Terrie's Take 833 -- Predictions for 2016, e-biz news for Japan

Terrie's Take terrie at mailman.japaninc.com
Mon Jan 11 18:10:55 JST 2016

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term 
technology and media entrepreneur living in Japan. 

General Edition Sunday, January 10, 2016, Issue No. 833

- What's New -- Predictions for 2016
- News -- - Nicole Group sells 49% of firm
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Grilled Eel in Chiba, Teshima Art Museum in Kagawa
- News Credits

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Welcome to the first issue of Terrie's Take for 2016. Usually our first 
Take features predictions about general Japanese business and politics. 
But we thought we'd focus a bit more on our core expertise, which is 
tourism, and the various factors that will affect it for the year -- 
ranging from racism to earthquakes. We hope you enjoy it.

* Traveler numbers to Japan will peak in 2016

The Japan tourism industry has enjoyed amazing inbound traveler growth 
since its nadir in 2011, with an expected 19m inbound travelers for 2015 
(once the numbers are finally tallied late this month). About 30% of 
this traffic is from China, and while the number of middle class 
travelers from that country continues to grow, fears about the health of 
the stock market and housing sectors are likely slow that traffic down 
-- which could have a severe impact on tourism in Japan. Now, we don't 
think the issues in China will come to a head immediately, and thus the 
increases will continue for the next couple of quarters, but we do see 
the growth slowing and topping out at year end.

The Japanese government could solve this pending loss of momentum by 
increasing its efforts to diversify and deregulate. But it's hard for 
them to do this while everyone is still making so much money out of the 
free-spending Chinese. Basically there is a short-term addiction to 
Chinese cash, and most serious tourism development funding is being 
spent on getting more Chinese customers. So any serious effort to 
develop other markets will only come after the China traffic starts to 
dry up. The good news is that after a setback in 2016-2017, and 
hopefully alongside a China recovery, things should come roaring back in 
2019-2020. Why? Because despite China's situation, the World Rugby Cup 
and 2020 Olympics will draw millions of new visitors to Japan's shores.

* Airbnb business model will become legal (sort of)

The Cabinet Office has already said it supports the concept of rentals 
of private accommodation to tourists, and now the local governments in 
Osaka and Ota-ku (Tokyo) have approved their tax-payers doing such 
rentals. The problem is that while the bureaucrats have handed out 
freedom with one hand they have been snatching it back with the other. 
By this we mean that each of the Osaka and Ota-ku assemblies, and 
presumably other local governments to come, have set an impractical 
minimum-stay period 7 days. Most Airbnb rentals are for 1-3 days, so the 
marketplace still has to operate illegally in order to meet commercial 

We do expect, however, that this situation will be resolved mid-this 
year, by new legislation in the Diet. We have not heard what shape this 
legislation will take, but we imagine that it will be difficult for 
politicians to not put more "gotchas" in there. So, our guess is that 
the new laws will be slanted towards local sensibilities and support of 
the regions. Maybe one direction will be to allow more freedom on guest 
stays so long as the landlord pre-registers with an umbrella 
semi-government organization that will conduct inspections and issue 
guidelines or licenses. If this happens, it will undermine the low-cost 
Airbnb model and favor organizations that have an NPO structure.

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* Uber will expand in the countryside

Uber pulled its test run business in Kyushu last March after being told 
by the authorities their business was illegal - the drivers were not 
licensed cabbies. So that leaves them with Tokyo, where they are forced 
to operate through existing taxi-licensed outsourcing arrangements. The 
company says that it is hard to compete with a Japanese taxi industry 
that is already responsive, punctual, renews its cars, and is relatively 
low-cost (considering the costs of operation). This is very much not the 
case in the USA, where Uber has forced a lazy taxi industry to respond 
in kind.

But there is a massive chance for Uber to start operations in the 
countryside of Japan, where there are many underemployed citizens and 
lots of retirees unable to drive and thus shop. No one is matching these 
two parties together and Uber could quickly work up an NPO business 
model that would be socially beneficial and thus legally acceptable.

The tourism sector in the countryside is also in strong need of Uber. We 
have been chatting with a tourism destination company in Niseko where 
they have a serious transportation problem. Our guess is that Uber is 
not ready to give up on Japan, and its management team is certainly 
being creative in finding new ways to build a business here. Sowing the 
seeds of a sharing economy in the countryside, using a car-sharing 
metaphor (already legal) may well provide the company with a sustainable 
beachhead into Japan.

* Bus transportation rules will change again

Still talking about the all-important transportation sector, several 
years ago the Ministry of Transport changed the rules on bus driver 
working hours after in 2012 a Kanazawa tourist bus went off the road 
near Tokyo due to driver fatigue, killing seven people. Since 2014, bus 
drivers are now only allowed to drive 500km and/or drive for 10 hours. 
This means that if you want to move a group around for a week you need 
to have at least two drivers on board and a limited driving schedule. 
These restrictions are well intended, but have created a serious 
shortage of bus drivers in the process.

