Taking advantage of low EURO exchange rates and the high YEN, and low valuations during the current economic crisis, Kyocera acquired 93.84% of TA Triumph-Adler AG for a total purchase price on the order of EURO 98.7 Million.
Triumph was founded 1896 as a bicycle maker, and has grown into a major European office equipment manufacturer and sales company. Triumph used to be famous for typewriters, with the disappearance of typewriters, Triumph went through a long sequence of restructuring and through many merger and acquisition transactions.
Kyocera acquired TA Triumph-Adler for its distribution network: TA Triumph-Adler has about 35,000 companies as customers in 33 countries, with 70% of sales in Germany, giving Kyocera a much larger distribution footprint in Germany and EU.
For an overview and analysis of Japan’s formidable electronics companies read our J-ELECTRIC report.
About 50 million mobile phones equipped with digital terrestrial mobile TV (“oneseg”) have been delivered up until today – not counting “oneseg” tuners for PCs, car navigation units and stand-alone units. Comparing this number with reports of mobile TV roll-out in other countries around the world, we conclude that 72.5% of todays mobile phones with mobile TV are in Japan.
How much mobile TV do Japanese people watch on their mobile phones? In the latest version of our mobile-TV report, we explain in detail our methods to determine that averaged over all of Japan’s population of 125 million (including those who don’t have a mobile-TV yet), the average viewing time is between 0.4 – 2.3 hours of mobile TV / month. WOW!
Mobile TV 2.0 (OneSeg-2) Not surprisingly, Japan’s media giants are now starting to move, and develop programming specially designed for mobile TV: for example “lunchbox” mobile TV broadcast to mobile phones from 12:00noon – 12:40pm weekdays with news, weather, diet information, summaries of TV shows… it’s only a question of weeks or months now in Japan for mobile TV to develop into a totally new advertising and m-commerce medium, and some has started already.
Starting the global mobile internet revolution with i-Mode in February 1999, we can see Japan’s leadership emerging in the mobile TV arena. Japan’s challenge is to leverage this know-how globally, Japan missed this chance with i-Mode and left the field to iPhone and friends!
In December 2008 97.5% of global mobile TV was in Japan and S-Korea
72.5% of all mobile phones with digital TV globally are in Japan: In the same way as with mobile internet (i-mode), Japan is again the global forerunner in mobile TV, together with South Korea.
Attended Professor Junichi Hamada’s presentation at Tokyo University. Professor Hamada is expert on the legal aspects of journalism, freedom of press and media regulation. Professor Hamada will be the new President of Tokyo University from April 2009.
In his presentation Professor Hamada discussed the changes in the media sector, and of course also his views and strategies for Tokyo University.
Asked during question time about his views of University ranking lists, his answer was that serving society is much more important than ranking lists.
Professor Junichi Hamada, President of Tokyo University
First Ludwig Boltzmann Forum Tokyo on February 20th, 2009
Speakers: Hisashi Kobayashi, Gerhard Fasol, Kazu Ishikawa, Kiyoshi Kurokawa
Ludwig Boltzmann was one of the most important physicists and philosophers: it is almost impossible for any engineer, chemist or physicist to do a day’s work without using Boltzmann’s tools and results every day. Ludwig Boltzmann is Gerhard Fasol‘s and Eurotechnology Japan KK’s founder’s great grandfather – and his excellence is our company’s guiding light.
Ludwig Boltzmann was born 165 years ago on February 20, 1844, and last Friday, February 20, 2009 we celebrated the first event of the Ludwig Boltzmann Forum by inviting several of Japan’s science and technology leaders with kind cooperation and hospitality by the Ambassador of Austria and the Austrian Embassy:
First speaker was Professor Hisashi Kobayashi, Founder of the IBM Tokyo Laboratory, former Dean of Engineering of Princeton University. He showed how Entropy and noise in communications is linked to Boltzmann’s generalized Entropy and the H-Theorem. Coming from Princeton, Hisashi also showed us elegantly how strongly Einstein’s work is linked to Boltzmann’s.
Professor Kiyoshi Kurokawa, former Dean of Medicine of Tokai University, former President of Japan’s Science Council and Advisor to two Japanese Prime Ministers and now Professor at Japan’s new Political Science University, gave an intense and passionate speech about which changes are necessary to live in our future which will be hot (as in global warming), flat (as in global communications and internet) and crowded (due do population growth). Kiyoshi also made a passionate appeal to Japanese organisations (including the S&T leaders participating at our Symposium) to change, open up and compete globally.
Kazu Ishikawa of Exa Japan gave a fantastic demonstration how Boltzmann’s equations are used to simulate airflow for the construction of cars, airplanes, jet engines … Boltzmann’s equations replace the macroscopic Navier-Stokes equations as numerical wind tunnels. Boltzmann’s equations are particularly needed for the simulation of transients.
Finally, Gerhard Fasol, Ludwig Boltzmann’s Great-Grandson, gave two talks: one talk about Ludwig Boltzmann’s scientific achievements, his search for understanding the 2nd Law of Thermodynamics with mechanics, the effects of collisions and the generalization to non-equilibrium – leading the H-Theorem, and the generalization of Entropy and Boltzmann’s philosophical work. The second talk introduced the human side of Ludwig Boltzmann: his life and his passions.
Photo: Hisashi Kobayashi shows why Boltzmann’s work is important for telecommunications, and how Einstein’s work is linked to Boltzmann’s. Her Excellency, the Austrian Ambassador follows closely:
Hisashi Kobayashi at the Ludwig Boltzmann Symposium – the Ambassador of Austria listens
Photo: Hot, flat and crowded. In a passionate speech, former science and tech advisor of two Japanese Prime-Ministers, Kiyoshi Kurokawa talks about the future, and how to be prepared to compete:
Kiyoshi Kurokawa: Hot, flat and crowded
Photo: The Austrian Ambassador invited the participants of the Ludwig Boltzmann Symposium to the Austrian Residence:
(2) for mobile operators DoCoMo, KDDI and SoftBank margins are 10%-20% and increasing despite the crisis! Could mobile phone usage be crisis resistant?
(3) TV media groups had healthy margins in the 10%-20% range back around 2001- however these margins have been slowly melting away, and TV group margins are heading to cross the zero line into the red zone by 2010-2011. Watch out for a TV media crisis. Read more below.
Consumer electronics sector operating margins:
Nintendo bucks the trend: while Japan’s electronics firms’ margins are dropping into the red, and have never been much higher than 5% during the last 10 years, Nintendo‘s operating margins are above 30% and rising despite the crisis.
Margins of top Japan’s electronics multinationals and Nintendo
Mobile phone sector margins are 10% – 20% and rising despite the crisis.
Mobile phones seem to be resistant to the current crisis. DoCoMo‘s, KDDI‘s and Softbank‘s margins are healthy and improving despite the crisis.
Operating margins of Japan’s top 3 mobile operators
(Find full data, fully labeled graphics and analysis in our JCOMM Report)
Margins of TV media groups have been melting away since their peak in 2001.
Back in 2001 Japan’s TV media groups used to enjoy healthy margins of up to 20%. Over the last 8 years these healthy margins have molten away, and Japan’s large TV media groups are likely to all simultaneously go into the red from 2010 onwards, unless dramatic action is taken. Media groups will need to grow profitable new business, e.g. mobile-TV, and other cross-media growth areas.
Could it be that recent anti-takeover measures have made the large TV media groups complacent?
