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The Washington D.C. Business Community Finds New Investment Opportunities in Japan

Business executives, investors and service professionals joined Japanese and US government officials on Wednesday, October 24, 2007 in a conference titled Creating Value Through Innovation in Washington DC. Highlighting Japan’s attractiveness as an investment destination, this symposium was hosted by the Japanese Ministry of Economy, Trade and Industry (METI), the Japan External Trade Organization (JETRO) and US Department of State in cooperation with the US Chamber of Commerce.

Opening the event, Patricia M. Haslach, Senior State Department Official for APEC reaffirmed America’s commitment to the US-Japan bilateral relationship and the US-Japan Investment Initiative signed by President Bush and former Prime Minister Koizumi in 2001.  This initiative works to identify, reduce, and remove investment barriers for the mutual benefit of both nations to create jobs, transfer technology, and stimulate competition.  Welcoming participants, Haslach noted “over the seven year life of this initiative, Japan’s stock of foreign direct investment (FDI) has nearly doubled reaching $110 billion this year … and it is now enjoying the longest period of continuous economic growth in its post-war history.”

"Quality and Technologies Are More Important Than Famous Names and Brands"

Tadashi Izawa, President of JETRO, then spoke about Japan’s current business climate, recent FDI trends, the attractiveness of the Japanese market and JETRO’s ability to help US firms to expand into this market. He highlighted recent Japanese market reforms that served to spur growth, promote innovation, and strengthen corporate governance.  In particular, Izawa stressed the importance of R&D and noted his belief that “the key to Japan’s future economic growth is its ability to innovate” and that “today Japan is a technological powerhouse in such areas as next generation mobile communication technology, eco-cars, and robotics”. Efforts are also being made to enhance the competitiveness of service industries, including healthcare, nursing and electronic medical records.  Izawa noted  “Japanese business mindset makes it easier for leading edge smaller firms to enter our market as quality and technologies are more important than famous names and brands.”

In addition, Izawa called attention to a four-fold increase in M&A activity including Citigroup’s recent $4.6 billion acquisition of Nikko Cordial Securities -– the first major deal to use Japan’s new rules allowing “triangular” mergers using stock swaps of a parent companies shares -– to show how American companies are taking advantage of the booming potential in Japan’s financial services market.

The Finer Things and the Attractive "Mass Affluent"

Japan’s luxury goods market -- estimated in the high-end apparel, accessories and gift category to be nearly twice the size of the US –- and the growth in “silver care” for retirees, provides the nation, according to US Dept. of Commerce data, a higher average investment return than all other developed economies. Izawa notes “Japanese consumers have always been quick to embrace new trends and fashion. They are being actively courted by consumer goods and fund management firms. This includes areas such as private banking which caters to Japan’s $12.6 trillion in financial assets”. Last summer for example, Citigroup was the first foreign bank to convert its Japan arm into a local company. The firm also plans to double its consumer finance branches over the next few years.

Part of the attraction of Japan is the rise of its emerging “mass affluent” consumers as well as its highly educated workforce and super modern infrastructure,  and Izawa pointed to the opening of six luxury hotels in Tokyo since 2002 by world-renowned chains such as the Four Seasons, Peninsula and Ritz Carlton. He believes “Japanese consumers have very high customer service standards, providing competition which leads these firms to develop new services that can then be applied elsewhere in their operations”.

JETRO plays a key role in helping foreign businesses to find their niche in Japan. Izawa noted “We do this through dissemination of information and publications, business matchmaking and partnership events and industrial tours and seminars such as this. Companies that visit Japan are also welcome to use JETRO’s network of Invest Japan Business Support Centers. These facilities provide free office space, as well as introductions, advice, information and other support to allow their entry into the Japanese market”. Following these comments, Izawa stated “Every year about 1,000 foreign companies utilize JETRO’s support and services and about 100 actually set up operations in Japan. GeoVector and Pantone are just two examples of US firms who have recently entered Japan aided by JETRO’s competent staff.”

