Terrie's Take 841 -- Mis-allocation of Funds: Zombies and Parasites vs. Start-ups. E-biz news from Japan.

Terrie's Take terrie at mailman.japaninc.com
Mon Mar 7 09:10:38 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, March 06, 2016, Issue No. 841

- What's New -- Mis-allocation of Funds: Zombies and Parasites vs. Start-ups
- News -- 35,000 babies in 2014 have foreign parent. Really?
- Upcoming Events
- Corrections/Feedback -- Marcus Yip Hospital Fund update
- Travel Picks -- Onsen in Noto Peninsular, Treasure chests in Osaka
- News Credits

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The Nikkei is busy trumpeting a start-up event here in Tokyo later this 
month, called Pioneers Asia. The company is working hand-in-hand with 
government and a number of prestigious universities to celebrate 
entrepreneurship and start-ups. Normally we'd say it's great to see the 
mainstream media try to do something about the sorry state of support 
for new companies in Japan, but frankly we can't help feeling the whole 
thing is a farce. Although it's well proven that most Japanese work for 
small and medium-sized companies (SMEs), making SMEs vital for the 
economy, and there are indeed more than ten thousand new companies being 
set up every year, the reality is that Japan currently is in economic 
survival mode and when it comes to small company support, the words 
"vested interest" and "parasitic behavior" come to mind rather than 
"nurturing" and "creation".

Why do we say this?

Well, let's start firstly with the deplorable level of financial support 
for SMEs by looking at Fukuoka, a region highlighted by the Nikkei as 
part of its run up to the Pioneers Asia event. Readers may recall that 
Fukuoka was designated by the Abe government in 2014 as a "national 
strategic special zone" for start ups. Unfortunately, in the last two 
years, all the government has managed to achieve has been to ease 
restrictions on the height of buildings downtown...! How helping local 
building developers will magically create a flurry of new companies that 
can't afford the new space anyway, is beyond us. Apparently the 
government also relaxed residency requirements for foreign 
entrepreneurs, but there are no details published on the web -- just 
tantalizing hints that will eventually frustrate any foreign 
entrepreneur thinking about Japan.

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[...Article continues]

What companies need most when starting out is capital, good people, and, 
in the case of most Japanese youthful start-ups, some proper business 
experience. Granted, a new VC fund in Fukuoka named QB Capital has been 
formed with JPY3.1bn yen to invest, but two years in, it hasn't actually 
started yet, and worse still, it's tied to the Technology Licensing 
Organization (TLO) belonging to Kyushu University. Meaning, that if 
you're not a student at that university, you're out of luck. Actually, 
the TLO-tied VC business model hasn't been successful anywhere else in 
Japan either. Tokyo University has such a fund, and when we visited them 
last year, we found them to be struggling to find sufficient students 
who are silly enough to start up a business, especially when as Todai 
graduates they can get a job with almost any major company they like.

You can contrast the struggling SME end of the market, where most jobs 
are created, with the top end of the market where the government is 
happily creating a frothy environment for its buddies. Japan recently 
passed a very dubious milestone at the end of February. Large listed 
companies around the country have apparently passed JPY1trn (about 
(US$9.3bn) in capital gains profits over the 9-month period 
April-December, 2015.

The problem is that most of these capital gains coming from large 
corporates selling off troubled subsidiaries -- letting them "re-focus 
on core business" and all that. The Nikkei didn't go into a lot of 
detail as to who is buying these loss-making subsidiaries, but we 
suspect that most are either carve outs whose values are artificially 
pumped up by rising stock market (indirect government stimulus), or the 
result of direct funding or acquisition by government entities such as 
the INCJ, DBJ, and other downstream government proxies (direct 
stimulus). To us, these profits are not the sign of a natural, healthy 
marketplace, because selling assets is normally so alien to Japanese 
companies (i.e., they'd NEVER normally sell a healthy entity).

Instead, all this artificial stock market activity is inevitably drawing 
funds away from smaller firms, and has completely distracted the Abe 
government from putting cash where it would really help.

Then don't get us started on zombie companies like Sharp, which has 
already had billions in public money and nonetheless has eventually 
fallen prey to Taiwan's Honhai as it has proven it can't fix itself from 
within. What is strange is that the government is still obsessed with 
using public funds (albeit via INCJ, which made a failed JPY400bn offer) 
to rescue a "core" company like Sharp, when history has already proven 
that allowing foreign capital in and introducing internal personnel/debt 
discipline can bring much better results for the Japanese firm. Japan 
Airlines is a prime case in point.

