Terrie's Take 501 -- Is Now a Good Time to Start a Business? Ebiz news from Japan

[terrie at mailman.japaninc.com]

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, January 18, 2009 Issue No. 501

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

Lay offs in Japan continue to gather pace, and official
statistics show that the unemployment rate moved up 0.2% in
November. While this doesn't sound like much, out of an
overall workforce of approximately 68m people, this
represents an increase of 136,000 losing their jobs and
registering for unemployment benefits (the only way the
authorities can know who is unemployed).

We find it strange, then, that the Ministry of Labor is only
forecasting 85,000 non-permanent workers to lose their jobs
between October 2008 through March 2009. Since you can
guarantee the non-permanents get fired in their thousands
before the regular employees do -- just watch a Brazilian
guest worker documentary on TV to see the extent of the
problem -- then you have to wonder why the government
doesn't coordinate these press announcements so that at
least the statistics are believable.

The reality is that the lay-offs of people who actually go
to Hello Work to register (versus housewives and others who
will simply give up and take some time out) will probably
amount to 1%-1.5% of the workforce over the next 6 months.
We say this because most certainly December and January
are going to be worse months economically than November
was, and with Toyota now saying it is going to halve its
domestic output of autos, March through May are not looking
much better, either. That means 0.2% of the workforce x 7
months = 1.4%.

Not just Brazilian-Japanese, but anyone on the periphery of
the workforce is going to feel the effects of these
lay-offs more than mainstream workers. Of course this means
both the millions of non-permanent Japanese workers as well
as many of the approx. 1.7m non-zainichi foreigners as well.
It's probably no coincidence, then that we've been receiving a
much higher than normal flow of mail from people asking how
to start a business in Japan. When you're looking at losing
your job, and yet you've invested years of effort into living and
assimilating in Japan, maybe you have even bought a house
here, it can be hard to have to uproot your family and head
back to your home country empty-handed and unhappy.

So is now a good time to start a new business?


[Continued below...]

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[...Article continues]

We'll start by saying that there is no particularly good
time to start a business, because running one is ALWAYS
difficult. For this reason alone, we discourage people who
are simply looking for a new income source from viewing the
establishment of a new business as some sort of sinecure.
Indeed, usually starting a business begins a 3-5 year cycle
of financial difficulties and personal privation before it
breaks through into profit. Therefore, companies in and of
themselves are not a temporary salvation from temporary
woes. Much better to take a second job, move to somewhere
with more jobs, or get some part-time work as a remote or
tele-worker.

However, if you have decided that the recession is not just
threatening your job but that you actually want to adopt a
new way of life, then starting a business is a very viable
option for non-Japanese residents. If you have weighed up
the pros and cons, and have saved enough money to cover
your first year's salary, overheads, and marketing (our
rule of thumb for minimum capital is at least one year's
salary), then in fact the best time to start a business
probably is right now.

This is because in an economic downturn, and particularly
if your target customers are larger companies, their middle
managers -- the people who make buying decisions, are
now locked into a very stressful circle of worry. Everything
is loaded upon their shoulders at once: reducing costs,
improving sales, laying off their friends and staff, and
potentially losing their own jobs. In a recession the middle
managers are the whipping boy for senior management and
shareholders, and this time around they ARE being whipped
mercilessly. Therefore, if you can give them something to
help alleviate the pressure and improve their lives, then
probably more than at any other time since the 1990's, they
are going to be receptive to you. This presents an ideal sales
opportunity for start-ups who normally wouldn't even get in
through the front door of major firms, to get in there and make
a pitch.

Remembering Abraham Maslow's Hierarchy of Needs, remember
that these managers are operating on the first or second
(and thus very primal) rungs of the motivational ladder,
and the way to get their attention and seize the
opportunity is to ensure your initial approach gives a very
clear picture of how you will reduce their bottom line. Of course,
it also helps if you have the traditional personal introduction
versus trying to go in through the front door. At very least we
recommend any potential new business owner to join the
various foreign and Japanese chambers of commerce, so that
you have the potential of getting in at the highest levels of
your target company.

Not only is fear driving sales opportunities and making
this a good time to start a business, there are four other
major reasons as well.

1. Lower costs. Things get cheaper in a recession. Already
you can buy office furniture and outsourced services for
20%-30% less than you could a year ago. We imagine that
this deflation of start-up costs will continue for most of
this year. Certainly at a raw materials level, deflation
has once again gripped Japan's manufacturing sector. The
Bank of Japan (BoJ) says that the Corporate Goods Price
Index tumbled 1.9% from October to November, 2008,
representing the biggest drop in costs since the index
started in 1960.

