Terrie's Take 626 -- Why Ohio Shouldn't Cut its Foreign Offices, e-biz news from Japan.

Mon Aug 15 00:02:15 JST 2011

* * * * * * * * * 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, August 14, 2011, Issue No. 626

+++ INDEX

- What's New -- Why Ohio Shouldn't Cut its Foreign Offices.
- News -- US$800m auto plant in Mexico for Honda
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback -- Was Nikkei too fast on the
trigger about Hitachi-MHI merger rumor?
- News Credits

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+++ WHAT'S NEW

Some readers may know that within the LINC Media group of
companies, of which Japan Inc. Communications putting out
this newsletter is one, we also represent the State of
Ohio. This is a representative office position that Japan
Inc. won in an open bid back in 2008 and the team has been
helping Ohioan companies find business partners and markets
in Japan, as well as helping Japanese companies do Foreign
Direct Investment (FDI) into Ohio.
It's been an interesting journey so far, with around 15-20
companies a year coming through the Ohio Department of
Development (ODOD) Global Markets Division. Not many people
realize that Ohio has the second largest population of
Japanese companies in the USA, thanks to Honda setting up
the first major Japanese auto factory in the USA back in
1982 in Marysville. They since have caused hundreds of
parts suppliers to set up shop there as well, and even
though those suppliers now also support Toyota, Nissan, and
others in nearby states, they stay in Ohio for convenience
and collaboration.

Ohio learned well from the Japanese experience, and in 1990
set up a network of overseas offices that had the state
leading the way in foreign presence and foreign
relationship building. At the peak there were 13 offices,
although currently there are 11. They are located in
strategic places such as Canada, Mexico, Belgium, Chile,
Brazil, Israel, South Africa, Southeast Asia, China, Japan,
and India. Surprisingly, given that level of presence, the
publicly stated budget for the offices is just US$3.5m,
which includes the Columbus head office. This is a pretty
efficient number that many exporting companies would be
happy to be able to achieve.

It was with some surprise then, that a decision was made a
few days ago (and which is now on public record and thus
why we can discuss it), to substantially reduce the Global
Markets team team from 19 down to 4 people, and to possibly
cut all the foreign offices. While we realize that Ohio
like most states is having a massive challenge balancing
its books in the current economic environment, it is hard
to comprehend why, if the US national imperative is to have
the country ramp up its exports again, that these
well-established channels for trade leads and development
are being dumped because of short-term budget cuts.

[Continued below...]

---------------- Would You Write to Eat Out? --------------

Metropolis' www.metrodining.jp website is gaining followers
at a prodigious pace, and we need more expertly written
food reviews.

If you can write, and if you eat out a lot anyway, just
how many reviews of places you have already been to would
you be willing to write, in return for a meal out for two
as payment? Or, what if you were "paid" in hotel rooms at
resorts outside Tokyo, or in brand name clothing or airline
tickets?

We're interested to know the answer to that question and
invite readers to contact us and share their opinions.
Better still, if you would like to be a guinea pig in a
new barter payment program we are considering for
Metrodining.jp, then email and let us know that, too.

Contact us at terrie at metropolis.co.jp to kick things off.
------------------------------------------------------------

[...Article continues]

To be fair, our understanding is that Ohio Governor Kasich
plans to have many of the export-building functions of ODOD
Global Markets incorporated into JobsOhio, a new
semi-private organization tasked with investing in
companies to push up their exports more. Because the
organization is new, there isn't any real definition yet on who
will get assistance and who won't, but given that it is
premised on investments, we can assume that companies not
deemed as being worthy of investment (or not wanting it)
will no longer use state assistance to build exports. This
sounds like a service downgrade to us.
Actually, this approach of a government focusing on export
winners is not unique, and in the last ten years there has
been a notable move to this philosophy amongst government
trade organizations in many other countries as well. On a
macro level it means that money goes to the companies
most likely to use it effectively and theoretically this
translates into higher overall exports for the nation -- so
it could be a good thing. But on the downside there is the
moral issue of making it so much more difficult for smaller
firms to get cost-effective export help.

On top of the moral issue there is the loss on the state's
investment in its trade offices network and also the
knock-on effects of closing down a trade development
facility which has run smoothly for 20 years and which was
producing a demonstrable level of performance and results.
Firstly, the financial loss. Ohio's roughly US$80m
investment over the last two decades has allowed it to
create a massive database (if Japan is anything to go by)
of tens of thousands of foreign prospective partners,
customers, and investors. Without maintenance by local
bilinguals, this database will soon degrade and become
worthless in a matter of months. One would think that Ohio
would be looking to protect this investment and build on
it. Indeed, thanks to having just such a database, foreign
office staff are able to act on Ohio company requests for
help to get market numbers, partner introductions, or push
a deal through, with surprising speed. 3- to 5-day
turnarounds to get a project started and 6-8 weeks to
deliver are not unusual. This certainly won't be possible in
the new regime if there are no in-country local
representatives.

