Terrie's Take: How Not to Help Foreign Companies in Japan REDUX, Japan to Finally Learn about ATMs(?), and More!
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 March 16, 2014
- Rehashing a Failed FDI Program for Tokyo
- City banks read writing on wall re tourists
- Who needs nuclear? Not Japan it seems.
- Hotels acquisition stampede begins
- Fitness club memberships at 3 year high
- Teaching kids ways from the bad old days
Rehashing a Failed FDI Program for Tokyo
On March 6th, the Japan Times wrote an article trumpeting a new government initiative to help make it easier for foreigners to start a company in Japan. Apparently, the new program will be operated from the Japan External Trade Organization (JETRO) headquarters in Akasaka, and will work in close cooperation with the Tokyo Metropolitan Government (TMG). The article talks about how terrible it is that it currently takes 11 days to set up a company in Tokyo versus just 3 in Hong Kong or Singapore. Because of this, JETRO and TMG will send personnel from their different agencies to staff the new office, and will provide a one-stop shop to speed dazzled entrepreneurs into corporate establishment here.
If this initiative sounds familiar, it's probably because it is. Essentially, what JETRO and TMG are cooking up is a rehash of the very same programs both organizations have been running for some years now, and clearly they feel that two losers make a right.
In fact, we wish that the TMG and the state government would stop trying to increase the number of foreign companies coming to Japan, because so far it's been a waste of tax payer money and an exercise in self-delusion. We have never seen any of JETRO's or TMG's programs make a noticeable impact on the number of inbound foreign corporate set-ups, despite, in JETRO's case, working on the very same problem for more than 20 years now. The yen, market segment profitability, and several other factors are what influence the ebb and flow of businesses here, not the challenge of some paperwork which in any case will only be executed once in a company's life.
Now to be sure, it IS a pain to get a company set up in Japan. Why Japan can't put its processes online and integrate the various agencies (such as registration, tax, company filings, etc.) is beyond us. Perhaps all the individual checkpoints in the company establishment process are just too lucrative (in terms of fees), to let go of? Then, worse yet are those local banks who think that inbound newcomer companies are unworthy of receiving one of their sacred bank accounts.
But despite all this, it's the promise of profits that keeps a foreign company interested in the Japanese market.
We mentioned about a year ago (TT-751) that close to the top of every foreign company's decision on where to locate its Asia operations is taxes, proximity to market, size/vitality of that market, infrastructure, and availability of resources. Unfortunately for Japan, it falls down in 3 of these 5 metrics, and it is hard to see this situation changing any time soon. What we can say with some certainty is that being able to set up a company 8 days earlier is NOT going to influence most people to choose Tokyo over Singapore or Hong Kong.
In actual fact, as a reference point, we had a recent experience in setting up a company in Hong Kong, and can say that the paperwork is just as onerous and time-consuming there as it is in Japan. If it really does take an average 3 days to set up in Hong Kong, we'd like to see what constitutes "average" because it seems to us that the Chinese authorities have learned from Japan's bureaucratic playbook and have tweaked it a bit (made it worse).
Rather, the Hong Kong statistic is more likely derived from the fact that you can buy shelf companies there. They're easy and cheap, and in fact getting one takes far less than 3 days -- more like 4-8 hours. We set up our subsidiary for a group firm in Hong Kong because it is the gateway to China and offers unique China-related legal rights not available anywhere else. It also has very low taxes, although that doesn't help the foreign subsidiary of a Japanese company that much.
Setting up in Singapore is also very easy, even when doing the incorporation from scratch. We have just traveled to Singapore on business, and learned that you can in fact set up a new entity there in just one day. Further, in TT-783, we noted that you can now set up a bank account in Singapore via your cell phone. The authorities there reason that you already have substance by virtue of your ID card, so why not accept that for the approval process? Singapore has such an enlightened attitude towards business, it makes Japan look like it's still in the Stone Age (bureaucratically speaking). No wonder you can see so many foreign companies and foreign employees there.
Coming back to the JETRO-METI alliance, what is needed is NOT more bureaucrats to be shifting paper. Rather, these two entities need to get some real-world advice from foreign business people about what is needed to bring more foreign firms here. Probably there have been some round tables with local Chambers of commerce by the new team, but we haven't heard about it. Furthermore, when you look at their boards of advisors, there is not a single foreigner on them.
Then there is the need for professional PR, ah, yes, the bane of a bureaucrat's life. They can never understand why you would want to pay a private PR or marketing firm (let alone a foreign one that actually understands foreigners) when you can simply strong-arm the local newspaper to give you some press for free. Unfortunately, tired messages, inadequate incentives, and unproductive programs, means that any new actions are doomed to die an early death -- on the pages of the Japan Times.
On the off-chance that just maybe someone in either the TMG or JETRO is reading this, we will repeat the following prescription: "Interest by foreigners in setting up businesses in Japan will only increase when:"
* The new Special Zones include a substantial 5-year (minimum) profits tax break for newly arriving companies. Remember, for a company coming from the USA and thinking "Asia" for the first time, Hong Kong, Singapore, and Japan all look very similar, except that two of those locations can also speak English. Therefore, for Japan to compete, it needs to vastly increase its base of English-speakers -- or at very least match up on taxes, with a special zone tax rate of 15%...
