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Below Story Written for J@pan Inc.


Japan Inc. LogoVC Roundup and Guide
<Written May 28, 2001>
VC investment in Japan picking up again, but not much aimed at pure-play dot.com startups.

WHAT'S HERE
Japanese Scene
Foreign Players
Startup Forums
A to Z Listings
Government VC 
VC Events
News Sources
Newsletters
Associations 

The fizzling dot.com boom and a savaging in high-tech stock prices means that Japan's pure-play Internet startups must struggle even harder to squeeze money out of investors.

Many of last year's venues for introducing small/midsize startups to investors have ceased operating, reflecting a drop in interest by VC managers. Most investors have terminated jumpstart funding for small startups and turned exclusively toward big-play sectors with global promise and IPO exit potential -- sectors clustered around biotech, wireless, broadband, fiber optics, and semiconductors.

Further, the languishing performance of Cyber Agent, Crayfish, and other recently listed Internet stocks is making things difficult for startups trying to go public. Since the bursting of the Net bubble, investors have become more selective, and less willing to finance pure-play B2C and B2B. In contrast, there seems no lack of enthusiasm for big-play investments. More than a dozen new VC funds, both domestic and foreign, have been announced since the start of 2001. But, say industry insiders, most big-play funding is still looking for a home -- money is not the problem, rather a shortage in the number of viable high-tech investment opportunities.

There is room for optimism, however. Japan now offers three bourses for emerging stocks -- the Japan Securities Dealers Association's over-the-counter market, the Tokyo Stock Exchange's Mothers, and Nasdaq Japan. These three markets have accelerated the IPO process for startups, while financial reforms have reduced listing requirements. For foreign VCs, private equity investment in Japan has finally become a reality. A recent upswing in M&A activity also bodes well for Japan's nascent VC market.

Resource Guide to Venture Capital in Japan

JAPANESE
SCENE

Some Top Players
Jafco
Softbank
Fujigin Capital
Nissay Capital
Diamond Capital
NIF Ventures
Nippon Investment Trust
Hikari Tsushin
Others

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VC investments totaled 230.1 billion yen (nearly $2 billion) in the fiscal year ending June 2000, MITI said this March, roughly double the previous year. Japanese pension funds accounted for 10 billion of that total. For the second year in a row, Jafco Co. was the largest investor in new startups (it invested in 40 of 157 firms listing last year in the three startup bourses). Most homegrown VCs, however, are affiliates of their banking parent, and act more like quasi-banks than VCs -- they provide capital, and not much else.

Japan's VC market still comes in dead last in international rankings. In other surveys, Japan falls near the bottom in creation of firms, affordable rent, flexible immigration laws, and shareholder rights. To many, Japan also lacks the entrepreneurial talents needed for VC growth.

Softbank, a pioneer in Internet investments, continues to invest with enthusiasm despite a savage drop in its stock price. In January, together with Cisco Systems, it announced a $1 billion fund targeting wireless technologies in Asia. Softbank has already invested some $8.8 billion in some 600 Internet firms.

FOREIGN
PLAYERS

Some Top Players
Draper Fisher Jurvetson
Morgan Stanley Dean Witter
GE Capital
Goldman Sachs
JP Morgan
Schroder Ventures
ABN Amro
Walden International
Credit Suisse
Bear Stearns
Dell Computers
Whitney & Co.
H&Q Asia Pacific
Others

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  • H&Q Asia Pacific in May announced a $200 million (about 25 billion yen) Japanese fund focusing on wireless Internet services. One of its investments, Access Technologies, is the exclusive provider of browsers for DoCoMo's i-Mode. Access went public this February.
  • Walden International in May announced plans to form a joint 20 billion yen fund with a major Japanese bank to invest in IT startups.
  • Draper Fisher Jurvetson in April announced plans to invest some 7 billion yen in Japanese IT firms over the next three years.
  • Internet Capital Group Inc. (ICG) in March said it would invest 10 to 20 billion yen in Japan's mobile/broadband sectors this year.
  • Bear Stearns Co. in March earmarked about 4 billion yen for investments in encryption and other technologies.
  • Dell Computer's first overseas VC arm, Dell Ventures Japan, plans to double its investments in Japan this year in cell-phone, broadband and Linux technologies. Two of its investments have gone public -- Open Loop Inc., a security-encoding firm, and usen Corp., a provider of broadband Internet access using fiber optics. 

MATCHING
STARTUPS
WITH
INVESTORS

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  • Startup Forum.www.well.com/user/metaa/
    Five forums held last year, with startups pitching business plans in front of investors/supporters. Organizer Takama Gohsuke says the forum, targeting English speakers, is now in hibernation owing to drop in interest by foreign VCs. But he has not abandoned the idea, and is thinking about new formats.
  • Fusion eBusiness Competition.www.japaninc.com/fusion/fusion.html
    Started by J@pan Inc in August 2000. Entries pitch their plan if front of panel of investors. Two winners each received awards last year. Fusion 2001 pushed back to late 2001.
  • Nippon Angels Forum (NAF). www.angels.ne.jp
    Pitching stage for Japanese startups to meet Japanese investors; also holds informational seminars. (Japanese language only)
  • Saikyo Bank. Loans to small companies needing only 3 to 10 million yen in startup capital. Holds monthly session to study proposals submitted by students, housewives, and small businesses.
  • J-DOOR. www.j-door.com
    Business unit of LINC Media. Site matches foreign VC investors with Japan-based Internet startups. Users can register interest in investment opportunities, and post questions to J-Door.com consulting team. 

A to Z
LISTINGS

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GOVERNMENT
INCUBATORS

INDUSTRIAL
PARKS

CITIES

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In fiscal 2000, Japan's government earmarked 194.3 billion yen ($1.78 billion) for small/midsize startups.

  • Venture Enterprise Center.www.venture-web.or.jp/vec/
    MITI subsidiary with links to VC funding (Japanese only); held eBusiness contest among students in June.
  • Fukuoka Venture Market.www.ist.or.jp/ven/
    Established Jan. 1999, with 120 plus companies and VC firms; provides info & support for those interested in pitching presentations to investors. Limited English data.
  • Sapporo Valley.www.hkd.meti.go.jp/hoksi/guide_e/
    BizCafe. www.bizcafe.ne.jp/
    Center for high-tech start-ups, research facilities and VC firms. About 300 software companies clustered here. This June, the city government launched project for IT start-ups called Technology Center for Java, providing facilities for SW developers to test Java programs. Sapporo Biz Cafe is main locale for events & social networking.
  • Kyoto Research Park.www.krp.co.jp/HP98Ehtml/
    Private research park and incubator with 130 tenant companies. Owned by Osaka Gas.
  • JETRO.www.jetro.go.jp/ip/e/bsc/
    Business Support Center offers 3 months of free office space (2-person space) & other assistance.
  • Kinki Virtual Incubator. (Japanese only) www.kansai.meti.go.jp/3-3shinki/kinki-incubator/
  • Kanagawa Science Park.www.ksp.or.jp/english/
  • Biotech Fund. This May the Tokyo Metropolitan Government and the Japan Small & Medium Enterprise Corp. (MITI affiliate) set up a 1.5 billion yen VC fund with private entities to encourage biotech startups. 

EVENTS

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  • Kamakura Life Festival 2001 www.kamakuralife.com
    5th annual summer beach festival, bringing together professionals from legal, finance, hi-tech, internet, and other communities. Held in late July.
    Contact: Charles K. Gonzales at ckg@gol.com

NEWS

IPO DATA

RESEARCH

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  • Nikkei Net Interactive.www.nni.nikkei.co.jp
    Six-month subscription only 6,000 yen; quite good; searchable English archives cover last four months of Nikkei 24-Hour News and last 12 months of Nikkei Weekly.
  • Tokyo IPO.www.ipotokyo.com
    Real-time stock info, plus free newsletter; IPO news, including pre-IPO and post-IPO data; links to other exchanges. Spin off of Bargain America.
  • Gaijin Investor.www.gaijininvestor.com
    Real-time quotes, data on upcoming IPOs, company profiles, ADRs, links to exchanges.
  • Asia Venture Capital.www.asianfn.com
    VC / M&A publications and statistical reports; relatively expensive. 

NEWSLETTERS

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  • JPNET (JaPan interNETwork) Newsletter.
    Moderator Ben Miller ben@ben-miller.com
    To subscribe:  jpnet-subscribe@yahoogroups.com
    Compiled from various English sources by Ben Miller, a market-entry consultant. Good coverage of Internet-related news, seminars and social networking events in Japan. Most Associations listed below are covered in this newsletter.
  • Tokyo IPO Newsletter.www.ipotokyo.com
    Japanese language only, but English version to launch soon.
  • J-Door Newsletter. www.j-door.com/news.html
    Stories on market entry and investing in Japan.
  • Terrie's Take. japaninc.net/subscribe_news.html
    Focus on strategies and financing. Terrie Lloyd is president of LINC Media, the Tokyo-based incubator of Layer 8 Technologies, BiOS, J-Door, and DaiJob.com.  

