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Another big thank you to ACCJ members for reading—and to the Journal for inviting me—to keep swinging the Ax in 2012. Last month, we chopped up Global Readiness and this month I’d like to return to the business of meetings – a place where Global Readiness can either shine brightly or dull everyone down when not adequately developed.

In January’s Strokes to the Finish Line column, we covered the rowing analogy for meetings: “three strokes” (compliments, questions, and validation), and we examined one of the most common momentum killers for meetings – the word “but.”

But… I mean AND there’s more!

ENEMY WORDS, PHRASES, AND FROWNS
Now that we’re into the Year of the Dragon, let’s hone our slaying skills. In January, we shared that “keeping the ‘buts’ out of your mouth” encourages more contributions and builds momentum. However, several other silent – and not so silent – killers lurk. Let’s start where communication began.

ROLLING EYES & HEAVY SIGHS
Long before we came up with words, we communicated through gestures and vocal utterances. Guess what? We still do. It’s our primary form of communication. That’s why how we look and how we sound take precedence over what we say. Clients who see themselves video-recorded during one of their meetings often express shock at how “bad” they look or sound. They feel embarrassed and had no idea what they look and sound like to others, whether when speaking up or remaining silent. Watching themselves, they can see how their unconscious reactions serve to either help or (in many cases) hinder a meeting’s progress. This knowledge is especially valuable for leaders, due to the asymmetric influence on meetings you attend.

Even if you don’t record your meetings, go into your next one aware that your visual and vocal reactions will either negatively or positively influence others, and thus influence the outcome of the meeting. You might even want to assign “Angel’s Advocates” to ensure the first response following any suggestion is positive. That way, you remain free to disagree later and choose another course of action and you will encourage more contributions.

Many visual and vocal expressions are subtle and tough to catch, and even tougher to counter. On the other hand, a trained ear can easily capture words and phrases for later slaying, like the enemy dragons they are. There are five enemy words and phrases that sap the energy from you and others who aim to drive a meeting towards its goal. Note how often (or not) they’re used in your daily meetings, conversations, and presentations. Ready your swords!

HAVE TO
“Well, we have to put in more time on this project….” “I have to check with the CFO…” “You have to understand.” Let’s take these one at a time.

“Well, we have to put in more time on this project.” How does that make you or your team feel? Could you inspire the team more by saying, “Let’s put some more time into this project”? Or, “I’d really like this one to impress the client, big time. How about another two or three hours to really nail it down”? Saying, “We have to” places a burden on the team and, as we’ll see below, it’s a false burden.

“I have to check with the CFO…” No, you don’t. In fact, you don’t have to do anything – anything, that is, except to live (until you die). That’s it. Think about it. What else do you “have to” do? Some will say, “Well, I have to go to work.” Do you? Or do you choose to go to work because you want to receive a paycheck, or to maintain a certain social status, or to contribute to something bigger than yourself?

“But Andrew,” I hear some say, “I have to eat.” Not as much or as often as you think. Ask a hunger striker. You eat because you prefer not to be hungry, not because you have to eat. You won’t die for 30 days or more without food and even then, you only “have to” live until you die, remember? Oh, by the way: keep that ‘but’ out of your mouth.

“I have to pay taxes.” You choose to pay taxes because you want to avoid the penalty that comes with non-compliance. By now you’ve got the picture. There’s only one legitimate “have to”: live.

What about that pesky CFO who requires that expenditures above a certain amount go through his or her office? Well, yes, there are consequences for failing to gain approval from the CFO, who may hold final authority. That differs from having to check with them. Much better to say something empowering to yourself and your team, like “I’m on board with this and with the CFO’s approval, we’ll be set.” Saying, “I have to check with the CFO” makes you sound passive and less powerful than you are.

The worst offender in the “have to” world is one we so often hear in heated discussions: “You have to understand that…” Just as you don’t “have to” do anything except to live, neither does the other side. Beware of the person who knows this truth the next time you say or hear, “You have to understand.” They’ll reply, “Why?” or simply, “No, I don’t.”

JUST
“I’d just like to add…” When you’re in a meeting, driving towards a goal, everyone is there to contribute. Whenever you say, “just,” you’re giving a half-power stroke that only serves to delay the finish. “Just” diminishes your contribution. Catch yourself and help others eliminate “just.” Use “Let me add,” or “To add to Satoshi’s point…” With apologies to Nike, “Do it!”

SORRY (and other apologies)
Speaking of apologies, most that happen during meetings are unnecessary and most are not really apologies at all – rather, they’re habitual phrases. “Sorry to interrupt…” Never interrupt. Add value, and return the floor to the other speaker when you finish your 30-second or less contribution. That’s positive, right? So why apologize? Pull your oar –take your stroke – and keep the meeting going. An interruption interrupts; a contribution contributes. The difference? Check others’ reactions. Are meeting participants more or less engaged? Was the person you spoke over irritated or enthusiastic – or even, as is often the case, relieved? (How many times have you or someone else droned on a bit too long and forgotten the main point? Someone jumps in with a compliment or quick paraphrase. That’s nothing to be sorry for!)

Andrew Silberman is chair of the ACCJ’s Membership Relations committee, president & chief enthusiast for AMT Group (www.amt-group.com) as well as the lead vocalist & rhythm guitar for the roots rock band Moonshots (www.moonshots.net). Direct comments or questions to him by e-mail: Andrew@amt-group.com

When you apologize, it’s most likely out of habit or to sound polite. What you may really be saying is, “I’m sorry to be helping us clarify where we are going and for helping us get there quicker.” See how ridiculous that sounds? Yet so many of us fall into the “sorry” trap.

Sort of, Kind of, and other modifiers Even professional broadcasters fall victim to these worthless modifiers. A recent KCRW program Left, Right and Center, a radio show dedicated to debating political issues of the day, featured the host and one of his regular contributors continuously modifying their remarks with this self-limiting language. “Well, I’d sort of like to point out …” Sort of? You’re getting paid to sort of express an opinion?

Why chop your oars off at the handle? Dig deep into the water and express your point. If you’re not sure where you stand on the issue, you can still declare: “We’ve heard good arguments for direction A and solid reasons for B; let’s take a few more minutes to hash this out, and if we need more information, we can postpone the final decision until next week.”

Rather than expressing politeness, most of these modifiers are simply habits. Space-fillers, as useful as, “You know,” “like” and “and so on.” Once you start looking for these non-contributors, you may be surprised how often you find them. Then, recalling a message on my father’s office wall: cut them. No, Dad wasn’t an L.A. gang member but an orthopedic surgeon. That somewhat self-serving sign on his wall said, “A chance to cut is a chance to cure.”

So cure your meetings by slaying these self-limiting demon dragons.

GETTING A G.R.I.P.!
As you may know, the Ax’s ultimate purpose is to cut through the BS and help you develop your own strengths as a leader, as a manager and as a “globally thinking communicator.” Each topic stands alone and each one can and should inspire you to lead more effectively. This month, at the risk of taking on too big of a tree, we’re chopping into a giant Redwood: Global Readiness.

What do we mean by “Global Readiness”? You’re not the first to ask. At AMT Group, we have been “Developing Global Thinkers” since 1992, and this remains the hottest topic at every annual planning session. With so much rapid change all around you, and the globe seemingly shrinking by the minute, being “globally ready” has taken on even greater importance today.

Let’s take the second word first:Readiness. When you are “ready,” how do you feel? Prepared. You actually expect and welcome surprises. You’ve taken the courses, practiced the lessons, experienced enough to know there’s always more to learn. You’re rarin’ to go. It doesn’t matter if we’re talking about being ready for a night on the town, a day on the greens or your most important IR road show to date. We all know when we are ready, or at least ready enough to give it our best shot.

Today, we’re talking about a specifictype of “readiness” – global readiness. Do we mean you need to be ready for anything, anywhere at anytime? That you’re an expert in everything from social networking to low-latency trading programs? Only if that’s your business. But you do need to be more prepared for the challenges of a global business environment than you have ever been. We all do. We need to consider the characteristics, attitudes and skills necessary to function well in a “global” or international team.

So why don’t we call this “international readiness?” Several reasons. For one, “international” refers to countries and is limited to cross border relations and transactions. “Global” goes well beyond that. Your diverse team of 10 today requires more global skills than large corporations needed in decades past.

What “global skills” are we referring to? Beginning in 2000, and having already worked with over 1,000 MBA candidates, business owners and managers, my company began to develop a prototype Global Readiness Profile. The request came from a multinational pharmaceutical firm which was having difficulty choosing Japanese candidates for short and long-term overseas assignments. Together we identified 25 key (and now customizable) “elements of Global Readiness.”

Here’s how it works: after completing the Global Readiness Profile (GRP), the candidate receives an accurate snapshot of where they score on these 25 key elements,with both qualitative and quantitative results. We add value through an in-depth review of the profile together with the GRP candidates, helping them develop personal “Global Readiness Improvement Plans.”

I’d like to share with you how we go about printing the most accurate snapshot, one that encourages those who take the GRP to take action and Get a GRIP!

First, the GRP uses six human evaluators who, taken as a whole, should comprise the most trustworthy team you can find. Here they are:

1. YOU
If you are the leader of a company or team that is implementing the GRP, then you can tailor the GRP to your current needs. For example, control who takes the GRP, which elements you want to emphasize, de-emphasize or modify, and how the GRP will be used.

2. THE GRP CANDIDATE
One-third of GRP is direct self-assessment and over half is scoring of elements the candidate can confirm for him/herself through video review. The merits of self-assessment (at least with this tool) are huge. When someone sees that their own evaluation suggests they need work on a certain element, they’re more likely to put in the time and effort to improve.

3. COLLEAGUES
Who else can better judge, for example, the interpersonal skills or technical ability of someone than their direct co-workers? And the GRP’s methodology protects you and your candidates from typical abuses and pitfalls of so many so-called 360-degree evaluations.

4-6. GRP GUIDES
The business communication portion (the lower portion of the globe described later, from achievements down around through to negotiations) is scored by three AMT Group certified evaluators, from three continents (Asia, Europe and America). When their opinions differ (which does occur on occasion), you will know why, and you will see what the next best step to take is, depending on the particular “global environment” the candidate faces, either now or in the future.

