Invest Japan Symposium 2008 - Executive Summary | Print |



This year’s Symposium brought together solid examples of what can be achieved in the Japanese market as well as some major changes that are underway. Companies with decades of success in Japan brought valuable lessons that can be applied to almost any company looking to enter the Japanese market. Speakers also highlighted attributes that make Shizuoka Prefecture the most popular location for foreign-affiliated plants. And it was made clear that concrete measures for corporate governance reform are taking place in Japan and are being advanced by both shareholders and the Japanese government alike.

Starting off the Symposium, representatives from the U.S. and Japanese governments, Ambassador Patricia Haslach and METI’s Makoto Shiota, noted how the highly globalized nature of both the U.S. and Japanese economies lead to events in one economy affecting the health of the other. They expressed that even in the midst of the current financial anxiety, companies in both countries need to continue investing directly in the other to promote economic growth. Mr. Shiota encouraged the audience to seek the support made available by the Japanese government to U.S. companies seeking to invest directly in Japan.

Yasuo Hayashi of JETRO highlighted the efforts the Japanese government is making to improve Japan’s business environment for foreign firms. The year 2007 saw a record amount of direct investment into Japan totaling US$22.2 billion, surpassing the previous record set in 1999 of US$12.3 billion. Mr. Hayashi described the key characteristics of the Japanese market that foreign firms seek, including the highest yield from direct investments among developed countries.

Stanley Roth of Boeing shared how the aircraft giant’s relationship with Japan went from relatively modest beginnings in sales to industrial cooperation where expertise was shared; to program participation where a new commercial plane was co-developed with the Japanese; to risk-sharing partner where the Japanese had a joint stake in the success of an aircraft. Throughout these stages, the key lessons that have been crucial to Boeing’s success in Japan were “the need for patience, the need for a long term vision, the recognition that a relationship has to be mutually beneficial, and that a relationship based on a partnership can lead to results not even envisioned” when beginning the relationship.

Dave Johnson of Molex showed how Japan has truly played a central role in the company over the years, enabling it to leverage technology developed in Japan to expand to other markets in Asia, and helping Molex become world renown for its micro miniature connector technology. Some keys that Johnson said helped Molex in Japan were early market entry, acting like a Japanese company, allowing the Japanese business to run in its own way—instead of trying to micromanage from the U.S. headquarters—and leveraging technology developed in Japan. Today, Molex’s revenue from Japan stands at $500 million.

Masachika Suzuki of Shizuoka Prefecture introduced the advantages of locating a business in Shizuoka, which is the most popular destination for foreign-affiliated plants (including one of Molex). Among others, the key advantages for locating a business in Shizuoka are its central location to 63% of Japan’s total population, excellent transportation infrastructure, the concentration of manufacturing expertise, development of three industrial clusters, and a very attractive incentive program for foreign companies locating in Shizuoka. Furthermore, the prefecture’s abundant water resources have attracted many food and beverage companies, making Shizuoka the number one prefecture for product shipment value of food and beverages in Japan.

Hiroaki Niihara of METI went over the recent changes in corporate governance in Japan. In the past, managers of Japanese companies did not have much communication with shareholders, but that is rapidly changing. This is most notably seen in the communication with institutional investors, where companies are sharing and adjusting the contents of proposals before presenting them at general shareholders meetings each year. Also changing are the attributes of shareholders who are making the proposals, as well as the contents of the proposals. Outside recent weeks affected by the financial crisis, the number of M&A cases in Japan has been on the rise due to some drastic changes to the legal system in Japan. For 2008, the purchase of Japanese companies by a foreign company or foreign fund has declined, but reversely, there is increase in the number of Japanese companies trying to buy foreign companies. Next, Mr. Niihara described METI’s view on takeover defense measures as ignoring the proper function of capital markets, and thus should not be allowed. He also described the difference in authority that shareholders have in general shareholders meetings in the U.S. and Japan; decisions made during meetings in Japan tend to be legally binding. Mr. Niihara also discussed METI’s support of independent, outside board members to improve corporate governance in Japan.

Kazunari Tomita of the Tokyo Stock Exchange (TSE) gave an overview of some of the actions the TSE is taking to improve the corporate governance of its listed companies. Recently, the TSE has introduced public corporate governance reports to help investors better scrutinize the corporate governance status of listed companies. Although these reports are currently only offered in Japanese, they are searchable through TSE’s website search system, allowing investors to search for companies with certain corporate governance criteria. The TSE has also established an electronic voting platform to enable more investors to exercise their voting rights with Japanese listed companies. By publicizing the corporate governance status of listed companies and by helping more investors exercise their voting rights, TSE hopes companies will work voluntarily to improve their corporate governance policies.

David Makman of Howrey LLP shared perspectives held by investors in the U.S. about corporate governance reform in Japan. One perspective is that corporate governance reform is important for economic growth in Japan. Another is that reforms are not as applicable to companies in the top quintile of returns on equity. Mr. Makman also posed solutions to the upcoming ‘pension crunch,’ which seems to be placing much pressure on Japan to reform its corporate governance practices. Some domestic factors in Japan working in favor of corporate governance reform are actions by the Pension Fund Association, which is pressing companies to deliver an average 8% return on equity over a three-year period. Also, METI has proposed corporate governance reform through an important corporate value study group report.

During the Session II Q&A period, the panel was asked to address the definition of corporate governance, the return of cross-shareholdings in Japan, whether the TSE could act as a policymaker, and the source of resistance to corporate governance reform in Japan.

Unfortunately, summaries of speakers’ presentations given during the Luncheon and Session III are not available.

All in all, this Symposium illustrated the type of results that can be achieved in the Japanese market, provided key lessons from market veterans, and highlighted the incentives of a perhaps lesser known prefecture. It also made clear that efforts are being made by shareholders and government alike to improve corporate governance in Japan. And whether beginning a business or becoming a shareholder in a Japanese company, the Japanese government offers its support to foreign companies seeking to invest directly in the Japanese market.


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Note: The above summary is an adaptation of the speaker’s presentation. Contents and quotes may not be entirely accurate.