ASSOCIATIONS

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These associatioins bring together executives, financiers, entrepreneurs, programmers, amateurs, and others. Most offer social networking events and informational seminars. For a larger listing, please visit: www.cjmag.co.jp/users.html

Written and Designed by Mark Schumacher for J@pan Inc.

 



End Story on Venture Capital
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Below Story Written for J@pan Inc., Oct. 2000
Japan Inc. Logo
Ecom Small-Fry Gets Hammered
by Mark  Schumacher
Date: October 2000  issue

Opening an online shop in the US is a breeze, but in Japan,  the prevailing winds favor the big players.

Japan's booming ecommerce scene is clearly stacked in favor of  the big players. For small, Japan-based merchants hoping to jump on the  ecommerce bandwagon, the options are limited, expensive, and generally  unprofitable. In the US, small merchants can open an online store for as  little as $25 monthly. In Japan, that number skyrockets to around $500  monthly at popular shopping malls like Rakuten, and then jumps into the  stratosphere ($50,000 or more yearly) to run a customized storefront. To  make matters worse, small Japanese merchants typically operate on  bare-bone margins -- which are instantly gobbled up by Web site  development/hosting fees, and by the hefty per-transaction fees and  commissions charged by Japanese ecommerce providers and credit card  companies.

Thankfully, in the past year, some relatively inexpensive  ecommerce solutions aimed at smaller merchants have appeared (see  table). Ranging in price from around 7,500 (not including hosting  fee) to 50,000 monthly, these solutions target small Japan-based  merchants who don't want to deal with the hassles of running their own  dedicated server -- who simply want to buy inexpensive ready-to-run  ecommerce solutions instead of building everything themselves.

In the US, this type of business model was pioneered by  www.icat.com, and is now practiced by many e-store providers (e.g., http://www.customcart.com/, http://www.anacom.com/). Such  services cost around $100 monthly (sometimes much less, including hosting  fees). Not surprisingly, this model has attracted hundreds of thousands of  small merchants in the US and abroad, for it makes it relatively easy to  implement online English-language payment systems.

For small Japan-based merchants hoping to build  English-language stores in Japan or anywhere worldwide, these US-based  services are definitely worth investigating. As with all good things,  however, there are limitations. For one, shipping and tax programming is  customized for US audiences, not for Japanese shoppers. No customization  is allowed in Checkout/Registration screen flow or content. Indeed,  nothing is customized for the Japanese market, where the bulk of payments  are made via bank transfers, convenience stores, post offices, or COD, not  via credit card. The only true advantages are (1) low cost and (2) offline  processing, or manual processing, of credit cards. The latter item is  crucial to small merchants, for it means there are no transaction costs,  no commissions, to be paid to the ecommerce solution provider. Only one  flat monthly hosting rate, plus the 5 to 9 percent per-sale commission  charged by the Japanese credit card company. The comparable US commission  rate is only 2 to 3 percent.

THE SCENE IN JAPAN
Mark SchumacherThis brings us to the greatest flaw in  current ecommerce solutions for small Japanese merchants. Almost all of  the available solutions require online real-time credit card clearing.  This means the ecommerce provider can charge a transaction fee and take a  small percentage on each sale. This is a double whammy for small  merchants, who must now pay 5 to 9 percent per sale to the credit card  company plus the additional fees charged by the ecommerce provider. The  percent-per-sale commission charged by ecommerce providers in Japan ranges  from 0.4 percent (Cybercash) to 5.5 percent (Estore).

The mall solution (Yahoo, Rakuten, etc.) is perhaps the most  "headache free" entry point for small Japanese merchants with small  budgets and little technological savvy. But be prepared to budget at least  1 million yearly or more for Web development costs, onetime setup fees,  monthly charges, and other expenses. And forget about building brand  image, for mall membership means you and your competitors all share the  same checkout/registration format, and it pits you against all your  competitors on the same mall entry page. Payment is typically handled by  the mall itself, which means the invoice/billing statement reinforces the  image of the mall, not of the individual merchant.

For merchants who want more robust storefronts, who have three  to five million yen to spend on store-creation software, and who are not  afraid to run their own dedicated server (or to outsource this function),  the Japanese market is looking better. The leader seems to be Vanguard,  which has developed a fully featured ecommerce software package  (Java-based) for 2.7 million yen (not including dedicated server). It is  customized for the Japanese market and is being utilized by GOL/Exodus for  its online merchants. IPTelcom, another software house, has a similar  package (Perl-based) available for 1 million. It also requires a  dedicated server. IPTelCom offers dedicated hosting for 50,000 per month.

As in so many areas of life in Japan, the odds are with the  powerful, not the weak. Innovative and inexpensive ecommerce solutions are  on the way for small businesses, but the many great etailing ideas of  small Japanese merchants might die on the vine before that time arrives --  or get snatched up in the interim by big players with big wallets.

Kamakura-based Mark Schumacher is behind several  Japan-based eshops, including http://www.esake.com/.

End Story

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Below Story Written for International Herald Tribune, Aug 96
Japan Ousts Anti-Import Demon
Japan's economic machine is being stripped of its local content. Imports of manufactured goods are skyrocketing, and now account for a record 59.1% of all imports.

A decade ago Japan was scathingly criticized by trading partners for blocking imports of manufactured goods. Foreign nations buttressed their criticism with revealing statistics. In 1985 Japan's imports of manufactured goods accounted for a measly 31% of all imports, far below the 70% to 80% ratio found in France, Germany, the UK and America. Foreign traders argued that Japan's low ratio was a clear-cut example of
Japan's anti-import bias.

Animosity has simmered down to a whisper since then. According to Japan's premier import promotion agency -- JETRO -- the nation's imports of manufactured goods jumped 30.9% in 1995 to $198.6 billion, accounting for nearly 60% of all imports. That's a whopping reversal compared to 1985, and up drastically from 50% early this decade.

Japan's exploding import demand is largely a common-sense reaction to the mighty yen rather than a genuine change in heart among the island's economic mandarins. To stay price competitive, Japan's top firms have been forced to move production to low-cost offshore locales, and to procure more parts and finished goods from low-cost foreign suppliers and Japanese transplants.

The automobile and consumer electronics industries -- the two pillars of Japan's postwar economic miracle -- are indicative of overall trends. Imported vehicles hit a record high in 1995, jumping 20.9% year on year to 402,608 units (10.2% of Japan's total passenger car market). Reverse imports from overseas Japanese car plants accounted for 27% of that total. More amazingly, Japan's automakers now produce more cars offshore than they export. In another unprecedented turnabout, offshore sales of manufactured goods by all Japanese producers (not just carmakers) surpassed the combined value of Japan's manufactured exports for the first time ever in 1995.

In consumer electronics, the nation imported more color TVs in 1995 than it produced at home, another first. Most came from Japan-owned offshore factories. In a similar fashion, imports of foreign-made Japanese VCRs, stereos, cameras and air conditioners are approaching 50% of domestic production. Electronics giant Sanyo Electric, for example, forecasts that around 75% of the video recorders it will sell in Japan in 1996 will be produced by its overseas subsidiaries. Aiwa Co., a leading audio-visual firm, now makes about 86% of its products overseas and procures about 90% of its parts from abroad, as does computer powerhouse NEC. According to industry watchdog Standard & Poor's, overseas sales will soon account for more than half of all sales by Japan's consumer electronics firms.

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The Issue in Perspective
The private sector, not the government, is the main driver behind the prolonged upswing in most manufactured imports, explains Jay Sibel, a Japan-based representative of U.S. management consulting firm A.T. Kearney. "The issue was highly political to begin with, but it is now less relevant because of the yen's appreciation and the efforts of Japan's private sector to remain cost competitive. In essence, the strong yen is creating price differences which are irresistible even to those companies who are fiercely loyal to their suppliers."

Many would agree. The issue first gained notoriety in the latter half of the 1980s, a time when Japan's economic machine appeared indestructible and unbeatable. Foreign criticism was harsh and emotionally charged, especially from the U.S., where anti-Japan feelings had reached a fever pitch. Japan, in contrast, staunchly maintained its innocence, claiming that the gap in manufacturing-import ratios stemmed purely from natural causes. Japan lacks the bountiful natural resources of Europe and America, say the Japanese, and must therefore rely more heavily on imports of raw materials, fuel and agricultural products. It is thus only natural that Japan's manufactured-import ratio should be statistically lower than that of Western counterparts.