Operating margins of Japan’s TV media groups
(Find full data, fully labeled graphics and analysis in our J-MEDIA Report)
It will soon be 8 years since DoCoMo started commercial location based services (LBS) for mobile phones in Japan in July 2001. During these 8 years, Japan’s mobile LBS industry has grown and a range of differentiated mobile LBS services has emerged – indicative of how the LBS industry might develop in other countries in the next few years (Read our LBS-FAQ here, and our mobile LBS report here).
NOKIA’s recent acquisition of Navteq for US$ 8.1 Billion has drawn much attention to LBS for mobile phones.
The world’s first commercial location based service (LBS) for mobile phones – “i-Area” – was rolled out by DoCoMo in Japan in July 2001 – eight years ago! – is still going strong, and for some time also includes location dependent mobile search: you type “ramen” into the search box and back comes a list of ramen noodle restaurants for the neighborhood near you. “i-Area” is a pre-GPS service – no GPS is necessary. Like so much about Japan’s mobile internet eco-system, i-Area has a non-obvious complex business model fine-tuned over 8 years now.
GPS came later – KDDI introduced the first GPS phone in December 2001 – a little more than seven years ago – and today about 1/2 of all mobile phones have GPS in Japan. Japan’s Government requires all cellphones to have GPS built in. Therefore, within a few years, as users replace their older phones, 100% of Japan’s cellphones will have GPS, giving a boost to the mobile LBS industry.
Interesting companies? An undisputed leader is Navitime – offering “total navigation” to about 2 million subscribers – almost 2% of the population of Japan. Many people in Japan, including the author of this newsletter, cannot live without total navigation….
Bombarding subscribers with mobile discount coupons by SMS for shops in the neighborhood is often mentioned in western blogs about mobile LBS. I have not yet received a single one during the last 8 years of mobile LBS in Japan – although these do exist if you want them.
Japan’s telecom operators are a very bright spots in a dismal economic crisis. I think that’s not a coincidence.
Why? The deeper purpose of Japan’s location based services, QR-codes, mobile music, e-moji, wallet phones and keitai credit etc. has always been to make mobile phones inseparable from people’s daily lives, so that people would use their mobile phones a lot, even if there is an economic crisis. This strategy seems to work.
Japan’s second largest operator KDDI was the first to announce financial results this round: – quarterly net income increased +49% year-on-year, and – operating income increased +18.5% compared to same quarter last financial year.
KDDI is particularly interesting because KDDI is a model for the 3G roll-out by China Telecom in China, which was awarded a license to build a 3G network using the same CDMA2000 technology as KDDI.
KDDI was initially far more successful than both DoCoMo and Vodafone (now Softbank) to roll out 3G in Japan – as documented in detail in our 3G report. Analyzing carefully what KDDI did right, and the difficulties DoCoMo and Vodafone encountered, as well as proper exploitation in differences between technologies will be a must.
KDDI introduced many advanced services such as GPS (global positioning and related location base services LBS), full song mobile music, etc several years earlier than DoCoMo and Vodafone -> Softbank, helping the image of the brand and raising revenues (ARPU). This advance allowed KDDI to overcome the handicap of lower market share compared to DoCoMo. Read more below, and in our reports.
KDDI’s 3rd quarter net profits rose by 49% yoy.
Comparing 3rd quarter FY2009 (Oct. – Dec. 2008) with 3rd quarter FY2008 (Oct. – Dec. 2007) operating income increased +18.5% and net income increased +49%. These are spectacular results considering the terrible economic crisis going on now.
Notice also KDDI‘s very aggressive income growth targets forward to year FY2011 (shown for operating income, thin orange line).
Steadily increasing net annual incomes on the order of US$ 2 billion/year is not bad in times such we have now. Find a detailed analysis in our KDDI report.
Was invited to coffee with the Foreign Minister of Austria, Mr Michael Spindelegger, at the Embassy in Tokyo. Minister Spindelegger is in Tokyo for celebrating 140 years of Austria-Japan diplomatic relations, and he gave a short presentation.
Another reason for the Minister’s visit to Japan is that both Japan and Austria are non-permanent members of the United Nations UN Security Council for the two year period from January 1, 2009 to December 31, 2010.
China’s Ministry MIIT granted three different 3G cellphone licenses on January 7, 2009:
a TD-SCDMA license to China Mobile (457 million GSM subscribers)
a wCDMA license to China Unicom (133 million GSM subscribers)
a CDMA2000 license to China Telecom (43 million CDMA subscribers acquired in 2008 from China Unicom, 216 million fixnet phone subscribers, 38 million broadband subscribers)
MIIT estimates that the operators will invest about US$ 41 Billion for 3G over the next two years, ie about US$ 20.5 Billion/year – about the same annual rate as Japan’s 3G investments every year over the last 8 years since 3G introduction.
Network technology diversity (instead of the Government deciding on a single radio technology standard) means that China’s mobile market a few years down the road may have some similarities to Japan’s today. Several Japanese companies, including “time machine company” SoftBank are working to bring 3G mobile services and technologies from Japan to China.
In our opinion, competition between different 3G radio network technologies is one of the factors driving Japan’s 3G success story.
MIIT decided not to abandon CDMA2000, in order to enhance competition between technologies. Another factor may have been that Japan’s CDMA2000 operator KDDI was initially much more successful in bringing 3G to market than competitors DoCoMo and Vodafone (which sold Japan operations to SoftBank).
In Japan it was not market leader DoCoMo or Vodafone, but KDDI with CDMA2000 winning the 3G introduction battle. Better be prepared for surprises in China too, and don’t underestimate China Telecom.
US$ 41 billion for 3G in China over 2 years is similar to the figures for Japan.
Japan’s mobile operators have invested a around US$ 15 – 20 Billion every year for more than 10 years (for details see our JCOMM report), very similar in size to expected annual 3G investments for all of China.
Japan’s 3G introduction took about 8-9 years (from October 2001 until 2009/2010 – Japan’s last 2G phone was shipped in December 2007). Therefore we expect 3G introduction to take about 10 years for China – could be faster because China can learn from 3G introduction in other countries.
China’s planned 3G investments compared to Japanese mobile phone network investments
China opts for network diversity – like US and Japan
The figure below – from our JCOMM report about Japan’s telecom sector – shows the 2G -> 3G transition in Japan, where several networks with different technologies compete in the market place. We believe this competition between different technologies is a key factor for the rapid success of 3G in Japan.
China having chosen multiple competing technologies, we may see a similar 3G success story as in Japan, however with much larger subscription numbers.
Japan’s mobile network diversity – overview of competing networks
If your business requires interacting with lots of people in Japan, if you are offering services to consumers, or just as a convenience offered on your business cards – think about QR codes:
Answering the question: “What are the 5 top tips for mobile marketing”
Our company worked for several of the world’s largest consumer companies on mobile marketing here in Tokyo/Japan.- Many of Japan’s mobile trends usually move to Europe and US within about 3-5 years. So here are some tips from our work on mobile marketing in Tokyo/Japan:
Leverage spontaneity: use the “here & now” effect of mobile
Mobile phones are among the very few privileged items almost all people carry on their body at all times and allow people to react on the spot. Mobile phones allow people to buy “here and now”, on the street, on the toilet, from bed, changing trains, waiting for a bus etc. Successful mobile marketing campaigns use this “here and now” effect. As an example, see the iPod campaign in Tokyo-Shibuya, or the North-West Airlines campaign in Tokyo/Shinjuku (discussed in detail in our QR-code report).
Provide real value
Things work best when people perceive and actually receive real value. For example, an airline seat, or a share purchasing/selling transaction at the moment they want it. Don’t disappoint people by promising value, which you don’t deliver.