And the parasites? Well, just this week, and very indicative of the food 
chain in Japan, a small but emblematic news item came up. Pasona and 
Panasonic announced they are going to set up a patent "consulting" 
service to help small- and mid-sized companies with local and 
international patents. On reading this we asked ourselves why are these 
two companies even bothering? Japan is actually reasonably well supplied 
with patent specialists already, and there doesn't seem to be a shortage 
of know how that we can see. Pasona has a contract with the Japan Patent 
Office (JPO) to do prior art searches and so at least it has relevant 
experience, but why Panasonic is doing this j/v is not obvious... other 
than to say they are nice guys...?

Rather, we suspect that Panasonic and Pasona are going to try to sell 
the services to unsuspecting SME companies by offering the services in 
return for certain rights in the patents themselves. This is just a 
guess by us, but given that applying for and keeping patents is 
expensive, and most Japanese SMEs just don't have that kind of money, 
it's hard to see how the new venture could work otherwise. This isn't 
evil, but it does indicate once again that corporate Japan seems bereft 
of the ability to find supportive ways to work with SMEs, instead 
preferring to either borrow or bind innovators to extract juice from 
them. Unfortunately, this gap between supportive investment and 
parasitic behavior seems to be getting wider by the day.

...The information janitors/


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+++ NEWS

- Japan diesel vehicles significantly exceed safety margins
- 35,000 babies in 2014 have foreign parent. Really?
- Do new rules to govern Bitcoins have teeth?
- Honda's new sheet metal laser breakthrough
- Japan's first "unicorn" venture company is Mercari

=> Japan diesel vehicles significantly exceed safety margins

In the wake of the Volkswagen scandal over excessive diesel emissions in 
road tests versus lab ones, it has been discovered that Japan has the 
same problem. Apparently tests just conducted here have found that 
Toyota's diesel Hiace van, for example, has a real-world NOx emission 
level of 10x published lab tests. Apparently Japanese makers have been 
programming their cars to not use their NOx cleaning (EGR) systems at 
temperatures of less than 10 degrees Celsius, since doing so can damage 
the vehicle's catalytic converter. The Hiace was not the only culprit. 
Other vehicles to fail the tests include the Prado Land Cruiser, 
Nissan's X-Trail, and Mitsubishi's one-box Delica vans. Only Mazda 
diesels met spec. ***Ed: Gaiatsu is a handy thing to have. Although 
Volkswagen has taken all the public rejection, it's not the only guilty 
party, and this foreign publicity has nicely forced Japanese car makers 
to fix the problem while still (it seems) letting them off the hook in 
terms of penalties.** (Source: TT commentary from forbes.com, Mar 05, 2016)


=> 35,000 babies in 2014 have foreign parent. Really?

According to a Kyodo News report, government data shows that about 
35,000 babies, about 3.4% of total nationwide births, had at least one 
parent who is non-Japanese. The rate of foreign parents was highest in 
Tokyo, at around 5.9%, followed by Aichi-ken at 4.9%. Chinese spouses 
were most common, followed by Koreans, then Americans. ***Ed: Actually, 
this data surprises us, because research done back in the 90's found 
that international marriages tended to produce far more children than 
all-Japanese couples, around 2.9 kids per couple. And yet, with this 
latest announcement, if there are 35,000 international marriages each 
year, and only 35,000 births, that would imply that statistically there 
is only one birth per marriage? No. There is something wrong with these 
numbers from Kyodo.** Source: TT commentary from japantimes.co.jp, Mar 
05, 2016)


=> Do new rules to govern Bitcoin have teeth?

New bills have been submitted by the Cabinet office to the Diet which 
will bring Bitcoin and other virtual currencies under the control of the 
Financial Services Agency (FSA) shortly. If passed it will mean that all 
operators in Japan will have to separate their assets from those of 
clients, have their finances audited, and comply with anti-money 
laundering and know-your-customer rules. ***Ed: The problem is that 
Bitcoin is by virtue of being virtual, is a currency that can easily 
operate within Japan while the operator stays outside the country. This 
means that players can still do whatever they like, by doing the same 
thing that hedge funds and other investors already do: incorporating 
themselves in HK and Singapore (or better yet, the British Virgin 
Islands) and letting them trade freely and without concern of 
regulations here in Japan.** (Source: TT commentary from 
the-japan-news.com, Mar 06, 2016)


=> Honda's new sheet metal laser breakthrough

In a development that promises to allow Honda to both cut costs and 
significantly improve the turnaround times on new vehicle designs, the 
company has announced it has created a laser-based sheet metal cutting 
line, now operating at its Yorii (Saitama) factory. The new system cuts 
car sheet metal panels to order and is the first mass production system 
to do so. Honda's breakthrough has been to not only create a high-power 
laser suitable for fast industrial-grade auto parts production, but also 
a handling system to feed the tens of thousands of metal sheets passing 
through the system each day. Honda says the new laser system is 10 times 
faster than using conventional lasers, and being laser-based means they 
need far fewer dies to be tooled for each model change/enhancement. 
(Source: TT commentary from asia.nikkei.com, Mar 05, 2016)