Many would likewise agree that Japan's manufactured imports will continue to climb in coming years. With the country's top firms racing to expand their offshore presence to regain their cost-competitiveness, it seems only natural for Japan to procure more low-cost parts and finished products from foreign suppliers and from its own offshore plants. But even as the death knell sounds for Japan's anti-import demon, another specter is rekindling fears of "kudoka" -- hollowing out -- the notion that Japan will lose its manufacturing base if too many companies move overseas.

Such fears seem exaggerated, however. Overseas plants still account for only 7% to 8% of Japan's total output -- far less than the U.S. rate of 26% or Germany's 15%. The Ministry of International Trade and Industry says it expects Japan's rate to approach 9% in the near future.

End of Manufactured Imports Story

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Below Story Written for Die Welt (August 1996)


Shifting Gears
Say good-bye to Japan's lauded export strategies. The nation's automakers now make more cars offshore than they export.

Stung by the mighty yen, a steep dive in domestic car sales and intensified competition from foreign rivals, Japan's automakers are migrating en masse to offshore locales. Overseas production is surging, mirrored by slumping domestic car production and tumbling auto exports.

The shift from export-oriented strategies to offshore production has been swift and striking. In the past 10 years, carmakers have ramped up their overseas production from 1.4 million units in 1985 to over 5 million in 1995. Phrased differently, overseas production accounted for a meager 12% of total production by Japanese automakers in 1986, but today that figure exceeds 30%. The turnaround is mirrored by nose-diving domestic production. In the past five years, domestic production of passenger vehicles has tumbled 24% from its peak in 1990 to only 10.2 million in 1995.

Exports, meanwhile, have plunged to levels last seen in the 1970s. Last year Japan shipped a meager 3.62 million vehicles to all overseas markets, down 16.7% from 1994 and the fourth consecutive yearly drop. More declines are expected. Honda, for example, expects to make more four-wheel vehicles overseas than in Japan in 1996. Suzuki and Isuzu achieved that distinction last year.


High Yen Drives Exodus
It's not difficult to understand why Japan is moving offshore. The yen's breathtaking appreciation during the past decade, especially after the bursting of Japan's bubble economy, has robbed Japanese cars of their price competitiveness, gouged profits and eroded market share. Many Japanese automakers have been forced to raise their overseas prices, permitting European and U.S. rivals to seize back share with less expensive vehicles of comparable quality. The loss of price competitiveness has also opened the door to South Korean automakers, who are eating away at Japan's hold of the low-end compact-car market.

In Europe, for instance, shipments of South Korean cars grew about 60% year on year in 1995. In contrast, the number of registered Japanese vehicles slumped 1.1%. The European operations of Nissan Europe N.V., to cite another example, reported combined losses of 65 billion yen in 1995, necessitating parent Nissan Motor Co. to pump an additional 70 billion yen into the Amsterdam-based subsidiary this May.

Japan's auto executives are concerned, but they remain optimistic that offshore production will continue to drive down costs. To further that goal, they are revising design and development concepts as well as production technologies, pursuing methods for reducing the number of parts handled on the final assembly line and designing common-part strategies for different models.

Still, nearly all agree that the most expedient means for cutting costs is to move offshore. Says Ryuichiro Inoue, a senior researcher at the Mitsubishi Research Institute: "Japanese automakers have no choice but to boost overseas operations to keep their competitive edge. In that sense, they are already headed down a well-charted path, and will have to remain on it in the future."

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Fast Lane to Offshore Locales
Japan's offshore exodus jumped into high gear last year with the conclusion of the U.S.-Japan Auto Trade Accord. As part of that agreement, Japan's five leading carmakers -- Toyota, Nissan, Mitsubishi, Honda and Mazda -- agreed to boost production at their factories in North America by 25% to 2.65 million units by 1998. That compares to around 537,000 units produced at their European bases in 1994.

They are well on the way to achieving those commitments. The Japan Automobile Manufacturers Association reported this May that Japanese carmakers produced 2.3 million vehicles at their U.S. plants in 1995, up from 2.15 million in 1994 and the 10th straight year of increases. In contrast, exports from Japan to the U.S. dropped to 1.23 million vehicles in 1995, only half the 3.43 million exported there in 1986.

Amazingly, Japan's U.S.-based factories now export more passenger vehicles from the U.S. than do the Big Three U.S. carmakers, with Honda and Toyota ranked as the top two U.S. exporters. Honda, the leader, exports its cars to 36 countries in Europe, Asia and South America.

Although America will remain Japan's largest offshore production base for years to come, Asia is fast becoming the destination of choice. In the past three years, nearly every major Japanese carmaker has unveiled plans to drastically increase vehicle production in fast-growing Asia, where Japan already rules the roost. Yet, even with their bullish Asian production plans, Japanese carmakers have been losing market share in the region to competitors from the U.S., Europe and South Korea. In Thailand, for instance, Japan's automakers have seen their combined market share fall from a peak of 84% in 1991 to around 70% in 1995.

The European market, meanwhile, has become a tough battlefield for Japanese carmakers. Market demand tumbled owing to Europe's economic slump early this decade, with auto sales falling at double-digit rates. The gradual recovery that began in 1994 has bolstered demand, but the yen's appreciation against major European currencies has severely hurt Japan's carmakers. In Sweden, for example, price differentials caused Japan's share to fall from around 30% to some 10%. Nevertheless, Mitsubishi, Nissan, Toyota, Suzuki and Honda continue to expand their European production.

Mitsubishi Motors, for example, recently announced plans to manufacture a new compact sports utility vehicle at its joint venture plant in The Netherlands with AB Volvo of Sweden. Scheduled for launch in 1998, the operation will be the first-ever venture by a Japanese company to manufacture and sell sports utility vehicles in Europe. Honda, meanwhile, has resumed plans to manufacture passenger cars in Turkey, with production scheduled to start in 1997. Not to be outdone, Suzuki Motors bought a controlling stake in its Hungarian subsidiary in May this year. It plans to boost the subsidiary's production of passenger vehicles from 43,000 last year to 50,000 as a means to expand sales in Europe. Elsewhere, Toyota has unveiled plans to fully remodel its Carina E vehicle for exclusive marketing in Europe beginning next autumn. Last year, it manufactured 88,000 Carina E's at its plant in Britain.

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Roadblocks Ahead
Auto executives still have their share of headaches. Domestic auto sales are rebounding, but they have yet to regain the peak reached in 1990. And with the domestic market nearing maturity, there is little hope for further growth.

International pressure has also forced Japan's auto firms to face greater competition on their home turf. Imported vehicles hit a record high in Japan in 1995, jumping 20.9% to 402,608 units. Although reverse auto imports -- cars that Japan makes overseas and then sells in Japan -- accounted for 27% of that total, foreign rivals are nonetheless making rapid headway thanks to quality improvements, competitive prices and aggressive Japan strategies. German carmakers -- Volkswagen, Mercedes-Benz and BMW -- posted the biggest gains. They hold the top three import spots and account for more than 43% of all incoming vehicles.

Japan's automakers are also at a global disadvantage when it comes to land and labor costs. Nissan, for instance, had the most productive assembly plant in North America for the third straight year, according to the Harbour Report released this May by Detroit-based research firm Harbour and Associates Inc. But worldwide, Nissan lost $760 on each vehicle it made, says the report. Chrysler Corp., which ranked seventh out of eight in plant productivity, enjoyed the highest profit per vehicle at $628.

To rein in costs, nearly all Japanese automakers are importing more materials and trimming personnel. And to reduce the expense and time involved in designing new cars, Japan's five major automakers unveiled an experimental "virtual car" design in May that promises to standardize and consolidate their separate design activities. The goal is to slash costs by developing a single chassis that can be outfitted with a variety of car bodies.

Other strategies include Toyoto's efforts to create an inexpensive compact
"world car" intended to remain competitive at an exchange rate of 90 yen to the dollar. Honda is working on its Asia car, "City," to better meet the needs of consumers in host countries. And in Europe, Mitsubishi is pumping up its development of new compact cars and five-door hatchbacks to better reflect European tastes.

Despite recent setbacks, the future of Japan's auto industry isn't terribly dim. With more and more production moving offshore, the Japanese are quickly regaining their price competitiveness. New hot-selling niche products, like 4-wheel-drive recreational vehicles, are bolstering sales. And as more fat is chewed away from the production process,
Japan's pace-setting carmakers will emerge all the more leaner and meaner.

End Story on Autos........................................
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Below written For JETRO's FOCUS JAPAN Magazine (Feb. 96)
Looking Back at 1995
Everyone admits that 1995 was a horrible year for Japan. Jolted by natural disaster, terrorized by home-grown religious fanatics and rocked by bank failures and prolonged economic downturn, Japan found its back mostly against the wall last year.

