with Keith W. Rabin
This months interview is with Keith Rabin, president
of KWR International, a consulting firm specializing in the
delivery of research, communications and advisory services
with a particular emphasis on public/investor relations, business
development, public affairs, cross border transactions and
market entry programs. Keith frequently speaks on trade, investment
and economic issues and has authored numerous articles for
publications including Bridge News, Journal of Commerce, Market:
Asia Pacific, Korea Herald, and Asia Pacific Economic Review.
KWR hosted the Japan Small Company Investment Conference in
March, when over 200 investors, venture capitalists, corporate
and technology executives, analysts, government officials,
journalists and other targeted individuals met with eight
promising Japanese companies in New York to explore mutually
beneficial investment and business transactions and partnerships.
eBJ: Why did you start the Japan Small Company Investment conference?
Rabin: Over the past few years there has been a lot of attention
paid to the economic, regulatory and technological changes that are
beginning to reshape Japan's business environment -- trends that promise
to accelerate in coming years. This is creating many interesting opportunities
both in the export-oriented industries that Japan is renowned for
as well as those with a domestic focus. While many foreign investors
are coming to understand the potential, they remain largely unaware
of the specific companies benefiting from this
transformation and how to pursue these opportunities. At the same
time, Japanese firms are finding they can no longer rely upon commercial
bank loans as their primary source of capital. This creates a greater
need for private equity, M&A and other financial engineering techniques,
yet most Japanese firms lack the experience and resources needed to
attract and effectively deal with foreign investors. To facilitate
interactions, transactions and relationships between Japanese firms
and foreign investors, we developed a conference
and support structure to satisfy this demand.
eBJ: Economically speaking, what positive developments do you
see in Japan recently?
Rabin: Whereas the U.S. has been actively engaging in deregulation
and restructuring and reorganization for two decades, Japan has all
or most of its gains before it. While it may be early to allocate
capital to the macro indices, there are many micro opportunities emerging.
In many cases, it is the problems themselves that are leading to the
eBJ: Can you give an example?
Rabin: For example, pessimism about the future has resulted
in a delay in marriage and birth rates in Japan. This has troubling
implications over the long term, yet it has led to a rapid rise in
disposable income among Japanese singles, many who still live at home
and young couples, who fit the DINK (Double Income, No Kids) profile
desired by so many purveyors of upscale products.
eBJ: Any other demographic trends that are important?
Rabin: Japan's aging population is also giving rise to amazing
opportunities in medical equipment and technologies and geriatric
care. Women are also taking on an increasingly important role in the
eBJ: What is your take on the state of IT in Japan?
Rabin: Japan was late to embrace the tech boom that engulfed
the U.S. in the late 90s. It just started to take off when the U.S.
tech bubble burst about two years ago. The introduction of low-cost
ADSL access is leading to high growth in broadband penetration and
time spent online. The demand for web services, e-commerce and other
technologies and applications is accelerating at a time when they
are maturing in the U.S. There are also opportunities to replicate
business models and to employ restructuring techniques that have proven
successful in the U.S. They can be used to achieve greater economies
of scale, profitability and additional revenue sources in Japan, where
a ready market of high-income consumers awaits them. Japan also produces
many attractive technologies, applications and products. Wireless
is one area where Japan remains far ahead of the U.S. and we are only
just beginning to enter into the age of convergence and birth of Internet
eBJ: What kind of help do smaller firms need in pursuing investment
opportunities in Japan?
Rabin: Cross-border deals can be complex and costly, both in
terms of managing the due diligence, time and other issues and commitments
that are part of the transaction process -- not to mention the ongoing
communication and interaction that is part of any successful investment.
This is especially problematic as smaller firms and investors are
often not as sophisticated as larger companies and financial institutions
and therefore need more hand-holding and support. The costs are often
difficult to amortize within small- to mid-sized transactions, preventing
both interested firms and investors from gaining the preparation,
counsel and follow-up needed to achieve successful results.
eBJ: How did the Japan Small Company Investment Conference
address these issues?
Rabin: We utilized a portfolio approach for our investment
conference. It provided a cost-efficient vehicle that facilitated
the initial preparation, screening and introductions needed to establish
priorities and a more rational allocation of resources to deliver
necessary follow-up. Within this mix we were able to showcase two
exciting specialty retailers, one that focused on natural foods and
another on gardening products. We also featured three firms with specialized
software applications oriented toward improving procurement systems,
factory automation, graphics technology and document management as
well as three others that focused on the semiconductor industry. Through
this cross-marketing and promotional effort we were able to gain synergies
and an economy of scale that would not have been otherwise possible.
It allowed us to attract over 200 investors and other targeted individuals
as well thousands of visitors to the site (http://kwrintl.com/jsciconference)
that was developed. We continue to receive numerous ongoing inquiries
about this event and our plans for the future.
eBJ: Is Japan moving towards a U.S. style economic model?
Rabin: It is moving in that direction. Japanese firms have
traditionally focused more on market share, operational efficiency
and product development than profitability and the more intangible
financial, marketing and other concerns that tend to preoccupy U.S.
managers. Additionally, bank lending tended to be made more on relationships
and collateral than the credit- and risk-based approaches used by
U.S. financial institutions. As Japan moves away from a main-bank
and lifetime employment system to one that is more focused on equity
investment and merit-based performance it will inevitably require
a shift toward a U.S.-style model.
eBJ: How can Japanese firms benefit from investment by foreign
firms in this new environment?