Make it fast: close a transaction in seconds not minutes
Mobile phones are mostly used in short bursts. Attention span is short. Apple’s iPod campaign allowed people to buy an iPod from the Apple store via mobile phone here and now, in a very short time (find a detailed description in our QR-code report)
Do innovate if its really new – but don’t re-invent the wheel
Japan is a huge mobile laboratory – many mobile business models discussed in Europe or US now have already been tested out years ago in Japan. Read our reports,
Treasure security – your mobile sites need to be more secure than websites, not less secure
Customer data lost via mobile phones, or a hacked mobile banking site is just as disastrous as if the same occurs for a fixed line traditional website. Mobile sites can potentially be broken from remote locations in your own country or from a country you wish you never had to deal with.
We worked on security of mobile financial industry sites.
One of our clients in the financial industry asked me several trend questions:
Q1: Biggest surprises in Japan in 2008?
Collapse of Japan’s mobile phone handset market (read our blog). In this context the Japanese telecom equipment makers association invited me to give a presentation, which was booked out 2-3 weeks ahead – about 100 Japanese telecom equipment maker managers attended! The General Affairs Vice-Minister / Secretary of State attended….
The dramatic increase of acquisitions by Japanese companies:
ICT trends for Japan: Ericsson and Nokia Siemens Networks (NSN) remain engaged in Japan’s ICT sector
by Gerhard Fasol
One of the Embassies here in Tokyo asked me to write a report about ICT trends for Japan…
ICT trends for Japan: Mobile phone sector
Pushed by the Government the mobile operators changed the business model for mobile phone sales from a straight subsidy model to an installment payment system. As a consequence the mobile phone sales collapsed, creating huge difficulties for Japan’s mobile phone makers, but greatly improving the financial results of mobile operators.
Smart phones grow market share in Japan
An interesting trend is the growth of the “smart-phone” market (Blackberry, HTC-Windows-Mobile phones, iPhone etc.) and mini-PCs, which can be acquired for YEN 1 with subsidy from eMobile.
In this context the Japanese telecom equipment makers association invited me to give a presentation, which was booked out 2-3 weeks ahead – about 100 Japanese telecom equipment maker managers attended! The General Affairs Vice-Minister / Secretary of State attended…
Nokia terminates mobile phone business in Japan
On November 27th, 2008, global press announcements announced that NOKIA will stop making mobile phones for Japan’s mobile operators with immediate effect. DoCoMo and SoftBank had NOKIA phones in preparation and had already started marketing efforts – these were cancelled a few days after NOKIA’s press announcement.
NOKIA had founded the Japan subsidiary on March 3rd, 1989, almost exactly 20 years ago, thus NOKIA has given up entering Japan’s mobile phone market after 20 years of efforts. NOKIA will not totally shut down in Japan, NOKIA announced that R&D and procurement will continue, and VERTU announced to enter Japan’s market with a mobile vertual network operator (MVNO) model renting network capacity from DoCoMo, and opening own shops.- However the opening of these direct VERTU stores keep being postponed.
NOKIA joins the row of European telecom companies which have given up operations in Japan: Vodafone, Cable & Wireless.
Nokia Siemens Networks (SNS) is continuing business in Japan as well, so NOKIA will not be entirely gone from Japan.
M&A
European company’s acquisitions in Japan are currently at low levels, including the ICT sector. By far the largest acquisition in Japan by a company from the European/Mediterranian area was not by an EU company, but by the Israeli company Iscar which acquired the Japanese company Tungaloy for around US$ 1 Billion. However, this acquisition was driven by US capital. Read details in our blog here.
In the opposite direction, Japanese acquisitions in EU and elsewhere, there is a boom of acquisitions by Japanese companies abroad. For example, TDK acquired the German company EPCOS, Fujitsu acquired the outstanding 1/2 of Fujitsu-Siemens, NTT-Data acquired 72.9% of Cirquent which was a 98% subsidiary of BMW before. SONY acquired the outstanding 1/2 of the SONY-Bertelsmann Music Group from Bertelsmann.
The current trend is definitely a strengthening of Japanese acquisitions in Europe.
The most important issue however are not the acquisition transactions themselves, but the crucial issue will be whether these acquisitions create or destroy value. In many cases the difficulties to overcome “cross-cultural” issues are enormous. Many huge wrecks line the road: Vodafone-Japan, Cable-Wireless-Japan, NOKIA’s mobile phone business in Japan, or DoCoMo’s overseas acquisitions. There are also many success stories – the most impressive and famous one Nissan-Renault, however there are many more. An interesting case in progress is Nippon-Sheet-Glass (now NSG Group)’s acquisition of Pilkington Glass (read about a presentation by NSG’s CEO here in our blog).
M&A in Japan: Interview with Arthur Mitchell by Dr Gerhard Fasol
M&A in Japan: Many see the current financial crisis as a period of unique opportunities. Several foreign companies are currently entering or seeking to expand business in Japan. At the same time, there is a wave of Japanese acquisitions abroad. Arthur Mitchell is a lawyer who has worked on a very large number of M&A deals and financial transactions involving Japan, and shares some of his 40 years of experience with Japan below.
Arthur Mitchell is Senior Counselor at the law firm White & Case in Tokyo, and registered as foreign lawyer in Japan.
Arthur has worked on a large number of private equity investments and many other joint ventures and financial transactions involving Japan.
He was General Counsel of the Asian Development Bank (ADB) where he managed 42 attorneys from 18 countries. Previously he headed the Japan practice for Coudert Brothers and the Pacific Practice Group for Chadbourne & Parke.
Arthur also was founder and CEO of a New York based consulting firm, which launched the first ever hedge fund offered in Japan!
Arthur was educated at the Harvard Law School (JD), UC Berkeley (BS) and Kyoto University, Faculty of Law.
Arthur, you have been involved with Japan for 40 years now. What are the mega-trends you see for M&A over these years? What has changed over these years?
Arthur Mitchell:
Of course, the biggest change during that period was the mind-set of Japanese management. In the 70’s and early 80’s, M&A was virtually a dirty word. That was because of what we might call the “village-mentality” of managers. The idea was that you look after your group and minimize outside influences on business decisions. More recently, certain types of M&A have come to be seen as a practical way of achieving corporate objectives. For a period of time following the bursting of the economic bubble, the cross-shareholding levels of listed companies went down but in recent years, the trend has reversed and these holdings are on the rise again. While friendly acquisitions are now readily accepted among the Japanese themselves as well as with foreigners, hostile acquisitions are still less well received in Japan.
I think one of the most interesting manifestations of this change in thinking is the potential acquisition of Sanyo by Panasonic, but there are many more.- What is your take on the current crisis? Doesn’t our crisis now create opportunities as well?
Arthur Mitchell:
The current crisis is not a natural disaster. It’s a man-made debacle that originated with the sub-prime loan and securitization process in the United States and is properly understood as a major market, policy and regulatory failure. Japan suffered a long recession due to the failure of its “bank-centric” financial system and the U.S. has now aptly demonstrated that capital-market-centric frameworks can produce unacceptable systematic risk. As recently as a few months ago, it looked like Japan would not suffer too much because Japanese companies and banks were on the sidelines when it came to investment in sub-prime and exotic securitized products. Now it is apparent that Japan can not remain as a tranquil island in a sea of financial trouble. The Japanese stock and commercial real estate markets were heavily dependent on foreign investors who are either hesitant about investing in Japan at this time or have too many problems back home, which prevents them from focusing on Japan. On the other hand, Japanese companies are relatively cash-rich and are keenly interested in making overseas acquisitions in order to make up for the time lost during the last 15 years. Depressed asset prices in other countries, as well as a strong yen, make these acquisitions particularly attractive. The question is whether Japanese managers will be able to transform these opportunities into a strategic advantage.