This chart shows 25 elements that define core skills for Global Readiness. The closer to score to the end of the globe, the better is your GRP.

There are a couple of reasons for this. Most of you reading this article are based in Tokyo, and for you, the center of the world is where you are. While we’re using the GRP for clients in several countries, our primary focus for now is on helping those of us here to expand our influence and leadership to a wider audience. Hence, the higher scores on the profile take you further out from Japan.

(You receive your individual snapshot and you are eligible to receive two customized Guided G.R.I.P. sessions focusing on your most pertinent areas of improvement. This total package costs about ¥90,000 per candidate).

AUTOMAGIC IMPROVEMENT
So the GRP is all about “readiness.” The profile itself helps you identify who’s ready for action, and what they need to do to be “readier.” The stories that come from clients who’ve taken it convince me of its value. One international banker said, “My self image was entirely different to what I saw through this program. Now I know what I need to change.” And even better, anyone who’s that ready for change will change.

Every single GRP candidate has been able to identify the behaviors that enhance – and those that inhibit – positive interactions and influence outcomes. The increase in self-awareness by itself leads to improvement.

NON-VERBAL BLINDSPOTS
In future issues of Andrew’s Ax (and in the book), I will go into greater detail on each of the 25 elements. For now, let’s take a look at one element in particular.

Andrew Silberman is chair of the ACCJ’s Membership Relations committee, president & chief enthusiast for AMT Group (www.amt-group.com) as well as the lead vocalist & rhythm guitar for the roots rock band Moonshots (www.moonshots.net). Direct comments or questions to him by e-mail: Andrew@amt-group.com

Note that under interviews and presentations, candidates are scored on both “responses” and “delivery.” One reader asked us if the GRP covers “non verbal communication,” and indeed it does. In fact, non-verbal communication is a blind-spot for many candidates. By “non-verbal,” we mean anything beyond the words that are spoken. If “verbal” is the words that are said or written, then “visual” (how you look) and “vocal” (how you sound) make up the universe of “non-verbal” communication. (Albert Mehrabian demonstrated that in terms of likability and impact, 93% is generated by non-verbal cues.)

With so many cultures in the world, is there a “global” non-verbal communication that is more or less effective? When describing impact on global teams, yes there is. Can you tell if someone is positive, confident and energetic? Sure, even though there are cultural nuances. Thais and Vietnamese tend to smile more than others, and for some different reasons than people from
other countries. Japanese in particular and Asians in general tend to make less eye contact than westerners. But let me put it this way: I’ve yet to find the culture where slumped shoulders, a drooped head and heavy sighs signaled to others, “Let’s do it!”

How important is all this? Last December my right leg suffered three minor, but none-the-less painful injuries in just 2 days. I told a sensei who said there’s meaning to be found. “Just like with everything else, it’s that word that starts with A, ends with S…” (after pausing a beat so I first conjured the insult I knew he was thinking of) “and has a lot of other letters in between. Yes, it’s all about Awareness.”

Every improvement starts with awareness and a bit of dissatisfaction with the status quo. I’m sure your global readiness is making the cut so far or you wouldn’t be reading this. But every athlete knows that with a new season, the coach again goes through and chooses who’ll be playing on the team. Some make the cut and others get cut from the team. Next season is always right around the corner and the coaches are making their lists. Make sure you keep making the cut!

Illustration by Louise Rouse

A big thank you to ACCJ members for reading and to the Journal for inviting me to contribute part two of this three-part series based on the newsletter I’ve been sending to friends and clients over the years.

STROKES TO THE FINISH LINE

Last month, we took swings at the Lost Art of Listening and shared both good and bad examples of three “listening levels” offered by author Madelyn Burley-Allen. There are serious gains to be made by improving your team’s listening skills.

But many business leaders here in Japan often face the opposite issue. Their staff listens–or at least appears to listen–and sits quietly on the sidelines. Whether at an internal meeting, visiting a client or prospect, or dialing into a tele- or video-conference, the “contribution from Tokyo” often falls short of typical western expectations.

THE WRONG KIND OF BLOCKING

A lot of us who follow the NFL know that blocking is a key part of any strong offense. Good blocking wins championships. But another kind of block can prevent proactive contributions at meetings. These blocks can be personal or cultural, as anyone who has lived in Japan will attest. You may have concluded that most Japanese do not want to contribute proactively or assertively to discussions. But over the years here, I’ve discovered that what many perceive as a cultural barrier is in reality a lack of meeting management skill–and it’s lacking on both the Japanese and their western colleagues’ side of the table, phone or screen.

Ask a group of people from anywhere in the world (as I have more than 100 times): “What’s the impression of someone who attends a meeting and doesn’t say anything?” You’ll receive a variety of answers: “The person doesn’t understand the topic.” “Not interested.” “Unprepared.” “Sleepy.” Usually it takes more than 10 of these answers before even one is considered “positive” and that’s likely to be something like, “He really wants to know others’ opinions.” The overwhelming majority of impressions of someone who does not speak up at a meeting, throughout the world and including Japan, is negative. So what’s going on? Why are your people not voicing their opinions?

Digging deeper, we find that the real reasons that someone doesn’t speak up in a meeting generally boil down to two:either they fear looking foolish by saying something that isn’t brilliant, or they don’t want to appear rude by interrupting. So they wait patiently and their “turn” never comes. Or when it does, the topic has changed. We disarm both of those potentially legitimate concerns below.

A BIG ISSUE HELPED BY AN ANALOGY: “STROKE!”

This non-contribution is actually a big issue. You want your team to proactively contribute to meetings and discussions, especially if your team is “on stage” with global or regional headquarters. So let a simple analogy help. “Imagine,” you can say, “that this meeting table (or wherever we’re gathered) is a actually a boat and we’re engaged in the sport of rowing (sometimes known as ‘crew’). We’re in a race. Our objective is the finish line. That objective must be clear, whether it’s to generate a new marketing idea, reduce turnover or decide on an off-site location for the team retreat.”

“We’re all in the same boat, as the saying goes. We all want to achieve the objective. You’re here because you’re capable. We’ve all got an oar in our hands. Now, if you’re in this boat, there are three things you can do: 1) sit there and do nothing. That’s where the term ‘dead weight’ comes from; 2) put your oar in the water and stroke—that’s helping us get to the finish line; or 3) push backwards–that’s interrupting, saying too much or being negative. Whatever propels us toward the goal is good; whatever holds us back or takes us off course is bad.”

THREE STROKES TOWARD THE GOAL

People “get” this analogy and yet they still don’t know what to do. “How can I contribute? I don’t have anything brilliant to say.” First, point out that not everything they, their boss or anyone else says is always (if ever) brilliant. It’s enough to be coherent. Once your people confirm that it isn’t merely the brilliant who speak up, they’ll be more likely to give it a shot. Still, you may hear, “OK, but I don’t want to interrupt.” And they’re right. Interrupting someone is rude.

So teach your staff (and yourself, if necessary!) to interject , to add value, to push forward, etc. This is more than a semantic difference. An interruption cuts someone off; it literally stops their (and thus the boat’s) flow. An interjection, on the other hand, contributes to the goal.

Illustration by Louise Rouse

1) COMPLIMENTS

The first interjection, and one of the easiest, is to state the current speaker’s name and add a sincere compliment, “Joe, that’s a great point.” No one (not even a blowhard who loves the sound of his own voice) will take offense to a sincere compliment. And that compliment gives you the floor, from which you can use up to 30 seconds to add value with your point.

The compliment is not rude, and it’s not a trick. After you present your point, if you feel Joe was really onto something, prove you were listening by reminding him (and everyone else) what he was saying and ask him to continue or elaborate.

All of us seek validation. We like to know that our ideas merit consideration. That’s why compliments work so well. Studies at Harvard and Northwestern universities show that even insincere flattery works, in that flattery generates unconscious positive feelings from the “flatteree” toward the “flatterer.”

Good feelings means the person will feel more engaged, and pull harder on his oars to get toward that finish line. Be careful with the flattery, though, since other colleagues in the room or across the screen may see it as an attempt to ingratiate yourself rather than encouraging a positive meeting outcome. So be sincere. Another meaning of “stroke” is compliment, and complimenting someone sincerely can be one of the best strokes you use to power your meeting toward the finish line.

2) QUESTIONS

Many of your staff may not want to break in with a compliment to someone senior. That’s OK. There are plenty of other options, the most common-sense one being, “Ask a question.”

A lot of fakery goes on in meetings–people pretending to know what others are talking about when really they have no clue. Far better to ask a question early on, even something as simple as, “Can you clarify what you meant by…”

Now, if the speaker is a candidate for “On-and-on Anon,” again you can jump in by first stating his or her name. We all hear our name above the buzz of a crowded restaurant or airport (“Mr. Smith, please pick up the white courtesy telephone…”) and we even hear it above the buzz or our own voice.

Asking a good question shows you’re paying attention, you want to know more, and you are “present.”

3) VALIDATION

At a minimum, your staff needs to know that encouraging words and accepting others’ contributions can go a long way toward helping you achieve your meetings’ goals. Many of your staff are not aware of this.

When Tanaka-san steps up to paraphrase what Denise has said, thus clarifying understanding for herself and others, Denise needs to know the proper response. A quick, “Exactly right, Tanaka-san.” Or, “That’s it!” or even, “Yes!” will do. Silence, on the other hand, leaves most everyone feeling awkward. If, after validating, you want to elaborate or clarify, go ahead.

BREVITY: EVERY MEETING’S FRIEND

In a business meeting, remember your best friend “Brevity.” Author Milo O. Frank wrote How to Get Your Point Across in 30 Seconds or Less. If you are or have a chatterbox on your team, pick up a copy of Mr. Frank’s book. Imagine that when you begin to speak, a stoplight has switched from red to green. After 20 seconds or so, it’s yellow. At 30 seconds, red.