But future historians may well define 1995 as a watershed period for Japan. The Kobe earthquake and the Tokyo subway sarin nerve-gas attacks changed the national mood. Japan's image of itself as a "safe society" -- one with unending economic prosperity -- was challenged by the outbreak of disorder. Both events, and the ensuing revelations of government ineptitude and police bungling, shocked Japan's sense of security and prompted reassessments of its education system, police and religious groups.

In essence, the local media portray 1995 as the end of an era, a turning point in history, a period in which Japan's confidence in itself was jarred. Throughout the year, the nation seriously questioned the economic and political systems credited for its unparalleled success in the postwar period. Major media groups, moreover, now suggest that Japan's lauded postwar system of government, economy, management and consensus is gradually breaking down.

Despite disaster and unrest, 1995 was nonetheless a momentous and memorable year for the Japanese people, a year of transition and healthy transformation. The nation's trade surplus with the U.S. and elsewhere declined significantly. Imports gained a strong position in the Japanese market, domestic prices continued falling to earth thanks to further market deregulation, corporate restructuring and downsizing occurred without wholesale workforce layoffs, and the blueprint for regional free trade for the entire Asia-Pacific region was unveiled at the Asia Pacific Economic Cooperation (APEC) forum held in Osaka in November.

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Bad News First
The Great Hanshin Earthquake on January 17 was the worst natural disaster in Japan in nearly 70 years, killing 5,480. Less than two months later came the horrible subway gas attacks that killed 12 and injured thousands. Ironically, the subway killings occurred in a year set aside to commemorate 50 years of postwar peace. The religious group accused of the killings -- Aum Shinrikyo -- was stripped of its legal status as a religious organization in December.

Adding to misfortune were a string of bank and credit union failures and a ballooning bad-debt financial crisis, severely undercutting trust in Japan's banking system. Media exposure of fiscal mismanagement and shady dealings sparked a public fury over government plans to use taxpayer money to bail out housing-loan corporations (jusen), whose billions in bad debts continue to harm the nation's financial health. Things got worse in November, when U.S. authorities shut down the U.S. operations of Daiwa Bank -- Japan's tenth largest city bank -- as punishment for covering up illegal trading activities at Daiwa's New York branch. That action fueled more distrust of Japan's financial system, both at home and abroad.

On the economic front, the yen's breathtaking advance to 79.75 against the dollar in April hurt the nation's slow economic recovery and further eroded the global price competitiveness of Japan's ailing private sector. The yen has since jumped back to the 105 range, but its roller-coaster volatility is a matter of grave concern for Japanese business. Meanwhile, the national economy barely grew. New graduates found it increasingly difficult to get jobs as companies cut back on recruitment. Although wholesale layoffs have been avoided, Japan's unemployment rate is now at its highest -- 3.4% -- since 1953.

Elsewhere, Japan's security relationship with the U.S. came under intense scrutiny when a young Japanese girl in Okinawa was raped in September, allegedly by three U.S. servicemen. The incident triggered public outcry in Japan and sparked a heated -- and ongoing -- debate on Japan's security needs in the post coldwar era.

Foreign relations also brought Japan its share of trouble in 1995. To commemorate the 50th anniversary of the war's end, the Japanese Diet issued a statement of remorse in June about Japan's actions during World War II. The statement drew fire from Japan's Asian neighbors because it stopped short of a candid apology and minimized Japan's guilt. Ironically, the resolution -- which aimed to usher in an era of trust among Asian nations -- succeeded in raising tensions and distrust among Japan's regional neighbors.

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The Good News
Despite all the bad news, the Japanese had much to smile about in 1995. Prices on a broad range of consumer goods fell substantially, thanks in part to deregulation, greater access to low-cost imports, the growing popularity of mail-order firms and discount stores and the streamlining of Japan's multitiered distribution system.

Japan's politically sensitive current account surplus fell 14.5% in 1995 to $110.4 billion, its second consecutive yearly decline. Further, nearly all economists at home and abroad predict that Japan's surplus will continue to shrink given the high yen -- which has lowered import prices, prompted Japan's manufacturers to shift more production overseas and sparked a huge increase in the number of Japanese traveling abroad.

Automobile trade, once a hotly contested point in trade relations between Japan and the U.S., has simmered down considerably since the successful conclusion of the U.S.-Japan auto-trade accord in June. Expanded overseas production by Japan's top carmakers, together with a huge increase in auto imports to Japan, is now a big factor helping to close the trade gap between the U.S. and Japan. In early February 1996, President Bill Clinton acknowledged that trade relations with Japan were improving. In his annual economic report to Congress, Clinton said that bilateral trade agreements with Japan were finally producing much-awaited results.

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More Good News
Other bright spots include surging sales of personal computers and portable phones. And thanks to the continuing deregulation of Japan's telecommunications industry, more and more Japanese individuals and companies are jumping on the digital bandwagon. One indication is the explosion in Internet service providers.

Since the introduction of Japan's first commercial Internet connection in September 1993, the number of commercial providers has mushroomed to over 40. Private firms and government agencies are racing to introduce their own products and services over the Internet. The overall impact on Japanese business and lifestyles is yet unclear, but most analysts say that Internet mania is spurring the acceptance of multimedia and helping Japan catch up with the industrialized West in terms of computer penetration and networking capability.

Meanwhile, Japan's trade and investment ties with Asia continued to expand at a fast pace, spurring growth both at home and in Asia. In related matters, Japan played a seminal role in hosting the third annual APEC summit in Osaka in November and in helping APEC's 18 member nations form a consensus during the summit on how to achieve free trade in all sectors by the year 2020.

In summation, 1995 wasn't as bad as most people suggest. Even the string of disasters that rocked the nation yielded some positive results -- it prompted Japan into a serious bout of soul searching. Indeed, the country's future direction has not been discussed so openly, widely and enthusiastically in many years. And in the five years before the beginning of the 21st century, Japan now has a better handle on the maladies that plague itself.

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A Last Pitch
For the Japanese, one of the most heart-warming and popular stories of 1995 was the successful U.S. debut of Hideo Nomo, the pitching ace of the L.A. Dodgers. A dispute between Nomo and his former Japanese team caused Nomo to seek employment with a U.S. major league baseball club.

The result of that move is now household knowledge in Japan. Nomo became the first native Japanese player to appear in a U.S. major league game in nearly 30 years. In his first season, he was selected as the National League starter in the All-Star Game and played a big role in helping the Dodgers win the National League Western Division title.

Like Nomo, it's a sure bet that more and more of Japan's youth will choose to strike out on their own in the years ahead, discarding the traditional path of obligation, loyalty and submission to group sensibilities. But it's also a sure bet that Japan will enjoy many more years of sunshine thanks to the erstwhile efforts of its dedicated and hard-working citizens. Younger folk may become less pliable, but it won't happen over night. As one Western writer recently reported: "The Japan economy is like a cyclist pedaling uphill, and the strains are healthy ones."

<End 1995 Story>

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Published Jan. 1996 in Focus Japan, a JETRO publication)


JAPAN'S INTERNET CONNECTION  -- WHO'S WHO, WHAT'S WHAT
Slow to react to the computer revolution, Japan is now migrating en masse to the "network of networks" -- the Internet. Every month hundreds of Japanese government agencies, businesses and individuals are joining the global cyberspace highway. Hundreds more are setting up their own English-based World Wide Web (WWW) pages, offering a dizzying variety and volume of information on Japan's economy, culture and politics.

Internet mania is fast changing the way Japan works and plays, but Japan still lags far behind the U.S. and Europe when it comes to Internet penetration. The number of people now using the Internet in Japan accounts for only 2% of the total worldwide number of Internet users. Further, Japan has only some 160,000 host computers connected to the Internet, placing it in sixth place worldwide behind the U.S., Germany, the U.K., Canada and Australia.

But the situation is changing rapidly. Since the introductionof Japan's first commercial Internet connection in September 1993, the number of commercial Internet providers has mushroomed from just two to over 40. Top firms like Sony Corp., Toyota Motor Co. and NEC Corp. are racing to introduce their products and services over the Internet. Others are using their WWW home pages to recruit new staff. And leading trading houses and phone companies like Sumitomo Corp., NTT and KDD have announced separate plans to create Asia-wide networks of dedicated Internet communication lines -- at present, Internet users in Asia can only access the global information web by routing calls through U.S. telephone circuits.

With providers and services proliferating, prices are falling. Internet Initiative Japan Inc., one of Japan's pioneer Internet providers, slashed its entry fee by half in October 1995. Today, users pay an entry fee of 5,000 ($50), plus basic monthly fees of 2,000 ($20) and connecting fees of 15 to 28 (15 to 28 ) per minute. Even with prices falling, Japan's overall communication costs remain about five to six times those in the U.S.