2. Timing. Most companies start with founder capital, but
as they grow they become attractive to outside investors.
Since it takes at least a couple of years to become
profitable, we can assume that by the time you are
profitable and ready to receive that investment, the
economy will be much improved. This means better
valuations and more options for you to choose from.
Further, if you decide that you want to sell out and move
back into regular employment, your business will sell for
much more on the upward leg of the recovery curve. Our
guess is that this initial improvement will be in late 2010
or 2011.

3. Access to Labor. The simple fact is that more and more
people are losing their jobs. This makes it much easier for
smaller companies who usually struggle to find good
employees to find and hire their future management team.
What's more, in a recession, when people are fearful, they
respond best to a strong message from the leadership. Thus,
your actions and statements will have more impact now than
mere salary alone -- allowing you to compete for talent.

4. Access to cash. The government has embarked on an
ambitious JPY6trn (US$66bn) program to fund small companies
by guaranteeing loans and easing collateral regulations for
small- to medium-sized firms (SMEs). As of the end of
December, about JPY3.22trn of this cash had already been
lent out, and demand for the rest is brisk. We believe that
the government will likely prepare another similar tranche
of cash in late-Q1 or by mid-Q2, after they pass the second
supplementary budget.

At the same time as conditions become right for the
economical launch of a business, there are also players
appearing who want to invest in the future winners. While
Venture Capital is typically hard to find at present,
none-the-less the CEOs of 6 web companies: CyberAgent,
Yahoo Japan, DeNA, Microsoft Japan, Mixi, and
Kakaku.com have teamed up to create a funding and
incubation operation that will work with up to six newly
formed ventures to help them all the way through to
public listing. Applications are open to venture CEOs
regardless of their nationality, so long as the company is
based in Japan. But you'll need to hurry, applications
close on March 11th, 2009.

Of course if you start taking on professional investors
such as DeNA and Yahoo Japan, then you'd better be thinking
of an IPO, not just a side business to supplement the
family income. It used to be easier to go public than it is
now. From 2000, more than 100 companies a year have listed
on either of the TSE, OSE, JASDAQ, Mothers, or Neo markets,
however this year the number of IPOs slumped to just 49 --
the lowest number since 2008. This means that there is a
backlog of companies wanting to go public and we expect
that in 2010 as things start to improve, the volume of new
listings will pick up significantly, exciting interest by
individual investors in the start-up markets once more and at
the same time stimulating more venture investment as well.

FYI, the stock market which was hit the hardest in 2008 was
the JASDAQ Neo market, which on its first anniversary had
just four listings and none since March. Neo was and still is
a good idea, in that it eases the profit requirements for
companies wanting to list, in return for those companies
possessing superior technologies and leverage-able
businesses. But because of the overall risk-aversion by
scared individual investors, this market was the first and
hardest hit in the current downturn. At present, it
represents only 1% or less of the total JASDAQ trading, a
massive drop from some months ago, when on some days it
accounted for 30% or more of trading of that exchange.

We think the JASDAQ, and indeed the other markets, could
fix their trading paucity problem if they opened up trading
to foreigners living overseas, much the same as the NASDAQ
and AIM allow non-resident people to trade. Yes, this would
mean creating English-language infrastructure, and
appointing some brokers to look after foreign trades.
However, we know for a fact that a number of online brokers
are already capable of hosting foreign-language trades
(Chinese is already being done), and would do more if they
were allowed to do so. We're sure that if such a situation
came to pass, then the background information providers
necessary to help traders with their research would quickly
appear out of the woodwork.

Lastly, we note that starting a business is not necessarily
the same as starting a company. Although your future
customers will be happier to see a properly managed
corporate entity, it is not legally necessary to have a
formal company structure in order to start a business in
Japan. Indeed, many Small Office/Home Office (SOHO)
businesses are not incorporated. Instead, the owners simply
declare their income to the Tax Office on a yearly basis,
the same way that an independently employed professional
would.

We suggest this as a good way to get started with a new
business. If it starts to grow, then you can incorporate at
that time. Especially if you want to employ people,
although you can employ them while unincorporated, most
Japanese workers want company-provided Social Insurance and
the credibility of a proper corporate structure. So when you're
ready, registering a company makes hiring much easier.

Incorporating also lets you limit your liability if things
don't go well. There are many areas of running a business
that create liabilities apart from loans. Leases, business
contracts, business licences, etc., are among a few of
them. They are inevitable commitments, and it's always good
to have some legal protection if things don't go well.