STAYING THE COURSE

Andrew Silberman is chair of the ACCJ’s Membership Relations committee, president & chief enthusiast for AMT Group (www.amt-group.com) as well as the lead vocalist & rhythm guitar for the roots rock band Moonshots (www.moonshots.net). Direct comments or questions to him by e-mail: Andrew@amt-group.com

Every time we introduce this concept, invariably someone will say, “Yes, but what if I disagree?” First, point out that they could have said, “Yes, and what if I disagree?” And my answer is simple: by saying “Yes, and…” you are acknowledging the person and their desire to reach the same goal you seek–the finish line. Then you add your idea, which may differ from theirs, and you can seek areas of agreement or compromise and keep the boat going toward the goal. Interrupting, cutting someone off or saying, “Yes, but your idea won’t work because…” will usually lead to one thing: fewer contributions from the person who was cut off. If that’s what you want, perhaps that person should not have been invited to the meeting.

Every good meeting is an exercise in rowing. Set everyone’s sight on the goal, put the oars in the water, and STROKE!

Technocrats rule, ok?

Prime Minister Noda’s strongest ally is Japan’s technocrats in general, the Ministry of Finance in particular. This is a big plus and stands in sharp contrast to the deeply entrenched anti-bureaucrat pretense of his predecessors, ex-PM Hatoyama and Kan. Both Kan and Hatoyama very consciously
shut-out the technocrats as they wanted to force a complete break in the decision making process after more than 50 years of LDP one-party rule. The net result, however, was almost complete inaction in policy implementation—nothing got done.

In my view, it was never the fact that Kan or Hatoyama had “no plan” or “no vision” of what to do. Just read the Democratic Party Manifesto and you cannot help but be impressed with the grand-design and vision presented. However, to get from plan to action, you need to have the bureaucracy
on your side. To rebuild Tohoku, to recreate energy policy, and to implement social security and tax reform no Prime Minister can get very far without the proactive support and administrative expertise of the technocrats. The anti-technocrat philosophy of Hatoyama and Kan was, in my view, the fundamental reason for their ineffective (and short-lived) premierships.

PM Noda could not be more different. He has no hard ideology, but brings a healthy “can-do” attitude to the job. Most importantly, the technocrats have come to respect his willingness to learn, attention to detail and willingness to focus on facts, rather than get distracted by debates on “grand design.” PM Noda has the full support of the technocrats, which means his government stands a very good chance of actually getting things done.

How can I show this thesis is correct? Watch for a fast-coming, thoughtful and sizable supplementary budget for rebuilding to be presented soon. Also, look for a fast-track decision on new energy policy. No generalities like Kan, but credible numerical targets on how Japan’s power supply will be secured going forward.

DECISIVE TAX POLICY
PM Noda’s other strength rests in the political world: he is not afraid to be the “bad guy,” the leader who may actually go ahead and force an increase in taxes. “Un-learn what you have learned.” Everybody knows that Japan’s public
finances are spiraling out of control and that the country needs a broader tax base. But given that any Prime Minister who actually raised taxes got ousted within barely six months of taxes going up, nobody volunteered to spearhead the agenda—until Noda.

Lets get concrete: the fact that Noda is actually pushing for tax hikes coming as early as next year was a key reason for him winning the DPJ party leadership race. Importantly, next year (2012) is not an election year, so a popular backlash against the tax hike would not negatively affect individual politicians. If there is a bigger-than-expected backlash, the party will simply vote-out Noda in the next internal Democratic Party leadership vote, scheduled for September 2012.

So yes, Noda could well end up becoming the “fall guy” for doing what is right and necessary—tax hikes. But between now and then he is poised to get a lot of things done.

Jesper Koll is a Managing Director and Head of Research at JP Morgan Japan Securities Inc. He has been analyzing and investing in Japan since becoming a resident in 1986.

Note here, Noda is a self-made man, who almost faced personal bankruptcy several times during his career. A far cry from the second or third generation senior politicians in the Prime Ministers’ office since Koizumi. He’s not afraid to fight, to do the right thing and does bring a welcome “can do” attitude to the job. No wonder the technocrats like him. A few early wins (energy policy and a credible rebuilding program) and the people may well cheer for him, too.

When I lecture at universities on innovation and entrepreneurship, I show students a slide of the top 50 innovative companies in the world and the year they were founded. Besides the fact that only four Japanese companies are listed, there are some other striking points to note:

1. No world-class companies have been founded in Japan since 1946; and

2. Japan’s major companies (and others on the list) grew out of a time of crisis in that nation’s history.

This begs the question we will deal with first: Why? Japan’s defeat in 1945 unleashed a wave of entrepreneurial energy that stunned the world as it swamped global markets three decades later.

It began in burned-out cities with demobilized soldiers desperately seeking rice to put on the table and a way to recover their shattered pride. With nothing to lose, they had no fear of taking risks in order to succeed.

In Shinagawa, Sony’s founders, Masaru Ibuka and Akio Morita, tinkered with rice cookers and radios. In Hamamatsu, Soichiro Honda strapped small engines on bicycles. On the very edge of Hiroshima’s blast radius, survivors at Toyo Kogyo scrambled to produce three-wheeled trucks under the Mazda brand.

This desperate entrepreneurial energy drove postwar Japanese to amass more wealth in the span of a single lifetime than any generation of human beings in history. For a while their momentum seemed so unstoppable that rivals began to contemplate the likelihood of “Japan as Number One.”
Then, the momentum suddenly disappeared after 1991.

At first, the meta-shock of a bursting Bubble Economy seemed to explain it. But 20 years later this country is still nowhere near regaining its mojo. Even Japan’s strongest brands now seem to be losing steam. Korean upstarts like LG and Hyundai are overtaking Panasonic, Honda and Nissan. America’s Apple and Dell are surpassing Sony and Toshiba. Even General Motors, recently arisen from the grave, looks like it might recover its global crown from Toyota.

What happened here, and why?
Even after 20 years, Japanese still don’t know what hit us. But now that it’s clear the problems will not solve themselves, we need to answer a fundamental question: Why did Japan’s entrepreneurial drive disappear?
Who am I to answer this question?

Born to Japanese parents who immigrated to Los Angeles, I grew up in California’s “techno-geek” culture. So it seemed perfectly normal to start a software company in my college dorm at age 19. Without disturbing anyone’s parents, friends and I could stay up all night coding for clients like NEC and Toshiba. But when a Japanese client announced a sudden visit en route home from a trade show, I knew he’d be shocked to find where his code was coming from. So we had to set up an office over the weekend.

From that haphazard start, we went on to establish I/O Software as global leaders in data security. Nine years later, in 2000, Microsoft adopted our core authentication technology, BAPI (Biometric Application Program Interface), into the Windows operating system.
For a veteran of California’s freewheeling entrepreneurial startup scene, the Japanese business world was a stark contrast. To my eyes, the problems were clear.

Many large Japanese companies became global without globalizing. Monocultural teams, devoid of foreign-language skills or global awareness, focus narrowly on domestic concerns and fail to spot emerging wants and needs in distant markets.

Given Japan’s love of order and organization, bureaucracy spreads in companies like kudzu vines: the bigger the tree, the thicker it grows. After three post-war generations, initiative and decision-making in Japanese companies have been strangled by bureaucratic process.

Add to that the Godzilla of bureaucracy—government functionaries who seek order and conformity in all things. Not so long ago they unabashedly quashed “excessive competition” for fear of “market confusion.” No wonder we ranked 187, between Mexico and Zambia in a global ranking of the ease of starting a new business.

Japan’s major companies sprouted, almost literally, after a forest fire: the postwar period when bureaucrats and zaibatsu were in disarray. Over 60 years, along with government, they have grown like a grove of sugi, the tall Japanese cedars whose thick canopy prevents any sunlight from reaching the forest floor below.

True, SMEs (small-and-medium-size enterprises) are thick on the ground in Japan. Over 80 percent of Japanese firms have less than 40 employees. They generate 70 percent of GDP, but few grow to major scale. And that is a problem.

Since 1975-76, when Microsoft and Apple were founded, the U.S. has consistently produced a stream of entrepreneurial ventures that have become pillars of the economy, including Amazon, Dell, Google, Oracle and many others. You can count the equivalent Japanese newcomers on one hand, and on the other hand you can count established Japanese players that consistently rank among global innovators.

Arriving in Japan in 2005, I expected to find legions of frustrated entrepreneurs waiting, like Egyptians, for Twitter to signal the onset of revolution. “After all,” I thought, “Japan has tens-of-thousands of brilliant engineers and scientists. Surely, with dreams stifled by corporate bureaucracy and academic hierarchy, they must be yearning for liberation.” As a mentor or venture capitalist, I imagined myself unlocking the door.

Instead, I discovered that only 12 percent of Japanese dream of being their own boss, versus 49 percent of Chinese. And where 73 percent of Americans respect entrepreneurs, only 32 percent of Japanese feel the same way. This goes a long way toward explaining why Japan has the lowest rate of “Total Entrepreneurial Activity” as a percentage of GDP among the OECD nations: 3.2 percent.

Japanese have been conditioned to fear and avoid risk in every aspect of life. Today’s youth, coming of age in a harsh economy, are even more risk-averse than their elders. Not only are fewer willing to risk venturing overseas, but a growing contingent of hikikomori won’t even risk leaving their bedrooms.
These kids are the product of schools—micromanaged by Kasumigaseki bureaucrats—that energetically stamp out any trace of individuality, creativity, ambition or appetite for risk. Conditioned to memorize and regurgitate the answers to maru/batsu (right/wrong) questions, they enter university with few critical thinking skills and scant ability to debate or discuss.

These kids come from families obsessed with “what the neighbors might think.” If young Taro were to start his own business, and it failed, the family name might be stained forever. Worse, if Taro made a pile of money in his 20s, the Watanabes next door might presume he was a gangster.

To be an entrepreneur is to take on risk, intelligently gauging and mitigating it. As we know from the U.S., failure is part of the learning process. Only 18 percent of successful American entrepreneurs succeed with their first venture.

Why has Japan’s entrepreneurial drive disappeared? I say it’s because our national dream has shrunk to little more than a safe step on a predictable escalator. Get into a good university and ride up to graduation. Then get into a safe company, stand obediently to one side, and ride patiently up the escalator to retirement.

How can we turn this around? That is the subject of yet another editorial.