Rabin: Foreign investors can help Japanese firms to better
understand and adopt these practices and to build stronger, more competitive
companies that are able to adapt to the new environment. They are
also not subject to the same cultural and social constraints as Japanese
managers. The point here is that this is not rocket science. Many
Japanese firms are fundamentally sound but have never had to employ
the controls and systems that are used to manage and evaluate U.S.
and many European firms.
eBJ: Could you give an example of this?
Rabin: Nissan is one high-profile example. By employing relatively
standard corporate reorganization techniques Carlos Ghosn was able
to restore the company to profitability. Wilbur Ross and his team
at Kansai Sawayaka Bank have also made significant progress, working
to introduce a credit- and merit-based culture as well as a wider
array of financial services and products. This has helped to significantly
expand its loan portfolio and raise profitability in a troubled banking
eBJ: Do you feel Japan has done enough to make it easier for
foreign firms to make investments in Japan?
Rabin: While it is not a linear path, Japan is certainly doing
more than ever before to make it easier for foreign investors to enter
the Japanese market. Much more needs to be done but in my eyes the
major obstacles today are more on the cultural and personal than the
regulatory level, where most barriers can now be addressed with the
help of experienced legal counsel and other support. Part of the problem
is that while Japan remains the world's second largest economy, with
a well-educated and affluent consumer and industrial base that is
increasingly receptive to new ways of doing business, Americans do
not sense the opportunity and potential.
eBJ: And why is that?
Rabin: They tend to focus on other markets that are growing
at a more rapid rate -- but which are not even forecast to possess
the same underlying stability or market characteristics as Japan for
many decades. For example, per capita income in China ranged from
$2,253 (rural) to $6,280 (urban) in 2000 compared to over $34,000
in Japan. If you are a U.S. company seeking a market for your goods
or services which offers the better option? This is not to suggest,
however, that this is simply a case of neglect by U.S. firms and investors.
Even when there is interest, investors have a hard time obtaining
the specific information and contacts they need to make rational investment
decisions. For an economy as large as Japan it maintains a remarkably
low profile in the U.S., and Japanese firms need to do much more to
reach out to American executives or investors to both raise their
interest and to make it easier for them to identify and access investment
opportunities that meet their interest and requirements.
eBJ: What are the main changes in Japans business environment
that potential investors would like to know?
Rabin: Since the adoption of Japan's "Action Plan for
Economic and Structural Reform" in 1997 there has been a steady
movement toward deregulation and reform in the Japanese economy. The
most recent achievements include revisions to Japan's commercial code
to allow adoption of a U.S.-style corporate governance system, new
mark to market accounting standards and measures to enhance labor
flexibility and pension portability. Many other measures have been
adopted in recent years. To enhance corporate competitiveness and
flexibility, steps have been taken to end the prohibition on holding
companies, facilitate corporate divestitures without negative tax
consequences and to revise the civil rehabilitation law to simplify
restructuring and bankruptcy. To promote the development of small
and medium enterprises and start-ups, steps have been taken to allow
the use of stock options in compensation packages, create a Limited
Partnership Act to facilitate the use of venture funding and establish
technology licensing organizations to encourage the transfer of university
research to the private sector. Many other steps have been taken to
promote the use of information technology and e-services, to enhance
labor flexibility and to reduce the high cost of doing business in
Japan. While one can argue over the pace of progress and the need
for more rapid reform, it is also important to recognize the tremendous
shift of sentiment within Japanese businesses and consumers. There
is far more openness than
ever before to the entry of foreign firms and investors. Only ten
or even five years ago, Japan remained eager to go it alone. They
are now keenly aware of the need for change if they are to maintain
and expand their economic viability.
eBJ: And What are the key issues to keep in mind when attempting
to enter into investment transactions with Japanese firms?
Rabin: Americans and other foreign investors need to keep in
mind that Japan is not the U.S. While that is part of the attraction
and many of the obstacles that were faced in the past are now being
addressed, it requires numerous adjustments to allow for cultural,
social, legal and regulatory differences. This is not to suggest that
U.S. firms need to sacrifice their normal profitability and other
objectives when entering into Japan but rather that they must take
time to understand the real differences and adjust their expectations
so that they can adopt
a sustainable plan of action, investment model and time frame that
will allow them to achieve the results they are looking for. Support
by experienced service professionals and other people who know the
environment is usually advised.
eBJ: Do you have plans to organize additional investment conferences
in the future?
Rabin: Based upon our first success we are now in the midst
of talking with many companies, investment promotion agencies and
intermediaries such as venture capital and investment management firms,
investment banks, service firms and securities exchanges who are seeking
to showcase clients or portfolio companies. Interestingly, these inquiries
are coming not only from Japan -- but all over the world. We are now
in the midst of planning and hope to organize an expanded initiative
of this kind early next year. If any of your readers have an interest
or would like additional information, please have them contact our
offices at firstname.lastname@example.org .
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