Terrie's Take 588 -- Logic for Spawning 400 Subsidiaries, e-biz news from Japan

Sun Oct 31 23:49:27 JST 2010

* * * * * * * * * 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, October 31, 2010, Issue No. 588

+++ INDEX

- What's New
- Short Takes
- News
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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+++ WHAT'S NEW

Every now and again we get some really excellent reader
feedback, that generally appears in our feedback section at
the foot of this newsletter. Today we thought we'd do
something a bit different and feature one of these
responses as our main article.

You may recall from Terrie's Take 587, we expressed
surprise at the number of start-up companies that are
funded with capital of between JPY10m-JPY30m, being far
more than your average salaryman entrepreneur can bring to
the table. Our reader reckons there is a logical
explanation, relating to the way major firms deal with
bureaucracy and still get the job done. We think you'll
enjoy his response.

=> Our reader's comments:

Just had to share a little inside 'secret' with you - about
those 7,000-plus new ventures blessed with cash no
salary-man could ever afford in his honest lifetime (pardon
the expression). Here's how 'we' have been doing it - the
'we' being corporate Japan...

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[...Article continues]

The number of start-ups is quite misleading. One must not
read it the way we apply the term in other countries. Out
here if somebody started it then it's a start-up.

Take my former client [Ed: a major Japanese manufacturing
corporation] for instance. It had no less than 400 wholly
owned subsidiaries when it was acquired by an American
company some thirteen years ago. Very few people within the
company were aware of that and many of those who were aware
had no clear understanding of how and why the subsidiaries
came into existence. I made it my job to know and track
them.

I was accidentally introduced to one of the acquiring
company's senior executives soon after he arrived - the
company was fast-tracking him into the local executive
ranks and as part of his training they'd sent him on a
mission to teach the Japanese how to turn an ailing company
around. His first project was to trim the fat from the new
baby (my client's company), and away he went slashing at
every little subsidiary he could lay his hands on.

Sometime during his third day in Hiroshima we were
introduced.

He asked me what I did for the company after saying that
the lady who had mentioned my name to him had said
something about the company not being able to keep anything
secret from me for too long. He then said that he wanted to
know if I could identify any hidden subsidiaries. I said
sure, but there aren't any hidden subsidiaries. Lost
subsidiaries maybe but hidden, none, absolutely none.

He laughed and asked me again telling me not to joke about
it. I told him I was totally serious. The company had many
lost subsidiaries but none that we intentionally hid from
anybody. So I explained it to him.

Looking at the auto making business, for example, a
manufacturer will build a thousand vehicles in one shift.
And regardless of what precautions they may take in
preventing the finished product from getting dirty, seat
covers always end up needing a bit of dry cleaning before
the vehicles are shipped. No problem there. Just get a
bucket of dry cleaning agent and dip an' wipe away, right?
No sir...

Japanese law is pretty tricky when it comes to who can
handle certain chemicals for industrial use. Remember that
business start-up form that asks you to list any and all
possible business areas the new venture will be engaged in?
And remember how the guy in the registration office insists
on you listing many more business activities your new
company will do? Nobody ever believes the guy until they
try to do a new thing one or two years down the road.

As the venture grows it expands its area of business or
rather tries to, only to be told by some owl-eyed regulator
that the new area of business is out of bounds. I believe
that Nissan had no less than eight hundred subsidiaries when
Ghosn came over! And unknown to him each had a purpose
fully rationalized by Japan's archaic business regulations.

In my former client's case, in order to clean its own
products that the factory was turning out, the client found
it necessary to open a drycleaning business. The new
business was registered by three staff members suddenly
called into a cubicle for a quick, "Omedeto, Tanaka, Suzuki,
and Suzuki. You're the proud owners of a new drycleaning
business. We've gone to the liberty of doing all the paper
work for you. Oh, and we've also made and registered the
necessary company hanko, etc., as well as your personal
name seals..."

The new three-man venture was set up at a borrowed address
- borrowed from a real estate company, three-man of course,
and also in the employ of the client.