********************

If you have decided that starting a business is for you,
then you'll be happy to know that our quarterly Japan Inc.
Entrepreneur Handbook Seminar will be back on February
14th. The time, location (Shibuya) and other details can be
found at:

http://www.japaninc.com/entrepreneur_handbook_seminar

...The information janitors/

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+++ NEWS

- Broker cons AXA Insurance
- Bic Camera redoes books and goes into red
- Gree profit soars 500%
- JPY1trn in loans to Japanese auto firms
- 30% of new flu cases are Tamiflu-resistant


-> Broker cons AXA Insurance

In a revelation which is reminiscent of the Lehman fraud
by ex-Marubeni employees, Nikkei sources have said that Axa
Life Insurance was swindled for several billion yen during
2006-2008, as was Mitsui-Sumitomo Kirameki Life and others.
The broker at the center of the scandal was Shinwa Sogo
Lease, a sales agent which went bankrupt in December 2008.
The swindle involved selling pumped up life policies to
managers of small companies, collecting the sales
commissions from AXA, then having the collaborating
managers cancel the policies shortly after. (Source: TT
commentary from japantimes.co.jp, Jan 17, 2009)

http://search.japantimes.co.jp/mail/nn20090117a7.html

-> Bic Camera redoes books and goes into red

Tokyo-based home electronics chain, Bic Camera, is on the
TSE's Supervision List after revealing Friday that it
intends to restate its group net profits for the fiscal
year ending August 31st, 2008, to take into account murky
real estate deals that were incorrectly recorded as
extraordinary profits in past years, but which may have in
fact been window dressing through related companies
(shades of LiveDoor's Horiemon). The adjustments go all the
way back to 2002, and have resulted in the company coming
under investigation by the SESC. Without the disturbing
revelation, BIC would have made a profit for the year of
JPY4.1bn, as previously declared. (Source: TT commentary
from nikkei.co.jp, Jan 17, 2009)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20090117D16JFA14.htm

-> Gree profit soars 500%

It looks like previous high-flyer Mixi may have met its
match, in the form of new Social Networking Service (SNS)
operator Gree. The up-and-coming company said that its
parent-only net profit will jump an amazing 500% to hit
JPY3.5bn for the year through to June 30th, 2009. Sales are
expected to hit JPY11.2bn, up 280%! The reason for Gree's
dramatic results is apparently because it charges its
members fees directly for their use of the tools, games, and
other services on the site, accounting for 70% of its income,
versus Mixi's business model which depends solely on
advertising and which is exposed to the vagaries of the
economy. ***Ed: We spoke with Globis Capital's Yoshi Hori
last week, and he told us that Globis was an early stage
investor, and enjoyed multiple of "tens" as its ROI on the
investment in Gree. Now that is an impressive investment.**
(Source: TT commentary from nikkei.co.jp, Jan 17, 2009)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20090116D16JFA21.htm

-> JPY1trn in loans to Japanese auto firms

There's nothing like following in the footsteps of your big
brother (the U.S.). Now the Japanese government has not
only decided to give money away to its citizens, it plans
to bail out its auto manufacturers as well -- although with
Toyota's JPY4trn+ war chest, we're not sure why. The
Yomiuri newspaper broke the news today, saying that the
Japan Bank for International Cooperation will lend about
JPY1trn (US$11bn) to the auto makers. (Source: TT
commentary from bloomberg.com, Jan 17, 2009)

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNd2XY4_s4o8

-> 30% of new flu cases are Tamiflu-resistant

It looks like the Japanese government's massive investment
in 28m doses of Tamiflu may have been for nothing. Although
it was hoping that the stock pile would help protect the
nation in the event of a new outbreak of SARS in Asia, in
fact, several new strains of flu to have appeared in Japan
of which 30% of the cases have proved resistant to Tamiflu
treatment. The Health Ministry plans to do a nationwide
survey to find out what is causing the spread of the
Tamiflu-resistant variety of the virus. Just last winter,
only 2.8% of flu cases in Japan were Tamiflu resistant,
while in the USA the number was 11%. Now, in the USA, the
level of drug resistance is apparently as high as 98%.
***Ed: More on this as news develops.** (Source: TT
commentary from yomiuri.co.jp, Jan. 14, 2009)

http://www.yomiuri.co.jp/dy/national/20090114TDY02309.htm


NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

---------------- Start a Company in Japan -----------------

Entrepreneur's Handbook Seminar 14th of Feb, 2009

If you have been considering setting up your own company,
find out what it takes to make it successful.
Terrie Lloyd, founder of over 13 start-up companies in Japan,
will be giving an English-language seminar and Q and A on
starting up a company in Japan.
This is an ideal opportunity to find out what is involved,
and to ask specific questions that are not normally answered
in business books.
All materials are in English and are Japan-focused.

For more details:
http://www.japaninc.com/entrepreneur_handbook_seminar

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______________________________________________________
Events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com

***------------------------****-------------------------***


+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

*** No feedback or corrections this week.


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***********************************************************
END

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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