arguing that Iran would use the clause for propaganda purposes to criticize Israel, which unlike Iran is not a signatory to the Nuclear Nonproliferation Treaty and suffers no consequences as a nuclear power, diplomats in Vienna and American officials said.

Of course the real reason that Israel can get away with having nuclear weapons and Iran can’t is not because of the treaty, but because the USA and Europe are willing to tolerate Israel’s possession of such weapons, but it does raise the question of why Iran bothered to sign the treaty in the first place. I’m sure there are plenty of other examples of countries that signed up for treaties that they then turned around and violated without a second thought, but I found this parallel particularly apt, despite the vast difference in scale of importance.

Maybe people would still be protesting Japan’s whaling activities even if they hadn’t entered into the treaty, and Iran would definitely still be under diplomatic pressure to curtail their nuclear research, but why in both cases did they only make it easier for their opponents by breaking rules that they never had to agree to be bound by in the first place?

Japanese vs US Blogs

High praise from Curzon at Coming Anarchy:

Educational and entertaining in one healthy dose, [Mutant Frog Travelogue is] probably the best East Asian blog around.

Thanks, I think we’re pretty great too! But that made me wonder — what do other East Asian blogs look like? What about, just for example, the highest ranked Japanese blogs on Technorati?

(Note about Technorati from their About section: “Technorati displays what’s important in the blogosphere — which bloggers are commanding attention, what ideas are rising in prominence, and the speed at which these conversations are taking place.” Hence, these rankings are a measure of what people with blogs are linking to, not the number of page views, influence, revenue, or any other factor (as far as I can tell))

For starters, let’s see what’s out there. Here’s a quick rundown of the top ten blogs in Japan and the US/English-speaking world (for comparison):

Japanese blogs:

1. がんばれ、生協の白石さん! “Fight on, Shiraishi of the Co-op!”

This is the blog of a Mr. Shiraishi, “very very average” employee of the Co-op (student cooperative/school store) at Tokyo University of Agriculture and Technology. Shiraishi gained fame for being the writer of responses to comment cards that students would write to him. The comment cards are a well-known phenomenon at Japanese universities as the answer are often posted outside the Co-ops on a bulletin board. He differs from other such Co-op employees in that he actually answers the stupid joke comments that he gets rather than giving them a quiet death in the round file. For some reason this has become majorly popular in Japan, probably because college students throughout the country have wondered just what kind of weirdos answer their comments.

Latest post: Too much Mah-jongg!


Question: I am suffering from a lack of sleep from too much mah-jongg. I’d like to go to class, so what can I do?

Answer: Make an effort not to play mah-jongg too much! If you keep on like this, I think you’ll end up crying in public. Your free time only exists because you are studying and researching, so switch over from mah-jongg and do your best!

OK, this at least has some novelty value. I remember the comment board at Ritsumeikan answered my question why they stopped serving these awesome banana crepes (they’re a winter-only item).

2. 眞鍋かをりのココだけの話 Kaori Manabe’s “Stories that don’t leave this room”

Kaori Manabe is a popular (not to mention beautiful) model/actress/all-around talent, perhaps best known outside Japan for her role in the 2001 film Waterboys. Her blog has gained fame for its frequent updates, endless blathering on trivial topics, and plentiful photos of Manabe-chan.

Latest post: A Friendly Fire Festival

Inanity abounds:

There’s a very strange person called Mr. A that I see all the time on location.

Is he an airhead? Well, he’s more of a socially inept ‘go my own way’ type of guy. H

His special feature is to make statements that surprise people without meaning to at all.

His hobbies are playing the horses and movies (mostly thrillers).

His private life is shrouded in mystery (but he absolutely does not have a girlfriend).

Continue reading Japanese vs US Blogs

Finally, a post about Livedoor

David Ibison of the Financial Times recently authored this excellent piece reminding us that there is more to the Livedoor debacle than the superficial observation that “the nail that sticks up gets hammered down.”

Writes Ibison:

Junichiro Koizumi, Japan’s prime minister, dropped a pledge to quadruple foreign direct investment into Japan by 2011 from his annual policy speech last month…His speech was originally written to say that his government would aim to increase FDI to Y26,400bn ($225bn) by promoting the acquisition of Japanese businesses.