William H. Saito has spent the past two decades shaping information security policy, establishing and selling companies, and managing public corporations. He is a 2011 Young Global Leader of the World Economic Forum, and author of several books forthcoming from John Wiley & Sons and NikkeiBP, and has a chapter in McKinsey & Co.’s “Reimagining Japan: The Quest for a Future That Works.”Follow William on Twitter @whsaito.

The email continued, “The problem I’m working on is that many founders are either making uninformed decisions or inefficiently learning the new skills they need. The solution I’m exploring is a just in time learning methodology that accelerates founders’ learning curve by aggregating relevant content, peers and mentors… The project is a hybrid between academic and entrepreneurial circles and I’d really love to begin a dialogue with people in the academic world also interested in solving this problem. Your name has come up a lot in that regard. Let me know if this interests you and if you have any time to speak.” It was signed Max Marmer. I set up a meeting and at Cafe Borrone, some kid who looked 18-years old came up to me and introduced himself as Max. “How old are you? I asked. “18,” he replied. Holy s–t.

When I asked Max why he was interested in solving entrepreneurial education problems he replied, “I was always interested in big picture trends for where the world is headed. I spent time with organizations like the Institute for the Future and Singularity University. My conjecture became that the world’s biggest problem isn’t poverty or disease or any oft-stated major problem, but that we don’t have enough people engaged in trying to solve these problems. A big piece of the solution lies in the scalable impact of entrepreneurship and an increase of successful entrepreneurs. But potential impact consistently fails to be realized because of self-destruction.”

Tune In, Turn On, Drop Out


Max entered Stanford in the fall of 2010 as a freshman, took as many of the engineering entrepreneurship classes as he could and an independent study with me. Max dropped out of Stanford after his first quarter. But he left to work on what he told me he came to do—crack the innovation code of Silicon Valley and share it with the rest of the world. He set up Blackbox.vc, a seed accelerator for technology startups (and one of the tour stops for entrepreneurs from around the world.) They went to work gathering deep knowledge on what makes successful Internet startups. Max and his partners interviewed and analyzed over 650 early-stage Internet startups. Then they released the first Startup Genome Report—a 67 page in-depth analysis on what makes early-stage Internet startups successful.

Some of their key findings:

1. Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.

2. Startups that pivot once or two times raise 2.5x more money, have 3.6x better user growth, and are 52 percent less likely to scale prematurely than startups that pivot more than 2 times or not at all.

3. Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical co-founders despite indicators that show that these teams have a much lower probability of success.

4. Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A.)

5. Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.

6. Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product-centric startups.

7. Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.

8. Balanced teams with one technical founder and one business founder raise 30 percent more money, have 2.9x more user growth and are 19 percent less likely to scale prematurely than technical or business-heavy founding teams.

9. Most successful founders are driven by impact rather than experience or money.

10. Founders overestimate the value of IP before product market fit by 255 percent. 

11. Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.

12. Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.

13. Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.

14. B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because the Internet has changed the rules of business. They found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.

I’m not sure I believe every one of the report conclusions—it just covers very early stage web startups, and the methodology is still shaky—but this is a landmark study. I think these guys have gone a long way to turn hypotheses about early-stage Internet startups into facts. And they’re just getting started. Congratulations. A+. Download the full Startup Genome report at: http://startupgenome.cc/pages/startup-genome-report-1

Steve Blank is a veteran of Silicon Valley and serial entrepreneur, and teaches entrepreneurship at U.C. Berkeley Haas Business School, the joint Berkeley/Columbia MBA program, and at the Stanford University Graduate School of Engineering. The Japanese version of his latest book “The Four Steps to the Epiphany” can be found here, and you can read more of his business insights at: www.steveblank.com.

Japan’s economy is ready to surprise. And yes, it’s likely to be very positive news—a powerful V-shaped recovery is beginning to unfold and, in my view, Japan could well emerge as the winner in the global growth beauty contest.

There is much evidence to suggest that the disaster-induced plunge in both demand and supply is being reversed faster, and more powerfully than originally anticipated. By early June more than 90 percent of the disrupted factories had been restarted. Total production levels are poised to be back at pre-disaster levels by early August. At the national level, Japan’s total shipments of capital goods already snapped-back to pre-disaster levels by end-May. Clear-speak: Fears of supply chain bottlenecks choking off Japanese industry appear vastly exaggerated. Japan Inc. is back up and running, and ready to regain global market share quickly from here, in my view.

At the same time, domestic demand in general, consumer spending in particular is staging a spectacular recovery. Where uncertainty and fear forced sharp consumer retrenchment in the weeks following the disaster, hard data available for consumer spending points to a super-strong recovery that started in May. Retail sales are surging, condo sales and home sales are recovering fast, and overall consumer confidence is rebounding at rates not seen in almost 20-years.

Most important, the reason for the consumer recovery is not just “austerity fatigue” (Mr. & Mrs. Watanabe getting bored with “self-restraint” and not spending). No, there are deep fundamental drivers that now push up consumer demand. Japan’s labor market is recovering, unemployment is coming down and, yes, wages are rising. Specifically, the unemployment rate has dropped from 5 percent to 4.5 percent over the past six months.

Corporate Japan is hiring with, for example, the car industry now looking to add more than 10,000 workers to its payrolls to make up for production lost due to the disaster. Japan’s construction industry is scrambling to find increasingly scarce workers and, as a result, is beginning to raise wages. Note also that summer bonus pay rose by 5 percent, the highest pick-up in bonus pay in almost 20-years. Make no mistake, aggregate incomes are now rising in Japan, boosted by both increased employment and increased wages.

It’s still a little too early to know for sure, but right now the data available tells a pretty clear story—Japan’s private sector is on a fast and furious recovery track that could well lead to GDP growth rates around 6-7 percent over the coming couple of quarters. If so, that would be almost twice as fast as what can be expected from America or Europe.

Where the disaster has brought out the best in Japan’s private sector dynamism, it also looks to have brought out the worst in terms of the public policy response. National politics appears even more dominated by opportunistic infighting and finger-pointing across all parties. The net result is that policy debate and policy coordination appears to have become de facto impossible. Case in point: More than three months into the new fiscal year (started April 1) the bills required to fund the national budget are still not passed in Parliament. If the main budget is not fully funded, how can we expect public reconstruction of disaster struck communities to proceed?

To be sure, addressing all the policy challenges forced by the disaster—victim compensation, power supply strategy, rebuilding efforts—is a hugely complex task. There are no easy answers. At the same time, the policy response does offer an opportunity to raise Japan’s potential growth rate. A coordinated program of land reform, deregulation, agricultural reform, power supply and power transmission deregulation and tax reform for the disaster-struck areas could easily rekindle private entrepreneurs’ animal spirits to invest for growth in Japan.

Every day wasted by “political kabuki” at home brings yet another Japanese entrepreneur and risk-taker moving overseas to seek better fortunes. This is key. In the end, the goal of public policy must not be to merely rebuild roads and infrastructure. All policy must focus on creating incentives for private capital, for private entrepreneurs to want to go and invest in Japan. Deregulation, tax incentives, special economic zones–this is where political leadership is key to give direction and clarity. Unfortunately, so far very little of this is visible, which adds nothing but more incentives for entrepreneurs to looks elsewhere for growth, for profits and for enterprise. On the current policy mix, the long-term 10-year growth expectations for Japan would have to be revised down from around 1.75-2 percent pre-disaster to around 1.25-1.5 percent. This is because after the disaster as private capital is, at the margin, now less likely to be deployed in Japan, creating less investment for growth and less employment of labor than would have been the case before the disaster. To be sure, without policy leadership coming soon, Japan is poised to be a short-term winner in the global growth beauty contest, but a medium-term loser.

Possible tax hike growth bonus
Having said all this, there is one somewhat ironic twist to the interplay between Japanese economic policy and short-term demand swings. If the government does decide to push up the consumption tax as early as April next year, this could result in a short-term growth boost for Japan. As soon as it is certain that prices will be forced up by the tax hike, Mr. & Mrs. Watanabe will start to “frontload” spending—buying ahead while prices are still cheap. Right now, the government is looking to raise the consumption tax from 5 percent to 8 percent, so buying ahead of this hike would actually deliver savings of around 3 percent. Previous tax hikes have resulted in massive “front-loading” swings, with domestic consumer spending surging more than double digits in the three-four months before the tax hike.

Jesper Koll is a Managing Director and Head of Research at JP Morgan Japan Securities Inc. He has been analyzing and investing in Japan since becoming a resident in 1986.

Of course, in the end the front-loading turbo-charge to spending data before the hike forces pay-back downdraft in the three to four months following the tax hike essentially all averages out. Generally, very little changes with regards to the fundamental trends. However, at the current juncture of the business cycle, the immediate impact of a clear cut government decision on next year’s taxes is definitely positive in the short-run. Consumer demand is recovering right now because of the post-disaster snap-back. If by September/October the government confirms that the consumer tax will definitely go up from April 2012, we could easily see added momentum to domestic demand and consumer spending because of “front-loading.”

So here we have it, a Japan poised to win the global growth rate beauty contest over the summer, possibly boosted further by government tax hike decisiveness. Brace for good news from Japan’s economy, and hope that policy makers will not be lulled into even greater complacency by the coming Japan boomlet.

Normally, strong demand for real estate would indicate confidence in a country’s economic growth prospects and the potential for higher rents and occupancy rates. I would posit at this moment in time, however, high demand for income-producing Japanese property from ordinary domestic corporations is in fact strong evidence of the opposite. In other words, Japanese manufacturers and service companies (non-real estate) fed up with the political situation and pessimistic about economic prospects see no reason to invest in their core businesses, so they are seeking to expand their profits through real estate rental income instead.

Real estate acquisitions by ordinary domestic companies have been the dominant story in the market since the Lehman shock, but after a short break following the earthquake, many have now resumed their active search for stable, income-producing property investments. Financial institutions, particularly those based outside of Tokyo, are strongly encouraging this trend. Given that so few companies seek to invest in their core businesses, loan demand has been sluggish, so real estate investment is about the only major use of funds. When a non-real estate company borrows to purchase real estate, banks receive the additional bonus of being able to classify the loan by the industry of the borrower, so bank regulators think it is a safer type of loan than for more “speculative” real estate companies. Assuming that the borrower has a good balance sheet, banks are willing to lend up to 100 percent of the acquisition price at extremely low rates, often less than 1 percent these days.