As long as I have been working with Japan – on one ear I hear foreign fund managers complaining (in English) “that there are no deals”, but on my other ear, when I talk with my Japanese business friends (in Japanese) I hear about so many deals happening all the time – one of my friends, a Japanese private equity investment manager, has done tens of deals up to US$ 1.5 billion in size within Japan. What advice do you have for these fund managers complaining that there are “no deals in Japan”?
Arthur Mitchell:
As I just mentioned, the number of M&A deals among Japanese parties has increased dramatically in the last 10 years. Acquisitions in Japan by non-Japanese have also increased over that period but over-all foreign direct investment in Japan by comparison with international standards is still relatively small. FDI in Japan has been consistently between 2-3% of GDP, far below the level for other OECD countries. As a general rule, Japanese managers are still rather reluctant to sell divisions or the company itself unless there is a compelling strategic logic to the combination or the firm is under financial stress. The chief motivation for doing these deals is rarely related to purely financial concerns as more focus is placed on market share and company standing in the marketplace. The key to accessing deals is to have the relationships with important decision-makers at companies that are likely to be interested in M&A for strategic reasons. This is why it is important for funds to be represented in Japan by senior Japanese executives and advisors with long-standing ties.
Same with companies – I know some foreign companies who have to tried to make acquisitions in Japan for 10 years without success. What’s your advice? Look harder? Put more resources into searching and preparing?
Arthur Mitchell:
As just mentioned, relationships are of paramount importance even today. Among the Japanese themselves, these relationships originated with school, social or company ties. Given this reality, it is very hard for foreigners to duplicate this process. Some foreign private equity funds have tried to address this by hiring rather young Japanese bankers who literally and figuratively “speak their language” but the unfortunate reality is that many of these individuals do not have credibility with the decision-makers. Some years ago, foreign firms also had difficulty hiring senior Japanese to work in these firms. That is less of a problem these days but finding the right ones still presents challenges. For example, if they have a background in the financial services industry, they may not know the business of the manufacturers. If they come from a manufacturing background, they may have contacts only in a narrow industry. One way to bridge this gap is to form an advisory board of senior people-both Japanese and foreigners-who can serve as the bridge.
When a foreign company acquires a Japanese company, which are the points critical for a successful transaction?
Arthur Mitchell:
From a legal perspective, the initial question is always whether there are any governmental regulations that would restrict or prevent the investment. Prior to 1980, investment in numerous industries was highly regulated but following reforms in that year, with the exception of a very short negative list, legal barriers were relaxed. Until recently, no foreign acquisition was blocked on “national security” grounds. For the first time this year, the Japanese government blocked an increase in the shareholding by the Children’s Fund, a U.K. private equity fund, in J-Power, an electric power company, on the dubious grounds that foreign ownership above 20% would be harmful to “social order”. The Japanese legislature is now debating whether Japan will restrict ownership of a single shareholder to 20% in Narita and Kansai airports when they are privatized in the near future. In the context of Macquarie’s ownership of 19.9% of the facilities at Haneda airport, this move has obvious anti-foreign overtones. As economies around the world deteriorate, it would not be usual to see even more protectionist measures in Japan as well but, for the moment, I do not think that we can say that there is a discernable trend. Therefore, overall, adequate planning is the most critical step that needs to be taken to ensure a successful transaction.
I have discussed both the Children’s fund and the Macquarie issues with senior Japanese leaders, and found that their opinion is quite devided, some are for, some are against. So I guess its a question of doing enough ground work and preparations, and finding the right allies. Can you tell us some points to watch out for, which could become a problem down the road?
Arthur Mitchell:
As just mentioned, planning is key. Understanding the Japanese counterparties and what motivates them and the lay of the land is imperative. Foreign investors should not assume that their usual company practices can be imported on a wholesale basis to Japan. Many aspects of law and regulation are very similar to those of other countries but labor relations is one area that can be quite different. For example, most Japanese employees, including senior managers, do not have written contracts but virtually all companies have company policies and rules that govern the employment relationship. Problems can arise if the foreign investor seeks to impose employment contracts which are at variance from the existing rules or practices. The law provides that employees generally cannot be dismissed except for cause. In the case of tech-companies, it is normal in many foreign countries to expect that any intellectual property created by the employee on the job belongs to the company. In Japan, the employee has the rights to an invention made on company time but the company will have non-exclusive license. If the company considers that the invention is critical or important for its business, the company should purchase the intellectual property for a fair price. Accordingly, it is important to observe local practices in these areas.
What is your experience with joint-ventures to enter Japan’s markets? Lots of people will advise to avoid joint-ventures at all cost. What is your advice?
Arthur Mitchell:
Foreign companies seeking to enter the Japanese market have a number of options now. In almost every industry I can think of, it is now legally possible for a foreign firm to set up “greenfield” operations (Fasol: recent examples of “greenfield” start-ups in Japan are IKEA and H&M, and also GOOGLE). Of course there are costs and risks associated with that method but it should not be automatically dismissed. Short of an acquisition, it is also possible to have joint ventures or strategic alliances with Japanese counterparties that may be mutually beneficial and can reduce costs and risk (Fasol: a dramatically successful case is YAHOO in Japan, however in this case it was not YAHOO Inc seeking a joint-venture entry in Japan, but it was Masayoshi Son with Softbank investing in YAHOO Inc and building YAHOO-Japan, which is now arguably far more successful than the original company). If this is coupled with the introduction of off-shore business opportunities, this may lead to a mutually beneficial working relationship that might mature into an acquisition in the future. In order to be successful, foreign companies need to nurture relationships with Japanese companies in their industry and think of ways in which they can “add value” to each other. An interesting example of this is what the Kirin Beer Company is doing with the San Miguel Corporation of the Philippines. Kirin owns about 20% of San Miguel. In the future, they plan to make a number of joint ventures for beverage production in Asian countries. This is a strategic relationship where the parties add value through exchanges of technology, marketing and manufacturing techniques and finance. This model can be used in Japan and can lead to even closer business integration.
The devil is in the details…. which details should you watch out for in an M&A transaction?
Arthur Mitchell:
Yes, the devil is in the details—and there are thousands of devils that have to be dealt with. But in this regard, there is nothing unusual about Japan. I think that the most important thing is to build a common understanding about how the venture will be managed and what the goals are going to be post-acquisition. I do think that the Japanese generally have a somewhat longer term perspective on business. When foreign investors acquire an interest in a Japanese company, they tend to expect better financial performance over a shorter period of time. This can cause tensions in the relationship. For example, if the foreign investor intends to make staff reductions or spin-off divisions after the acquisition in order to improve over-all performance, these matters should be thoroughly discussed and agreed upon well in advance of the closing.
In my experience, the M&A transaction is the easy part – the really difficult part is to make it work post-merger. There are plenty of gigantic ship wrecks lining the M&A road into Japan. What are the most critical mistakes to avoid to crash into one of the many cultural and other rocks and icebergs? What is your advice?
Arthur Mitchell:
While failures certainly make the headlines, there are numerous foreign companies that have been very successful in Japan over a long period of time (Fasol: and numerous successful acquisitions as well, the prime example is Renault’s investment in Nissan). These include IBM, Coca Cola and Microsoft and many others. To my mind, successful ones have a long-term perspective, good Japanese managers and a home office that truly understands the local environment. As there have not been a tremendous amount of large-scale foreign M&A deals yet, it is hard to say at this time if this will prove to be the most successful way to enter the market. What we can say is that, with the exception of hostile deals, M&A is a viable route that has yet to be tested in larger deals. As the Japanese market for most products is fairly saturated, and the population is shrinking, Japanese companies (both large and medium-sized) are now looking for major opportunities abroad. With the exception of those who can introduce new products and technologies in Japan, it probably makes sense for foreign strategic investors to look at their Japanese counterparts as partners who can help them pursue global strategies. Financial investors are likely to find more opportunities in Japan as the economy weakens in the next few quarters.