So, given that bus drivers are controlled by the same ministry which is 
responsible for driving tourism growth out into the regions (a top 
priority for the government), something has to be done to free up more 
bus drivers. Japan is the home of compromise, and after several bus 
accidents last year that involved the other driver (usually of trucks), 
we would not be surprised if it will be argued that the current tighter 
working hours are too tough and not necessarily the main cause of 
accidents anyway, so they should be relaxed. One way to do this would be 
to fit the cabs of long-distance buses with technology that monitors 
hours, driver alertness, and other general safety features.

This same bus driver shortage may also become a point of leverage for Uber.

* More LCCs into small regional airports

The Japan route for many Asian airlines is one of their most profitable, 
and so emerging LCCs soon plan for a Japan connection. The problem they 
face is that the major airports have no spare landing slots, which 
leaves the regional destinations. We expect that more 
airline-to-local-authority deals will be signed over 2016, setting the 
scene for charter flights and seasonal services. We saw an emergence of 
this type of tie-up with Chinese and Taiwanese LCCs flying in to various 
small Kyushu airports on an unscheduled basis last year. While not a 
resounding success, the local businesspeople in these cities still speak 
of the surge in travelers and sales.

* Backlash against tourists

Providing a counterpoint to some positive expectations in the tourism 
sector, we also, unfortunately, expect a growing backlash to start to 
surface concerning foreign tourists, particularly those Chinese tourists 
lacking an understanding of Japanese sensitivities. Already there is 
plenty of social media commentary about problems with tourist trash, bad 
manners, locust-like professional shopping, cooking inside and 
overcrowding hotel rooms, noise, and more besides. The situation isn't 
out of hand yet, but do we think it's only a matter of time before hotel 
chains in particular start to close their doors to tourism operators 
specializing in certain nationalities.

The problem will extend to all tourists by virtue of the fact that the 
Japanese don't like to be seen as picking on any one group (and even 
though there is no law preventing discrimination based on nationality). 
And so we see the backlash expanding in pockets to ill-feeling about all 
foreign visitors. We hope that the rightist factions here in Japan don't 
take cues from the populist politicians in Europe (re Islamic 
immigration), otherwise Japan could earn itself an ugly reputation.

* Fukushima Daiichi plant will hit news again

Rounding out our forecast is another possible major negative -- the 
renewed fear of radiation. It seems strange to us that there has been 
very little news about the  Fukushima Daiichi powerplant in the last 4-5 
months. We tend to follow Mochizuki-san's http://fukushima-diary.com 
website, which collates lots of news items about the destroyed power 
plant and TEPCO's struggle to make it safe. The problem with Fukushima 
Daiichi is that unless there is a tidbit fed from TEPCO, the only other 
news we see is from the effects of radiation on sea life, the 
atmosphere, and nearby humans. And from what we can see, things are not 
good. Take the increase in children with thyroid cancer for example, or 
the failings of the new sea wall, which has actually exacerbated the 
levels of contaminated water at the site.

And if not the Daiichi power plant itself coming back into the news, how 
about another earthquake damaging another nuclear power plant? That 
would most certainly knock the 2020 Olympics off course.

Scientists publicly announced back in 2012 that the much-anticipated 
Tokai earthquake (expected to be centered around Izu-Shizuoka area) has 
a 70% chance of occurring before 2017... and an 80% chance by 2050. This 
earthquake is expected to threaten the Hamaoka nuclear power plant 
located in between Hamaoka and Shizuoka cities. If this aging facility 
is damaged, it is only 30km away from a population of more than 800,000 
people, and THAT probably would be enough to scare away the Olympics 
organizers, and much of the population of both cities, not to mention 

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+++ NEWS

- Nicole Group sells 49% of firm
- Japanese diapers doing roaring trade in China
- NEC may buy Indian IT company
- Sumitomo buys U.S. house builder
- Comparing US/Japanese CEOs on risk-taking vs. rewards

=> Nicole Group sells 49% of firm

Well known foreign entrepreneur Nico Roehreke has successfully sold 49% 
of his Nicole Group BMW dealership to Penske Automotive Group of the 
USA. No price was mentioned for the shares, but the fact that Roehreke 
managed to retain control of the business indicates it was a solid deal 
for the existing shareholders. Nicole Group owns 4 BMW, 3 Mini, and 1 
Rolls-Royce dealerships, and is the exclusive importer and distributor 
of BMW Alpina vehicles for Japan. ***Ed: 40+ years of hard work building 
the group and a nice guy to boot. Well done Nico!** (Source: TT 
commentary from Forbes.com and penske.com, Jan 07, 2016)


