Iland6 Capital and Development Co., Ltd.

Notes letter

#70 Of Sun and Butter

Notesletter #70
Of Sun and Butter
規制だらけの国
As the TPP (Trans-Pacific Partnership) negotiations progress heralding deregulation, it is worth remembering one U.S. negotiator's reminisce from the U.S.-Japan Structural Impediments Talks of the 1980’s. “It was a circular negotiation. For example, we asked them to deregulate the automotive market. They responded, “what percent of the market do you want”. We said, “even zero percent is ok, as long as it’s a level playing field”. They said “oh, zero percent is ok?”.
According to one Hong Kong think tank, Japan is the #3 most regulated country in the world (India easily captures #1, and China #2).
My company iLand6 recently released a cloud digital signage system, and one of its widgets streams weather forecasts. But, Article 17 of the Meteorological Service Act restricts unauthorized bodies from publishing weather information for “public security reasons" (!?!), so such streaming may be a no-no.
In the last few years, it’s often hard to find butter in grocery stores here. Turns out there is a 10,000 ton/year shortage. The Forestry and Fisheries Ministry tries to blame the lack of dairy farmers, but the real reason is import regulations.
TPP to the rescue? Not really. Japan is insisting that TPP exempt Critical Food categories – rice, wheat, beef, pork, sugar, milk… and butter falls in the milk category.
 
 

#71 Robots and Salad

Notesletter #71
Robots and Salad
ロボット・サラダ
 
What’s the connection between robots and salad? And, which one belongs in a hi-tech newsletter?
 
The past 5 years have seen a growing penetration of pre-packaged fresh salads in Tokyo’s supermarkets and convenience stores. This represents a tipping point in the social fabric. The transition is underway from the nuclear family with single wage-earner and stay-at-home mom to new patterns like the double-wage family, and lone bachelors and bachelorettes well into their thirties. The Abe government’s goal of higher women’s labor participation is starting to happen, though one can argue if it is due to government policies or in spite of them. There is certainly a long road ahead for women’s entry to management ranks.
 
Home robots are starting to appear in showrooms such as Tsutaya leisure outlets, Softbank shops, etc. So, robots are part of the same social trend of time-saving, right? Well, not exactly. The current generation of robots like Softbank’s “Pepper” are positioned more as “companions”, for elderly and lonely people. They carry on conversations (well, not something I’d call a conversation, but…), and eventually will have sensors to look after their “masters”, and a store of apps. At 198,000 yen a robot, why not?
 
So, you get the idea. The packaged salads are the labor-saving device. The robot is a companion. What will come next – a taxi that drives itself, while the driver bows and apologizes?
 
As the TPP (Trans-Pacific Partnership) negotiations progress heralding deregulation, it is worth remembering one U.S. negotiator's reminisce from the U.S.-Japan Structural Impediments Talks of the 1980’s. “It was a circular negotiation. For example, we asked them to deregulate the automotive market. They responded, “what percent of the market do you want”. We said, “even zero percent is ok, as long as it’s a level playing field”. They said “oh, zero percent is ok?”.
According to one Hong Kong think tank, Japan is the #3 most regulated country in the world (India easily captures #1, and China #2).
My company iLand6 recently released a cloud digital signage system, and one of its widgets streams weather forecasts. But, Article 17 of the Meteorological Service Act restricts unauthorized bodies from publishing weather information for “public security reasons" (!?!), so such streaming may be a no-no.
In the last few years, it’s often hard to find butter in grocery stores here. Turns out there is a 10,000 ton/year shortage. The Forestry and Fisheries Ministry tries to blame the lack of dairy farmers, but the real reason is import regulations.
TPP to the rescue? Not really. Japan is insisting that TPP exempt Critical Food categories – rice, wheat, beef, pork, sugar, milk… and butter falls in the milk category.
 

#69 CyberDANGER!

 
 
 
 
 
 
 
 
 
 
 
 
 
Tokyo was quite nervous about cyber threats, even before the Sony Pictures hacking incident. With China and North Korea flanking its borders, the only safe haven sometimes looks like the sea.
Recently the Japan Times reported on 140 email exploits sent to specific employees in power utilities and defense companies. Probably, the unreported number is more like 14,000.
The warming relations of Japan and Israel may be more than good chemistry between PM Abe and PM Netanyahu.  In the two countries’ joint communique of May 2014, “Both sides confirmed the necessity of cooperation in the field of cyber security and expressed their expectation to hold talks...”  This was not just rhetoric - the First Dialogue on Cyber Issues between Japan and Israel kicked off in November.
Aside from lack of core expertise, one point that has hampered Japan’s cyber efforts has been a proliferation of governmental bodies with conflicting or overlapping responsibilities.  However, Japan seems to be taking a cue from the U.S. and Israel, bringing NISC ( National Information Security Center)front-and-center as central coordinating body.
Ironically, one element playing to Japan’s advantage in the cyber war is the lateness of its critical infrastructures to adopt modern open architectures. Banks are far away from cloud computing; electric power companies still use dedicated lines rather than IT networks. Poor for efficiency, but maybe lucky for cyber defense.
 