The key phrase here is acquisitions.

Why? Consider the title of a report issued last July by the U.S.-Japan Business Council: “Expanding FDI in Japan: M&A is the Key.”

Ibison again:

[The report] said Japan still needed to introduce bold reforms, especially by promoting cross-border M&A, and was concerned that some politicians and the media regarded takeover attempts by foreign companies in Japan as hostile.

If the association between takeover attempts and “hostile” hadn’t already been made for said politicians and the media, Livedoor’s behavior during the past year – and the past few weeks in particular – should have made things crystal clear in their minds.

The association between takeover attempts by foreigners and “hostile” hardly needed further (or any) evidence to these people.

And now, with Koizumi’s speech, the pressure appears to have reached the highest levels of government. As Adamu said to me in an earlier conversation this afternoon, “Horie seems to have single-handedly (and perhaps literally) set back the cause of FDI in Japan 5 years.”

The sad part about this whole affair is the mistaken, but deliberate conflation of Livedoor-style M&As, which seem to have had very little to do with improving efficiency or productivity, and M&As in general, which can have substantial benefits not only for the companies involved, but for national economies as a whole.

For many, Livedoor will become the “wanted poster child” for M&As in Japan. And in the long-run, that’s only going to hurt Japan.

Gaining Perspective from Tragedy

Lock your door at night:

Dorm incident may lead to changes in sex assault law

February 3, 2006

STORRS, Conn. — An incident involving three men accused of masturbating over a sleeping University of Connecticut student is sparking calls to change the state’s sexual assault laws.

The men, who are also students at the school, face disorderly conduct and public indecency charges. But they will not be charged with sexual assault because there was no physical contact with the female victim during the September incident, said Elizabeth Leaming, the assistant state’s attorney prosecuting the case.

“It’s a frustration that there is no ability to charge a sex offense for the kind of conduct alleged,” Leaming said Thursday.

The incident occurred after the woman fell asleep in Skvirsky’s dorm room on Sept. 24.

The young woman discovered what happened after she woke up. She filed charges three days later.

I’ve been accused of being both a Japan apologist and a Japan basher. I admit to both readily. I love Japan, but it is screwed up. I have been somewhat hard on Japan, you might say, by translating reports of some fairly depraved activities.

But at times we all need a bit of perspective. That is why am grateful, in a way, that someone from my hometown (Somers, Connecticut) has helped remind me that Americans can be just as perverted as Japanese people, and sometimes the law is caught with its pants down, so to speak, when it comes to dealing with the devious bag of tricks that is the human imagination.

Jenkins Update

I still need to read his Confessions memoir, but I suspect it’s pretty juicy. Here’s a quick update on what he’s been up to:

Jenkins: DPRK targeted Soga

Shigefumi Takasuka Daily Yomiuri Staff Writer

Charles Jenkins, a U.S. Army deserter to North Korea and husband of Hitomi Soga, a repatriated Japanese abductee, said Thursday that North Korean agents targeted Soga and waited a month to get a chance to kidnap her.

He said he was planning to apply for Japanese citizenship in July.

“I am planning [to become a Japanese],” he said. “What happened is I must wait for one year since the day I got my Japanese identification card. That’ll be July, I think.”

He also said he had been asked by a local tourist association in Sado to work as a tour guide during the summer.

“I think I’ll do that,” Jenkins said.

Asked if his book “Kokuhaku” (To Tell the Truth) would be published in countries other than Japan, Jenkins said he hoped so. “Maybe in the Korean language,” he said. “But it’s not definite yet. I’ll wait and see.”
(Feb. 3, 2006)

Come on, print an English edition! We all know it was originally written in English anyway. Are you afraid of unkind reviews in the New York Times, Jenkins? You can’t spend your whole life running away, you know.

Japanese Govt to Pick up Where Sony Left Off?


Friday, February 3, 2006

Govt To Launch New Robot Development Initiative

TOKYO (Nikkei)–The Ministry of Economy, Trade and Industry will begin a results-oriented robot development project in fiscal 2006 that will be broad in scope, supporting applications for everything from factory automation to nanny-robots that can make sure children safely get to school and back.