In my work I often see that foreign managers make huge mistakes in Japan which they would never make at home. An outstanding example is the fraud case, where Lehman Brothers seems to have been defrauded of US$ 350 million by someone who seems to have pretended to be an employee of a huge trading company which he was not (its unclear what really happened, and we might never know).
Arthur Mitchell:
No, I am not sure that I agree. I think that fraud happens everywhere. You may have read recently about the former Chairman of NASDAQ who perpetrated a $50 billion fraud on his fund investors. I think that what happened to Lehman Brothers in the case you mentioned is that someone forgot to do the normal due diligence that accompanies transactions of that nature. Actually, it’s emblematic of the new “Gilded Age” which has just ended with the collapse of many of the pillars of the U.S. financial system, including Lehman Brothers. In some very serious ways, America has gone off the rails and has taken most of the world with it. I think that in the aftermath of the financial debacle, we will see a return to basics-less leverage, fewer complex financial products and lower appetites for risk. This is now a global trend which will affect deals in the U.S. Japan and throughout the world.
What is your advice to foreign companies in Japan to avoid such dramatic traps.
Arthur Mitchell:
I do not think that there is anything particular or peculiar about Japan even though some things may be done differently. What is important is to understand attitudes and why people think the way they do. As an example, Japanese shareholders do not always vote in favor of things that many Westerners might think are in their economic interest. We might call that irrational behavior. An example might be the vote that the Sapporo Beer shareholders took when they voted down a generous offer by Steel Partners, an American activist fund. I think it shows that values other than “pure economics” are at work. But this is not unique to the Japanese. German shareholders have similar views. For that matter, I don’t think that “Joe the Plumber” in the recent American election really voted in accordance with his own economic interest. What is important to understand is that people often have multiple motives which are influenced by history, culture and their views of the world. It’s imperative to understand the context in which they are making decisions. That is the only thing that will help a foreign investor avoid “local traps”.
Which is your greatest success story working with Japan or Asia over all these years and why?
Arthur Mitchell:
I have been a lawyer for over 35 years so I have seen a lot of deals. What I like most is finding a unique solution to a problem, creating a new financial product or adding value by helping a client to visualize a new business opportunity. Perhaps one of the most unique things I have done was to help create a strategic alliance between a major Japanese bank and a U.S. real estate firm to assist Japanese investors crack the U.S. market. This led to a front page feature article in the Wall Street Journal. But that was a long time ago. More recently, when I was General Counsel of the Asian Development Bank, I played a significant role in the response to the tsunami that affected a number of Asian countries. We had to deal with a new situation, when there was no road map and very little time. I had to conceptualize the framework that led to the final response and negotiate with numerous stakeholders both within and outside of the bank. And real lives were at stake. I think that that is what lawyers should do and I was glad to have the opportunity to help.
Lots of EU-Japan and US-Japan complain that Japan is still closed today, and they make recommendations for changes in Japan to encourage more inward investments into Japan. Which changes in Japan would help most to increase foreign investments in Japan?
Arthur Mitchell:
I think that there are very few formal barriers, other than some tax disadvantages, which might discourage foreigners from acquiring Japanese companies. The real issue is one of mind-set. It’s fair to say that the attitudes of Japanese managers have changed over time. For example, attitudes toward shareholder value have evolved. Japanese managers are not just giving “lip service” to the idea that they need to balance the interests of customers, employees and shareholders because key players among the bureaucracy and politicians as well as leaders in the press and academia are calling for focus on shareholder value as a means of making Japanese companies more global and more competitive. But in order to be competitive, companies need to properly motivate and compensate their employees to create the desired results. It’s unclear that Japanese managers will be able to manage non-Japanese employees or will recruit senior foreign managers to work within their companies. The recent take-over of Lehman’s operations in Asia by Nomura will be an interesting test case.
In your view, what is the greatest challenge faced by Japan?
Arthur Mitchell:
Japan faces a major demographic problem in its low birth rate and rapidly aging population. Despite the obvious risk to its standard of living, there is really very little public debate concerning what to do about this problem. Japanese companies have tremendous technologies and manufacturing experience. Clean tech is a notable advantage. But Japan’s technological edge probably will not be a sufficient engine of growth. And it seems unlikely that the birth rate will increase dramatically. This means that Japan will have to find creative ways to use women and seniors more productively in the economy. Immigration will present another challenge and an opportunity. If Japan can make the social accommodations that are required by this demographic situation-and companies open the doors to the best managers they can attract from all parts of the world, Japan can become a leading country in the 21st century.
Since Shuji Nakamura’s first commercialization of GaN LEDs (read the Blue Laser Diode Book) LEDs are progressing rapidly to make the US$ 400 Billion global lighting industry more environmentally friendly, reducing CO2 output and reducing electricity bills for lighting dramatically. Recently rail stations in Japan have begun to test plug-compatible replacement of fluorescent tubes by LED based solid state lighting.
This year our company advised a number of investment fund managers on technology, business models, financial models and trends of the solid state lighting industry. Please find a detailed Solid State Lighting report here – we continuously update this report.
Christmas lighting with blue LEDs in Tokyo Midtown. Tokyo Tower can be seen in the back, lighted using traditional lamps, though. Merry Christmas!
Blue GaN LEDs in Tokyo/Midtown for Christmas illumination
Japan’s Chief Cabinet Secretary Takeo Kawamura (河村建夫) gave a speech at the Foreign Correspondents Club on December 17th, 2008. Kawamura is born in Hagi (Kawaguchi-ken – a beautiful Castle Town in the west of Japan’s main island, which is also host to many famous potters). Kawaguchi was Education Minister in Prime Minister Aso’s cabinet.
In his speech Kawamura of course mainly talked about the current global financial crisis and stimulation programs to support the economic recovery, to support new industries and new technologies. Another emphasis is consumer protection support of the consumer agency in view of recent food scandals, and other consumer good problems.
Points which I found interesting in Kawamura’s presentation where:
– A comprehensive law for decentralization is on the way for next year
– The basic law on space development
There was quite a long Q&A with discussion. What I found interesting was Kawamura’s answer to the question about the disputed Takeshima islands, that a solution in an international arbitration court is desirable.- This is the first time I heard about this possibility from Japanese leaders.
Asked also about the disputed Sentaku Islands, Kawamura mentioned the possibility of joint ownership areas for maritime resources, and the development of gas resources beyond the 200 mile territorial limits.
NOKIA’s Japan subsidiary was founded on April 3, 1989 – almost 20 years ago. On November 27, 2008 NOKIA announced to terminate selling mobile phones to Japan’s mobile operators, effectively withdrawing from Japan (except for purchasing, R&D and VERTU).
NOKIA’s sales figures in Japan were a well kept secret until last week when several Japanese newspapers wrote that NOKIA sold 200,000 phones during FY 2007: thus NOKIA’s market share was 0.39% – after 20 years of market entry efforts.
Considering the disastrous collapse of mobile phone handset sales in Japan, NOKIA’s move to quit sales in Japan actually makes a lot of sense. Nothing prevents NOKIA from re-entering Japan again in the future.
Japan’s mobile phone sector is admired the world over, and Japanese mobile phones are years ahead the rest of the world regarding functionality. However, Japan’s mobile phone industry may be heading for a disaster, similar to the European 3G spectrum license fee disaster which almost bankrupted Europe’s mobile phone operators – unless changes are made quickly. Statistics released today show that mobile phone deliveries in October dropped down to 1/4 of steady sales maintained over the last 8 years as the figure below shows.
