Terrie's Take: The Japanese Remain: A. Very Inventive, but B. Terrible at English. Also, Bitcoin, China, and Drugs!

Terrie's Take - AkihabaraNews.com

Terrie’s Take is a selection of Japan-centric news collected and collated by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:

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Terrie’s Take on July 21, 2014

Feature:

  • Creative Invention is Alive and Well

Briefs:

  • Japanese investment in China falls 50%
  • Oh, dear, another TOEIC bomb
  • Crybaby to be charged
  • Rakuten to accept Bitcoins
  • Health markets worth US$135.9bn

Creative Invention is Alive and Well
Looking at the decline of Japan's basic manufacturing sector, it's easy to get depressed. Low-cost competition from China, an aging population and a workforce cut down by 7-8m people in just the last 5 years (the "dankai sedai" - baby boomer generation), and the competitive ossification by large electronics corporations in particular, make it easy to wonder if Japan has a future. Certainly the nation's politicians have to work harder to help the country's industrial base innovate and meet the competitive challenges. This means their professionally (instead of just politically) picking who to back in a post heavy-manufacturing world -- not just existing public firms, but also start-ups with inventions that will change markets. Cool Japan is a step in the right direction, however, we worry if the many vested interests in and around the LDP will let the proper allocation of resources actually happen.

Thankfully, looking at the PER of listed firms we can see that it isn't whether you are favored by the government that predicts success. Instead, it's companies which understand innovation and the international markets -- although it's perhaps somewhat ironic that the world leader for patent applications was none other than turn-around challenged Panasonic corporation, which applied for 2,861 patents in 2013, 572 more than second placed ZTE of China. Probably it's fair to say, though, that Panasonic is a unique hospital case, and that other Japanese companies on the list are a better representation of management's ability to innovate and compete. See the graph/list here:

(PDF) http://www.wipo.int/export/sites/www/ipstats/en/docs/infographics_patent... 

Clearly Panasonic have problems connecting their researchers to actual successful products - patents don't mean much if you don't use them. They'd better hurry up, because foreign patent management companies are setting up shop here and buying "sleeping" patents from their competitors. The U.S. patent manager, Acacia Research, owns a massive portfolio acquired or co-licenced from more than 200 companies (globally, not just Japan), and has more than 1,300 active contract licencees. Those companies it co-licences with get a share of the royalties for the first ten years. This is a great business model that has attracted more than a few Japanese major players, such as Renesas. For some reason, patents here seem to get little recognition as having value until the company gets hit with a law suit for tens of millions of dollars. Patent protection and prosecution is also a big business for foreign law firms in Japan.

No doubt thinking that the foreigners shouldn't be left to control the market for recycling patents, last year the INCJ, a government-owned investment fund, set up a JPY30bn project to scoop up sleeping patents. It's not really clear how INCJ will monetize these patents, and last time a Japanese entity tried to get into the patent management business, a 2001 fund set up by Inspire with Mitsubishi and Boeing, it was a failure. Although the Inspire fund bought patents, it seems that they didn't have the expertise to monetize them and the fund quietly expired in 2012. INCJ has no doubt been told to protect Japan's crown jewels by the political powers that be -- but if they are going to do this, they really need to buy out a foreign patent management firm (one of Acacia's competitors maybe) so that they can gain the know-how they will need. This would in fact be a smart move.

Anyway, as we mentioned earlier, not everyone is asleep at the wheel of innovation. Some recent inventions that have caught our eye tell us that the Japanese have not lost their touch in humanizing their products to meet consumer needs. The following selection is just a sampler, but it offers good examples of practical thinking and application -- mostly by mid-sized players. Maybe Panasonic should pay attention.

1. Tuberculosis fast-detection kits

One company that does seem to have the ability to bridge inventions with actual customer needs, is pharma-centric Nipro. This Osaka company has a veritable fountain of projects going on which could propel their sales and earnings into the ten-billion dollar range in the next 5-10 years. Their latest announcement is a classic "put it in a kit and make it easy and cheap to use" business model, something that Japanese auto makers discovered back in the 1980's helps sell a lot more cars. Nipro has introduced a tuberculosis (TB) tester kit that can tell health care workers in less than a day what treatment will be most effective. Until now, diagnosis would take up to a month, and required an advanced facility. About 9m people suffer from TB globally, resulting in about 1m deaths. Nipro has just had its product tested as effective by a Swiss body, and plans to export kits to Asia and Africa. If you're an investor, Nipro is a good company to watch.

2. Self deodorizing adult diapers

OK, bad topic, but we all get old, and there are now more adult diapers sold in Japan than those for babies. Daio Paper has created a diaper that when it comes in contact with compounds like ammonia or methyl mercaptan, two components that can cause stench, it emits additional odiferous compounds which combine with those in the diaper to produce a soap-like fragrance. Yes, proper chemistry, not just an overpowering deodorant to mask the smell. This is an invention we wish we had access to back when our five kids were all in diapers -- would have saved a lot of embarrassing moments in restaurants and airplane cabins...! BTW, in case you were wondering, about 17bn disposable diapers are used every year in Japan. If you took all these diapers and stacked them up, you'd have a pile that reaches just under half way to the moon. That's a lot of diapers.