=> Japan's first "unicorn" venture company is Mercari

A new funding round, probably its last before going public, of JPY8.4bn, 
has given peer-to-peer marketplace app developer Mercari the status of 
being the first Japanese company to become a so-called "unicorn" (i.e., 
have valuation exceeding JPY115bn (US$1bn)). The company has now 
received total funding of JPY12.6bn in the last 3 years, with the last 
tranche including Mitsui, DBJ bank, Sumitomo Mitsui, Globis, WIL, and 
Global Brain. The company is expected to go public shortly. ***Ed: 
Mercari focuses on mobile commerce and has had an amazing 32m downloads, 
with 7m being from outside Japan.** (Source: TT commentary from 
techcrunch.com, Mar 01, 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.



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Director SAFECAST Japan, Director and co-founder
Title: "Safecast 5 Years after Fukushima disaster: What lessons have 
derived by measuring radiation levels and where is all this going?"

Details: Complete event details at http://www.icajapan.jp/
Date: Thursday March 17th, 2016
Time: 6:30 Doors open, Buffet Dinner included and Cash Bar
Cost: 4,000 yen (members), 6,000 yen (non-members) Open to all. No sign 
ups at the door!!!!!!!
RSVP: By 1pm on Monday 14th March 2016, venue is The Foreign 
Correspondents' Club of Japan


+++ CORRECTIONS/FEEDBACK -- Marcus Yip Hospital Fund update

=> Thanks for readers and Marcus' own friends, the fund established some 
weeks ago to help Marcus and his family deal with his terminal brain 
cancer has now reached a total of US$45,000. This will be our last call 
for any readers who know Marcus or who enjoyed (as we did on many 
occasions) the wonderful hospitality and cooking at his 146 Hiroo 
restaurant, to donate something towards the fund. See more at the URL below.




=> Noto Peninsula Discovery, Ishikawa-ken
Nature, culture, onsen at the doorstep of Kanazawa City

One of Honshu Island's eleven peninsulas, the Noto Peninsula, has 
largely been off the radar of foreign visitors to Japan. While Noto 
attracts many Japanese visitors, foreign travelers have yet to discover 
the bounty of natural and cultural gems that this part of Japan has to 
offer. There are great hot springs here, too!

The Noto Peninsula is located in the northern part of Ishikawa 
Prefecture while the southern part of the prefecture is home to Kanazawa 
City, the prefecture's capital and already a well-known destination for 
domestic and foreign travelers alike.

Noto divides into three areas: Kuchi-Noto (Entrance of Noto), Naka-Noto 
(Middle of Noto) and Oku-Noto (Deep Noto).

The Wakura Onsen Resort area is in Naka-Noto at the edge of Nanao Bay, 
while the Wajima Onsen area is in Oku-Noto and at the entrance to the 
Sosogi Coast. Between them they comprise two of Noto Peninsula's main 
hot spring resorts and nature and culture travel spots.


=> Kishiwada's Treasure Chests, Osaka
Traditional chests of drawers, all hand-made

The No 1 reason to venture out of central Osaka and come to Kishiwada is 
the Kishiwada Danjiri Matsuri at Kispa La Park in September and October. 
If you come during other times of the year, a visit to the Kishiwada 
Danjiri Hall will give you a flavor of what this festival is all about.

Some might also know that Kishiwada is a joka machi, an old castle town, 
where you can enjoy a visit to Kishiwada Castle and its beautiful rock 
garden, Hachijin-no-Niwa.

Or how about a stroll through Honmachi-no-machinami, the Old Town where 
you can find old well-preserved merchant houses that stand along the 
ancient Kishu Kaido (Kishu Highway), a trade-route used during Japan's 
feudal period and which connected the Kishu Province (now Wakayama) with 
Osaka and Edo, present-day Tokyo. In Honmachi you will also find 
Kishiwada's Confectionery Lane. Kishiwada's wagashi (Japanese 
confectionery) are tasty and plentiful. You can sample your way through 
several shops in this lane.

Less known is the fact that Kishiwada and Haruki are also the center for 
traditional manufacturers of kiritansu furniture. Kiritansu is the 
Japanese word for chest of drawers. Traditionally they were used for 
storing kimono and valuable objects and are considered essential in a 
traditional Japanese household.




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

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