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JAPAN-RELATED WWW SITES
Looking for up-to-date English information on Japan? The forty-plus sites presented below will help you leap-frog into thousands of Japan-related resources. JETRO's own home page (http://www.jetro.go.jp/) is a good place to start. This site offers a wealth of English data on Japan's economy, doing business in Japan, JETRO's trade promotion activities and a growing collection of stories from JETRO's numerous publications, including Focus Japan. It also provides links to the WWW pages of other Japanese government agencies and ministries. (For an overview of Japanese government WWW sites, please click here)

If you're looking for more than government data, NTT and Stanford University co-sponsor an extensive index of Japanese web resources at their Japan Window site (http://jw.stanford.edu). The Science University of Tokyo (http://sunsite.sut.ac.jp/asia/japan) is another good location with numerous links to Japan-related WWW servers, as is Cyberspace Japan (http://www.csj.co.jp/index-e.html).

NTT's own home page is worth exploring (http://www.ntt.jp/), especially its What's New page (http://www.ntt.jp/WHATSNEW/), which presents an interesting potpourri of sites. The September What's New file, for example, included Asia Business Watch (http://shrine.cyber.ad.jp/~dwhit/), a service providing market updates on the Japanese economy. The November file included a new telephone directory search service for the Tokyo area. Make sure to read the "Announcements" section, for it harbors a large selection of engaging -- although sometimes esoteric -- Japanese resources.

If you need more, try the diverse links offered by Japan Open Yellowpage (http://plato.digiweb.com/saito/ENJOY/); the Asia Now home page (http://neog.com/asianow/); or the vast collection of Japan-related web sites on Silkroute Inc.'s Asia Cyberspace page (http://silkroute.com/silkroute/asia/rsrc/country/japan.html). This location features links to an unbelievable number of Japanese universities and public organizations, as well as pathways to forums on society, politics, economics and business, plus gopher and archie locations around Japan.

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Plugging Into Corporate Japan
Nearly every day another Japanese firm starts its own English WWW home page, while established players such as NEC, Sony, Honda, Fujitsu, Hitachi, Matsushita and others constantly expand their existing WWW English sites and improve the quality of those sites.

It's relatively easy to find the home page of major Japanese firms by using a standard Internet search engine -- like Webcrawler (http://webcrawler.com/), Infoseek (http://www2.infoseek.com/) or Lycos (http://www.lycos.com/). If you prefer a site that links you to numerous firms, try the U.S.-Japan Center (http://www.nmjc.org/cc.html), which offers access to scores of companies and other Japan-related sites. Silkroute Inc.'s Asia Cyberspace page (see above) is another notable portal into corporate Japan, with links to such firms as Fujitsu, Honda, Daiwa Institute of Research and NEC. Another friendly site is Keidanren (http://www.keidanren.or.jp/A2J/index-s.html), which maintains links to over 400 Japanese companies.

When it comes to accessing commercial, regional and scientific databases, try out G-Search Intershop (http://www.gsh.co.jp). This service provides links to 140 domestic and 850 overseas databases, including fee-based links to English databases maintained by Japan's major newspapers. Also explore the extensive links at http://www.etl.go.jp/People/yamana/inet_info_e.html, a site that includes a comprehensive listing of Internet providers in Japan and their fees.

If Japan's most popular commercial computer networks interest you, explore the NIFTY-Serve home page (http://www.nifty.co.jp/index.html) or jump to the U.S.-Japan Center's home page (see above) for more on commercial networks. Be aware, however, that many of Japan's domestic services require a computer that can run Japanese-language software.

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Working in Two Languages
A number of inexpensive programs, including Win/V and TwinBridge, can give your English-based machine the power to read and create Japanese documents with relatively little fuss. Tokyo-based publisher Computing Japan (http:/www:gol.com/cj/) provides valuable data on such issues, as well as info on hot new products, Japanese publications and R&D projects.

In addition, special browsers allow you to view Japanese-language sites from English machines. To get more on this topic, go to NTT's WWW server (http://www.ntt.jp/japan/note-on-JP/browsers.html).

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Job Hunting, Country Jumping
More and more of Japan's corporations are doing their recruiting online. Texas Instruments Japan Ltd. (http://www.occ.com/occ/member/cptexasi.html) was one of the first to use the Internet for recruiting purposes. Says one company official: "About 95% of people hired at our information section made initial contact with us via the Internet."

UPU Inc., a recruitment magazine firm, started an experimental Internet recruiting service (in Japanese only) in late March this year. Since then, some 30 companies, including Toyota Motor Corp., have offered jobs listings on the service (http:/www.iijnet.or.jp/UPU/). For an English listing of jobs in Japan and Asia, check out the job forums at http://www.asia-net.com/japan-net.html or at http://www.wpi.edu/Academics/IMS/Library/jobguide/internat.html#jap.

The Internet has also prompted some local firms to set up shop overseas to combat Japan's high labor costs and connect fees. Magic Box Productions, a computer graphics creator, moved to California early this year. Says Hirobumi Ito, vice chairman of the firm: "We don't need to stay in high-cost Japan, because we can make use of graphics resources scattered all over the world on the Internet."

End Story on Japan's Internet Connection..........................

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New Story (Published Jan. 1996, for JETRO)
LINKS TO JAPANESE GOVERNMENT WEB PAGES
Japan's national government ministries and agencies -- together with city, prefectural and regional government bodies -- have been quick to capitalize on the Internet's mounting popularity. From just a handful of sites last year, the roster of government WWW resources has mushroomed dramatically. These sites offer a growing array of useful links and information, from English translations of Japan's constitution and the nation's new Product Liability Law to online access to ministry reports, government white papers and trade statistics.

It's not hard to understand why Japan's government is going online. The World Wide Web is fast becoming the premier public-relations vehicle around the globe. With somewhere between 20 million to 30 million worldwide users, the Web offers the government a simple, economical and speedy means to reach a global audience with a broad range of graphic, textual and audio information about Japan and government activities and goals. And with English the de facto "standard" language of the Web, many of the Japanese government sites reviewed below offer as much information in English as they do in Japanese.

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Prime Minister's Official Residence 

http://www.kantei.go.jp


One of Japan's first government WWW sites, this location offers extensive links to other government WWW servers as well as a "Japanese Information" link to non-government sites where you can find the English translation of Japan's constitution or download the Japanese national anthem.

Japan External Trade Organization 

http://www.jetro.go.jp


JETRO's Web site features a host of useful business guides and white papers on trade, investment and procurement. Users of the JETRO home page are greeted with 12 different categories of interest, from "What is JETRO" to "Facts & Figures on Japan's Trade and Economy." Check out the "Economic Information Resources & Publications" section, which includes helpful documents such as "First Steps in Exporting to Japan" and "Doing Business in Japan." Also explore JETRO's "Japanese Government Procurement" category, which opens the door to a wealth of data on bidding for government tenders.

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Ministry of International Trade and Industry 

http://www.miti.go.jp/


This sites provides an overview of MITI activities and functions, important trade statistics and an extensive list of English publications (http://www.miti/go.jp/g2list-b.html). Regrettably, few of these publications are offered online and must be requested from MITI.

Ministry of Foreign Affairs 

http://www.nttls.co.jp/infomofa/


Want to read major speeches and articles by Japanese diplomats and government leaders? This is the place to explore Japan's position on international issues and foreign policy. It also includes a list of worldwide Japanese embassies and consulate offices, a link to the official home page of APEC (http://apec.tokio.co.jp/index.html), and data on ASEAN, the U.N. and other international organizations in which Japan participates.

Ministry of Posts and Telecommunications 

http://www.mpt.go.jp/


This site carries a wealth of data on the ministry's activities and pilot projects, important reports, speeches and white papers, as well as updates on Japan's postal services, telecommunications scene and broadcasting issues.

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Economic Planning Agency 

http://www.epa.go.jp/


The EPA's home page offers access to a number of informative resources, including links to WWW servers devoted to social policy, economics and government. It also has a good listing of its publications, including an English translation of the Product Liability Law. If you're interested in business topics, this is the site to visit, for it includes expansive coverage of deregulation, distribution and intellectual property issues in its "Yearbook of the Japan Investment Council" category.

Science and Technology Agency 

http://www.sta.go.jp/welcome-en.html


Here you can find information about STA, its role, budget, white papers and other publications, plus links to other STA servers. For a broader listing of technical reports, try going to the home page of The Japan Information Center of Science and Technology (http://www.jicst.go.jp/). This location offers searchable technical reports (82,000 citations from over 330 sources). Another good location is the Agency of Industrial Science and Technology (http://www.aist.go.jp/), which includes documents on information standards and links to some of Japan's main research centers, including Tsukuba Science City (http://www.aist.go.jp:80/Htmls/TRCHome.html).