While it is good for the Japanese real estate market overall to have a wide pool of buyers, the shift from financial to corporate investors is a big reverse of the trend that started in 2001 with the introduction of real estate investment trusts (J-REITs). The creation of J-REITs and the explosive growth of private funds and foreign investment in Japanese real estate led to greater transparency, professionalism, deeper capital markets and higher quality real estate services. Corporate owners tend to manage property directly, to borrow with their balance sheets and to hold property for the long-term, so this trend could reverse some of the progress that has been made.

The best evidence of the shift from professional to corporate investors is to look at the trend in real estate ownership held in what is known as a “trust” structure. In Japan, trust banks are a separate class of financial institutions with special powers to handle real estate brokerage and entrustment. Professional investors, both domestic and foreign, including J-REITs, typically entrust real estate as this saves transaction taxes for acquisition and disposition as well as enhances liquidity through the vetting process necessary for entrustment. In 2001 when the J-REIT market was launched, only 4.1 trillion yen of property was held in trust. The balance continued to grow sharply every year and peaked in September 2008 around the time of Lehman’s collapse at 26.7 trillion yen. Since then, the balance has fallen in each semi-annual reporting period. As of March 2011, the balance held in trust was down to 24.9 trillion. Anecdotally, I can confirm that all of the trust banks we do business with complain about the high volume of trust terminations due to sales to ordinary companies and the scarcity of new entrustments from institutional investors.

Within the next few months, foreign investment in Japanese real estate is likely to pick up again, but once again, this is not necessarily a vote of confidence in the Japanese economy. At a June real estate conference in Singapore, I found that a number of global institutional investors seeking to expand their real estate investment in Asia are ready to start looking at acquisitions in Japan again. When I asked what they wanted to buy and why, the reasons were quite consistent with the thinking of ordinary Japanese companies. Many foreign investors have pretty much gotten past their radiation fears and see Japan as a country of relative stability, at least in terms of prime properties in central Tokyo. Few see growth prospects in Japan, but for pan-Asian real estate portfolios, the political and business risks in China and India combined with overheating of the markets and extreme volatility of rents in Singapore and Hong Kong make Tokyo attractive mainly as a way to lower risk and achieve steady income flows. These same investors also acknowledged, however, that investing in Japan tends to lower the average return of an Asian portfolio.

Seth Sulkin is the President and CEO of Pacifica Malls K.K., a Tokyo-based real estate asset manager specializing in commercial properties.

This is not exactly a strong vote of confidence for Japan’s economic and real estate market prospects, but more buyers are always a good thing. With little expectation that rents and occupancy will rise, however, foreign funds now looking at Japan are generally what is known as “core” funds, seeking to buy new, ultra-prime properties and willing to accept low rates of return in the range of 6-8 percent on a leveraged basis. Funds seeking higher returns, referred to as “core plus” or “opportunistic,” are having a harder time justifying investment in Japan at the moment. Core plus funds seek to buy good quality properties and add value through renovation, improved leasing, cutting costs or other measures to boost income and generally seek leveraged returns of 12-15 percent. At medium leverage of 60-70 percent, it is very difficult to achieve double-digit returns without underwriting for rental growth, which is hard to justify in current market conditions where most in-place leases are still above today’s rental rates.

Opportunistic funds, meanwhile, are also struggling to fund attractive deals in Japan. These investors require returns of 20 percent or more, which in a stable or downward market means it is necessary to buy distressed assets, such as non-performing loans. While a few U.S. and European banks have been seeking to selectively clean up their portfolios in Japan, domestic banks enjoying strong liquidity combined with active encouragement from the government to be flexible, have not been taking aggressive action to foreclose or sell loans.

There is quite a bit of equity out there looking for deals, so I would expect at least a chunk of it to find a home in Japanese real estate, despite the low return environment. The more time passes following the earthquake, the easier it is for people to forget and justify new deals.

Lots of entrepreneurs believe they want a mentor. In fact, they’re actually asking for a teacher or a coach. A mentor relationship is a two-way street. To make it work, you have to bring something to the party. Recently when I was at a conference taking questions from the audience, I got a question that I had never heard before. Someone asked, “How do I get you, or someone like you to become my mentor?” It made me pause (actually cringe). As I gathered my thoughts, I realized that I’ve never thought much about the mentors I had, how I got them, and the difference between mentors, coaches and teachers.

Teachers
What I do today is teach. At Stanford and Berkeley, I have students, with classes and office hours. For the brief time in the quarter I have students in my class, at worst I impart knowledge to them. At best, I try to help my students to discover and acquire the knowledge themselves. I try to engage them to see the startup world as part of a larger pattern; the lifecycle of how companies are born, grow and die. I attempt to offer them both theory, as well as a methodology, about building early stage ventures. And finally, I have them experience all of this first hand by teaching them theory side-by-side with immersive hands-on using Customer Development to find a business model.

At times, the coffees, lunches and phone calls I have with current and past students are also a form of teaching. Most of the time students come with, “Here’s the problem I have. Can you help me?” Usually, I’ll give a direct answer, but sometimes my answer is a question. In both cases, inside or outside the classroom, I consider those activities as teaching. At least for me, mentorship is something quite different.

Mentors
As an entrepreneur in my 20s and 30s, I was lucky to have four extraordinary mentors, each brilliant in his own field and each a decade or two older than me. Ben Wegbreit taught me how to think, Gordon Bell taught me what to think about, Rob Van Naarden taught me how to think about customers, and Allen Michels showed me how to turn thinking into direct, immediate and outrageous action.

At this time in my life, I was the world’s biggest pain in the rear, lessons needed to be communicated by baseball bat, yet each one of these people not only put up with me, but also engaged me in a dialog of continual learning. Unlike coaching, there was no specific agenda or goal, but they saw I was competent and open to learning and they cared about me and my long-term development. I’m not sure it was a conscious effort on their part (I know it wasn’t on mine), but it continued for years, and in some cases (with my partner Ben Wegbreit) for decades. What is interesting in hindsight is that although the relationship continued for a long time, neither of us explicitly acknowledged it.

Now I realize that what made these relationships a mentorship is this: I was giving as good as I was getting. While I was learning from them—and their years of experience and expertise—what I was giving back to them was equally important. I was bringing fresh insights to their data. It wasn’t that I was just more up to date on the current technology, markets or trends, it was that I was able to recognize patterns and bring new perspectives to what these very smart people already knew. In hindsight, mentorship is a synergistic relationship. Like every good student/teacher and mentor/mentee relationship, over time the student became the teacher, and this phase of relationship ends.

How Do I Find A Mentor?
All this was running through my head as I tried to think of how to answer the question from the audience. Finally I replied, “At least for me, becoming someone’s mentor means a two-way relationship. A mentorship is a back and forth dialog, it’s as much about giving as it is about getting. It’s a much higher-level conversation than just teaching. Think about what can we learn together? ‘How much are you going to bring to the relationship?’”

If it’s not much, then what you really want/need is a teacher, not a mentor. If it’s a specific goal or skill you want to achieve, hire a coach, but if you’re prepared to give as good as you get, then look for a mentor. But never ask. Offer to give.

Steve Blank is a veteran of Silicon Valley and serial entrepreneur, and teaches entrepreneurship at U.C. Berkeley Haas Business School, the joint Berkeley/Columbia MBA program, and at the Stanford University Graduate School of Engineering. The Japanese version of his latest book “The Four Steps to the Epiphany” can be found here, and you can read more of his business insights at: www.steveblank.com.

These measures are all entirely appropriate, and will significantly help the millions of people living along the East Japan sea coast of Honshu. Although I could do without extra taxes, even an increase in consumption tax would be reasonable, provided it is temporary, and most citizens and businesses would accept such a measure.

The next major concern on the DPJ’s agenda after the quake zone is the effect of power blackouts on Tokyo’s production base of factories and workers. Tokyo accounts for about 25 percent of the nation’s GDP and if factories are going to have to shut down some days to reduce electricity consumption, that will clearly impact production levels. Further, workers are going to be dealing with what is predicted to be another very hot summer, possibly without air conditioning and thus having to either take longer summer holidays or shift work hours to earlier in the day—either measure will also cause a big hit to productivity. Since most of this economic pain will have been caused by lack of electricity, the only way to resolve it is to ensure that power production capability is restored as soon as possible. From what we can see, TEPCO is ordering temporary fossil fuel power generators en masse from local and foreign suppliers, and restoration of the capital’s power grid is obviously a high priority. In fact, we wouldn’t be surprised if power supplies are back to normal by mid-summer, despite the dire predictions by the press at the moment.

However, the government doesn’t yet seem to realize that there is a secondary effect from the disaster—one which may have much broader ramifications for the economy and will probably affect many more people in terms of long-term financial damage and unemployment.

This secondary effect is the chilling of consumer spending in the name of restraint and respect for victims of the tragedy. Japan perhaps more than any other nation, knows how to practice restraint. And in the face of nuclear scares and multiple aftershocks of some magnitude, they have plenty of incentive to hunker down and not do much of anything other than watch TV and wait for things to blow over for the next few months.

About 70 percent of the Japanese GDP is spent on domestic goods and services—most of which could be considered discretionary—and yet these are part of the fabric of Japanese business culture. Included in this sector are such things as entertainment, travel and hotel accommodation, print and electronic media, advertising, real estate, fitness and sports, apparel, jewelry, cosmetics, automobiles, and any other luxury goods and services.

Because foreign companies typically leverage through brand, intellectual property, and technology, many of these “discretionary spending” sectors are dominated by ACCJ and other foreign chamber members who are now vulnerable to the population practicing restraint. Already there is a precipitous drop in business for some of these companies, and it could mean that some will have to shut their doors and lay people off. This will have a knock-on effect on smaller firms that supply the larger ones, and business across the whole foreign sector could get very difficult.

How to overcome these challenges? Firstly, as foreign companies we need to stress to our Japanese friends that we are committed to staying and helping with the recovery. The Japanese have long memories, and will be more predisposed to firms that show they care and share.