#68, Japan as a Defense Market

 
Until now Japan’s Defense sector has been a frustrating market for non-U.S. contractors.
 
The primary reasons were:
1) Protection of local manufacturers
2) Considering the US-Japan Security Treaty (1951), when Japan needed external products it invariably relied on the U.S.
 
A typical pattern has been for a Japan defense contractor to license a platform from a U.S. counterpart, localize it, and sell to the SDF (Self Defense Forces) at 4 times what the U.S. armed forces pay the U.S. contractor.
 
Several factors now converging may change this market dynamic:
  -Concurrent to the recent Reinterepetation of Japan’s pacifist Constitution, it is also enabling arms exports banned since 1967. The desire to export will lead Japan to accept some imports.
  -The increasing tension with China is creating more urgency, and will gradually shift the SDF from a “pork barrel” for local contractors towards a  “best of breed” mentality.
  -Budgetary dynamics are driving cost-cutting in the SDF.
  -Strong need for cyber defense of critical infrastructure will create purchasing precedents in this “quasi-defense” area.
 
Don’t expect sudden change, but those who plant seeds may later harvest. Australia’s defense establishment has been courting Japan for long years, and is seeing some results now such as the June 2014  Defence Science, Technology and Materiel Agreement. The joint communique of Prime Minister Abe and PM Netanyahu of Israel this past May included “Both sides affirmed the importance of bilateral defense cooperation and concurred on increasing the exchanges between the defense authorities of the two countries including exchanges at ministerial level. They concurred with the visit of officers of the Japan Self-Defense Forces to Israel.”      
 

#67, The Third Arrow

 
Japan’s current Abenomics is based on three Arrows, or phases of action:
  1 Aggressive monetary easing
  2 Large-scale fiscal stimulus
  3 Structural reform
 
Phases 1 and 2 were implemented quickly, and provided a sugar rush to the economy during 2013.  But, most pundits in the Western press have been skeptical the 3rd arrow will be shot soon, strong, or at all.  The thought is that structural reform costs political capital, and the ruling LDP will be reticent to step on the toes of its vested interests.
 
That’s why I was pleasantly surprised to hear a different story when I met my old friend Naoki Satomi. Satomi-san is VP and CTO of Net Research, Inc, a boutique consultancy focused on Japan’s electric utility field.  “The current government is making aggressive preparations for reform of the energy field”, he told me.  “Tokyo Electric Power (TEPCO) has been under control of the national government since the Tohoku earthquake and subsequent Fukushima nuclear crisis.  The government is using this leverage to push a reform agenda.   This will include detachment of energy power generation from electricity transmission and distribution, and broad implementation of Smart Grid demanding new approaches to IT infrastructure.  All 10 of Japan’s regional power utilitities have decided to deploy smart meters to a total of 80 million households by 2024.”
 
The 3rd arrow may yet soar!
 
 

#66, Venture Trends

I visited a venture incubator in Tokyo recently. I was impressed by the Quantity of inititiatives, about 80 start-ups in the past 2-3 years out of this loft facility. The Substance didn’t blow me away – mostly small mobile commerce and social ventures – things like mobile-based parking solutions, photo sharing, etc.  But the overriding impression – a lot of young people are willing to try.
 
The visit popped into my mind a week later while attending a meeting of Israel companies’ Japan-based management, organized by the very able Economic Minister of the Israel Embassy Eitan Kuperstoch on the occasion of the visit to Japan of Amir Lang, new Director-General of the Ministry of Industry, Trade and Labor.  The discussion got around to innovation, and the consensus of the group was that an enterprising spirit is developing among young Japanese. The limiting factor is availability of real venture capital - traditionally Japanese “VC’s” have focused on late-stage or pre-IPO, and little capital is allocated to the real risk stage.  
 
Israel’s VC industry has had a lot of success developing ventures in Israel, but so far the “template” has been to raise money from Israel & overseas, and flow it into Israel ventures. The feeling of the group is that a more polymorphous approach is needed, going forward. Israel’s experienced VC’s may be able to help mentor Japanese venture industry, and at the same time finally crack the hard nut of Israel-Japan technology collaboration.
 

#65, Shared Houses

One recent trend in Japan is Shared Houses.
A Shared House has individual residential units, but many facilities are shared by the residents. Shared facilities may include living/relaxation space, a nice public bath, kitchen facilities, guest rooms, workout room, etc.
 
