This afternoon the New York office of the Japan External Trade Organization (JETRO) released a newsletter focusing on new business practices in Japan.

A complete copy of JETRO's latest FOCUS: ECONOMIC RECOVERY NEWSLETTER can be viewed at its Internet web site: http://www.jetro.org/newyork/newsnet/focus/focus5.html

A summary is posted below:

Negative economic growth, demographic and social change and fierce global competition are causing Japanese policymakers and corporate managers to reevaluate the way in which business is conducted in Japan. This is leading to major changes in Japan's regulatory structure and to an evolving corporate dynamic in which private firms are moving to introduce the changes needed to ensure their long-term viability.

The Evolution of Japanese Business Practices

The Japanese business model has traditionally been characterized by the important role of "main banks", lifetime employment, seniority-based promotion and cross-shareholdings. As recently as a decade ago, this system was admired on the belief that it allowed managers to focus on building long-term value. Today, however, there is a realization that more dynamic mechanisms are required to provide Japanese firms with the efficiencies and technological advances needed to compete more effectively in today's highly aggressive global economy.

Promoting Reform and Change on the National Level

Japanese policymakers are now undertaking a comprehensive review of Japan‰s entire regulatory structure. This includes introducting reforms to facilitate mergers and acquisitions, cross-border investments, alliances and financial transactions with domestic and foreign firms.

Japanese Firms Embrace Corporate Reform

In contrast to the U.S., where corporate governance emphasizes a separation of ownership and control, Japan has been governed by a system in which management and labor work together with main banks.

Several factors are forcing a reevaluation of this system. One is relatively poor corporate performance in the 1990s. Japanese firms are also no longer able to rely exclusively on one banking relationship and are now required to begin exposing themselves to outsiders in the same manner as Western companies.

Developing a New Corporate Governance Model

In the U.S., institutional investors play an active role in corporate governance. They closely monitor management to insure the success of their investments. Japanese companies have largely been resistant to these pressures.

Japanese companies and policy-makers are coming to realize the real costs their system exacts on growth and development. They are moving to adopt new business practices, including a new corporate governance model.

Companies are also embarking on internal reforms. The Tokyo Stock Exchange reports that 129 companies announced corporate restructurings in March 1999 alone.

Moving to Restructure and Rationalize Business Operations

Corporations have also begun to rationalize their business operations. Many are developing more competitive cost structures by trimming staff, selling off subsidiaries and closing offices.

An unfortunate and disruptive byproduct of this activity is that Japan has now surpassed the United States in unemployment, rising to 4.6% last February - the highest level since Japan began recording this data in 1953.

Developing a Japanese Corporate System for the 21st Century

Japanese policy-makers are moving to accelerate these trends. In March 1999, Prime Minister Keizo Obuchi launched a panel of prominent business and government leaders to help Japanese companies restructure their operations. It is modeled after the "Competitiveness Council" set up by U.S. President Ronald Reagan in the 1980s.

The strength of the Japanese stock market in 1999 indicates that international investors are beginning to recognize and endorse these changes. Many U.S. analysts have become increasingly bullish, expressing their belief the Japanese economy has "hit bottom", offering investors an attractive opportunity to earn superior returns for many years to come.

Focus is published and disseminated by JETRO New York, 1221 Avenue of the Americas, New York, NY 10020 in coordination with KWR International, Inc. 140 West End Avenue, New York, NY 10023, Tel: 212-799-4294, Fax: 212-799-0517, E-mail: kwrintl@kwrintl.com. JETRO New York is registered as an agent of the Japan External Trade Organization, Tokyo, Japan and KWR International, Inc. is registered on behalf of JETRO New York. This material is filed with the Department of Justice where the required registration statement is available for public viewing.

CONTACT: JETRO NY
Hidehiko Nishiyama,
Executive Director
Tel: 212-997-0416,
Fax: 212-997-0464
E-mail: nishiyamah@newyork.jetro.org