* Understanding that it is opportunity that creates a company's commitment to expansion. Therefore, the JETRO/TMG authorities should be making it much easier for newly arrived companies to meet Japanese locals, network, and come up with ideas that pull the interest of the local players. In fact, JETRO has been doing matchmaking programs forever, but with not much success because they and their consultants don't really understand the needs of foreign companies starting up here. To fix this situation, we suggest to JETRO that they drop their allergy to foreign consultants, and start putting a lot more of them on the pay roll.
* Foreign companies need much more substantial assistance in hiring new staff than JETRO and co. realize. It is good to see a subsidy for new hires, but frankly the amounts being offered are pitiful and need to be ramped up significantly. How about simply offering to pay the first full year of any new bilingual staff member? It may sound radical, but the government could limit the offer to 100 positions across 100 companies a month to start, and see where that leads them.
* Connecting companies with investment funds, by creating a really viable entrepreneur investment team and incubator -- something like both Singapore and Hong Kong have and which have helped attract some very successful companies over the last few years. If the Japanese government can channel JPY60bn into something as opaque as the Cool Japan fund, then surely it can put something like 10% of that amount into a VC fund targeting foreign entrepreneurs wanting to set up in Japan. If necessary, they can have the new fund dollar-match a selected group of commercial funds (something like the VIF program in New Zealand operates).
Lastly, thanks to those readers who noticed the missing Terrie's Take from last week (this edition, actually). For the first time in 17 years of doing the Take I (Terrie) got sick enough to not be able to get the newsletter out the door. Food poisoning, or maybe just jet lag, I'm not sure. Luckily, it was a 24-hour thing, and I'm fighting fit again.
City banks read writing on wall re tourists
Arrogance revealed? The WSJ ran a breathless article this last week about the Big 3 City banks, Mitsubishi-UFJ, Sumitomo, and Mizuho, finally agreeing to put in some ATMs that will connect to global banking networks. The lack of ability to use Japanese ATMs has long been a thorn in the side of foreign travelers, particularly business people, who tend to travel cashless and withdraw a few local notes as and when they need them. Now, after prodding from the government, Sumitomo, Mitsubishi-UFJ, and Mizuho will upgrade 17%, 12%, and 1.8% of their ATMs respectively. ***Ed: One gets the impression that Mizuho still wants nothing to do with foreigners. Only 1.8% of their machines will be connected -- hardly seems worth their even trying.** (Source: TT commentary from wsj.com, Mar 12, 2015) - http://on.wsj.com/19o1JIG
Who needs nuclear? Not Japan it seems.
Although the Abe government, pressured by the Keidanren, has committed to bring all of the nation's nuclear power plants back online, the resumption of nuclear seems interminably stalled due to public fears stoked by ongoing problems at the Fukushima Daiichi plant. What's interesting about this CNBC article is that it gives an actual number for the cost-based impact on Japanese manufacturers caused by the lack of nuclear power. That number is 30% of 5%, or in other words, a bit less than 2% of all manufacturing cost inputs. ***Ed: At the same time, the weakened yen has had a far more dramatic impact on industry, and Abe doesn't seem to be too worried about that.** (Source: TT commentary from cnbc.com, Mar 10, 2015) - http://cnb.cx/18suy5G
Hotels acquisition stampede begins
The realization that there may not be enough hotels over the coming five years, let alone for the Olympics, has started dawning on local real estate investors. This means that competition for hotels will be increasing, particularly where the hotels come in a portfolio and thus can be balanced for yield/culling. So it is that Fuji Media Holdings' Sankei Building paid JPY5bn to outbid Morgan Stanley and Orix for a 10-property lot that came up on the market from government turn-around fund REVIC. ***Ed: Expect to see a lot more action in the hotel portfolio sector, as existing holders of property portfolios seek to cash in.** (Source: TT commentary from reuters.com, Mar 13, 2015) - http://reut.rs/1HU73yN
Fitness club memberships at 3 year high
Economist Yasunari Ueno, at Mizuho Securities, has issued a note to investors that membership income at sports gyms is at a 3-year high, in a sign that he says is an example of consumers feeling more confident about the economy. While he could be right, since Japan is now getting used to the sudden jump in prices and wallets are slowly opening again, we'd posit that given that January is the time most people think about the coming year, it's possible that we're simply seeing the "spring is coming" effect as well. Take a look at Ueno's graph and you'll see what we mean. In fact, every late-winter period saw a jump in revenues -- although this year's is the best recently. (Source: TT commentary from straitstimes.com, Mar 13, 2015) - http://bit.ly/1NXq6wC
Teaching kids ways from the bad old days
Very entertaining article from everyone's favorite bamboo-curtain-lifting journalist Jake Adelstein. This time his sights are set on the Minister of Educaction, Hakubun Shimomura, as Jake gives an account of how Shimomura has been compromised by revelations in the weekly news magazine Shukan Bunshun. The magazine did an investigation and found that the man who is supposedly responsible for the moral education of the nation's kids has more than a few morality problems himself, including receiving funds from the Yakuza, accepting dubious campaign contributions, lying in parliament about those funds, and covering up his role in the whole sorry mess. ***Ed: One thing you can be sure of with the LDP back in power: there will be a big increase in scandals like this.** (Source: TT commentary from thedailybeast.com, Mar 10, 2015) - http://thebea.st/1DnUbT0
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That was Terrie's Take - what about yours? Let us know down below!