Japan National Tourist Organization 

http://www.ntt.jp/japan/JNTO


Since going online in late August this year, JNTO has put together an informative guide for tourists hoping to visit Japan. It includes practical tips on traveling in Japan, an index of museums and art galleries, a calendar of annual events and festivals, and numerous other information on restaurants, hotels and travel itineraries.

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Local Government Sites
Some local and regional governments have also gone online, including the Tokyo Metropolitan Government (http://www.tokyo-teleport.co.jp/), Yokohama City (http://www.city.yokohama.jp/) and Kobe City (http://www.kobe-cufs.ac.jp/kobe-city/index-j.html).

End Story on Japanese Government WWW Sites................................

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Story published Nov. 1995 in International Herald Tribune)


JAPAN INC. LEAVES HOME
Stung by the mighty yen, Japanese firms are migrating enmasse to low-cost Asia. The exodus has rekindled fears of Japan's hollowing out despite signs that both sides are benefiting.

It's happening again. For the second time in the last ten years, Corporate Japan is moving offshore with the force of a tidal wave. Last year it pumped a record-high $9.7 billion of investments into Asia, a whopping 47% increase compared to 1993. Asia is now the second most popular destination for Japanese money after North America, where Japan's investments jumped 16.3% to $17.8 billion in 1994.

But the pendulum is swinging unmistakably toward Asia. What was once just a trickle of regional trade, investment and production by Japan has swelled to a flood. Since 1993 the value of Japan's two-way trade flows and overall surplus with Asia have surpassed those with America. Virtually every day another Japanese firm announces plans to shift production to Asian locales, with the roster of Japanese companies in Asia now reading like a Who's Who of Corporate Japan.

It doesn't take a degree in economics to understand why Japan is moving offshore, especially to Asia. First, the yen's breathtaking appreciation between 1993-95 makes it too expensive to manufacture most goods in Japan, as each round of appreciation erodes Japan's global cost competitiveness and makes neighboring low-cost Asia that much more attractive. Second, the electrifying economic growth of China and Southeast Asia has prompted nearly all industrialized nations to boost investments in the region. In surveys, business leaders worldwide say they must advance into Asia to capitalize on its booming markets and to stay ahead of corporate rivals.

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The Exodus is On
Sony Corp. best exemplifies overall trends. In early 1995, the giant consumer electronics maker announced that 50% of its output would be made overseas within two years, up from the current 36%. Before the announcement, Sony had frozen new domestic capital outlays on televisions, VCR decks and other popular audio equipment and channeled nearly all investments in its AV division to overseas subsidiaries.

Sony's experience mirrors that of Japan's electronic appliance makers. Today about 80% of all color TVs, 60% of all microwave ovens and nearly half of all VCRs manufactured by Japanese makers are made outside Japan, mostly in ASEAN. Japan's own exports of electronic appliances have tumbled from 4.4 trillion in 1985 to 1.9 trillion in 1994. That's an amazing reversal. Japan's reputation as an export powerhouse was initially built around consumer electronics.

Japan's automotive industry is another worthy example given its flagship role in fueling Japan's export success. In the past ten years, carmakers have ramped up their overseas production from 1.4 million units in 1985 to nearly 5 million vehicles in 1994. But unlike electronic appliance makers, most of their offshore plants are in the U.S. and Europe. That's fast changing, though.

In the past two years, nearly every major Japanese carmaker has unveiled plans to drastically increase vehicle production in Asia. That will attract scores of Japanese parts suppliers to the region and boost the activities of existing Japanese subsidiaries. Toyota, for example, already makes brake pedals in Indonesia, transmissions in the Philippines, steering gear and shock absorbers in Malaysia and engines in Thailand. Altogether, it buys auto parts worth 16 billion annually from 10 Asian nations.

Other examples abound. Camera maker Konica in May said it would increase production of copy machines in China by 50% to cope with the strong yen. Giant trading houses like Sumitomo, Nissho Iwai and Itochu are building industrial parks in Indonesia, the Philippines and Vietnam. And NEC earlier this year said it would begin making computers in China.

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Land of Setting Sun?
Japan's corporate flight has rekindled fears of "kudoka" -- hollowing out -- the notion that Japan will lose its manufacturing base if too many companies move overseas. That fear, however, seems wildly exaggerated.

The Ministry of International Trade and Industry reports that overseas production as a percent of total production reached 7% in 1993, up from 3% in 1986 yet far less than the U.S. rate of 26% and Germany's 15%. MITI says it expects Japan's rate to approach 9% this year.

Takama Yamamoto, chairman of computer maker Fujitsu Ltd., recently told the local press that "Japan won't lose its glow for a while as long as it eagerly pursues new technologies." Others contend that Japan remains protective of its high-tech R&D and selective in what it manufactures offshore. What has emerged, they say, is a healthy division of labor that fuels growth in Asia and Japan, with Japan keeping high-tech production at home and farming out production of low-grade and mid-tech goods to Asia.

Phrased differently, Japan's investments stimulate Asia's economies, creating more demand for Japan's high-tech goods. This so-called "ripple effect" has not gone unnoticed. In its 1995 White Paper on Foreign Direct Investment, the Japan External Trade Organization reports that each one-unit increase in investment in ASEAN results in a 1.85 unit increase in exports to the region.

Asia, in turn, is booming in its own right. And as regional demand grows, so too does two-way trade with Japan. Now add billions of dollars in Japanese investments and ODA funding -- nearly 60% of Japan's $14.2 billion in ODA outlays in 1993 went to Asia -- and it's clear that the Japan-Asia connection is a winning combination for all.

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Below is follow-up to Japan Inc. Leaves Home
BRIEF OVERVIEW OF JAPAN'S OFFSHORE INVESTMENTS

The first massive exodus of Japanese money began in the late 1980s. Back then, the yen's near doubling against the dollar between 1985-88 unleashed a torrent of manufacturing investments in the U.S., Europe and Southeast Asia. Investments peaked in 1989 owing largely to Japan's speculative "bubble" economy, with the nation becoming the world's top investor in both 1989 and 1990. The bulk of that money went to factories that could churn out goods to meet overseas -- rather than domestic -- demand.

When the bubble burst in early 1991, investments fizzled. It wasn't until 1993 that the second wave of investments began, spurred in part by another crest in the yen's value. By now, however, earlier investments had passed the startup stage and entered full-scale operations. The upshot? The two rounds of yen appreciation have wrought major changes in the structure of Japanese industry. In the first round, Japanese firms set up overseas production facilities in Asia and elsewhere mostly to meet overseas demand. But in the current round, companies are boosting procurement from overseas firms and subsidiaries as well as channeling exports from overseas units back into Japan.

Employment-wise, the Ministry of International Trade and Industry reports that around half of the 12.6 million people employed by Japan's overseas subsidiaries are in Asia.

END "Japan Inc. Leaves Home"

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Below Story Published March 1996 in Focus Japan, a JETRO magazine)


CORPORATE RESTRUCTURING SWEEPS JAPAN
In today's fiercely competitive global economy, Japan's corporate sector is once again proving its mettle. Stung by the yen's sharp appreciation, hampered by the world's highest wages and battered by nearly five years of recession and slumping profits, the nation's big companies are gradually regaining their global price competitiveness by cutting costs at home, moving production overseas and procuring more imported parts.

There's nothing surprising about these moves. After all, Japanese firms have successfully applied such strategies more or less continuously since the early 1970s to cope with the yen's prolonged ascent. But the current round of restructuring differs significantly from all prior efforts. Long-standing corporate pillars -- like seniority-based compensation and promotion -- are slowly being dismantled in favor of performance-based systems.

Lifetime employment, once a hallmark of the Japanese economy, is losing ground as well. In the drive to cut costs, more and more companies are offering workers early retirement packages, transferring employees to lower-paying jobs at affiliate companies, or even trimming top-heavy management ranks. Fewer college graduates are being recruited, while bonus and overtime payments are being reduced to curb costs. Although wholesale layoffs have been avoided, Japan's unemployment rate is now at its highest -- 3.2% -- since 1953.

Elsewhere, retailers are bypassing Japan's multi-layered distribution networks and dealing directly with manufacturers and importers. As a result, prices are falling to earth as Japan's long-standing retail price maintenance system begins to unravel. These and other changes add up to a fundamental restructuring of Japanese business. Change has been gradual and painful, but nearly all agree that Japan will emerge a stronger competitor in the years ahead.

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Testing Merits of Merit Pay
Merit-pay systems are replacing the more traditional seniority systems in Japanese corporations. A 1995 survey by the Tokyo government of 210 city-based companies found that nearly 24% had already introduced merit pay and that another 27.6% planned to do so in the next three years.(2) Nationwide, giant firms like Pioneer, Mitsubishi, Matsushita, Daiei, Toyota and Fujitsu have already implemented merit-based salaries or bonuses.

