Terrie's Take 845 - Sharp: How Not to Sell a Company in Japan. E-biz news in Japan.

Terrie's Take terrie at mailman.japaninc.com
Mon Apr 4 08:51:19 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, April 03, 2016, Issue No. 845

- What's New -- Sharp: How Not to Sell a Company in Japan
- News -- Trust banks start applying negative rates to clients
- Upcoming Events
- Corrections/Feedback -- One man's ramshackle hut is another's ski resort
- Travel Picks -- Sendai temple history, Sashimi in Shibuya
- News Credits

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Late last week, Mr. Terry Gou, the CEO of Foxconn Technology Group (also 
known as Honhai) signed a JPY389bn deal to take control of Sharp, one of 
Japan's bedrock electronics firms. The signing came after a protracted 
cat-and-mouse game played between Mr. Gou, the management of Sharp, and 
in the wings, the public-private INCJ fund. Mr. Gou showed consummate 
deal sense in luring Sharp's board with a much more attractive offer 
than the government's INCJ (which wanted to break up the firm) then drag 
out the negotiations as Sharp was facing a possible collapse. Lastly, 
with impeccable timing he sprang a last minute demand to reduce the deal 
price by 20% and completely out-maneuvered, Sharp's executives and 
shareholders, who eventually caved in and agreed.

Mr. Gou has already disclosed that he went into the deal with a 
turnaround plan in mind. He is no stranger to Sharp's bureaucracy 
problems, having taken over the management of the company's Sakai 
flat-panel TV factory in 2012 when he made his first investment. The 
factory reversed its money-losing status that same year, even as the 
rest of Sharp continued to flounder. If there is one thing that Mr. Gou 
knows better than his Japanese counterparts, it is how to demand cost 
cuts and get them. Of course in the process, much of the existing board 
of Sharp will be expected to fall on its collective sword as part of the 
effort, which will certainly be a start.

Financially deep pockets will also be necessary, but given that Mr. 
Gou's Foxconn company makes more annual profit (US$4.1bn last year) than 
what it is costing him to buy Sharp, he will still have adequate funds 
for the changes he needs to make. Sharp's own management didn't have 
this ability, even if they'd had a viable route forward. Still, it is no 
sure thing that Mr. Gou and his team can turn about a behemoth like 
Sharp, especially since its management have tried so many times already 
to pull themselves out of the hole. However, as Mr. Ghosn of Nissan 
demonstrated 17 years ago, sometimes a Japanese organization with inbred 
senior management needs a determined and empowered foreign leader 
capable of cutting out the existing powerbase of that stricken company 
and replacing it with younger more flexible (and directed) minds can 
actually turn it around. In Mr. Ghosn's case, the process took about 3-4 
years, and we expect that Mr. Gou is setting himself a similar time frame.

Nonetheless, it has to be said that Mr. Gou is taking a huge risk in 
buying Sharp. Indeed, analysts overseas are falling over themselves with 
conspiracy theories as to why Foxconn is putting out so much cash to buy 
a company that is expected to report a massive JPY150bn net loss this 
last financial year. The most popular theory is that Apple is behind the 
deal, helping Foxconn with either order guarantees for Sharp's Igzo and 
regular LCD products, or some kind of soft payment terms for 
transferring equipment it owns at Sharp's factories, or perhaps a mix of 
the two. Certainly for Apple to keep Sharp and its screen-building 
capabilities close, it will buy up Sharp's unloved LCDs while waiting 
for Foxconn to upgrade Sharp's facilities for AMOLED manufacturing, 
something that will take it 3-5 years. In doing this, Apple gets to keep 
a supplier which is not either Samsung or LG, two of its existing 
suppliers who are also long-term competitors.

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[...Article continues]

So, Sharp is turning Taiwanese. Is this bad thing? Not if the factories 
and engineering stay in Japan, and so far Gou is saying he will continue 
both in this country. No doubt he WILL move basic production to his 
factories in China, but it sounds like he plans to move the remaining 
operations upstream, either into direct competition with the Koreans for 
AMOLED displays, or perhaps into some new direction as the innovative 
engineering teams at Sharp keep turning out new products.

While watching this deal, we couldn't help being reminded that Sharp was 
doing everything a company should not do to be sold. In particular, the 
senior management seemed to have this sinking ship quality about them 
that marked them as sitting ducks for someone. Gou in the end happened 
to be the party most able to draw value out of the deal, but they would 
have been ripe for whomever plunked down the cash.