=> Japanese diapers doing roaring trade in China

Chinese consumer trust of local products, especially for the newborn and 
infants, is so low that there is now a roaring trade in 
parallel-imported baby diapers from Japan. This entertaining FT article 
says that organized diaper gangs are buying Kao's Merries stock en masse 
from retail outlets, loading them into containers to export and resell 
in China at high profits. The situation has gotten so out of hand that 
Kao can't keep up with in-Japan demand and stores nationwide are 
rationing purchases to one pack of diapers per customer. Kao will 
apparently take 12 months to significantly ramp up production, and so 
the shortage may last for some time. (Source: TT commentary from ft.com, 
Jan 07, 2016)


=> NEC may buy Indian IT company

Hard to say if it will be a good match or not, but certainly NEC needs 
to do something about the cost of its almost exclusively Japan-based 
engineering workforce. Apparently the company is in talks to buy out 
HP-owned Bangalore-based IT and BPO outsourcing company Mphasis. ***Ed: 
Mphasis, which is listed on the Mumbai Market, has a market cap of 
roughly US$580m, meaning that based on historical premiums paid by 
Japanese firms we can guess the target valuation price will be somewhere 
around US$800m-US$1bn.** (Source: TT commentary from Reuters.com, Jan 
08, 2016)


=> Sumitomo buys U.S. house builder

In a sign of the times, where local bedrock companies are finally 
realizing that the Japanese market will only continue to contract, 
companies that have little global DNA are nonetheless being forced to 
expand overseas or become irrelevant. That's why Sumitomo Forestry is 
buying U.S. home builder Dan Ryan Builders. Sumitomo is paying JPY10bn 
($83.3m) for 60% ownership of the privately listed DRB Holdings. Hard to 
say if this was a high price or not, but the deal does allow the 
Japanese firm to increase its overall sales from 8,300 homes a year in 
Japan to around 10,000 a year when the U.S. is included. ***Ed: We 
expect to see many more domestic companies make similar M&A moves over 
the next couple of years - so it should be a good time for Tokyo-based 
M&A lawyers.** (Source: TT commentary from nikkei.com, Jan 07, 2016)


=> Comparing US/Japanese CEOs on risk-taking vs. rewards

Interesting interview in the Japan Times with the (non-executive) 
Chairman of KKR Japan about comparisons between Japan and the USA for 
CEO leadership skills versus what they get paid. Not surprisingly, Saito 
pans local leadership skills but also points out that U.S. CEO salaries 
are exorbitant. The article notes that Japanese CEOs of large companies 
on average get just 10% of the salary of U.S. executives of similarly 
sized companies, and further that incentives for Japanese executives 
amount to just 14% of salary while they total 69% in the USA. ***Ed: 
Saito puts his finger on why Japanese CEOs accept low salaries. He says 
primarily it's because this allows CEOs to avoid taking risks and retire 
gracefully after 3 years in the position, even if things don't work out. 
Then, secondly, it's because during their "retirement" they actually get 
to draw an adviser salary for many years afterwards. Yup, so Japanese 
leaders are not just doing it because they're good guys.** (Source: TT 
commentary from japantimes.co.jp, Jan 6, 2016)


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



=> No events/announcements this week.


=> No corrections or feedback this week.



=> Kawatoyo Grilled eel along Narita's Omotesando
Chiba Food

Kabayaki fans won't want to miss this. Unless you're on the Narita 
Express straight for the airport/central Tokyo, it's worth stopping by 
in Narita itself to sample one of the local specialties at Kawatoyo alone.

Nestled half-way between Narita station and Shinshoji temple along the 
traditional Narita-san Omotesando street, this little gem will quickly 
grab your attention on approach. With eel roasting on the grill on one 
side and staff fervently preparing fresh skewers on other other, if the 
sweet Kabayaki/eel aroma wafting up the street doesn't grab you, the 
sheer spectacle of the chefs plying their trade surely will.

It doesn't take much to figure out there is a humble restaurant behind 
this glitzy shopfront and you'd be wise to venture inside. There is 
usually a regular flow of Japanese customers coming and going which 
tells you Kawatoyo is just as much about substance as it is about style.


=> Teshima Art Museum and Cafe, Kagawa
A primeval, womb-like experience

Have you ever dropped a coin on the floor and see it roll around and 
around, having a life of its own? That is the feeling I get from 
watching the water droplets at Teshima Art Museum. It isn't as trite as 
this, but in reality I struggled to describe this art work.

"A space, just like that, comes into being as something that goes back 
to nature as it is" Rei Naito (2010). Rei considers this space as "the 
continuity between nature, which forms the basis of this world, and life 
on earth. It is something that is always with us, something that 
everything is born from and grown by, and makes life on earth possible".

There is an overwhelming feeling of weightlessness when I step into this 
modern day cathedral of light and fluidity. The water droplets are 
mesmerizing as if they have a life of their own, like eggs being 
transformed to tadpoles. However, it was not until I got home did I 
realize how this museum got under my skin. Months later, sitting on the 
beach half-way across the world and seeing a trickle of water flowing 
from the rocks after the rain, it brought back the simple yet 
mesmerizing movement of water droplets at the museum.




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

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