Secondly, the knock-on effect. It's a given in Asian
business, not just Japan, that you show long-term
commitment to your partners. Not just for Ohio, our Tokyo
market entry team deals with many companies from other
states and countries, who quickly realize after they have
won their first big contract that they are expected by their
new Japanese partner to set up a company here -- so as
to show commitment. This requirement is not just custom,
it's very real and foreign firms who won't do it soon find
their new deals drifting on to the rocks.

To the western mind, setting up a local team means an
entity to service the R&D and marketing needs of the local
partner. And so most companies head off in this direction
and it's a start. However, for the local Japanese partner,
the presence of a local office is all about having someone
to interact with, to scold, and who will get them
attention and results from head office if things don't go
well. They have learned from experience that a foreign firm
trying to manage a Japanese business from headquarters
is going to suffer from "out of sight, out of mind" syndrome.

Local presence also means local legal responsibility and
thus more care by the US firm over its Japan-based
commitments and involvements. This may not seem like a
desirable state of affairs for the US firm, but ironically
a local formal presence can actually mean less overall
risk, since it generally limits court decisions to the
local firm only. This means that in the worst case scenario
the US firm could sacrifice the Japan entity by allowing it
to go bankrupt, without immediate damage to the
headquarters.

Now back to Ohio...
A spokesperson for JobsOhio, a Ms. Tanner was reported
in the local press as saying, "It could also be more
efficient to have officials travel overseas and meet with
certain investors and businesses a couple of times a year
rather than have a presence in the country year-round."
This seems a bit disingenuous, given that Kentucky and
other states and countries are actively competing for and
have successfully won billions of dollars of Japanese
auto businesses that potentially could have gone to Ohio.
Think Toyota, Nissan, Firestone (manufacturing) and others.
These competing states are still very much in business in
Japan and will make the most of this opportunity to fill
the vacuum. Ohio should not be surprised at the
consequences.

But there does appear to be slim chance of a reprieve,
since the final decision on the foreign offices doesn't
seem to have been made yet. The relatively new director of
ODOD is Ms. Chris Schmenk and according to her profile on
Linked In, Ms. Schmenk is still the Mayor of Marysville --
you know, the place where Honda has its main US operations
and employs 13,400 people? We imagine that Honda is still
the largest local taxpayer at Marysville, and so she would
be in an ideal position to influence JobsOhio to understand
Japanese and Asian cultural needs, and in particular the
need to win their trust through strong bilateral links, not
fleeting hit-and-run unilateral ones.

**********

Lastly, two things:
1. If you like Australian, Kiwi, California and other New
World wines, then you probably know about Village Cellars
(VC), Japan's largest independent importer of such wines.
Headed by Mr. Nice Guy of the Japanese wine world,
Richard Cohen, VC have a fantastic selection at their
cellars in Nagano and are easy to deal with in English.
The only problem was that you couldn't buy from them
through an online store. Well, the good news is that
through their WineBuzz brand, now your can. They're
online at Metropolis' first web store. You can order
already, at http://shop.metropolis.co.jp/winery/, and
shipments will resume from Wednesday the 16th, after
WineBuzz comes back from a short Obon break.

2. Next week is a slightly delayed Obon holiday for us: one
of the four weeks a year that we take a break from Terrie's
Take -- it's too hot to think properly anyway. We will be
back on duty on August 28th.

...The information janitors/

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

+++ NEWS

- US$800m auto plant in Mexico for Honda
- 3 die, 729 hospitalized due to heat
- Vegetable prices climbing
- Train operator goes into agribusiness
- New legislation on alternative power by September

-> US$800m auto plant in Mexico for Honda

Honda Motor has announced that it will build an US$800m
auto plant in Guanajauto State, about 330km from its
existing plants, to produce approximately 200,000
subcompact cars for sale in North America. The plant will
begin operation in 2014, and will lift Honda's North
American production to around 1.83m units a year. ***Ed:
Honda hasn't said what models they will produce, but
speculation is that they will be the Fit, CR-Z hybrid, and
Insight hybrid. These vehicles are currently assembled in
Japan -- so that won't be good news for Japanese workers.**
(Source: TT commentary from autonews.com, Aug 12, 2011)