The things they did wrong were:

1. Waiting too long - wrong timing
Sharp knew at least 7-8 years ago that things were not well in the 
Japanese electronics industry, no thanks to the high yen and aggressive 
competition from Samsung and others. The company should have moved much 
faster to fix its situation, especially around 2010 when it still had 
credibility and funds, by moving into new product categories and 
diversifying its risk, and by moving production to China but not 
over-focusing on selling there. More importantly, they should have 
broken the business into a group of companies and let each sink or swim 
as they could. In that way they would have had a group of more flexible 
smaller companies, where they could afford to lose one or two in the 
portfolio. Of course, it's understandable that with the huge investments 
made in LCD manufacturing that Sharp wanted to keep all the businesses 
in one company, but the high yen and cheaper offshore manufacturing 
trends were obvious back in 2010 and the company's leadership should 
have rung the alarm bells then. NEC learned this lesson well, shedding 
its PCs and LCDs businesses, and unlike Sharp, it has survived 

2. In-bred management
Especially in multi-generational companies that don't have strong 
merchantilist cultures (i.e., opposite of Japanese trading companies), 
even though the senior management may be self-disciplined as 
individuals, they grow up through the ranks by getting along with others 
rather than by taking quick and sometimes harsh actions. This is because 
the Japanese management system is built on joint experience and a 
jointly-invested (emotionally invested) social group where the members 
have known each other all their adult working lives. As a result, they 
worry too much about their friends, colleagues, and other employees who 
are the weft of the business. This social spider's web makes them too 
hesitant to make the cuts or reorganizations that are needed. In the end 
they hide the problems - as was done in Olympus and Toshiba. This is an 
underlying problem for society here - any aggressive behavior has been 
bred out of the people.

3. Wrong tools, wrong decisions
Lastly, while most directors of publicly listed companies are basically 
honest, hardworking people who are doing the best they can in archaic 
management structures (don't say anything negative to the boss), they 
are also unfortunately equipped with often archaic management tools and 
insufficient global information. In such an environment, certain 
internal business "truths" emerge that are cooked up in a bubble and 
without proper understanding of how the outside world works. This makes 
these companies very vulnerable to international economic and political 
power shifts, and as in Sharp's case, they can make well-meaning major 
investments then get broadsided by the yen and by their competitors 
being more nimble and better attuned to market needs.

Actually, these three failings sound very much like the same criticisms 
made of the current LDP political party as well, don't they? Probably 
that is no accident, and shows that uninformed "stuck" management is 
indeed a deep and systemic problem.

...The information janitors/


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+++ NEWS

- How to have immigration without an immigration policy
- Trust banks start applying negative rates on clients
- An even bigger Big Mac?
- Free infrared satellite mapping data
- Another economic stimulus on its way - says Abe

=> How to have immigration without an immigration policy

Abe's LDP party understands one thing very well, you can do almost 
anything you like so long as you don't let it become a public issue. In 
this case, relaxation of immigration controls to help Japan's population 
and economy recover is a taboo subject, so it's interesting to see that 
the government is nonetheless allowing so many foreign "workers" into 
Japan this year. There are now 1m workers, up from 910,000 last October. 
***Ed: How are they able to do this? Although this Japan Times article 
doesn't say, the fact that 35% of them are Chinese suggests that the 1m 
figure includes university and language-learning students, as well as 
agricultural trainees. Students are allowed to work part time, and at 28 
hours a week, plus maybe some quiet overtime on the side, you can have a 
hardworking sub-community without any of the inconvenience of them 
staying on later.** (Source: TT commentary from japantimes.co.jp, Apr 
02, 2016)


=> Trust banks start applying negative rates on clients

When the Bank of Japan imposed negative interest rates on banks several 
weeks ago, the expectation was that this would force banks to apply 
their surplus funds in the economy rather than parking them with the 
BoJ. Unfortunately, instead of that desired effect, it looks like a more 
risky distortion is starting to emerge, whereby some of those banks are 
now turning around and charging their own institutional clients for 
placing funds with them as well. It's mind boggling to think that banks 
may not actually want their clients' money, but it seems that we are 
entering an era where this is going to be the case. ***Ed: Now it seems 
that the Japanese consumers' run on safes to store paper currency and 
gold is reasonable after all.** (Source: TT commentary from cnbc.com, 
Mar 30, 2016)


=> An even bigger Big Mac?

McDonald's Japan has realized that its customers like gross, and what 
better improvement on chocolate fries than an even bigger burger than 
the Big Mac? The new fat blob is taller and wider than a usual Big Mac, 
and comes with two extra beef patties that, according to McDonald's, 
offers 2.8x the amount of meat. You can get your giant burger with a 
double-size soda and 1.7x box of fries. ***Ed: It surprises us that the 
government doesn't tax McDonald's and others for creating these dietary 
monstrosities. After all, they tax us for "Kaigo hoken" (Nursing 
Insurance) when we hit 40, but as it is obvious to anyone, it's not just 
your age that defines your need for such insurance, it's also your genes 
and most importantly your lifestyle choices. (Source: TT commentary from 
grubstreet.com, Apr 3, 2016)