Switch from subsidy business model to installment contract model causes Japan’s mobile phone handset market to collapse (temporarily)
What is the reason for the disastrous drop in mobile phone deliveries?
Until recently Japan’s mobile phone operators subsidized mobile phone handsets. Consumers would typically pay YEN 10,000 (about US$ 100) for handsets with built-in digital TV, GPS, movie camera with auto-focus, electronic money and tickets, QR-code reader, and much more, which cost the operators up to YEN 100,000 (US$ 1000) per handset.
Encouraged by Japan’s Government, mobile operators recently switched from the subsidy model to an installment plan, while discounting the monthly usage fees.
While previously consumers put YEN 10,000 (US$ 100) or in some cases YEN 1 (1 cent) on the counter to receive one of the world’s most advanced handsets, since a few weeks ago consumers are faced with a 2 year installment purchase contract where they pay the full YEN 60,000 (US$ 600) or YEN 80,000 (US$ 800) for a handset in installments of around YEN 3000 (US$ 30) each month for two years. Not surprisingly handset sales dropped into the cellar as shown above (the figure above actually shows the deliveries from manufacturers to mobile operators, not the actual retail sales).
What are the likely consequences?
continuing consolidation of Japan’s mobile phone handset makers
surviving handset makers will push into international markets
operators will push harder for cheaper handsets
operators might return to a modified subsidy model
presentation by Gerhard Fasol, at the Industry Association of Japanese telecom and networking equipment makers, Friday November 27, 2008, 15:00-16:30
Presentation was fully booked several weeks before the talk, attended by about 100 managers and executives of Japan’s telecom equipment makers, and included also the Vice-Minister/Secretary of State of Japan’s General Affairs Ministry, which is responsible for telecom regulation in Japan.
Opaqueness of Japan’s SNS was a point of discussion at the Next Context Conference. When you use Japan’s social network systems, instead of portrait photographs and real names in Western SNS, in Japan you’ll find that most people use phantasy names and pictures of churches, cats, airplanes, clowns and cartoons instead of passport photographs. Japanese people prefer to keep there privacy intact in this and several other ways. For example mostly you cannot join Japan’s SNS unless you are invited in by a friend, and you can’t join unless you live in Japan (verified by your Japanese mobile email address).
Looks like Western SNS will have difficulties to thrive in Japan’s SNS unless they make some adaptations of their Western functionality for Japan – or unless Japanese people change their preferences.
A few days ago the New Context Conference was held here in Tokyo, mainly about social network systems (SNS), top executives including CEO of LinkedIn, Facebook, and some exciting new photo, video conference and e-learning companies discussed market entry to Japan.
Japan’s two markets
Takeshi Natsuno, one of the three key DoCoMo managers who together started i-Mode and arguably started the world’s mobile internet revolution launching i-Mode back in February 1999 gave the keynote discussion. Natsuno shared his very interesting observation, that Japan consists of two markets:
new Japan = people below 50 years age and
old Japan = above 50 years age
…and having managed i-Mode (today: 48 million paying subscribers) for almost 10 years Natsuno-san is certainly one of the best to know. (Natsuno-san’s main job today is to make Japan’s very cute equivalent of YouTube profitable – read more about this in a future issue of our newsletters).
New Japan vs Old Japan in my talk at Stanford University
Actually, you’ll find a similar observation about “old Japan and new Japan” in my presentation entitled “New opportunities versus old mistakes: foreign companies in Japan’s high-tech markets” which I gave some years ago at Stanford University to faculty, students, alumni and silicon valley managers.- (You can view and download the slides of the presentation below.)
Natsuno-san talking at the New Context conference in Tokyo about old Japan, new Japan, the future of the mobile internet, and the mobile industry. Natsuno-san is one of the three inventors of i-Mode.
Nomura CEO, Kenichi Watanabe, today gave a presentation about the acquisition of the former Lehman Brothers operations in Europe & ME, Japan, Asia (ex-Japan) and in India.
Nomura acquired:
Europe and ME: Equities and investment banking operations (approx 250 people) Fixed income staff (approx 150 people)
Japan: approx. 1100 people
Asia (ex-Japan): approx. 1500 people
India: three subsidiaries, in total approx 2900 people LB Services India, IT, Global servicing LB Financial Services India, research services LB Structured Finance Services, Capital Markets Support and Analytics
Synergies:
Nomura is strong in mutual funds (74.2% of business) Lehman is strong in hedge funds (56.8% of business) Nomura is strong in retail
Q&A (there was an extensive Q&A session), selected questions were:
Question: Could the Lehman acquisition be seen as a “reverse takeover”, ie Lehman people taking over Nomura?
Answer: any kind of takeover, foreign staff taking over, new hires taking over, long term employees taking over is ok for Nomura, if it makes the customers, shareholders and employees happy.
Question: how does Nomura plan to cover the acquisition costs, how does Nomura plan to become profitable, and could there be cuts in headcount?
Answer: we will right-size in each business area according to the necessities in each business area, and in some business division we are hiring and increasing headcount.
Question: what about highly paid “talents” and high bonus payments? Could there be friction with existing Nomura employees?
Answer: Nomura already has several thousand employees with about 50 or more nationalities, and some are paid more than the CEO of Nomura, so we are already familiar with this situation. Currently Goldman-Sachs CEO and top executives have announced that they will not receive any bonus payments. We will hope that this will be understood in our company as well.
Question: Will the acquisition mean an end to lifetime employment and bring the introduction of performance based payment?
We must make sure that we satisfy our clients, we will focus to deliver the services our clients need.
Nomura CEO, Kenichi Watanabe speaks about the Lehman Brothers acquisitionNomura CEO, Kenichi Watanabe speaks about the Lehman Brothers acquisition
Purpose: shared by three Universities and schools, and others
4 underground floors + 50 above ground floors building started: May 1, 2006 opened: October 15, 2008 Architects: Tange Associates Building company: Shimizu
Modo Gakuen Cocoon Tower in Tokyo ShinjukuModo Gakuen Cocoon Tower in Tokyo ShinjukuModo Gakuen Cocoon Tower in Tokyo ShinjukuModo Gakuen Cocoon Tower in Tokyo ShinjukuModo Gakuen Cocoon Tower in Tokyo Shinjuku
SANYO suffered from Niigata Chuetsu earthquake of Oct. 23, 2004
Panasonic attracted to SANYO’s battery and energy technologies
On November 7, 2008 Panasonic (“Ideas for Life”) and Sanyo (slogan: “Think GAIA”) announced that they entered negotiations which can potentially lead to an acquisition of Sanyo by Panasonic to form one of the largest electronics groups in the world. Sanyo’s market capitalization is currently US$ 3.9 billion and Panasonic’s is US$ 38 billion, combined sales are about US$ 110 Billion.
The Niigata Chuetsu earthquake of Oct. 23, 2004 caused an estimated total of US$ 30 Billion in damages, damaged Sanyo’s semiconductor factory and contributed to large losses at Sanyo. As a consequence Daiwa Securities SMBC Co, Sumitomo Mitsui Banking Corporation and Goldman Sachs hold preferential shares in Sanyo with voting rights corresponding to 70% of outstanding shares. The current global financial crisis contributes to the potential acquisition, since Daiwa, Sumitomo-Mitsui and especially Goldman Sachs are motivated to sell their preferred shares when contractually possible, and it is also these three financial institutions which will have strong influence on whether this transaction will take place. Goldman Sachs is reported to have said that the price will decide.
