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05-31-2010, 03:32 AM   #1
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thoughts on Japan

I don't know if anyone will notice this posting here in "General Talk", but I've repeatedly come across some odd things posted to the "News and Rumours" forum that I'd like to rebut. I do this because I live in Japan and I think some things need to be said.

First: the myth that the Japanese have an issue with Korea and don't like dealing with Korean companies. It's just not true. Korean stuff is actually insanely popular in Japan. The biggest pass-time in Japan is Pachinko: quasi-legal gambling, usually based on video machines. Introduced by the many Koreans living in Japan, it's now a sizeable proportion of the Japanese domestic economy. Among the god-awful boy-bands that you see everywhere in this country, the number one unit is actually a Korean band. Korean BBQ is *ridiculously* popular in Japan. When you come to Japan and have grill-your-own meat called "yakiniku", that's Korean food. I'll also point out that there is an entire genre of television in Tokyo dedicated to imported Korean dramas, both modern and period stuff.

What's more, Japanese business is heavily invested in Korea, and it's an everyday thing for business travellers to go back and forth between the two countries. In fact, Seoul is one of the few international places that you can usually get to from even smaller regional airports (along with Taipei, and more recently Shanghai).

Some have pointed to the failures of Samsung and Hyundai in Japan as an indication of Japanese attitudes towards Korean products. But I can tell you from first-hand discussions with people about cars (including a professional auto reviewer who's a good friend) that Hyundai failed to make a mark here for the same reason that the American manufacturers have failed: no one takes the brands seriously. If you don't want a domestic car in Japan it's assumed that you're looking for something from Europe. Italian, French, British (past tense) and of course German cars abound. Real luxury car drivers in central Tokyo don't look at anything from Asia or the US. It's a Bentley or a Maybach or a Ferrari. Period. As for Samsung, they tried to enter a market that was already oversaturated (something else I'll get to below), and they simply failed to make a dent. That's not to say that Samsung and LG aren't quietly making all of the displays for televisions and monitors sold by half the other brands.

Second: there's so much talk about market share and why the manufacturers focus on Japan. Here's something I saw posted by a fellow expat named Ed Neiheisel to a LinkedIn thread talking about Japan's general isolation. It reminded me of this forum.

"Michael -- as a number of folks have said, there is actually very good money to be made in Japan if you are one of the top 3, sometimes even 4th or 5th top players. Japan market is big enough that the cost of innovation in the majority of market segments can be returned simply from the Japan market. In Japan pricing is also quite healthy in most respects and in most market segments. Historically, as we all know, Japanese market competition has been based on product features/function and service and not price. In every other major market this would provide a strong financial base for the leading companies to then make the incremental investment needed to move aggressively to foreign markets and capture what is then essentially incremental revenue and profits.

What I was trying to say in my earlier note is that in every other major market at some point in time the smaller players either give up, are bought out by the leaders or otherwise surrender the market to the top 3-4 players. These players then get the chance to consolidate the rest of the market as it moves from growth to mature market status.

That does not take place in Japan. In many market segments, even after they mature, you still have 6, 8, or sometimes more major Japanese companies who are all continually competing in a segment and they do not give up, have historically never been bought out and until fairly recently and still in a relatively few number of cases is there any consolidation among the smaller players. On the positive side, the Japanese consumer as a result has the widest selection of product offerings in the world albeit pricey. On the negative side, major Japanese companies get so absorbed in creating and defending their market positions in Japan they seem unable to generate the institutional energy to build very big businesses outside of Japan. As with everything there are exceptions - both of major companies who have tried very hard to build big global bases and failed (DoCoMo spent billions to no real purpose) and those that have won (Toyota -- albeit recently its painful to see).

I am not stating anything especially new - the PEs have been circling for more than 10 years waiting for major Japanese conglomerates to start selling off their "non-core", "under performing" subs which in many cases are used to house these non-market leading product offering. That has not happened for the most part and the management of major Japanese companies seem unable to do it. This is a pipe dream in the current political environment but the government needs to create substantial financial and tax incentives for Japanese companies to offload these under performing product lines and related operating assets so they can focus on far fewer but winner product lines. "

Anyway, that's my insight on Japan.

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