Focus: Foreign Direct Investment
JETRO, 1221 Avenue of the Americas, NYC, NY 10020April 20, 2001
Growth in Foreign Direct Investment (FDI) Creates Exciting Investment Opportunities in Japan
FDI inflows into Japan have increased significantly in recent years -- rising over 700% since 1993. Introducing competition, change and economic efficiency, FDI is helping to reduce the high cost of doing business in Japan. It also promotes a business environment where firms are increasingly rewarded for their ability to deliver maximum value to investors, consumers and other stakeholders. During their recent summit meeting, Japanese Prime Minister Mori and President Bush reaffirmed the importance of FDI to both Japan and the United States. Their joint statement emphasized its importance as well as the need for regulatory reform in both countries. To advance the dialogue needed to enhance Japan's attractiveness as a FDI destination, Japan's Ministry of Economy, Trade and Industry (METI), the U.S. Department of State, Japan External Trade Organization (JETRO) and the Conference Board will join together to sponsor a public symposium. This event will take place in New York City on April 25, 2001. It will provide a chance for business and government leaders to discuss the many exciting opportunities arising as a result of Japan's changing business environment. Additional support will be provided by the American Chamber of Commerce in Japan, U.S.-Japan Business Council and Japan-U.S. Business Council. A full agenda, along with copies of many of the presentations that will be delivered, can be accessed at: http://64.177.178.249/fdiseminar/ or by clicking on the banner above.
The Critical Importance of Foreign Direct Investment in Japan
	While Japan has long encouraged foreign direct investment (FDI) as a means to alleviate imbalances with key trading partners -- in recent years there has been a growing realization of the important role it plays in strengthening Japan's domestic economy. While policy reforms remain essential to addressing regulatory impediments, FDI is critical to introducing competition among firms and industrial sectors. It introduces efficiencies, promotes corporate rationalization and helps Japan in its efforts to restructure its economy for maximum benefit to investors, consumers and other important stakeholders. Increased activity by foreign firms also facilitates the introduction of new technologies, new business practices and a more flexible workforce. In addition, it helps to minimize the threat of rising unemployment caused by ongoing restructuring and reform.
The Success of Japan's Ongoing Structural Reform Program
	Since the Government of Japan (GOJ) adopted the "Action Plan for Economic Structural Reform" in 1997, a wide range of policy initiatives have helped to dramatically transform Japan's regulatory infrastructure. Major achievements include: Reforms to Enhance Corporate Competitiveness and Flexibility End of prohibition on holding companies (December 1997) Adoption of Industrial Revitalization Plan (July 1999) Introduction of stock swaps and transfers (October 1999) Formation of Industrial Rebirth Council, (July 2000) Allowing corporate divestitures without negative tax consequences (April 2001) Change of civil rehabilitation law to facilitate restructuring and bankruptcy (April 2000) These changes have facilitated the restructuring of many Japanese companies. Notable transactions include the formation of Mizuho Holdings in September 2000, which consolidated the Dai-Ichi Kangyo Bank, Industrial Bank of Japan and Fujibank into one of the world's largest financial institutions. Another example is the relationship between Sumitomo and Mitsui Chemical, which plan to integrate their operations by March 2004. Sony also utilized these new regulations to initiate a stock swap launching three listed, fully-owned owned subsidiaries. Management-led buyouts, which were formerly unknown in Japan, have also begun to make an appearance. The number of deals this year is already double that announced last year. As evidenced in Nissan Motor's plans to divest Nissan Transport to its board, even major corporations have been considering this option. Reforms to Promote Small & Medium Enterprises, Start-Ups and Use of Venture Capital Ability of listed companies to grant employee stock options (April, 1998)Introduction of Limited Partnership Act which facilitates use of venture funding (November 1998) Establishment of Technology Licensing Organization (TLO) to encourage transfer of university research to the private sector (August, 1998)MOTHERS Board established by Tokyo Stock Exchange (Nov. 1999)NASDAQ Japan established by National Association of Securities Dealers (NASD) of the U.S., Softbank and the Osaka Stock Exchange (June 2000) The number of start-ups in Japan has started to increase in recent years, with a notable acceleration in activity since FY 2000. IPOs have also risen from 62 in 1998 to 164 in 2000. Notably, during the first quarter of 2001 -- there were 12 venture-backed listings on the NASDAQ Japan market in comparison to only 5 on the NASDAQ in the U.S. There were also 4 IPOs on MOTHERS and 8 or more listings on the JASDAQ OTC market Reforms to Promote the Birth of an "e-Japan" Formation of IT Strategy Council (July 2000) and Law (November 2000). Objectives include: Review of regulations governing telecommunications and broadcasting services New legislation to enhance consumer privacy protection Making NTT's optical