"So, what does that Realtor do?" the American gentleman
asked, genuinely interested at the intrigue unfolding
before him.

"Oh, that's easy to answer sir," I told him, "it gives the
company the right to handle real estate."

"Real estate?" he repeated to me.

"Yes", I said.

"But we're an equipment manufacturer..."

I then proceeded to explain that this was true, but if you
have workers who need housing and workers dormitories, you
can save substantial amounts of money if you are also the
owner of the owner of those facilities. And of course since
there are so many subsidiaries, channeling all their real
estate needs through a single entity also makes sense.

Thus we circled back to the drycleaning subsidiary and how
it allowed them to buy otherwise prohibited cleaning
agents...

Concerning the average start-up capital of JPY10m-JPY30m,
this is viewed as a long term investment that can be
converted back into cash when needed. Directors are
typically names borrowed from the work force and many of
these employees either have no idea they're sitting board
members or have long since forgotten they are! For every
new area of 'business' a new subsidiary is set up.

As a further example, in my client's group, to entertain
visiting reps from abroad we lodged them in the company's
guest house, requiring it to have a subsidiary which could
hold an inn-keepers license. In addition, because the lodge
had a few baths that required young women to assist male
guests - no joke sir, a particular entertainment license
was necessary there too.

The long and short of it is that the company had some very
'funny' but strictly-for-business subsidiaries that ran
without a single independent tax audit, neither profit nor loss,
IPO or other capital exit, labor report, business report,
etc., for more than thirty years. And the American
gentleman wanted to end it all. Can you imagine the look on
his face when I walked him through the many little
businesses his company owned and the perks they brought?

...The information janitors/

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

+++ SHORT TAKES

We recommend products and services that you might find
interesting or useful while living in Japan.

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Last week's prize was a set of Puff Nation casual clothes
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-----------------------------------------------------------

+++ NEWS

- Tokyo-to to drop land price in Ariake
- Softbank moving ahead of competitors
- Unemployment rate falls to 5%
- Otsuka Holdings to go public in massive IPO
- Lawson to buy HMV Japan

=> Tokyo-to to drop land price in Ariake

Faced with the reality of the falling prices in the real
estate market, the Tokyo Metropolitan Government has
decided to drop its asking price for a number of large
vacant lots in and around the Ariake/Odaiba area. On
average the plots will come down by around 7% to 8%,
resulting in prices of around JPY5.3bn for 5,100 sq. m.
near the Telecom Center on the Yurikamome monorail line.
***Ed: What surprises us is that the failure to sell these
lots has caused the Tokyo Government to have to reschedule
about JPY90bn of debt taken to finance the land
development in the first place. Given that this is yet
another multi-billion dollar money scheme that governor
Shintaro Ishihara has overseen that is going bad (the first
being Shinginko), how is it that no one seems to able to
bring him to book for it?** (Source: TT commentary from
nikkei.com, Oct 28, 2010)

http://e.nikkei.com/e/fr/tnks/Nni20101029D28HH225.htm

=> Softbank moving ahead of competitors

Thanks to its exclusive contract with Apple, Softbank is
powering ahead of its rivals in the mobile phone market.
The group's operating profits rose 37% to JPY315.5bn,
marking its fifth straight half-year increase. As of
September 30th, Softbank had sold 3.7m iPhones, of which
900,000 iPhone 4's were sold in just the previous three
months. As a result of the iPhone, and users propensity to
access the carrier's servers more often, Softbank's data
revenues surpassed voice revenues in Q1 this year. (Source:
TT commentary from nikkei.com, Oct 29, 2010)

http://e.nikkei.com/e/fr/tnks/Nni20101029D29HH283.htm

=> Unemployment rate falls to 5%

Confounding pundits who don't see a marked improvement in
the financial condition of most companies and the economy
in general, Japan's unemployment rate fell by 0.1% to 5% in
September. Apparently most of the new hiring occurred in the
health and welfare sectors, with a small improvement in
manufacturing as well. There are currently 3.4m people out
of work, out of a total workforce of 63.09m. (Source: TT
commentary from mainichi.jp, Oct 29, 2010)