http://www.autonews.com/apps/pbcs.dll/article?AID=/20110812/OEM/110819959/1054

-> 3 die, 729 hospitalized due to heat
If you think it's hot -- and Japanese summers always are --
well it is. The Met Agency has said that temperatures
nationwide exceeded 35 degrees on Thursday. The current
heatwave up until Wednesday resulted in 3 deaths from
heatstroke and more than 729 hospitalizations, 14 of them
serious. ***Ed: The heat is likely to be with us for this
coming week, then ease a bit the following week.**
(Source: TT commentary from japantimes.co.jp, Aug
12, 2011)

http://search.japantimes.co.jp/cgi-bin/nn20110812a2.html

-> Vegetable prices climbing

Hot weather is also responsible for driving up vegetable
prices, as you most surely will have noticed at the
supermarket this weekend. The wholesale prices of tomatoes,
zucchini, and soybeans are up by up to 40% over this same time
last year. Tomatoes on Friday were selling wholesale for
JPY402/kg, a situation blamed on excessive heat in Aomori
interrupting pollen development of the fruits. Shipment
volumes were down 10%. (Source: TT commentary from
e.nikkei.com, Aug 13, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20110812D1208A02.htm

-> Train operator goes into agribusiness
In what seems to be a logical and market-influencing step,
rail operator Kintetsu Corporation has decided to go into
the vegetable growing business. The company is going to set
up lots on unused railway land they own but which was never
developed, particularly in Nara and Mie. The company
appears quite serious about the proposal, and is going to
also look at leasing unused land from farmers and grow
crops on the land-owners' behalf. ***Ed: Just imagine: you
freight your veges on your own rail network, to your own
supermarkets, for customers living in your subdivisions
along your own railway lines. Grand visions and business
ecosystems are what Japan's railway operators and other
conglomerates are all about -- and the result is
cost-effective transport, housing, and hopefully, food.**
(Source: TT commentary from e.nikkei.com, Aug 13, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20110812D1208A05.htm

-> New legislation on alternative power by September
The Diet is working on new legislation, called the feed-in
tariff law, which will force power utilities to purchase
power from outside vendors. The new law has gained
significant momentum since the Fukushima nuclear power
plant disaster, and is predicted to be the catalyst for a
rapid increase in solar and wind power installations over
the coming decade. The bill aims for alternative energy to
supply 20% of the nation's energy needs by the early
2020's, up from just 9% now. The cost of implementing the
bill will be significant, with necessary upgrades to the
national grid alone expected to cost around ¥2trn.
(Source: TT commentary from wsj.com, Aug 13, 2011)

http://on.wsj.com/nU2Fjq

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

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

+++ UPCOMING EVENTS/ANNOUNCEMENTS

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find out what it takes to make it successful. Terrie Lloyd,
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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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All proceeds of the concert will go to charities in Tohoku
providing scholarships for children to study overseas.

For information and bookings; www.materock.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.

*** In TT625 we considered why Hitachi might be merging
with MHI, as reported by the Nikkei. Our reader points out
that it may all just be speculation.

=> Our reader says:

I'm not sure Hitachi's denial has anything to do with being
"proud and feudalistic." I used to be an exec at another
major Japanese company and found that Nikkei routinely
published stories that I knew were false. Some of these,
such as about new products or technologies we were
supposedly working on, were quite detailed. But wrong.
Nikkei is known for running "speculative" stories, shots in
the dark based on a whiff of rumor.

I can't be certain that's what happened in this case, so
your assessment might still be right. But without more
inside knowledge, and given that it was a juicy story like
a merger, I'd give it at least 50-50 that Nikkei was just
guessing.

*** Our response:

Thanks for the feedback. Yes, we agree about the Nikkei.
However, in this case Reuters had an interview later with
Hitachi and it seems that there really was a merger on the
table. That’s why Reuters could publish an article saying
the deal might be derailed.

Our point about Hitachi’s denial is that it was so terse
that it virtually serves no purpose. A proper response
would have to been to enlarge a bit on why the two
companies were talking, and to offer a more complete
statement at a later date. We found ourselves thinking,
“These guys are giving an almost identical reaction to
TEPCO and Toyota when caught in a crisis.”

Absolutely no clue of how to manage the press, and this is
typically because they’re not used to being questioned
(i.e., they’re proud and feudalistic). These firms live in
a connected world now, where speculation becomes fact.
They need to learn to bend and interact or they will have
increasing problems like this merger leak.

*** Reader's follow-up:
Thanks for the reply, and I take your point. They were
certainly clueless about dealing with the press. Apropos
of "proud and feudalistic," though, a different take still
may be possible: as one of my American colleagues explained
top management thinking to me soon after I joined that
major Japanese company I mentioned. She said, "Outsiders
think they're running the most internationalized Japanese
company. But actually they behave like they're running a
family-owned furniture company in Minnesota that's grown
too big too fast." Turns out she was right in more ways
than one.

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

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+++ ABOUT US

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

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