Fujitsu Ltd., one of Japan's top computer makers, was among the first to introduce such strategies. In 1993 it launched a merit-pay bonus system for 6,500 of its managers. In 1994, it followed up with a results-oriented annual salary system called "Spirit." More than 70% of the 11,000 managers and team leaders eligible to join did so.

After the first year, some 70% of Spirit participants were rewarded with salary increases, while around 20% saw their pay decline. Company officials say they are willing to spend more on salaries whenever increases reflect improved performance. Fujitsu's goal, like that of many firms, is to boost productivity and to spur motivation and loyalty by rewarding successful employees with higher salaries.

Toyota Motor Corp., meanwhile, stopped promoting managers based on seniority in January 1996. In April, the nation's largest automaker will also increase the proportion of management pay linked to performance, already at 65%. Long-standing restrictions on promotions will also be eliminated, including regulations that say employees hoping to be promoted from section chief -- the lowest managerial rank -- to the next rank of deputy manager must be university graduates with at least 20 years of service at Toyota.

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Avoiding Layoffs
Companies nationwide are trimming the size of their workforce in a bid to regain competitiveness. However, only a small percentage of domestic firms are actually dismissing employees.

Nippon Telegraph and Telephone Corp. (NTT), for example, recently announced plans to eliminate 45,000 of its 195,000 jobs by the year 2000. That may sound like a small revolution in the land of lifetime employment, but in reality, only a small number of NTT employees will find themselves jobless. Workforce reductions will be achieved through attrition, early retirement programs, reduced hiring and the transfer of employees to NTT subsidiaries.

Most big Japanese firms are using similar tactics. IBM Japan Ltd. and Nissan Motor Co., for instance, recently announced plans to cut payrolls by transferring employees to affiliates. Such moves are causing concern among economists, who say that affiliates and small subcontractors are already plagued with 'surplus' workers. These smaller companies, moreover, are less capable than larger ones at coping with the strong yen and weak domestic demand, especially now that Japan's firms are moving more production overseas.

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Other Cost-Cutting Measures
Companies are also cutting domestic production, trimming labor perks and introducing flex-time systems and other programs to reduce costs. Mazda Motor Co., for example, shut down production of vehicles for two days in April and again in May 1995 to cope with slumping exports to the U.S.

Itochu Corp., a top trading house, began eliminating housing and family allowances on a limited basis back in 1986 and has since moved to salaries based largely on individual ability. Takeda Chemical Industries Ltd., a leading pharmaceutical maker, began eliminating allowances for housing, dependents and managerial posts in 1993.(13) The Japanese Trade Union Confederation (Rengo) recently predicted that nationwide salaries in coming years will likely be stripped of all allowances unrelated to performance.

Some firms are turning to flex-time systems. Tokyo Gas Co., for example, began a limited experiment with flex time in 1990. The program was so successful in cutting overtime hours and improving worker productivity that it is now available to more than 5,000 workers at company headquarters and branch offices. Other companies have followed suit.

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Offshore Exodus
The continuing exodus of Japanese production to low-cost overseas locales -- together with Japan's rapidly expanding procurement of imported parts -- is a key cost-cutting strategy now employed by Japanese companies. In 1994, for example, Japan's private sector pumped a record $9.7 billion of investments into Asia, a whopping 47% increase over 1993.

The nation's corporate flight has rekindled fears of "hollowing out," the notion that Japan will lose its manufacturing base and its ability to create jobs. In 1995, for instance, color TV imports surpassed domestic production for the first time. Likewise, about 60% of all microwave ovens and nearly half of all VCRs manufactured by Japanese companies are now made outside Japan.

However, government and private sources say the threat of hollowing out is exaggerated, for Japan produces only 7% of all its goods overseas versus nearly 26% for the U.S. and 15% for Germany. Rather, analysts contend that a healthy division of labor is emerging -- one that fuels growth both at home and abroad, especially within Asia -- with Japan keeping high-tech production at home and farming out production of low-cost and mid-tech goods.

Despite varying viewpoints, one thing remains clear. Japan is still a manufacturing superpower with formidable competitive strengths. The nation has weathered prior economic downturns and yen shocks and emerged a stronger, leaner competitor. It therefore seems likely that the current round of restructuring will yield similar results -- but not without painful choices that could unravel some of Japan's most lauded labor practices.
End "Corporate Restructuring Sweeps Japan"

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Below Story Written for Int'l Herald Tribune, April 1996


TAKES A LICKING BUT KEEPS ON TICKING
Japan's economic clout continues to burgeon despite recession and downspin in nation's trade surplus.

Talk of Japan's economic decline has dominated press coverage of Japan in recent times. The yen's sharp rise, a debt-entangled financial sector, a grinding recession and five years of slumping profits have stymied growth, pushed unemployment to postwar highs and fueled social unrest. Japan is now often portrayed as an aging powerhouse, one beset with the ailments of all mature industrial societies.

This diagnosis holds a kernel of truth. But in large part Japan's economic woes seem exaggerated, for recent statistics paint a picture of mushrooming economic influence -- rather than flounder, Japan appears to be growing leaner and meaner.

Consider: nearly all of Japan's top firms are moving production to low-cost offshore locales and importing the goods they make there back to Japan. This is especially true in Asia, where Japanese firms are investing at record rates and where Japan's two-way trade continues to surpass its trade with both North America and Europe. Domestic production of cars and consumer electronics is slumping, but the downturn is mirrored by surging Japanese production of precisely the same goods overseas.

In 1994, for example, the combined overseas production of Japan's top five carmakers surpassed their exports from Japan. Electronics giant Sony Corp. plans to make more than 50% of its products outside Japan by 1998, up from around 42% last year. And world-leading camera maker Nikon Corp. recently announced plans to boost offshore production to 75% of total production by 1999, up from the current 30%.

Overseas plants still account for only 7% of Japan's total output -- far less than the U.S. rate of 26% or Germany's 15% -- so there is room for considerable expansion.

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Down But Rising
In early February, doomsayers gleefully sharpened their quills when the Finance Ministry reported that Japan's 1995 current account surplus fell by 14.5% year on year to $110.43 billion. That was only the second fall in the past decade, the first coming between 1988 and 1990 when Japan's surplus slumped to $35.7 billion.

But by 1993 Japan's surplus had reversed course and jumped to an all-time high of $131.3 billion despite recession at home. Even so, doomsayers insist that the current account surplus will continue to fall because of Corporate Japan's continuing offshore exodus and the inroads being made by cut-price imports thanks to deregulation and the high yen.

With further declines in Japan's surplus expected, many point to a general deterioration in Japan's global economic standing. A closer look, however, suggests the opposite. Two keys to gauging the true situation are "reverse imports" -- or products that Japanese firms make overseas then sell in Japan -- and booming production by offshore Japanese plants.

Cars are indicative of overall trends. Imported vehicles hit a record high in Japan in 1995, jumping to 402,608 units, up 20.9% from 1994. Reverse imports from overseas Japanese car plants accounted for 27% of that total. Suzuki and Isuzu, meanwhile, both made more four-wheel vehicles overseas than in Japan in 1995. Honda Motor Co., which meets about one-third of the world's demand for motorcycles, produces only some 20% of its cycles domestically.

The situation is equally pronounced in the consumer electronics sector, where imports of foreign-made Japanese VCRs, stereos, cameras and air conditioners are approaching 50% of domestic production. Electronics giant Sanyo Electric forecasts that around 75% of the video recorders it will sell in Japan in 1996 will be produced by its overseas subsidiaries. Aiwa Co., a leading audio-visual equipment maker, now produces about 86% of its products overseas. It also procures about 90% of its parts abroad, as does computer powerhouse NEC. Offshore sales are also climbing rapidly. Sony Corp., for instance, now generates about 36% of its revenues from overseas sales.

Japan's offshore exodus has been swift and striking. In early April the Ministry of International Trade and Industry announced that the value of Japan's overseas production of manufactured goods surpassed that of Japan's exports. The Ministry said that the combined sales of Japanese offshore manufacturing plants reached 41.2 trillion yen versus only 39.6 trillion yen in manufactured exports. These factories, moreover, are heavily reinvesting their profits locally, in contrast to Western competitors who repatriate much of their earnings.

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Asian Investments Skyrocket
As production moves offshore, so too does Japanese capital. In 1994, Japan's investments in Asia surged 47% to hit an all-time high of $9.7 billion, making Asia the second most popular place for Japanese money after North America. And in the first half of 1995, Japan's overseas foreign investment climbed another 27.7%, with the sharpest rises again occurring in Asia.

In contrast, corporate spending on domestic facilities remains stagnant, with major companies planning an increase of only 0.6% in 1996. As a percent of total corporate spending, offshore investments account for 46% of all outlays in home appliances, 30% in automobiles and 13% for industry overall. Further, the operating profit margin of Japanese manufacturers in Asia is five times the global average, according to a MITI survey conducted in March 1995.

