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Strategies & Market Trends : Countries

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From: Sam Citron3/31/2009 2:23:17 PM
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Despite Downturn, Japan Tries to Increase Exports [NYT]

TOKYO — Japanese companies are caught in a double bind, facing markets at home that are shrinking with the population as well as the global downturn. Nevertheless, companies must expand foreign sales aggressively — or face longer-term decline.

Exports from the world’s No. 2 economy fell an unprecedented 49 percent in February. But even as Japanese policy makers call for a renewed focus on domestic markets, companies are tying themselves more tightly to overseas markets and innovation.

“Japanese companies themselves just don’t see a future in the domestic market,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute. “They’re looking for opportunities overseas instead of investing at home. That makes it almost impossible for Japan to reduce its export dependence.”

Prime Minister Taro Aso announced Tuesday that Japan would put together yet another economic package to stimulate demand, with steps to create jobs and further reduce taxes. Japan has already announced stimulus plans worth 12 trillion yen, or $122 billion, including 2 trillion yen in cash handouts.

A recovery led by domestic demand will be difficult. Even as the government pumps money into the economy, household spending has continued to decline, falling 3.5 percent in February as unemployment jumped to 4.4 percent, the highest level in two years.

With the decline in domestic spending, Japanese companies have their eyes fixed overseas despite the fall in exports. A cutback in spending among consumers in the United States, Japan’s biggest export market, is simply turning attention toward new foreign markets. The trend is clear in companies across the spectrum.

Hurt by a global slowdown in sales, Panasonic is set to book a net loss of 380 billion yen, or $3.9 billion, just in the year through March. The electronics company will lay off 15,000 workers. But as part of a new strategy called “Double-Digit Overseas Growth,” the company is making products specifically for emerging markets like China and Vietnam. And last month, Panasonic introduced a line of household appliances in Europe.

It is a similar story for Japan’s carmakers. While most auto markets could recover from the global slump as early as next year, vehicle sales in Japan are in decline, hurt by a marked lack of interest in cars among younger Japanese.

Sales of new cars have slumped by more than half from their peak in 1990. An industry organization expects sales to fall to their lowest since 1977 in the coming fiscal year.

Even Toyota Motor, which has doubled its overseas sales since 1998, experienced a drop of almost 10 percent in Japanese sales in that period.

At a recent news conference held by Honda Motor’s incoming president, discussions about a recovery in sales inadvertently turned to the United States market.

“America will always require cars,” said Takanobu Ito, who takes the helm at the automaker in June. “In Japan, consumers aren’t finding anything they want to buy.”

Even companies that previously concentrated on the home market are turning overseas.

Kirin Holdings, one of Japan’s largest breweries, grew rapidly as bubble-era Japanese drank more beer. But consumption peaked in the mid-1990s, hurt by a long economic malaise, an aging population and a shift in consumer tastes toward wine.

To woo recession-weary consumers, Kirin introduced a cheap, low-malt beer in 1998, and an even cheaper beer-flavored beverage seven years later that did away with malt altogether. Kirin also bought a domestic winemaker. Yet the company still struggled to grow.

Now Kirin has begun an aggressive buying spree overseas to bolster its foreign sales. It recently announced it would spend $1.26 billion to raise its stake in the beer unit of a Philippine conglomerate, the San Miguel Corporation. That came after Kirin bought National Foods, an Australian company, for $1 billion in 2007.

“Australia is an attractive market compared to Japan, because population and income are actually growing there,” a Kirin spokesman, Makoto Ando, said. (Australians also drink twice as much beer per capita as Japanese.)

Underlying the rush overseas is the acuteness of Japan’s demographic challenges. Japan’s population has been falling since 2005, and its working-age population could fall by a third by midcentury.

The Japanese are also becoming poorer, relatively speaking: Japan’s income per capita, once among the top five in the world, slipped to 19th in 2007, far behind the United States and many European countries.

A mismanaged pension system, cumbersome regulation in sectors like services and health, and a stark frugality adopted by many Japanese during years of economic stagnation are also weighing on spending and darkening the prospects of many companies.

Prime Minister Aso has tried to lift domestic demand with a series of stimulus measures, but gridlock in the country’s Parliament is slowing progress. Moreover, economists say Mr. Aso’s plans will be little more than stopgap measures.

“Any government spending could support domestic spending, but the effects will be temporary,” said Hiroshi Shiraishi, a Tokyo-based economist at BNP Paribas. “Japan faces deeper structural problems.”

Marketers at a baby goods maker, Unicharm, say they have done everything to keep sales growing despite the falling birthrate and sluggish economy.

A leading maker of disposable diapers, the company seized on a striking fact: even as the number of babies was falling, the Japanese were keeping more pets. So Unicharm used its diaper technology to develop paper litter sheets for cats and dogs. The company also developed a line of adult diapers for Japan’s swelling ranks of the elderly.

But that will not be enough to stem a downward trend in sales, said a Unicharm spokesman, Yasushi Shiraishi.

To make up for the shortfall, Unicharm is increasing its sales network in neighboring China. This year, the company plans to increase its sales network to 500 cities across China, from about 300 now. The company has also started selling diapers in Southeast Asia.

“Thanks to our efforts, we’re not seeing sales fall off precipitously in Japan — yet. But a decline is inevitable in the long run, so it’s important to look overseas,” Mr. Shiraishi said.

“There are 18 million babies born in China every year,” he said. “That’s 16 times more babies than Japan.”
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