Annual revenues of Japan’s electrical groups:
Panasonic and Sanyo combined (red curve in the figure below) will be one of the largest electrical groups globally. Note that Japan’s electrical groups showed strong growth from FY 2003.
Revenues of Japan’s top electronics manufacturers
Annual operating margins of Japan’s electrical groups:
Panasonic’s high operating margins helped Panasonic to reach a position of financial strength, enabling this acquisition. Expect more acquisitions by Japanese electrical companies.
Electrical differentiation:
High margin (> 5%) vs low margin (The figure below shows that there is a clear differentiation of Japan’s electrical groups: Mitsubishi Electric, Sharp and Panasonic have high margins – above 5%.
The other electrical groups (Fujitsu, Toshiba, Sanyo, Hitachi, Sony and NEC) have chosen a low-margin path (margins below 4%).
There is a clear gap (4% to 5%) separating these two fields. Panasonic’s margin will suffer with a Sanyo acquisition – expect Panasonic management to bring Sanyo up to Panasonic margins.
Operating margins of Japan’s top electronics manufacturers
Globalization of Japan’s electronics groups:
With 36.8% of sales outside Japan, Sanyo is more globalized than Panasonic. NEC, Fujitsu and Mitsubishi Electrical still have much way to go to globalize.
Globalization ratios of Japan’s top electronics manufacturers
New entrant challenging Japan’s mobile incumbents Docomo and KDDI and SoftBank. A discussion between Dr Sachio Semmoto and Dr. Gerhard Fasol
Dr Sachio Semmoto: one of Japan’s most successful serial entrepreneurs
eMobile is Japan’s newest & fastest growing mobile operator, focused on mobile broadband – currently at HSDPA speeds up to 7.2 Mbps and HSUPA/EUL upload speeds up to 1.4 Mbps from Nov 20, 2008 (possibly upgraded to 5.7 Mbps from 2009) covering all major urban areas of Japan. Read an exclusive interview with eMobile’s founder and CEO, Dr. Sachio Semmoto below. eMobile‘s start is a resounding success: subscriber numbers will soon reach 1 million, and in October 2008, eMobile could attract 102,500 new subscribers – three times more than market leader DoCoMo (32,700) and two times more than KDDI (46,700). eMobile‘s market share is growing. eMobile was founded by Dr. Sachio Semmoto on January 5, 2005, and obtained the 3G spectrum license after a tough “beauty show” from Japan’s General Affairs Ministry on November 9, 2005 – almost exactly 3 years ago. At that time the Ministry gave new 3G spectrum licenses to three companies, however eMobile is the only one which actually built a new 3G network – the two other licensees returned their licenses to the Government unused.
Dr. Sachio Semmoto has very kindly agreed to an exclusive interview for our newsletter – read Dr Semmoto’s interview below. We are very grateful to Mr Takashi Igarashi of eMobile for his help and assistance in producing the interview. Dr. Semmoto is an extremely successful Japanese multi-entrepreneur. He is one of the co-founders of DDI (today part of KDDI), he founded the ADSL provider eAccess, and in 2005 he founded eMobile. Read Dr Semmoto’s interview about eMobile below.
In September 2008 eMobile attracted three times more new users than NTT-DoCoMo, and two times more new users than KDDI. eMobile will soon reach 1 million subscribers.
eMobile subscription numbers
Dr. Sachio Semmoto co-founded DDI (today part of KDDI), he founded ADSL provider eAccess and in 2005 he founded eMobile. He is Chairman and CEO of eMobile. Read Dr. Sachio Semmoto’s interview below.
Dr. Sachio Semmoto, Founder and CEO of eAccess and eMobile
Dr. Gerhard Fasol: Your company’s main product are 7.2 Mbit/sec data connections at about YEN 6000 (US$60, EURO 50)/month without any usage limitation at all – even if your subscribers upload or download enormous amounts of data including Skype and VOIP, or watch or upload movies all-day you do not reduce such users connection speed, and you do not charge extra. In Europe such totally unlimited data subscriptions do not exist to my knowledge – in addition most European telecom operators exclude VOIP or Skype from mobile data subscriptions – they even talk about “unfair usage” in their subscriber contracts. European telecom managers tell me that unlimited data subscriptions are impossible because of network capacity limitations and high electricity costs etc. What is it the “secret” that enables eMobile to offer unlimited data plans – without any usage restrictions at all?
Dr. Semmoto: We at EMOBILE have successfully developed and constructed a low cost, but high quality mobile network from scratch, based on leading-edge 3.5G/HSDPA technology base stations. HSDPA technology improves the usability of spectrum and network performance. We also have rich experience in fixed broadband markets like ADSL through eAccess, our group company.
Our “secret” is very simple:
1) high usability of network based on state-of-the-art technology, competitive low cost construction and operations, and 2) operational know-how from fixed broadband market (through eAccess).
Incumbent carriers offer flat-rate data service only because competition forced them to. We believe we have great competitive advantages against incumbent carriers.
Dr. Gerhard Fasol: What were the main difficulties you had to overcome to start eMobile?
Dr. Semmoto:
Financing. We are a completely independent venture company with no financial support from big corporations. We won the confidence of international qualified financial institutions like Goldman Sachs, and Temasek of Singapore, and succeeded to attract funding as large as 3.6 billion US$. This was before our business launch, therefore all we had to show to investors was just our business model and our management team, and our plans for a successful future business.
Dr. Gerhard Fasol: What was the most surprising experience for you building a new mobile operator from scratch?
Dr. Semmoto:
1) We were very fortunate that we could complete full funding back in 2006 for the following 5 years until 2011, before the current worldwide financial crisis 2) We won a business license and spectrum allocation from the government in 2005 after a tough beauty contest.
Dr. Gerhard Fasol: I remember the Japanese government wanted to have three new mobile networks and gave three new licenses, and your eMobile was the only company which actually succeeded to build a new network from scratch as desired by the Government (SoftBank acquired Vodafone including Vodafone’s license, and returned the new license to the Government and IP-Mobile could not find the finance) – congratulations!
Dr. Semmoto: You are completely correct. Softbank and we were fighting against each other for 15MHz in the 1.7GHz band. But the government had not decided the number of licensees initially, that means it was possible that only one company would win the whole 15MHz. As a result of the beauty contest, Softbank and we were both qualified and won 5MHz each, and the other 5MHz was reserved for additional allocation.
Dr. Gerhard Fasol: One of the key issues for telecom operators is often said to be to “avoid becoming a dumb data pipe”, i.e. to avoid commoditization and ever decreasing ARPU. What is your strategy that your company and your network does not become “a dumb pipe”, a commodity?
Dr. Semmoto:
We are confident in providing “a pipe”. It is a pipe but a GREAT pipe, mobile broadband service, and it is what customers are willing to use. I believe other Japanese mobile carriers are “too intelligent”, too far from real customer needs. High speed, flat-rate mobile broadband data is in itself a differentiated service. We will maintain competitiveness by continuously upgrading our data service from 3.5G to next generations (HSPA+ and LTE).
Dr. Gerhard Fasol: Assuming an ARPU of YEN 5000 for 1 million subscribers we can calculate that eMobile has sales of about YEN 60 Billion for 2009, i.e. about US$ 600 Million. Is eMobile profitable now or if not, when do you expect eMobile to become profitable?
Dr. Semmoto:
We expect to achieve 85 billion yen (about US$ 850 million) revenue with an accumulated subscriber number of approx. 1.4 million by the end of March 2009. eMobile has not turned to profit as of today. Under our projection we expect eMobile to break even on an annual EBITDA basis in fiscal year ending March 2010, then break even on net profit basis in fiscal year ending March 2011.
