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NEWSLETTER- the JAPANALYZER

Market Snapshot
Baseball and the Japanese Internet Industry

In the United States, it is not uncommon to have a baseball stadium named after a company- think SBC park, Coors Field, Bank One Ballpark. The stadium name has always been for sale to advertisers. But the team’s name on the other hand, has always been reserved for the City the team calls home. In Japan however, the tradition has always been the reverse: teams are named after the company that represents the team’s owner, usually a major Japanese corporation. For example, Yomiuri Giants (newspaper), Hanshin Tigers (railway), or Orix Blue Wave (lease financier). The importance of this tradition is that the corporate name, rather than the team's home location, becomes the nickname for the team. During baseball season, the company names get repeated constantly during the nightly sportscasts, and printed abundantly in the daily and weekly sports pages. Team ownership is, in a sense, a ticket to household acceptance. So it was with great fanfare that two, and almost three, key players in the Japanese Internet entered the baseball arena last year.

The first company to be successful in its bid to enter Japanese baseball was Rakuten, the Amazon of Japan. Rakuten, the largest ecommerce portal in Japan, generated extensive publicity when it applied to enter Japanese professional baseball after the merger in 2004 of two teams led to a reduction in the number of teams in the Pacific League from six to five. Rakuten took the sixth spot on the strength of its application, which emphasized its ability to breathe new life into Japanese baseball which had been suffering from lagging popularity in recent years. Rakuten hired an American, Marty Kuehnert (the first foreigner) as General Manager and named itself the Tohoku Rakuten Golden Eagles based in Sendai, Japan.

The other successful entrant was software and telecommunications powerhouse Softbank which bought the Hawks from failing retailer Daiei. Softbank is an IT-media conglomerate, renowned for its low-priced ADSL access service, which revolutionized Japan's broadband market by capturing more than a third of Japan's 12 million ADSL subscribers. Now known as the Fukuoka Softbank Hawks (notice that both Rakuten and Softbank have started adding place names to their teams in the American fashion), the team plays at the Fukuoka Dome and is also part of the Pacific League.

Yet perhaps the most interesting story of Internet companies in baseball in Japan is the unsuccessful bid to enter baseball from Livedoor who competed against Rakuten to start a team after the merger of Orix Bluewave and Kintetsu Buffalos in the Pacific League last year. Livedoor started life in Japan as an advertising sponsored ISP but gradually moved into multiple other businesses fueled by investments from the venture capital community. The company today offers online securities trading, DVD rentals, Web hosting, an Internet auction site and owns a venture-capital investment arm, an IT consulting business, and a mobile-phone-software developer. Takafumi Horie, the 32-year-old chief executive of Livedoor, shocked Japan's sports world when he announced his intent to form a baseball team. The elders who control Japanese baseball were disgusted, with one commenting that it would be impossible "to let some unknown person in."- needless to day, Livedoor didn't get the franchise.

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June, 2006

At last: a Japanese recovery with staying power
Minister Takehito Nakao (Financial Sector), Embassy of Japan

A number of times since this newsletter began in 2002, we have featured economists that hinted at a Japanese economic recovery. But in each case there were a great deal of assumptions made because of the lack of concrete data to support the notion of a sustained recovery. According to Minister Takehito Nakao of the Financial Sector at the Embassy of Japan, based in Washington D.C., that data has finally arrived. Mr. Nakao recently gave a presentation at Stanford University’s Asia/Pacific Research Center as a part of a panel discussion entitled “The U.S. and Japan: Partners or Competitors in Building a Strong East Asian Economic Environment?”. Minister Nakao’s presentation focused on the resurgence of the Japanese economy in relation to economic integration with the rest of Asia. The event was organized by the Japan Society and co-sponsored by Keidanren-USA, the Embassy of Japan, and the Consulate General of Japan.

Minister Nakao’s belief that the Japanese economy is in resurgence was supported by some fairly persuasive data. Japanese GDP growth is on the rise. Nominal GDP was 2.7% in CY 2005 in comparison with CY 2004 (2.3%) and CY2003 (1.8%). Non-performing loans (the commonly agreed to cause of the Japanese bubble) has also improved from over 8% of total loans in 2002 to just 1.8% in March of 2006. Mr. Nakao presented Japanese corporate survey data suggesting that the three “excesses” which have been problematic are now abating: production capacity, labor, and debt. He also pointed towards the recovery in the TOPIX (well above 1500 for the first time since 1999) and the stabilization of land prices as additional indicators.

According to Minister Nakao there are several reasons for this resurgence in the Japanese economy. For one thing the structural reforms made by Prime Minister Koizuimi have not been insignificant. Mr. Koizuimi built upon the efforts made throughout the 90’s to deregulate certain industries, strengthen legal frameworks, and reform the labor market resulting in a cumulative positive effect on the economy. In addition private sector efforts to restructure businesses and resolve bad debts made the chances for recovery even greater.

Minister Nakao’s speech emphasized the evidence of recovery but he also was quick to point out that much work remains in order to keep up with a changing Japan. The most glaring deficiency in the Japanese economy is the annual debt, which as a percentage of GDP was the highest in the world in 2005 at 6.1%. Mr. Nakao says Japan needs to regain fiscal sustainability because gross debt is now 160% of GDP. This means continued structural reforms but it also means Japan needs to adapt to societal changes such as the declining and aging population. Yet overall Minister Nakao was optimistic given the progress made so far and the positive signs that Japan is in fact, adapting. For example, energy consumption in Japan is now one of the lowest in the world on a per capita basis. This shows that Japan’s flexibility in the face of resource or other constraints.

For more information on the Japan Society, please visit them on the web at www.usajapan.org For more information on Stanford University’s Asia/Pacific Research Center http://aparc.stanford.edu/ .

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AutoID Expo 2006
September 13-15, 2006, Tokyo Big Sight (Tokyo International Exhibition Center)
The only exhibition in Japan devoted exclusively to automatic identification technology and equipment. The event is Sponsored by the Japan Automatic Identification Systems Association and supported by Ministry of Economy, Trade & Industry/ Ministry of Foreign Affairs/ Ministry of Education & Science (planned).