Next, the ACCJ has always been a network of trust and information sharing, and leaders of foreign firms need to turn to the Chamber to find out what other businesses are doing and what is the “new normal.” In some cases, it will be reducing staff proactively and riding out the storm. In others, it will be spotting emerging trends and servicing those trends.

In particular, innovation rather than insulation will be key to seeing our way through the challenges ahead of us. This may mean changing our business models so that we are then able to help our Japanese hosts help themselves. Many Japanese firms are now in their own private purgatory and need help to access overseas markets, foreign know-how, and foreign investment. I’m personally finding that Japanese firms are much more willing to enter into discussions and tie-ups than ever before, and we need to collectively take advantage of this mind-expanding opportunity to establish new relationships.

Indeed, I’m hoping that in years to come we can look back on these challenging times as a point of change for the better and a way for us to become more relevant and important to our Japanese partners than we have perhaps been until now.

Seth Sulkin is the President and CEO of Pacifica Malls K.K., a Tokyo-based real estate asset manager specializing in commercial properties.

Real estate is not the only industry where foreign companies have a big influence, yet Japanese culture and history have a strong impact on the way business is done. Three years ago, I built a cinema complex at a shopping center we own in Chiba Prefecture, and I am still struggling to rationalize some of the strange practices in the industry.

One of the first things that struck me was the simplicity and timing of Japanese film business contracts. The president of one of Japan’s top movie distributors later explained the situation to me by saying that contracts were not really necessary because the Japanese movie industry is like “a small village.” Everybody knows everybody, he said, and if anybody went back on their word, they would be “thrown out of the village.”

The funny thing is, however, that cinema distributors do require contracts for every film. The contracts are short and simple, but they are always executed after the film starts showing, and usually after we stop showing the film. Since these contracts really don’t say much, I normally don’t mind signing after the fact. The problem is that the contracts dictate the percentage of box office revenues that we pay the distributor, which means that at the time we make a decision to show a film, we usually don’t know for sure what our split will be. Most of the time, the terms are the same, but occasionally we learn after the fact that our cut is worse than expected and because cinema exhibitors have little bargaining power, we have to accept the terms dictated by the distributors or risk losing future access to the most popular films.

This situation has been going on for some time, where a virtual oligopoly of film distributors has been dictating terms to cinema operators. But not too long ago, something funny happened, that although little noticed at the time, is beginning to snowball and help tip the balance of power more slightly in favor of exhibitors. And even stranger, the move was initiated by an affiliate of a distributor giant, not an independent exhibitor.

illustration by Phil Couzens

Before “Avatar” came along in late 2009, industry pundits had long been predicting an explosion in popularity of 3D films. Exhibitors who invested early in the expensive digital projection technology weren’t seeing much of a return. Part of the reason was a paucity of hit films, but perhaps more importantly, consumers were turned off by the exorbitant ticket cost, which averaged about 2,000 yen. Unlike regular movies, where consumers take advantage of a variety of discounts and few people pay full price, 3D ticket prices were not subject to discounting. Prior to “Avatar,” when it was unclear if 3D films would ever be financially viable, Toho Cinemas, the largest exhibitor chain in Japan and a subsidiary of the leading domestic film distributor, introduced a new 3D pricing system called “plus 300” or 300 yen on top of the prevailing rate for ordinary movies, including any and all applicable discounts. On the weekly “Ladies’ Day,” for example, one of the cinema industry’s most successful discount programs, the price of a 3D film dropped from 2,000 to 1,300 yen—a huge savings. Competing chains were forced to match Toho’s pricing policy, so when “Avatar” opened in late 2009, consumers were more willing to see what the 3D hype was all about because of much lower ticket prices.

Last year, shortly before its parent company launched “Umizaru,” the first domestically produced 3D hit, Toho Cinemas took another shot at the power balance between exhibitors and distributors by introducing a 100 yen “rental fee” for 3D glasses. Unlike ticket prices, the majority of which must be handed over to distributors, 100 percent of this rental fee stays in the pockets of exhibitors, offering a rare opportunity for operators to improve the economics of their business. Once again, many exhibitors, including us, have followed Toho’s move.

Perhaps coincidentally, although probably not, one of Hollywood’s major distributors sent us a revised contract on the exact day our 3D glasses rental fee took effect on December 1, 2010, with new language seeking to claim a share of all non-ticket revenue such as 3D glasses rental fees. Finally, in a sudden and very surprising move, Nikkei reported on January 19 that Toho Cinemas would lower the general admission price by 300 yen to 1,500 yen in six of its theaters on an initial one-year trial basis. This should cause shockwaves among both exhibitors and distributors. Going forward, I expect to see more jockeying for power between exhibitors struggling to make money in a very difficult business and distributors trying to hold on to their pricing power dominance.

Illustrations by Phil Couzens

Jesper Koll is a Managing Director and Head of Research at JP Morgan Japan Securities Inc. He has been analyzing and investing in Japan since becoming a resident in 1986.

In the old Japan, forecasting Japanese politics used to be easy: When in doubt, the Liberal Democratic Party (LDP) could be trusted to have its way. Yes, LDP leaders came and went, but average tenure of the Prime Minister was about three years. More importantly, there always was a clear line of succession—not only did we know who was boss today, we almost always knew who was going to be boss tomorrow. Consistency of leadership was a definite hallmark of the old Japan.

In today’s Japan, forecasting Japanese politics has become, well, impossible. Prime Ministers now come and go more frequently than the annual Sakura cherry blossoms. You’re better off flipping a coin than trying to predict “who’s next.” More than ever, the age-old wisdom “Issun saki wa yami” or “Three inches ahead there is darkness” applies to modern Japanese politics.

Prime Minister Kan started 2011 with a bang. Barely two weeks into the new year, he reshuffled his cabinet. To the outside, the move was presented as policy driven. Kan has now prioritized two issues: fiscal consolidation and Japan’s participation in the free-trade agenda driven by the Trans-Pacific Partnership (TPP). On the inside, however, the move was driven by pure expediency. Because the Democratic Party of Japan (DPJ) does not have the necessary majority in Parliament to pass the national budget for fiscal year 2011, Kan invited two leaders from minor opposition parties into the cabinet. Clearspeak: Kan sacrificed two people from his own party in order to try and make the parliamentary vote-counting work out. One of them has been put in charge of economic policy, and is now the key cabinet minister in charge of drafting tax-reform and preparing Japan’s plan for smooth entry into the TPP.

At first sight, this may seem like acceptable horse-trading, a pragmatic move to get-on with the business of passing the budget before the April 1 deadline. However, in my personal view, the cabinet reshuffle indicates exactly what’s wrong with current political leadership in Japan: If tax reform and trade liberalization are top policy priority of Prime Minister Kan’s agenda, shouldn’t that portfolio be led by a man from his own party?

Make no mistake—Kan deserves much credit for clearly articulating and prioritizing fiscal consolidation and trade liberalization. But appointing a non-Democrat to be in charge of a “top priority” may be doing more damage than good to the credibility—and consistency—of Japan’s leadership agenda. I am worried for two reasons: One is the future unity of the DPJ. The other is fiscal reform becoming a bigger scapegoat for losing elections.

The latter is easy to understand; come mid-April, Japan will have many important local elections, if the DPJ loses, who will take the blame? From the policy side, it’s almost certain that the pundits inside and outside the Democratic Party will argue that an agenda based on tax increases and fiscal cuts is to blame. In other words, the well-intended focus on a more clearly defined economic policy agenda may actually trigger a powerful backlash from the grass-roots local elections. The fact that a non-Democrat is in charge of this agenda is poised to actually compound the case against the current party leadership. Make no mistake, the April local elections may well turn into a national vote of confidence in Kan and his future leadership potential. But the real loser could well be long-overdue reform of Japan’s fiscal affairs.

The future unity of the DPJ is a potentially much bigger, as well as possibly more immediate, concern. Politics is all about “who does what to whom” and “who is in, who is out.” By appointing a non-Democrat to be in charge of the top policy agenda, it seems that Kan is passing up his own party’s policy expertise. Is it really true that the Democrats have no experienced and knowledgeable leaders who could drive the national economic policy agenda? Can it be that the DPJ lacks a charismatic leader who can “sell to the people” the need for better fiscal policies? Or is it possible that fiscal reform and tax changes are deemed to be so painful to the people that no member of the Democratic Party wants to be responsible of drafting concrete legislation?

These questions are probably best debated over strong sake and good food. At this stage, no concrete answers may be possible (although that’s exactly what makes Japanese politics fun…). However, in my opinion, one fact stands out: The cabinet reshuffle has made Japanese politics and policy more unpredictable. Discord within the DPJ is poised to rise. The blame-game after the April local elections will be very intense. And the opposition parties—the LDP and Your Party in particular—have been given a gift: Now they can attack PM Kan on at least two fronts—personnel decision leadership and policy agenda.

Can Kan do it? Or will he fail? Of course I wish him luck because the newfound competition in Japanese politics is a much welcome, hugely refreshing change from the insider dealings and, well, predictable efficiency of the old-style LDP rule. Yes, we now have a policy debate, as well as more clearly defined personal responsibility and accountability of both political parties and individual politicians. Japan’s democracy is thriving and in my personal view, the chances of a fundamental political realignment are rising.

Illustration by Phil Couzens

At the end of 2010, the Japanese Government announced its tax reform plans for 2011. As previously pointed out in this column, Japan has one of highest corporate tax rates in the world, with an effective rate of around 42 percent.

It remains possible that some significant changes may be made prior to the 2011 proposals being implemented, however the main thrust appears to be as follows. On the plus side for companies, there would be a reduction in the top corporate tax rate from 42 percent to 35 percent. In addition, there would be an extension of the loss carry forward period from seven years to nine years.

However, there are also some significant negatives, which are in part designed to make up for the expected loss of revenue resulting from the lower tax rate. Currently, a company that incurs a loss is able to fully utilize that loss against future profits. Under the proposals, a company would only be able to utilize 80 percent of past losses. According to Paul Previtera, who heads the International Tax Education Program (ITEP) at Temple University’s Tokyo campus, “Such a change could have a deep impact on businesses that have high cyclicality in their profits. This would include investment banks and pharmaceutical companies since these companies tend to show significant losses in some years which they need to offset against profits in good years.”