The ministry intends to review the participants after two years in order to focus the funding on those participants that have the best chances of attaining the project objectives in 10 years.

The project will support development work on three themes: factory automation, robots that operate in difficult environments and robots that help people in daily activities.

Within in each theme the work will focus on specific objectives, such as a robot that can assemble flexible materials like bundles of wires, and a robot that can bus tables at a family restaurant. The ministry could set as many as nine different objectives.

Several companies and other bodies will be selected to work on each objective. Funding in the first year will total 1.1 billion yen, and a similar amount will be provided each subsequent year. But after two years a review will be conducted and for each objective only one body will be selected to carry forward with their project.

By focusing support this way on the most capable bodies, the ministry hopes to accelerate the practical development of advanced robots.

(The Nihon Keizai Shimbun Friday morning edition)

Though the ambitious Astro Boy Project (NOTE: JT apparently requires registration to view its archives. Do yourself a favor and visit bugmenot.com to get around this. I just made you all an account for it) does not seem to have taken off, the Japanese government, in the grand tradition of high technology, has decided to serve taxpayers with the bill for research and development of more practical robots. When this research develops into marketable products, you can be sure that business interests will jump at the chance to sell robots.

Oh, that reminds me: Sony recently decided to scrap its Aibo robot dog and Qlio humanoid robots as part of their restructuring plans. As one surprisingly sympathetic Aibo enthusiast explained, “R&D is expensive. It’s hard for a company to try to go into the black when they’re showing R&D expenses.” Hey, maybe the prospect of high-tech products that require minimum investment could entice even Sony to get back into the ring once it has trimmed the fat off its business.

And one other thing, what is up with the waitress-bot? Wouldn’t it make more sense to make a robot that can serve prison food or something rather than a bogus family restaurant?

An SAT question

Q: West Palm Beach, Florida is to New York as what place is to Japan?

A: Taiwan.

If that makes no sense to you, then you probably haven’t read this article in Japan’s Asahi Daily.

Taiwan authorities ready longterm visitor visa aimed at Japan’s “baby boomers”

Starting on February 1st, Taiwanese authorities began issuing multi-visas targeted at retired Japanese pensioners. With an eye on the rush of retiring “boomers,” they are aiming to attract long term Japanese visitors thinking that “after retirement, I think I’ll live in Taiwan, where things are cheaper.”

With pensioner Japanese citizens as the target, they will have to produce documents such as proof of pension recieval and proof of a clean criminal record issued by the police department when applying for a visa. With this visa, the greatest period that can be spend in Taiwan at one time is 180 days. Within this period, the visa holder can leave and reenter the country as many times as the like. Their spouse will also be issued a multivisa.

Taiwanese authorities, which are trying to promote an increase in visiting tourists, have noticed an increasing movement of Japanese seniors spending long periods in Southeast Asian countries such as Malaysia. Plans are moving forward to construct special “long term visitor condos” in places such as Nanto county, where the climate is warmer.

Sounds like a good deal all around. Japanese retirees will get to live in a nicer climate where prices are lower, and yet the standard of living is not dramatically lower, and the Japanese government has to spend less money on its own expensive domestic healthcare. On the other side, Taiwan’s coffers gets to make up some of the tax shortfall caused by their own aging population, and local service industries get a significant cash infusion.

I should not that a standard Taiwanese visitor visa has an absolute limit of six months, but must be renewed in person every two months at the local police station’s foreigner services office, which I imagine they are rightfully considering would probably be too much of a hassel for elderly people. Of course, a large part of the reason that Taiwan has such strict visa rules is to keep out illegal foreign labor, which from what I’ve seen includes a truly astonishing number of illegal language teachers, in addition to the expected factory and construction workers. Of course, elderly retirees are unlikely to take away jobs from local people, and instead of burdening the local government to pay for more services, they only import wealth.

One key thing remains unclear to me though. With a six month visa, would these residents be elegible to apply for an Alien Residence Certificate (ARC)? If so, that would let them register with Taiwan’s generous national health program, which would be rather counterproductive to the whole scheme.