Terrie's Take 502 -- Value-leaders Make Money in Recession, ebiz news from Japan

Mon Jan 26 09:28:04 JST 2009

* * * * * * * * * 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 25, 2009 Issue No. 502

+++ INDEX

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

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+++ WHAT'S NEW

Following on from our feature last week about when is a
good time to start a company, another related question is
when is a good time to expanding one's business? Needless
to say, in January 2009 most business managers are
certainly not thinking of expansion, and the message we
hear is one of battening down the hatches, firing excess
staff, and conserving cash. While these are certainly
survival strategies, they are not the mark of independent
thinking and thus unlikely to distinguish their
implementors in the big scheme of things.

Instead, we like the approach of some of the world's most
successful business people, Warren Buffet comes to mind,
where the focus is on using cash flow prudently to make
bets that the world will continue revolving and that the
markets will recover. The best time to buy is on the lows,
so the question is: are we at the low point yet? The
indicators are that we have further to drop. The fall will
probably be mild if the U.S. is successful in its
pump-priming. But if it is not, and we have our doubts
since governments are generally worse at running economies
than free markets are, then we will most likely see some
version of Japan's lost decade, with deflation, stagnation,
then inflation all popping up and punctuating our lives
for the next few years.

But the world does have to go on, we all have to eat, and
to produce that food there is a whole pyramid of human
endeavor that will continue on -- i.e., we don't subscribe
to the doomsday scenario of global societal breakdown. So
while now may not be the ideal time to invest in expansion
or M&A, it is probably fair to say that with the drops
we've had so far we're probably more than half way to the
market lows. Thus if ideal opportunities to expand come
up, our take is that investments made in the current
environment will have a reasonable chance of paying off.
What is probably more important is the type of business
model.

[Continued below...]

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[...Article continues]

Some very smart players appear to be thinking the same way.
They're ensuring that their core business value proposition
is under control, then taking what appear to be contrarian
bets to significantly leap-frog the competition. We
particularly like watching companies such as Fast Retailing
(Uniqlo brand), who are confident their value-leader
positioning is a winner in a down economy (people still
have to buy clothes) and accordingly are seeing record
numbers of consumers defecting to them from other brands.
Direct evidence of the Uniqlo strategy can be witnessed in
Shibuya, where the Uniqlo store is on a side street right
behind the Gap store. You can watch people go into Gap to
check out the prices, then walk around the corner to Uniqlo
and buy a very similar product on sale for half the cost.

In our (Japan Inc. Holdings) space, which includes media
(web/paper), consulting, and venture capital, there are an
increasing number of locally distressed companies showing
up for sale, alongside companies which are doing OK but
whose owners have had enough and just don't want to have to
battle through yet another downturn. The media industry has
been knocked around a lot over the last five years. It is
not only suffering from the immediate downturn, but also
from a paradigm shift of people moving from physical media
to online media.

Two areas of media that the real economy is definitely
impacting are online advertising and online recruiting,
and just as Fast Retailing is changing the retailing status
quo, we see others taking similar opportunities in the media
sector. Evidence of this change was reported in a recent
issue of Terrie's Take, where we related that GREE, a
rising star in the SNS world in Japan, is quickly closing
in on market leader Mixi in both page view growth and also
profit growth. Significantly, GREE derives 70% of its
revenues from subscriber fees and just 30% from online
ads, while Mixi is sticking (for the time being) to ads
only. So free isn't always better -- value for money and
quality of content is what counts with consumers.

This is an important point, because it lets GREE deal with
consumer psychology when doing its sales, while Mixi has
to deal with B2B (i.e., the advertisers) market
psychology. As Mixi is probably finding out, the market is
saying "cut back and hunker down" while for GREE
consumers are saying "give me a quality distraction
from the cut backs". We think this goes back to the old
saw that in a recession, the consumption of games, booze,
and other personal vices increases as people seek to
escape their realities. So our take is that GREE will wind
up teaching Mixi that innovation is only powerful if you
keep applying it, and that online business models have to
reflect the realities and demands of their physical users.

We get the sense that the change of the online content
providers' ads-subs mix is going to major impact other big
players as well, such as Google. Therefore, we would not be
surprised to see Google announce both a slow-down in their
ad revenues as well as the introduction of
subscriber-based fees in the near future. So long as we're
only talking JPY300/month or less for de-spammed email, we
will continue to be using Gmail's value-for-money services.

So online fees, not ads, appear to be the new trend for
providers. This is good news for Software as a Service
(SaaS) players, and we foresee dramatic improvement for
this sector in Japan over the next 12 months. Most SaaS
products are targeted at companies, but we see more
products coming out for use by individuals as well (apart
from games and SNS sites), and therefore there will be
a corresponding decrease in prices and improvement in
functionality.

One online sector which is being particularly hard hit by
the real world slow-down, and which currently makes 100%
of its income from ads rather than subscriber fees, is the
online recruiting industry. From major players like Recruit
and enJapan through to niche market players like Daijob.com
and CareerCross.com (both bilingual candidate specialists),
the pressure is on to get ad yen from companies who are
essentially beginning what could be a whole year of
downsizing.

We at Japan Inc. believe that this is a sector ripe for
GREE/Uniqlo style change. For this reason, although online
recruiting is in a slump, our sister company CrissCross KK,
the publisher of Metropolis magazine, has entered into a
strategic partnership with The Plant, the owner of the
"Joblet" online recruiting brand. The two companies have
decided to join forces to create "Metropolis Joblet," a
low-cost, high-volume recruiting website for bilinguals in
Japan. The joint venture will start in February
(www.metropolis.co.jp) and will focus on becoming a
value-leader for recruiters. We're out to change pricing
levels in the industry.