=> Free infrared satellite mapping data

NASA and JAXA have announced that they will make free infrared mapping 
data from their ASTER camera onboard NASA's Terra satellite. The ASTER 
device array has been providing data since 1999 and until now has 
produced about 2.95m high-definition snapshots of the earth's surface. 
Traditionally if you wanted to use that data you had to pay METI a fee, 
but now the imagery will be publicly available for free. What can you do 
with it? Basically the data gives a daily flyover record of changes in 
temperature-related geographical features, such as volcanoes, terrain 
after storms, wildfires, etc. Terra and ASTER were designed to work for 
just five years, and now, 17 years later they are still going strong. 
(Source: TT commentary from spaceref.com, Apr 2, 2016)


=> Another economic stimulus on its way - says Abe

PM Shinzo Abe has announced that he plans to add another stimulus kick 
to the economy, to try to get people spending again. He wasn't giving 
away too many details, but hinted that there would be a wage rise for 
childcare workers along with other incentives to help people "work and 
live actively". He also said that he planned to go ahead with the 
consumption tax rise to 10% unless there was an international financial 
crisis or another natural catastrophe - pretty much putting the lid on 
any speculation that he wouldn't hold the tax rise back. ***Ed: We think 
Abe is strongly influenced by US financial experts and will stay the 
course of putting higher consumption taxes in place. Unfortunately he 
won't do the most important thing needed to kick-start the economy, 
which is to cut out vested interests and deregulate business. So as a 
result we think people are going to continue to restrain their spending 
and instead the economy will sink even further.** (Source: TT commentary 
from asia.nikkei.com, Mar 29, 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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Main Speaker: Terrie Lloyd, Serial Entrepreneur, Founder/CEO Japan 
Travel K.K.
Moderator: Nobu Kumagai, Founder, KOEI COMPANY, Inc.
Title: "The Real Deal of Running an Inbound Business in Japan"

Details: Complete event details at http://upclose201604.peatix.com
Date/Time: April 12, 7-9pm, 6:30pm doors open
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+++ CORRECTIONS/FEEDBACK -- One man's Ramshackle hut is another's ski resort

Back in TT-832 we referred to the lack of awareness in Japan by tourism 
authorities seeking to replicate the success of Niseko. We made the 
following statement: "An important lesson for the Japan Tourism Agency, 
and the bureaucrats who control its budget, is that making world-class 
ski resorts is not achieved by slapping some paint on decrepit buildings 
of the type you usually find in Japan's ramshackle ski towns and 
resorts, and making a pretty brochure."

=> Several readers commented:

* Another great article, Terrie. Always amazes me how you can be driving 
in a beautiful mountain resort and turn the corner to find what looks 
like a cluster of Russian fish factories dominating the landscape.

* "Ramshackle." Perfect word choice!



=> The Monk, the Wanderer, and the Dead, Miyagi-ken
Toukou-ji Temple in Sendai is for history lovers

Toukou-ji Temple is located in the Iwakiri suburbs of Sendai City, 
Miyagi Prefecture. Situated along the gently flowing Nanakita River, 
this small temple is quite unassuming and seems to be nothing special. 
There isn't much to look at and it is difficult to access without a car. 
Plus there is an unusually high number of graves here, which even in the 
daytime can be a little discomforting. BUT, Toukou-ji is really special 
is you like history, which is why I made the trip.

The temple dates back to the 9th century, long before the reign of lord 
Date Masamune in the 1500's, who turned Sendai into a castle town and 
eventually a thriving metropolis. Instead, the temple was founded by 
famous Tendai sect monk Ennin (Jikaku Daishi), a highly respected monk 
who  devoted his life to studying, evangelizing, and developing Buddhism 
in Japan. His travels took him to Mount Hiei near Kyoto, all the way to 
China, all throughout Japan, then here. Caves near the temple contain 
many intricate stone wall carvings from the Kamakura period and Nanboku 
period (so roughly in the 1300s). The main attractions are images of 
Amida Nyorai and Yakushi Nyorai.


=> Shibuya Restaurant Tora Dogenzaka, Tokyo
Japanese gourmet and sake with fantastic presentation and value

Japan's culinary finesse is known far and wide, and when one comes 
across a restaurant with top quality food, affordable prices and a 
convenient location it is certainly worth remembering and recommending 
to friends. That is exactly what we have found with Tora Dogenzaka in 

Upon stepping in, you quickly see hints guaranteeing a wholesome dining 
experience: wooden sliding doors, wooden furniture, quintessential 
Japanese ornaments, dimmed lighting, and soft koto music playing in the 
background. Small and large groups can both easily be accommodated in 
private rooms with excellent decor.

Our meal started off with appetizers - a combination of smelt and 
potato, which was shortly followed by two of the night's star dishes - a 
fresh vegetable medley that came with a heated scrumptious anchovy 
garlic dip and a plum dip. The veges included a range of freshly cut 
crunchy lotus roots and watermelon radishes that packed a punch of 
flavors and textures. That was followed by a large platter covered with 
a myriad of fresh sashimi slices precisely arranged. The sashimi 
included yellowtail, tuna, octopus and more and each piece was an 
absolute treat for the taste buds.




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

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