In addition, the proposals call for the research and development (R&D) tax credit to be reduced from 30 percent to 20 percent. At a time when there is considerable global competition to host R&D, the reduction may undermine the economics of undertaking such activities in Japan.

Although the reduction in corporate tax rates is to be applauded, it seems that Japan’s tax system will continue to cause a number of problems. Most importantly, the corporate tax rate will remain substantially out of line with rates offered by some of Japan’s near neighbors, in particular Singapore and Hong Kong. This is a serious issue when combined with the ability of many industries to relocate with comparatively little effort.

Also, the reforms do little to reduce the impetus for entrepreneurs to set up business outside Japan. Japan’s high tax rates on corporate income and dividends stand in sharp contrast to its Asian neighbors. In addition, many of the jurisdictions with which Japan now competes for entrepreneurial talent do not impose capital gains tax when an entrepreneur sells the business.

Again, according to Temple University’s Paul Previtera, “We are definitely seeing an acceleration in the rate of companies shifting operations to Singapore and Hong Kong. We do not expect the 2011 initiatives to affect this.”

The real need is to stimulate new entrepreneurial economic activity in Japan. This would create employment and additional tax revenues that could be used to address Japan’s burgeoning public debt.

Japan needs to consider reducing or even eliminating capital gains tax when entrepreneurial ventures are sold. In addition, individual tax rates need to be addressed. A vast amount of economic activity is undertaken by SMEs where corporate tax is often not the issue since profits get paid out to employees and owners.

In summary, the proposed measures represent a positive step in that they indicate recognition by the Japanese government that taxes are an impediment to economic growth. However, Japan needs to be doing more in order to compete with its fast-growing neighbors.

Dean Page is CEO of Accounting Asia. He is qualified as both an attorney and as a CPA and was formerly a partner with Ernst & Young. Dean.Page@Accounting.Asia

Brandon Boyle is a manager at Accounting Asia where his work focuses on investment into Asian jurisdictions including Hong Kong and Singapore. He is a qualified attorney and formerly worked with Ernst & Young in Tokyo. Brandon.Boyle@Accounting.Asia

Illustration by Phil Couzens

Seth Sulkin is the President and CEO of Pacifica Malls K.K., a Tokyo-based real estate asset manager specializing in commercial properties.

In the Japanese real estate industry, 2010 was supposed to be the year of the loan default, but the year has come and gone without any major upheaval.

Unlike other major markets, where loan terms tended to be much longer, most non-recourse loans in Japan prior to the Lehman shock were for a term of three years. Therefore, the height of the bubble in 2007 led to a massive peak of commercial mortgage-backed securities (CMBS) maturities in 2010 totaling more than one trillion yen. I am aware of only a single deal in 2010 where loans that had been securitized and sold into CMBS defaulted and the property was put back on the market and sold under the control of creditors. This suggests that many lenders (or bondholders) have chosen to either extend the loan terms or do nothing and collect penalty default interest while they wait (and pray) for the market to recover to the point where their collateral rises above water.

Most of the CMBS loan originators in Japan were foreign banks and securities firms led by Morgan Stanley, but most of the buyers of the securitized loans were Japanese banks such as Norinchukin. The last time a flood of bad real estate loans threatened to bring down the banking industry in 1999-2001, major Japanese banks aggressively sold loans at huge discounts mainly to foreign private equity funds, and received Japanese government injections to recapitalize their balance sheets. This time around, Japanese banks have been extremely reluctant to exercise their rights and sell loans (or the underlying properties) at losses. This is also a reflection of higher collateral quality and more properties being able to cover debt service. It is also a function of the way CMBS are sold. For larger securitizations that were sold to multiple banks, it can be difficult or impossible to obtain a consensus of bondholders to take losses or repossess properties.

Still, many investors have complained that the Japanese real estate market cannot recover unless Japanese banks recognize their losses, clean up their portfolios and begin to lend aggressively again. Anecdotally, most of the bad loans that I saw on the market in 2010 were from foreign banks and securities companies, or Japanese banks controlled by foreign shareholders. I haven’t heard of any large-scale discounted loans sales by the three mega-banks.

Not wanting to take loan losses—or “extend and pretend” in industry lingo—is not unique to Japanese banks, however. It is interesting to note that three of the largest transactions in Japan during the last 12 months came as a result of foreign lenders not wanting to take losses. Although I am not privy to the precise details of each deal, it is my understanding that in each case, foreign mezzanine lenders chose to buy out part or all of the senior lenders’ positions in order to avoid a discounted property sale that would lead to recognition of large loan losses. The three deals that I am referring to are: the Pacific Century building for about 140 billion yen in December 2009, the refinancing of the 280 billion yen ANA Hotel portfolio in October 2010 and the supposed trade of the Omotesando Ralph Lauren store in late November or early December 2010 at a price of about 30 billion yen.

With a huge rebound in transaction volume, falling cap rates, improved debt conditions and more interested investors, there is no question that 2010 was a much better year for the Japanese real estate market. Across most property types, however, tenant demand remains soft, keeping rents and occupancy rates down. The number of distressed properties continues to increase, particularly outside of Tokyo. For now, the law instigated by former Financial Services Minister Shizuka Kamei continues to help borrowers retain the keys to their properties by encouraging banks to extend, rather than foreclose on loans, but hasn’t really solved the fundamental problem of Japan’s falling population and prolonged deflation. According to the November 30 Nikkei, the Financial Services Agency intends to extend this law for another year, so major change in the real estate market may not come in 2011 either.

Jesper Koll is a Managing Director and Head of Research at JP Morgan Japan Securities Inc. He has been analyzing and investing in Japan since becoming a resident in 1986.

With the start of a new year comes an avalanche of forecasts and prognostications: What will happen to the economy? How high can the yen rise? Will the Nikkei stop falling? Any serious forecast is based on heavy statistical analysis. That, by definition, makes the forecasts, well, highly predictable, and therefore dull. Why? Statistical method forecasts are rooted in probability analysis.

This means that all you’re getting is the best estimate of a probability that an event may occur to what actually happens. Unfortunately, in the real world nothing ever happens by 75 percent—it either does happen, or does not. So rather than boring you with what my econometric models hold forth for 2011, let me tell you about some possible surprises. This is the stuff that just may happen and, by “thinking the unthinkable,” we may start to uncover the true risks and opportunities Japan may offer in the new year. So here we go: 11 Japan surprises for 2011.

Major Agricultural Reform
Farming and agricultural policy have been a most powerful obstacle to Japan’s economy. A stubborn insistence on public guarantees for minimum prices has protected outdated production methods and maintained misallocation of farmland production. The costs of this policy are estimated to be in the trillions of yen in excessive food prices and public support. The good news: Pressure for a complete turnaround is rising with a switch away from price support to income support increasingly popular amongst new generation, younger farmers. True agricultural policy reform would be a huge positive surprise by freeing up natural resources, ending import tariffs, lowering food prices and, according to some experts, could allow Japan to become a net exporter of food within just a couple of years. How? By exporting the highest-grade rice, designer melons, perfect apples, and even dairy products to feed the growing appetite of Asia’s booming middle class. Here lies a most powerful positive surprise for Japan optimists. Is this possible? Well, it’s part of the Democrats’ policy agenda…

Real Estate Boom
Real estate and land prices have been on a one-way deflationary slide for a long time. In absolute yen terms, nationwide land prices are now back to levels last seen in the early 1970s. The bears point to the negative demographics—if the population shrinks, so will demand for real estate. A real surprise would be Japan’s land prices going up. Is this possible? Absolutely. Already Tokyo is the highest yielding and cheapest real estate market in Asia. So it pays to invest here. And if agricultural reform really does happen, a mini-gold rush in agricultural development and investment could easily boost values even in the darkest corners of Tohoku—contrary to well-established consensus opinion.

Japan’s Technology Comeback
Japanese technology is making a big comeback. As the pressure to make everything smaller and more precise rises, Japan’s fine-mechanics and precision production engineering will re-establish itself as the “must-buy from” supplier of machinery and components. Is this possible? Look at it this way: The first Apple iPhone had de facto zero components from Japan, yet the 2010 upgrade model cannot work without about one-third of the components inside manufactured by a Japanese company. Sure, it may not be “Made in Japan,” but “Made by Japan” could very well be the big technological surprise of 2011.

Japan Becomes Tesla Motors’ Biggest Market
Car sales in Japan have been dropping as Japan’s young and old are interested in being eco-friendly, but are not inspired to drive around in dull, uniform-design eco-cars. Remember, driving is supposed to be fun and make you feel special. Could it be that Tesla’s Roadster, a sexy electric sports car, captures the imagination and re-kindles Japan’s deep-rooted passion to drive? It would be a surprise, but a little revolt against local design conservatism is long overdue. Go, Tesla, go!

China Inc. Buys a Major Japanese Company
Could China succeed where everybody else failed? With few exceptions, no foreign company has ever bought a majority stake in a major Japanese company. So a successful bid from China Inc. to buy into Japan Inc. would be a huge surprise—particularly if it is in the car or electronics industry. Is this possible? By all means. Japan offers technology and brand, China a market and high growth. It’s a match made in heaven. Of course, down here in the real world…

Political Stability
Japan has had more Prime Ministers than Italy and governments come and go with greater frequency than the annual “sakura” cherry blossoms. At the time of this writing, the current government’s approval rating has plunged below 25 percent and once again the main scenario calls for more political uncertainty, and thus less policy consistency. Against this, political stability would be a huge surprise. Unfortunately, to get from the current state of paralysis to more clearly-defined policy leadership may well require a real crisis, i.e. splintering of parties before more stable alliances emerge. But hope springs eternal—even in Japanese politics.

Japan Builds an Aircraft Carrier
Pressure is building for Japan to redefine her defense and security policy. Sure, it’s a highly complex and emotional issue, but the emergence of China as a naval power appears inevitable. With America increasingly short of fiscal dollars, a push to invest in a more powerful domestic navy may be inevitable. I hope Japan can stay out of the Asia arms-race, but some form of greater self-reliance in national security matters is bound to happen.