Dr. Gerhard Fasol: Your investors will expect eMobile to show profits and growth. In which areas do you like eMobile to grow? Are you planning to bring your experiences in the world’s most advanced market to other markets – international growth of eMobile? What is your long-term growth strategy for growth?
Dr. Semmoto:
eMobile plans to acquire 5 million subscribers by March 2012, and assumes Japanese mobile penetration to grow to over 100%. In line with our corporate mission of “providing a new and more efficient broadband life for all”, we focus on the Japanese mobile broadband market, which has more than 100 million subscribers. We consider that the whole broadband market will be the mobile broadband market in the future. As for further expansion into other markets, eMobile started a data card bundling service with the UMPCs (Ultra Mobile PC) in July 2008. UMPC is a type of PC that very much relies on internet connection. As we provide high-speed, reasonable-priced mobile internet connection environment, we have already built a win-win relationship with the PC market. Therefore, our strategy will always focus on mobile broadband. Meanwhile, we firmly believe that we will create a brand new potential market following the growth of PC and smart phone market. We do not have a plan to go to international markets for the moment.
Dr. Gerhard Fasol: Many people think that Japan has the world’s most advanced mobile phone market. Do you agree? And why do you think Japan could achieve this?
Dr. Semmoto:
I dare say, NO. Mobile phone rates in Japan have not been declining regardless of rapid market growth for the past decade, due to lack of competition. ARPU has not been declining much for a decade before new licenses were permitted in 2005. After Softbank and EMOBILE’s entry into the market for the first time after 1994, ARPU started to decline. The nominal undiscounted voice call charges of approx. 40YEN/min. are high and quite stable. Data speed was slow just before we started our business and, as I stated above, Japanese incumbent mobile carriers are emphasizing “value added services” too much. Penetration rate remains 80%, ranking as low as 50th globally.
Japanese mobile phone manufacturer lost their international market because Japan adopted non-standard technology, PDC, in 2G.
We need to introduce more competition, standard technology and “big-boned” telecommunication. When I say “big-boned” telecommunications, I don’t mean additional “added value” services, but the essentials of telecommunications: connection and transmission with reasonable price and high speed.
Dr. Gerhard Fasol: Many countries have decided to use one single radio technology path: GSM and in parallel 3GSM / UMTS. Japan and US on the other hand take the view today that the government should not pick technologies, and you find several competing radio technologies in Japan: wCDMA, CDMA2000, PHS, now soon Wimax. What do you think is better for a country: one single radio technology without competition, or a “technology shoot out” like in Japan, where companies compete in a pretty free market with different technologies?
Dr. Semmoto:
Competition among technologies is not bad in itself, but the most important thing is that those technologies are worldwide standard and adopted by many operators. When Japan adopted an internationally isolated technology, like PDC for 2G mobile, its market would became “Galapagos Islands” (ie local Japanese products cannot be exported to other markets, and products from other markets cannot be imported, creating beautiful but dead-end product lines). In this sense, I doubt the future of CDMA2000, PHS and WiMAX because major worldwide operators are going to GSM/W-CDMA/LTE as the mainstream technology.
Dr. Gerhard Fasol: for many years I have been puzzled by the fact that so many fantastic mobile services, handsets, i-Mode, mobile commerce have been developed in Japan, but there has been almost no success by Japanese companies (and foreign companies) to build a global business based on these technologies. For example, Japanese companies build fantastic mobile phones, but have no sales success outside Japan. If Japanese mobile phone makers would ask you how to succeed to sell Japanese made mobile phones outside Japan, or if DoCoMo would have asked you how to succeed with iMode outside Japan, what would your advice be for them?
Dr. Semmoto:
The reason why Japanese mobile phone makers have no success outside Japan is simple. They were based on non-standard technology, PDC (which is Japan’s 2G standard, which was not used in any other country outside Japan. Still today, more than 10 million PDC 2G mobile subscribers remain in Japan). DoCoMo’s i-mode is also a closed business model. Both cases have “non-openness” in common. Broadband data service is more like “Internet” and needs open service, open business models and open technology.
Dr. Gerhard Fasol: On the other hand, DoCoMo tightly controls most aspects of mobile phone handsets – which makes the production very expensive, and many handset producers have stopped making phones for DoCoMo: Mitsubishi, SONY-Ericsson have stopped, and SANYO sold the handset division to Kyocera. What do you think is the future of DoCoMo’s model of controlling mobile phone specifications? And what is eMobile’s handset strategy? Do you want to accept as many handsets as possible on your network, which seems to be SoftBank’s strategy?
Dr. Semmoto:
We emphasize standardized technology and open business models. It is not our strategy to control mobile phone specifications too much by committing the purchasing numbers, and by subsidizing developing and manufacturing costs because this would lead us to lose cost competitiveness. We are willing to adopt high-quality, worldwide standard and state-of-the-art handsets.
Dr. Gerhard Fasol: What do you think about the current trends in mobile handsets?
Dr. Semmoto:
Current trends in handsets are in two directions: simple phones and smart phones. Firstly, Japanese incumbent carriers have to change their strategy to place more emphasis on customer retention, therefore, the shipment of handset is decreasing in Japan. Both carriers and phone makers cannot support heavy product costs therefore the retail prices are increasing. Customers choose simple and easy-to-use handsets. Secondly, mobile broadband requires more open, multi-function handsets like smart phones.
Dr. Gerhard Fasol: What do you think mobile communications markets will look like in 10 years from now? What is your vision for the industry?
Dr. Semmoto:
the mobile market will become more data-focused, furthermore, broadband focused, which we already have experienced in the fixed telecommunication market (from narrowband data/voice to broadband internet). We will see through these mega trends and we will enforce our competitiveness in order to create brand new markets.
NSG Pilkington CEO, Stuart Chambers, CEO of NSG Group, press conference on October 16, 2008
NSG Pilkington: Nippon Sheet Glass acquired Pilkington in June 2006
On February 16th, 2006, Nippon Sheet Glass‘ offer for the 80% of Pilkington plc it did not already own, for US$ 3.14 billion in total, was accepted by Pilkington’s share holders and the acquisition was completed in June 2006. At the 142nd Annual Shareholder Meeting on June 27th 2008, Stuart Chambers was appointed Representative Executive Director, President and CEO of NSG Group.
NSG Pilkington CEO Stuart Chambers: Four critical factors for Japanese corporates making major international acquisitions
Here some essential points of Stuart Chambers’ presentation, entitled “Four critical factors for Japanese corporates making major international acquisitions”.
The four critical factors in the title are:
Integration (share holders and customers demanded integration, because the value of the combined NSG + Pilkington after the acquisition must become bigger than the sum of its parts -> must change HR management, and board)
Repaying debt -> senior management must understand the balance sheet
Identifying growth opportunities for the future (glass for solar energy)
Succession
From the outset the aim was not to create a Japanese company with overseas subsidiaries, but to create an international company, headquartered in Japan and listed on the Tokyo Stock Exchange. Therefore the greatest changes needed to be made in Japan.
NSG Group corporate governance: new Board structure
NSG Group changed from an exclusively Japanese Board, to a new Board structure:
Board of Directors: 12 (7 Japanese + 5 non-Japanese) and
Executive Officers: 23 (11 Japanese + 12 non-Japanese)
These changes were necessary in order to retain non-Japanese management talent from leaving the acquired company after the merger.
The Board structure was changed from the traditional Kansayaku (Corporate Auditor) structure to a Board with Committees.
HR management changes from internal promotion according to time served in each job level to the international practice of combining internal and external hiring according to capability and demonstrated performance ignoring age as a factor.