Where Chelsea Property Group Finds 'Consistency of Results'

Next Chelsea Property Group’s Leslie T. Chao, explained how strong buying by Japanese tourists at their premium outlet shopping centers such as Woodbury Commons outside New York City and the Forum Shops in Las Vegas motivated their expansion into Japan.  Chelsea Japan quickly grew from one retail center outside Tokyo in 1999 to six centers throughout Japan this year.  In 2008, Chelsea Japan will have almost two million square feet of retail space. This features almost 1000 stores, and generates $1.3 billion in annual sales. Chao commented “Average sales per square foot in our Japan properties is about 50% higher than in the US, and our lowest performing facility is still higher than the US average.  While the outlet concept was born in the US, it has taken off like a shot in Japan. Most important, one can see by the consistency of the results that this is a business that works around the country and not only in Tokyo”.

Chao then counted down his top ten reasons to invest in Japan, including: a) Japanese natural curiosity and outward looking attitude, b) respect for intellectual property, c) rule of law and business ethics, d) highly skilled people and obsession with quality, e)   “Kaizen”- style orientation which means continuous improvement, f) world’s second largest world economy, f) affluence and spending power, g) gateway to Asia, h) brand loyalty, and ending with his simple belief that, i) Japanese are the “world’s best customers”.  Mr. Chao concluded by noting Japan had served as Chelsea’s springboard for further expansion in South Korea and Southeast Asia that is no underway.

FedEx Delivers Myth-Breaking Facts

FedEx’s Vice President of International Sales, Ken Hisamoto, followed up describing the expansion of their business in Japan and explained why it remains an attractive investment destination.  Dispelling such myths as “golf is expensive” and “the cost of living is high”, he invited the audience to compare Tokyo golf prices with those of Orange County, and apartment rentals to Manhattan pointing out the costs of doing business in Japan were getting lower compared to other major business centers.  Indeed, after a long slump, real estate in Tokyo, it is only now recovering to 1980 levels. Citing the high number of Japanese with broadband access through PC’s and mobile phones, Hisamoto noted the combination of Japanese net savvy and their propensity to spend spelled huge opportunities in eCommerce. He also called attention to the opportunities for US firms, noting, “The US is the leading trade partner of Japan, accounting for 22.5% of the total.” Finally, Hisamoto addressed the myth that “no matter how good the product or service is now foreign company can ever become a market leader or gain significant market share”, Recounting one example, he commented “I personally disagree as FedEx began working with Dell Computer from its earliest days in Japan and you can see they are now truly a powerhouse in that market”. FedEx has also gained significant market share, shipping its first package in Japan in 1984 and over time turning Kansai International into one for its most significant international hubs.

The Unconventionals

The discussion then focused on the plans of three innovative small- to medium-sized companies to expand their businesses into Japan. This panel was moderated by James Frierson, Former Chief of Staff of the U.S. Trade Representative’s Office and Founding Director of Kruesi Center for Innovation. It featured Vinh Nguyen, CEO of Macronetics, Joshua Ziff, CEO of Bridge Semiconductor, and Naoshi Yamauchi, Director, Business Development for Asia of Lulu.com.  Macronetics is a Virginia-based business software solution company.  Bridge Semiconductor is a Pittsburg-based designer and marketer of thermal imaging systems with a variety of applications.   Lulu.com is a website enabling high quality home publishing to any Internet user.  All three companies are choosing to expand their business to Japan, over the more “conventional route” of moving into Canada, the UK, Europe, and Australia.  The opportunities they found range from software solutions for gas pipeline infrastructure monitoring, to partnering with Japanese companies for medical uses of infra-red images, to expanding the customer base for small run, personal publishing to over one million customers worldwide.

Aiming to Double FDI by 2010

“In today’s symposium we had a very useful discussion about doing business in Japan based upon the real experiences of US businessmen already doing business there”, concluded Toshihisa Takata, Deputy Director for Trade Policy for METI. “While the level of FDI into Japan remains low for a country of our size, it is steadily increasing, and our goal is to increase FDI to 5% of GDP by 2010.  Japan welcomes additional inflows as it helps to promote technologies and know-how, employment and consumer benefits in the form of added competition and additional products and services.” In Takata’s final comments he reiterated Japan’s attractiveness as a destination for American commercial expansion citing “its advanced infrastructure, innovation and high levels of R&D spending.  Japan also serves as critical link and gateway to Asia through its well-established connections with China, South Korea and Southeast Asia.”