3. Sea fish in artificial sea water

Imagine if you didn't need actual sea water to raise grouper, prawns, and other sea fish. For a start you'd be able to help poor communities in deserts around the world have a more efficient source of animal protein, and you'd reduce the need for polluting coastal fish farms. This is the vision that a team of Okayama University of Science researchers had in producing artificial sea water. They have discovered that healthy sea fish need just three key substances added to fresh water to make an environment suitable for life. Apart from the obvious one, salt, they're not giving away any secrets yet, but they are already receiving visits from researchers and businesses in SE Asia and the Middle East who want to see if they can licence the technology.

4. Stay-sharp knives

A good example of commercial translation of a materials breakthrough to a practical product would be from industrial heavy weight, IHI. The company has been experimenting with combinations of super hard titanium carbide molded to a softer carrier material such as stainless steel. What they observed is that as the stainless layer wears away, the titanium carbide layer acquires microscopic serrations which make the blade work as if it is sharper. As a result, the new blades never need to be sharpened other than through this natural wearing mechanism. IHI tied up with a knife maker in Kochi Prefecture to commercialize the product -- which they are hoping will be a hit with professional chefs abroad.

5. High antioxidant broccoli sprouts

Japan isn't the only country in the world with an aging population, and suddenly baby boomers all over the world are becoming aware of the importance of antioxidants in diet to reduce lifestyle diseases. One vegetable with particularly high content of sulforphane is broccoli sprouts. With selective breeding (non-GMO) these sprouts can contain up to 100 times the enzyme levels that adult broccoli possess, and therefore can be viewed as "therapeutic" in strength. A leading producer of sprout veges, Murakami Farm, is now producing broccoli sprouts with low bacterial counts -- something which can be a problem with this kind of product. The company plans to sell production kitsets based on its seeds and growing technology to Russia and other countries with limited vege growing seasons.

What all these inventions show us is that Japan can combine its expertise in manufacturing and materials sciences and go back to the basics, to create an unlimited pipeline of new and promising products. Indeed, in May, Japanese companies earned a record JPY481bn in patent and other IP licences. While a good chunk of this is from group companies, the flow of income from non-related companies is rising rapidly as well, and should be all the signal needed for other players to move from old-style incremental manufacturing to more of a knowledge-based model.

Japanese investment in China falls 50%
According to a report by China's Ministry of Commerce, Japanese investment in China in the first 6 months of 2014 fell by a massive 50%. The ministry said that national tensions over the Senkaku islands (Diaoyus in Chinese) have scared the Japanese investors away. Manufacturing (the bulk of investment most years) and agriculture both fell, while investment in services actually rose 14.8%. Like the Japanese fall-off, investment from the USA was also down by 4.6% and from Europe by 11.2%. ***Ed: No guesses for where that missing Japanese investment money is going instead -- China+One countries like Thailand, Myanmar, Indonesia, and Vietnam.** (Source: TT commentary from businessweek.com, Jul 16, 2014) - 
http://buswk.co/1nraCFW

Oh, dear, another TOEIC bomb
Once again, Japanese learners of English are reminded how poorly they are scoring on the industry-standard Test of English for International Communication (TOEIC). Japan came in 40th out of 48 countries, just ahead of Thailand. This is worse, comparatively speaking, than the 2012 results, and either shows the rest of the world is suddenly getting better at English, or Japan is getting worse. Looking at the 2012 results online, we can also see that Japan had one of the highest rates of repeat test takers, at 78%. Apparently about 2m Japanese take the TOEIC test each year. You have to wonder why the scores don't go up? Anyway, women scored about 5% higher than men, with 593 points on average versus 560. ***Ed: No need to say why Japan gets such abysmal scores in English, it's all been said a hundred times already.** (Source: TT commentary from wsj.com, Jul 18, 2014) - 
http://on.wsj.com/1wLPrOy

Crybaby to be charged
Maybe his colleagues got fed up with Japanese politicians being portrayed internationally as crybabies, because the police have arrested Ryutaro Nonomura on corruption charges after his resignation as an assemblyman for western hyogo prefecture. Nonomura became an internet sensation after crying his eyes out in a public appearance, over allegations he'd misused about JPY8m on hundreds of visits to resorts and other venues. (Source: TT commentary from yahoo.com, Jul 18, 2014) - 
http://yhoo.it/1nr5wJT

Rakuten to accept Bitcoins
Rakuten CEO, Hiroshi Mikitani, has apparently commented in a presentation to vendors this week that Rakuten will start accepting Bitcoin payments in the future. Although he didn't say when this would happen, Mikitani seemed to be indicating that Bitcoin was becoming more attractive when compared to fluctuating national currencies. [Ed: No doubt a reference to the quantitative easing programs being conducted by many countries around the world.]. Rakuten is currently the 6th largest e-commerce platform in the world, with revenues of JPY518.6bn in 2013. (Source: TT commentary from newsweek.com, Jul 16, 2014) - 
http://bit.ly/UjISpJ

Health markets worth US$135.9bn
Market research firm RnR has released a report stating that the Japanese pharmaceutical market was worth about US$89.1bn in 2012 and is expected to grow to around US$104.5bn by 2020. Further, the medical device market in 2012 was worth approximately US$46.8bn and will hit US$73.9bn by 2020, a stronger rate of growth than the drugs market. ***Ed: Given that the growth rate for devices (6% CAGR) over drugs (2%) was significantly higher, we think we can make one of two assumptions: either the government's forcing down the levels of prescriptions reimbursement is putting serious hurt on the pharma sector, or, the devices market has been targetted for increased spending so as to support Japanese exporters active in this sector. Take your pick.** (Source: TT commentary from whatech.com, Jul 19, 2014) - 
http://bit.ly/1rAUl0D

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That was Terrie's Take.

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