Foreigners in Japan short-term (1-18 months) have long lived in “gaijin houses” that provide common facilities, social support, and avoidance of heavy deposit/keymoney typical of Japanese rental contracts.
Now, the trend has gone mainstream, appealing to specific population segments such as young adults, senior citizens, single mothers, as well as the general population. There are even houses for professional interest, artistic inclination, no smoking, women only, etc.
 
Some of the reasons for this trend.
 
  • Family dynamics: although Japan’s total population is decreasing, the number of households is increasing.
  • Increasing urbanization, and its social isolation
  • More independent seniors - shift from extended family, and longer lifespan
  • Economic: residents enjoy facilities they could not afford in a lone unit.
 
Such a trend can impact services and businesses in Japan, far beyond real estate.
 
 
 

#64, Ring out the Old, Ring in the New Part2

 
Last time we talked about Japanese industries that are challenged to keep up globally, like cellphone and car navigation producers.
But there is also innovation in Japan.
Healios is a new venture based on the Induced Pluripotent Stem cell technology developed by 2012 Nobel Prize winner Shinya Yamanaka. Their equity fundraising is in USD 8 digits, further the Japanese government research funding backs iPS research to the tune of 10 digits figures (billion dollars), and is also fast-tracking clinical trials of the first product, for regeneration of the retinal function (read: treat nearly blind people). Dr. Yamanaka is an interesting story – he received his M.D. in 1987 but failed as a surgeon. Instead he turned to research and achieved great success.
 
LINE is an online chat service like Whats App, very popular in Asia. It was incubated in a Korean/Japanese company, and zoomed to popularity after the 2011 Tohoku Earthquake as people sought to connect.  Today LINE has more than 200 million users - 45 million of them in Japan and 140 million around Asia.  It is monetizing by selling “market research space”, a connected commerce portal, games, etc.
 
Social gaming has been popular in Japan for some time. Companies like GREE and DeNA are hugely successful, but there are many smaller companies active in this space, too. The success is driven by $4-5 ARPU, apparently a business model noone has been able to duplicate outside of Japan.
 
 

#63, Ring out the Old, Ring in the New

 
August arrives and vegetation starts to dry out, preparing to wither in the autumn. 
National industries have their heyday too, and face challenges as their markets dry out.
Now the sun is shining on digital device stars like Samsung and Apple - but which industries are getting hung out in the sun?
Obviously “feature phones” are one of them. In Japan, Sony is adapting to the smart phone race, but others like NEC and Sharp are falling short.
Car navigation systems have been a mainstay Japanese industry, and not long ago they aspired to become the vehicle’s “communication and entertainment hub”. But now the smartphone or tablet looks like a better bet for the coming generation of drivers - see TIME article. The car navigation industry may find itself squeezed between big auto makers and big phone manufacturers.
Japan has long led the video game industry, and the market for gaming is certainly not going to shrink. But the future gaming device won’t be a $350 box that just does games. It may be a stick connected to the TV, a tablet in the user’s hands, an open-source device, a broadcast streamer.   Companies like Nintendo have survived and thrived not because they make good consoles but because they understand people and gaming. They need to keep doing that, while also keeping an open mind.
 
 

#62, Prosperous Nation? Prosperous People?

Much has been written about Japan’s shrinking population.  The population stopped growing and flattened at 127 million since 2006, but by 2050 it will shrink to 90 or 110 million, depending which assumptions you believe. Interestingly, the working age population is already in decline – it fell from 85 million to 80 million in the past 10 years (the 65+ group increased from 24 to 30 million in the same period).
 
There is much discussion about this demographic drag on GNP, and how to motivate Japan’s women to bear more than 1.13 children, none of which has worked so far.  Hence, the inevitable debate over whether Japan should encourage immigration, whether this homogeneous culture can percolate a melting pot. So far noone in power is taking that chance.
 
There are alternate ways to look at this demographic situation.  The research paper The Economic Impact of the Black Death (David Routt, 2010) looks at the Bubonic Plague which decimated 1/3 of Europe’s population in the 14th century. Many studies focused on the physical, social, and cultural destruction caused by the Plauge, but Routt’s study looks at economic effects. The resulting labor shortage stimulated incomes in the centuries following the Plague, leading to greater freedom on the personal level and greater efficiency on the management level.  One theory sees these changes as the forerunner of the Enlightenment Period.
 
In the past 10 years, Japan’s per capita GNP grew 7.5%, a hair more than the U.S.  In the same period, the per capita income of Japan’s working age people increased almost double that of the US (14.3%).  Maybe a shrinking population is not a bad thing, if the country can manage its health and pension budgets.  Could it be that the coming decline to 100 million will trigger a “Japanese Renaissance” (not to mention more elbow room on the Metro).

iLand6 Capital and Development Co., Ltd.

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