http://mdn.mainichi.jp/mdnnews/business/news/20101029p2g00m0bu022000c.html

=> Otsuka Holdings to go public in massive IPO

Otsuka Holdings, the parent of Otsuka Pharmaceutical and a
number of other drug and food firms, says that it will list
its shares in December, most likely on the Tokyo Stock
Exchange. The IPO is expected to be one of the largest in
Japan for 2010 and is likely to be closely followed by the
investing public. The group earned JPY98.5bn on sales of
JPY1.08trn, giving it a likely valuation of around JPY1trn.
(Source: TT commentary from reuters.com, Oct 29, 2010)

http://www.reuters.com/article/idUSTRE69S2UF20101029

=> Lawson to buy HMV Japan

One wonders what the synergy is, but regardless of the
logic, Lawson Inc. has said that it will buy music retailer
HMV Japan's shares on December 1st for JPY1.8bn. HMV Japan
is in all sorts of financial trouble, and lost JPY4.6bn in
FY2009 ending April 30th this year. It still has 37 stores
around the country and Lawson appears to be interested in
continuing to operate these. (Source: TT commentary from
japantimes.co.jp, Oct 29, 2010)

http://search.japantimes.co.jp/cgi-bin/nb20101029a2.html

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.

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

+++ CANDIDATE ROUND UP/VACANCIES

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bilinguals.

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Remuneration is JPY4m – JPY6m depending on your experience
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***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

------------------- CCH HR Seminar ------------------------

CCH Japan presents 'HR Seminar 2010'

Redundancy under The Current Economic Crisis
-Redundancy of Expatriate and Early retirement program-

Speaker: Hideki Kano: Partner of Anderson Mori & Tomotsune

Date:Friday, 19th November 1:30pm-5:00pm
Venue: Happo-en 5F Room 'Linden'
Number of Seats: 50seats
Language:English
Fees: JPY21,000 (Tax included)-->JPY18,900 (Tax included)
We offer a special 10% Discount for readers!!

Register at: https://www.cch-japan.jp/contents/register/form
For more details, please contact us at: support at cch.co.jp,
or 03-6234-3980.

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-----------------------------------------------------------

---------------- ICA Event - November 18 ------------------

Speaker: Garr Reynolds, Associate Professor of Business and
Communication, Kansai Gaidai University, Osaka

Title: 'Presenting Naked with Visuals: Thinking Like a
Designer'

Details: Complete event details at http://www.icajapan.jp/
(RSVP Required)

Date: Thursday, November 18, 2010
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members)
Open to all, at The Foreign Correspondents' Club of Japan

http://www.fccj.or.jp/aboutus/map
-----------------------------------------------------------

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Date: November 4th, 5th 2010
Place: United Nations University, Tokyo, Japan
Price: NZ$350
Registration: http://www.apabis.org/events/
-----------------------------------------------------------

----------------- Kea John Kirwan Event -------------------

On Wednesday 8 December, Kea Japan will host an evening
with legendary All Black and current Japan National Rugby
Team coach John Kirwan at the New Zealand Embassy in Tokyo.

With Japan having been selected as host for the Rugby World
Cup in 2019, we are expecting a number of Japanese friends
to attend as well on the night. Tickets are limited to 120
so please reserve as soon as possible.

Date: Wednesday, 8 December 2010
Time: 19:00 to 21:30 (doors open at 19:00)
Venue: New Zealand Embassy, Tokyo
Cost: 8,000 yen (includes all food and drinks)
Ticketing: To reserve a ticket contact
japan at keanewzealand.com.

The KEA John Kirwan Event will be supported by adidas Japan.
adidas has supported the All Blacks and rugby in Japan
since the 1990's and is also proud to support this event.
A variety of Adidas prizes will be given away on the night.

This event is supported by: The New Zealand Embassy (Tokyo),
Tourism New Zealand, Kiwi Contacts and the Australia New
Zealand Chamber of Commerce (ANZCCJ).
-----------------------------------------------------------

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

+++ 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 comments or feedback this week.

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

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+++ ABOUT US

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

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