fiber network open to other firms Enhancing R&D to facilitate ultra-high-speed internet technology Maximizing efficiencies through electronic filings of government documents NTT restructured into three companies (July 1999) Telecommunications pricing systems were simplified, in a move toward a reporting system that allows changes without prior approval (November 1998) Japan is now one of the leading wireless markets in the world and its "i-mode" service delivery option is on the cutting edge of global "m-commerce" applications. Cellular phone contracts have increased from 4.23 million in 1994 to 56.85 million in 2000, representing a market of over $1 trillion yen in 1999. Reforms to Enhance the Flexibility of Japanese Labor Markets Expansion of labor categories that can utilize "temporary staffing" systems, which were formerly restricted to nurses and elderly care workers (December 1999) The number of employees retained on a temporary basis has increased to 1.07 million in FY 2000. Employee recruiting firms have been opened to meet this demand, growing from 3,686 firms in 1986 to 4,227 in 1999. Reforms to Reduce the High Cost of Doing Business in Japan Energy Regulations concerning the wholesale distribution of natural gas were liberalized, allowing pricing decreases without regulatory approval. (October 1999) Similar reforms in the electricity sector (March 2000) allowed the electricity price index to decline from 100 in 1995 to 91.2 in October 2000 Logistics  Many domestic air transportation regulations were eliminated and rate charges have moved from an application to a reporting system (February 2000) Similar reforms were initiated for port-related transportation operations (May 2000) The discount rates on tickets issued by Japan's three major domestic airlines have risen from 26% in 1995 to 37.5% in 1999. Finance Financial System Reform Legislation passed, furthering a "Big Bang" deregulation of the Japanese financial sector (December 1998) Commission charges on equity trading were liberalized (October 1999) Foreign purchases of Japanese securities exceed 50% in 2000 vs. only 9% in 1988. Fees charged by securities companies have also declined significantly.
Japan Adopts "Action Plan for New Economic Growth"
	Japan's first, adopted in 1997, initiated dramatic changes in Japan's regulatory infrastructure, with a target date of FY2001. It focused on structural reforms that helped to create new companies and start-ups and to remove impediments that contributed to the high-cost of doing business in Japan. Building on the success of this first initiative, a second "Action Plan for New Economic Growth" was adopted in December, 2000. It promises to enhance productivity through better use of information technology and measures to deal with environmental and energy issues as well as the aging of Japanese society. Key objectives include: Reforms to Enhance Creative Economic Activities and New Business Development Promotion of corporate-related legislation that allows faster decision-making and smoother corporate restructuringReview of expanded use of stock optionsIntroduction of "no-action" letters to allow faster response times by government Reform of Japan's Employment System Adoption of integrated corporate pension legislationFacilitated use of recruiting through the internetProvision of environment that will maximize the utilization of ITLegislation to allow enforceability of electronic contracts Reforms to Address Demographic Shift to an Aging Society Initiation of measures allowing electronic use of medical informationEnhancing care of elderly and the disabledAbolition of age restrictions and initiation of measures to create an environment which encourages greater employment of women and the elderly
Maximizing Productivity and Addressing Non-Performing Loans
	Additional reforms were adopted in March 2000, in a new three-year Regulatory Reform Plan which seeks to: Review structure and operations of Nippon Telephone and Telegraph (NTT) to enhance value and benefits to consumer and business customers Review structure and operations of NHK (Japanese National Television) Review regulations on medical advertising Liberalize structures governing Japanese Universities including the process used to approve faculty members The GOJ also released an Emergency Economic Package this month to help troubled banks dispose of non-performing loans (NPLs). Specific measures include: Coordinated solutions for financial institutions holding excessive non-performing loans and corporate debt Limitation of stockholding by banks Lifting ban on treasury stock and abolishing the net asset value standard for stock investment units Introducing defined-contribution pensions Enhancement and strengthening of employment-related safety nets Improvement of securities settlement systems Introduction of exchange traded funds (ETFs)
April 25, 2001 Seminar on Japan's Changing FDI and Corporate Environment