Other statistics provide evidence of Japan's expanding external economic clout in Asia. Of the $14.2 billion in Japan's 1993 ODA outlays, for example, nearly 60% went to Asia, where Japan outspends the U.S. by 20 to 1 in some crucial emerging markets, according to Robert M. Orr, a former U.S. aid official.

Japan is not falling behind in the race for economic leadership. Rather, its companies are unequivocally expanding their footholds in fast-growing Asia and beyond. As author Eamonn Fingleton recently wrote: "The Japan economy is like a cyclist pedaling uphill, and the strains are healthy ones."

End Story on Japan Takes a Licking

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Written for International Herald Tribune (April 28, 1996)


DEBT ROULETTE
Japan replaces U.S. as world's top debtor, saddling nation with debt burden that could choke economy in next century.

Less than a decade ago Japan was famous for its fiscal conservatism. Today it is burdened with the largest fiscal deficit among the industrialized world. The April passage of Japan's 1996 budget will soon push the nation's outstanding long-term debt to 320.52 trillion yen ($3 trillion) -- a figure surpassing U.S. national debt and equal to a whopping 64.6% of Japan's annual gross domestic product.

The reversal in Japan's fiscal health has occurred with little fanfare or opposition. Clobbered by nearly five years of recession and four consecutive years of declining tax revenues, Japan's fiscal mandarins have relied on expansionary fiscal policies to spur domestic demand and curb unemployment. Since 1992 alone, the government has flooded the economy with more than 45 trillion yen ($420.5 billion) in emergency stimulus spending packages. The economy continues to sputter, however, prompting outcries at home and abroad for more of the same Keynesian medicine.

Japan's slide into the red has also gone mostly unnoticed, overshadowed by a banking crisis and graft scandals that have sparked political acrimony and public uproar. Financial and political authorities are well aware of Japan's mounting government debt, to be sure, but with unemployment at postwar highs and the economy still struggling, the issue has yet to prompt any significant national debate.

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Storm Clouds Approaching
Lower House approval of the 75.1 trillion yen ($701.8 billion) 1996 fiscal budget includes 21 trillion yen ($196.3 billion) in new deficit-financing bonds and construction bonds. Japan's long-term debt includes both bond types, as well as other obligations involving the postal savings system, local government allocations and special accounts covering forestry workers and other groups.

More to the point, the cost of paying interest on Japan's outstanding government bonds will account for 21.8% of 1996 expenditures and 32% of estimated 1996 tax revenues. In 1995, Japan's debt payments represented around 21% of tax revenues. The comparable figure in the U.S. and Europe ranges from 10% to 18% of tax receipts.

Japan will no doubt need to address its mounting long-term debt in coming years, but looming short-term problems could sidetrack the government and push the day of reckoning well into the 21st century. Take, for example, the mushrooming debt of the former government-owned Japanese National Railways. In April this year, JNR's outstanding debt hit a record 27.58 trillion yen ($257.8 billion), with the government still undecided on how to mop up nearly $200 billion of that total.

The JNR debacle began in 1987, when the money-losing JNR rail system was divided into seven separate companies targeted for eventual privatization. The former monopoly's debt was handed over to the newly created state-owned Japan National Railways Settlement Corporation. JNRSC was charged with selling the land and stocks it acquired as part of the JNR split-up. But its charter expires in two years, and few expect it to raise the $200 billion needed because of the drastic plunge in land and stock prices since the bursting of Japan's bubble economy early this decade. To deal with the mess, the government may need to raise taxes or issue more deficit bonds.

Two other issues are sure to gain widespread press coverage in coming months. First, liabilities from 15,000-plus corporate bankruptcies in 1995 hit a record 8.42 trillion yen ($78.7 billion) last year, says private credit research agency Teikoku Databank. Second, a looming 30 trillion yen ($280.4 billion) bad-loan crisis among nonbanks -- credit card companies, consumer loan firms and other entities who extend loans but do not accept deposits -- threatens to greatly eclipse the current 685 billion yen ($6.4 billion) taxpayer bail-out of seven defunct "jusen" housing loan companies.

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Day of Reckoning?
The situation is alarming, not gloomy. Japan has weathered vicious storms in the past and emerged a stronger, leaner competitor. Besides, most of its top companies have already overcome the negative impact of the mighty yen by restructuring, by shifting production and investment offshore, and by procuring more low-cost imports and parts from abroad -- many from offshore Japanese plants.

The Japanese government, moreover, is nowhere near being unable to pay its bills and can easily borrow enough to cover the deficit. And as the economy regains its footing, so too will tax revenues. Don't expect miracles, but consensus-driven Japan may yet find a way to deal with its fiscal problems that avoids the raucous mud-slinging political posturing of its U.S. counterparts.

End Debt Story.................

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Below Story Written for International Herald Tribune (Aug. 1996)

Surfing the Japanese Web
Looking for information about Japan? The 14-plus sites presented below will help you leap-frog into thousands of Japan-related resources.

This article presents just a few of the best Web sites with English-language reports, statistics and news about Japan. Many are indexed sites with good internal search engines to help you find the information you need when you need it.

First Stop -- Meta Indexes
Tokyo-based publisher Computing Japan has assembled one of the most user-friendly indexes of Japanese Web resources on business and technology now available. Its Japan Web Guide contains an index of 500 of Japan's best English-language Web sites, categorized by subject. Once connected, you can also click the Top Ten button to gain access to Japan's most widely visited news sites and research links.

Other recommended meta indexes of Japanese Web resources include the Japan Information Network, which features well-organized links to over 2,000 local sites and an internal search engine for finding exactly what you need. Once connected, click the Navigator button for access to hundreds of categorized, searchable sites, or click the Statistics button for an extensive offering of economic, social, demographic and trade data.

Taki Naruto's home page is another notable meta-index, with especially strong links to science and technology-related resources.

Two more recommended meta indexes of Japan-related resources are Silkroute Ventures' Asia Cyberspace page, a searchable index, and the joint WWW home page of Stanford University and NTT. The latter site, The Japan Window, is currently the most widely accessed site in Japan. Click on the Japan Directories button to gain access to an English telephone directory or click the Business button to get tons of links to Japanese databases, business associations, libraries, universities, industrial groupings and credit-rating agencies.

Government Goes Digital
Japan's national government ministries and agencies -- together with city, prefectural and regional government bodies -- have been quick to capitalize on the Internet's mounting popularity. From just a handful of sites in 1994, the roster of government WWW resources has mushroomed dramatically. These sites offer a growing array of useful links and information, from English translations of Japan's constitution and the nation's new Product Liability Law to online access to ministry reports, government white papers and trade statistics.

One of Japan's most promising government sites is run by the Japan External Trade Organization. JETRO's Web site features a host of useful business guides and white papers on trade, investment and procurement. The site is neither searchable nor particularly easy to navigate, but in can be an extremely useful source of business and marketing information.  The Web page of the Prime Minister's Official Residence doesn't offer as much data as JETRO, but it does offer extensive links to hundreds of local, regional and national government WWW servers.

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Business News and Indexes

One of the best Web resources for English-language business news about Japan is the Nikkei Net, the WWW home of Japan's leading business news conglomerate, Nihon Keizai Shimbun. Among Nikkei selections you'll find the Business Browser, which provides links to the home pages of over 700 major Japanese companies, their products and new business developments.

Three more recommended addresses containing scores of company listings and other data on corporate Japan are Silkroute Ventures' Asia Cyberspace page, Keidanren's index of Japanese corporations and contact numbers, and the Japan Window's Directory of Japanese Trade and Technology.

If you still can't find what you need, try out the Nihongo Yellow Pages for a listing of both domestic and foreign businesses, or try the English telephone directory offered in the Japan Window.


Bilingual Browsers, J-E Shareware

Users now have a no-fuss way of browsing the Japanese Web in Japanese, but without having to install Japanese software. Two sites -- the Shodouka Launchpad and Jeffrey's Kanji Lookup -- let visitors view Japanese-language pages and J-E dictionaries by first routing their requests via these sites.

If you're interested in free Japanese shareware or commercial software that will allow your computer to read Japanese text, check out Computing Japan's Web Guide Japanese Language Related links (scroll downward once connected to find this category). Another good source of software for viewing, editing and outputting Japanese and other Asian languages on an English-based computer is the East Asian Text Processing CD-ROM from Walnut Creek.

As a side note, for those hoping to travel inside Japan, check out the Japan National Tourist Organization's home page. This site provides tons of information on traveling in Japan, with indexes of hotels, ryokans, travel itineraries, Japan Rail Passes, and other important information.

End of Internet Story................................

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