Nor will we won't be stopping there. Taking another leaf
from the GREE book, Metropolis and affiliate LINC Media
will also be introducing user and small business
applications in the HR space that will appeal to customers
looking to reduce costs or gain better functionality. This
will allow us to build subscriber revenues alongside
traditional ad revenues. Admittedly, building web
applications is not easy to do, but once built, the cost of
providing and maintaining them is far less than
conventional software. GREE and Salesforce.com have led the
way in doing this, and the changes in the games and CRM
sectors will now start spreading to HR, accounting, and
other areas with surprising speed.

If you're thinking of investing a large sum of money in any
of these sectors, you might want to hold off for 12 months
and subscribe for a monthly fee instead.

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

Looking to start a company? 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

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...The information janitors/

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+++ NEWS

- Alt energy investment for Mubadala
- Japanese milk becomes most trusted
- JAL: You're not fired, but take a long (unpaid) holiday
- Exports plummet by record amount
- Nomura's losses mount

-> Alt energy investment for Mubadala

We think the Nikkei is brave carrying for yet another time
a news story on the US$10bn Mubadala fund, Abu Dhabi's
sovereign wealth fund -- maybe this time they'll get it
right. Last time, Mubadala denied any factual basis for the
Kobe hospital investment rumor. Anyway, the Nikkei says
that Mubadala intends to invest JPY1bn (US$11m) alongside
matching funds from SBI Holdings (Softbank Investment) into
Japanese alternative energy start-ups. The two companies
will look at wind, solar, and other green tech. ***Ed: If
true, this co-investment will mark the first time in more
than 7 years that a major foreign venture capital fund
(versus a Private Equity fund) has sought to invest in
Japan.** (Source: TT commentary from nikkei.co.jp, Jan 23,
2009)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20090122D22JFF01.htm

-> Japanese milk becomes most trusted

Much the same as for its fruit and vegetables, Japanese
producers are forming an interesting "back flow" of
high-end milk to Asian consumers who are concerned about
products that might normally originate in China. The
Nikkei says that one Hokkaido milk producing cooperative
has recorded a 150% increase (to 750 tons) in shipments to
Hong Kong, due to the Melamine scandal last year. A packet
of Hokkaido milk sells for about 3 times the price of
local product and 50% more than  Australian product, at
around JPY300 per packet. ***Ed: Actually, JPY300 is still
cheap. The interesting point on this news item is that the
demand for Hokkaido milk is growing against strong supply
from Australia, and presumably New Zealand. So one wonders
if consumer confidence in the Antipodean product hasn't
been dented by Fonterra's shareholding in Sanlu -- the
company at the center of the Melamine scandal.** (Source:
TT commentary from nikkei.co.jp, Jan 23, 2009)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20090123D22JSN04.htm

-> JAL: You're not fired, but take a long (unpaid) holiday

Japan Airlines (JAL) is obviously in serious trouble again.
Asia's biggest airline company is asking its international
business unit employees to take between 1-2 months of
unpaid leave starting February. JAL International has
16,200 employees and has already said it will cut 13%
(2,100) of them. Apparently JAL flew 17.6% less passengers
in November, 2008, than in the same month 2007, and
operating income was down 44%. ***Ed: We always wonder if
in times of fear and uncertainty like this whether anyone
who depends on their job for a living would seriously
consider taking unpaid leave. Rather than the company being
grateful for the gesture, we'd be more worried about "out
of sight, out of mind" repercussions, like getting laid off
because it's easier for the boss to send you a letter.**
(Source: TT commentary from bloomberg.net, Jan 23, 2009)

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_vlto55BKzE

-> Exports plummet by record amount

Exports from Japan dropped by a record 35% in December from
the year before, as global sales of auto and electronic
goods dried up and the yen rose to 13-year highs. Reuters
quotes an RBS economist as saying that the damage will be
as great as a 1% drop in Japanese GDP for Q4 of last year,
and that volumes will continue to fall for at least Q1 of
this year. Exports to China were down 35.5%, to Asia by
36.4%, and to the USA by 36.9%. (Source: TT commentary from
reuters.com, Jan 21, 2009)

http://tinyurl.com/ag7qvu

-> Nomura's losses mount

Japan's largest I-bank, Nomura, is due to report its worst
quarterly loss in 8 years, estimated to be around JPY300bn
(US$3.3bn). The company lost money through the Bernie
Madoff scandal in New York, reduced business flow as the
economy dried up, and, although they don't specifically say
so, probably through the extra 6,000 or so Asian employees
they picked up from Lehman Brothers. ***Ed: The question
is, will Nomura be able to pick up the slack before
inevitable cuts have to be made which could neuter the
Lehman purchase?** (Source: TT commentary from afp on
google.com, Jan 25, 2009)

http://tinyurl.com/djbtzu

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

=> LINC Japan Ltd., an affiliate of the LINC Media group,
is actively marketing the following positions for market
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Due to the nature of this role you will be required to have
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as knowledge of LAN/WAN protocols and technologies. In
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Remuneration is JPY8m – JPY11m, based on your experience.

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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,
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This is an ideal opportunity to find out what is involved,
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Details: Complete event details at http://www.icajapan.jp/
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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.

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

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+++ ABOUT US

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

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