	During their summit meeting last month, Prime Minister Mori and President Bush reaffirmed the importance of these trends. In their joint statement they emphasized the importance of FDI, regulatory reform and restructuring in Japan as well as the United States. Based on this recognition, Japan's Ministry of Economy, Trade and Industry (METI), the U.S. Department of State, the Japan External Trade Organization (JETRO) and the Conference Board will join together on April 25, 2001 in New York City to sponsor a public symposium. This event will offer an opportunity to brief business leaders from both countries on the implications of these trends and to encourage the public-private sector dialogue needed to further enhance Japan's attractiveness as a destination for foreign direct investment. The American Chamber of Commerce in Japan, the U.S.-Japan Business Council and the Japan-U.S. Business Council will provide support and speakers from both the public and private sector -- including numerous Japanese government ministries and related organizations -- will participate. A full agenda, along with copies of many of the presentations and materials presented is available at the seminar web site, which can be found HERE During this symposium GOJ officials will outline Japan's ongoing efforts to initiate comprehensive reform and to improve the environment for direct investment. They will hear directly from business people and take those opinions into account when they continue to plan Japanese government policies in the future. Topics will include: regulatory and corporate changes relating to M&A, corporate governance, transparency and revisions of commercial laws and corporate accounting systems, advances in bankruptcy legislation as a way to promote corporate rationalization, productivity and corporate divestitures, stock swaps, stock options, pension systems, labor issues and employment systems. This symposium has been organized to strengthen the U.S.-Japan economic relationship, particularly in the area of bilateral investment. It is intended to serve as one of the fruits of the U.S.-Japan summit meeting and to further a continuing U.S.-Japan public-private sector dialogue on these important issues. As government leaders from both Japan and the U.S. noted: "With regard to Foreign Direct Investment (FDI) in Japan, I would like to mention that the Japanese and the U.S. governments are working together to organize this symposium in New York", commented Takeo Hiranuma, Minister of Economy, Trade and Industry. "We are confident this joint effort will be an important milestone toward strengthening a win-win relationship between our two countries in the age of the new economy." Under Secretary of State for Economic Affairs Alan Larson said "Promoting foreign direct investment in Japan is a high priority for the U.S. Government. FDI contributes to Japanese economic growth, job creation, and formation of new companies. That is good for commercial cooperation between Japan and the U.S. And it is a key vehicle for U.S. firms to increase their participation in Japan's economy and to boost our exports of goods and services. Our goal in jointly sponsoring this symposium is to get senior government officials directly together with business leaders, to talk about the key issues in reform in Japan."
Japan Offers Many Attractive Benefits to Foreign Firms and Investors
	FDI inflows into Japan have increased significantly in recent years with the value of transactions rising from 360 billion yen in FY 1993 to 2,400 billion yen in FY 1999 -- an increase of over 700%. This trend has continued to accelerate and in first eleven months of FY2000, FDI inflows had grown to 2,900 billion yen. The number of M&A transactions has also grown substantially, from 531 transactions in 1995 to 1241 in 2000. Major foreign corporations including GE Capital, Renault, General Motors, AXA, Boehringer Ingelheim, Cable & Wireless, and DuPont have moved to expand their presence and most major foreign investment banks are now making a more extensive commitment to Japan to take advantage of this growth opportunity. Some of the advantages they have identified include: World's Second Largest Economy: Japan has a population of more than 125 million and one of the highest per capita incomes in the world. Many companies find a competitive presence in Japan essential to achieving the economies of scale and production efficiencies required to compete on a global basis. Deregulation Already Well Underway: Major reforms are now creating exciting commercial opportunities in areas including information and environmental technology, financial services, medical equipment, retail, telecommunications, pharmaceuticals, housing, and entertainment. Test Market and R&D Center: Japan serves as a valuable test and reference market for many foreign companies, where they are able to conduct research, introduce new products and technologies and observe emerging consumer trends. Importance of Market Presence: An on-site presence allows foreign companies to deliver rapid and personalized service to Japanese and Asian clients as well as means to take advantage of the many opportunities arising from the acceleration of economic reform in Japan. The Deregulation of the Japanese Economy is Creating Many Exciting Opportunities for Foreign Firms. Companies Who Wait Until These Reforms Are Fully Implemented Before Establishing a Presence May Find Themselves at a Competitive Disadvantage.
For additional information on foreign direct investment in the Japanese economy, please contact Hidehiko Nishiyama, Executive Director of JETRO NY at Tel: 212-997-0416, Fax: 212-997-0464, E-mail: nishiyamah@jetro.go.jp Focus:Emergency Economic Package Focus: Action Plan Focus: Economic Reform Focus: Okinawa Summit Focus: Small Business Development Focus: New Enterprise Development Focus: Industrial Revitalization Focus: Economic Recovery 4 Focus: Steel Focus: Economic Recovery 3 Focus: Economic Recovery 2 Focus: Economic Recovery
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