Japan Defaults on JGBs
Japan has more debt than any other country with total public liabilities now well in excess of 2 times GDP (the U.S. is still less than 1 times). Worries about a debt-funding crisis are growing, and so will calls for unorthodox measures to tackle the problem. A true default, a bond worth 100 yen gets re-denominated to be worth, say, only 80 yen, would be an extreme scenario, if not unthinkable. Inflation would be a more gentlemanly solution that has the same effect—the government’s IOUs lose real-world purchasing power. Either way, the economic forces pulling Japan towards some sort ‘debt restructuring’ keep rising.

The Yen Goes to 110 Vs the Dollar
Everybody is calling for a weaker dollar and thus a stronger yen. Fifty yen to the dollar is heard more often from pundits around the world. With the Federal Reserve working dollar printing presses overtime this all makes sense. Against this, a stronger dollar would be a real surprise. Is this possible? Well, if the Fed’s policies start to work and the U.S. economy picks up steam, global investors will want to put their savings into U.S. assets because that’s where the best returns will be. If you’re bullish on America, against all the doomsayers, you’ve got to be bullish on the U.S. dollar. Go for it!

Japan Inc. Relocates Out of Japan
Naturally, Japan Inc. is headquartered in Japan. But with an ever-increasing amount of profits for Japan Inc. coming from overseas and an ever-growing need to hire engineers and mangers for global operations, the case for relocating headquarters out of Japan is getting stronger. Is this possible? If government policies and regulations continue to tighten, a true hollowing out may happen sooner than generally anticipated. Personally, I think a major corporate relocation may well be the final wake-up call for complacent policy makers and politicians.

Paris Gets More Michelin Star Restaurants than Tokyo
Tokyo is the food capital of the world. In 2010, Tokyo restaurants were awarded 227 Michelin stars, with 14 chefs receiving 3-star status. Against this, Paris got a total of 97 stars—less than half of Tokyo, with only ten Parisian chefs boasting 3-star status. Make no mistake; Tokyo is by far the culinary capital of the world. And yes, the waiters are friendly, the wine selection is better, and you can actually get a reservation. Paris reclaiming the top-spot? That would be more than a surprise—it would be a miracle.

Illustratin by Phil Couzens

“Too often we are so preoccupied with the destination, we forget the journey.”

Entrepreneurs hear that VC pitches ought to be short, 10-20 slides.  What most don’t know is that there is no way they can deliver a presentation that short by just “writing” the slide deck.

You’ve Got to be Kidding

An entrepreneur I’ve known for a long time came by the ranch over the 2010 Thanksgiving break to show me the first pass of his new startup slide deck.

My eyes were glazed by slide 9. It was over 35 slides long, with each slide feeling like it had 12 lines of 10-point type. It had a problem statement going back to the invention of the telephone, an opportunity claiming to exceed the Gross National Product and it had every possible product feature with enough left over for three other startup products.

My first reaction was, “you’ve got to be kidding.” Yet I was hearing the pitch from an experienced entrepreneur with multiple wins under his belt. He had raised money from name-brand VCs in past startups and knew what a fundable VC slide deck looked like. What was going on?

Then I remembered, every slide deck I ever wrote started out just like this.

The Slide Deck As A Brainstorming Tool

Most startup ideas are not built in an afternoon, typically they are the sum of seemingly disparate and discrete pieces of information, and a pattern recognition algorithm continuously running in a founder’s head.

What I was seeing was an entrepreneur using a slide deck as a way to collect his thoughts. The slides were his brainstorming tool. He was using them to think through the impact of the idea he had, and was trying on for size the potential opportunity and trying to use the slides to spec his features.

The difference between this entrepreneur and a novice was that he knew his presentation wasn’t ready to show to a VC; he was using it to share his thinking with me to get more feedback on his business model.

We talked about how much of his presentation were just hypotheses (most, but not all), what hypotheses he could quickly test outside the building (assumptions about minimum feature set, pricing and customer archetypes) and how to turn some of the hypotheses into facts. I pointed him to my “Lessons Learned” slide decks that turn a standard VC pitch into something more informative. He left with both of us knowing that he was months away (and lots of customer feedback) from being ready for a VC pitch.

Advice From People Who Get Bored Easy

Most of the advice founders get about venture capital slide decks are from the recipients of the presentations—the VCs—letting you know how they want to see the final deck. And most of their recommendations are essentially “show us your business plan in PowerPoint.” Few VCs have experienced the process a founder uses to get their idea into 10-slides. And none of them tell you how.

If you find yourself trying to shoehorn your 35-slide presentation into a “VC-ready” format, you don’t know enough yet. And you won’t know any more by sitting in your office surfing the web and writing more slides. Get out of the building and talk to potential users and customers. The irony is the more you know, the easier it is to make your presentation short and concise.

Lessons Learned

• Long slide decks are indicative of you thinking out loud.
• Get out of the building and get smarter.
• The more you know (versus guess) the shorter the deck.
• Most VCs are looking for the “give us the business plan in PowerPoint.”
• Give them a “Lessons Learned” VC presentation.

Steve Blank is a veteran of Silicon Valley and serial entrepreneur, and teaches entrepreneurship at U.C. Berkeley Haas Business School, the joint Berkeley/Columbia MBA program, and at the Stanford University Graduate School of Engineering. The Japanese version of his latest book “The Four Steps to the Epiphany” can be found here, and you can read more of his business insights at: www.steveblank.com.

The recent incident involving a Chinese fishing boat and the Japanese coast guard resulted in an unofficial two-month embargo on exports of rare earths from China to Japan. The incident highlighted the critical importance of rare earths for Japanese industry and brought into sharp focus Japan’s reliance on China as the sole supplier of these materials.

However, the wider context for this incident appears to be China’s ambition to become the world’s leading hi-tech producer.

Rare earth metals are a group of seventeen elements found in the earth’s crust. They are vital in the production of everything from iPods and electric cars to wind turbines. While the elements are not technically rare, the mining and extraction process is notoriously toxic. Intensive mining is required and the extraction process produces radioactive waste. These concerns make rare earth production an unattractive proposition for most developed countries. Currently, China produces over 95 percent of the world’s rare earths.

According to Tony Brennan, an Australia-based consultant with Foreya Partners who has been following the rare earth issue for a number of years, the recent unofficial cessation of Chinese exports to Japan is merely one incident in a trend which has seen an overall reduction in Chinese exports of rare earths. Says Brennan, “The Chinese government has cited the need to conserve resources, but some are convinced that rare earth is merely one part of China’s strategy to develop and eventually dominate global hi-tech.”

Any actions affecting rare earth have potentially massive implications for some of Japan’s most important industries. If Japan is unable to fulfill its short-term needs, it risks losing its long-term strategic position to competitors such as China.

Currently, Japan appears to be dealing with the problem in three ways.

First, Japan has been looking for new sources of rare earths. This includes greenfield ventures with Vietnam and Mongolia. However, the ink is barely dry on these agreements and the extent to which these projects will contribute to future demand is unknown. Countries such as Australia, Canada, and the United States are all potential sources, however environmental concerns may hamper production in these countries. Second, Japan has been working with countries such as India to extract rare earth from recycled consumer goods. Finally, there is research being undertaken into rare earth alternatives.

Japan appears to be taking the right steps but all proposals are long-term, and in the case of finding alternatives, speculative solutions. In the short-term, perhaps the most important strategy for Japan lies in ensuring that diplomatic relations with China are maintained to the point that unexpected unofficial embargoes do not occur. However, given the raft of territorial disputes that Japan has with its neighbors and the increasing number of arenas in which Japan and China compete head-to-head, this most important of strategies may also be the most difficult to implement.

At the end of the day, there may be no alternative other than for Japanese industry to hope that the stockpiles will last long enough to prevent the country from losing strategic market share before alternative sources of rare earths become viable.

Dean Page is CEO of Accounting Asia. He is qualified as both an attorney and as a CPA and was formerly a partner with Ernst & Young. Dean.Page@Accounting.Asia

Shinsuke Kikuchi is an associate at Foreya Partners where his work focuses on frontier markets. He is a qualified attorney and formerly worked with PwC in Tokyo. Shinsuke.Kikuchi@VentureCapital.Asia

Illustration by Phil Couzens

Jesper Koll is a Managing Director and Head of Research at JP Morgan Japan Securities Inc. He has been analyzing and investing in Japan since becoming a resident in 1986.

The world stands at an important turning point. A tsunami of dollars is about to hit the global economy, triggered by the unilateral decision of the U.S. Federal Reserve to fight U.S. deflation risks. A giant experiment in “money illusion” has been started. The effects will be felt for decades to come and, in one form or another, are poised to impact everyone with a savings account in any country in the world.

The turning point came in early November. That’s when the U.S. Federal Reserve decided to launch “QE2–Quantitative Easing round 2.” Specifically, the U.S. central bank will buy an addition $600 billion of U.S. treasury debt–on top of the $1 trillion already purchased over the past year or so. Clearspeak: The U.S. central bank is committed to buy almost half of the new debt issued by the treasury. Make no mistake: America’s money printing presses are now running overtime.

The rational for this dramatic action is straightforward: U.S. unemployment is too high and inflation is too low. Indeed, to prevent slippage into outright deflation, more aggressive policy action was deemed necessary. America does not want to fall into a Japan-style deflation trap. And if Japan’s post-bubble experience teaches us one lesson, it is that once an economy falls into deflation it is very difficult to get out again. The Federal Reserve, in other words, gets ten-out-of-ten for trying to be pro-active and ahead of the curve.

The key question, however, is: How do we get away from aggressive money creation to economic growth? Federal Reserve Chairman Ben Bernanke was crystal clear on this in a recent opinion piece in the Washington Post: “[Our] approach has eased financial conditions and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell… Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous cycle, will further support economic expansion.”

Wow, so this is how easy it all is. Switch on the printing presses, create more money and, like magic, economic growth and wealth creation will follow. Oh, the powers of money. Somehow, the Federal Reserve believes that more money that is not backed up by production will lead to prosperity. And we’re left to wonder: If it is that simple, why then haven’t central banks been doing this all along? If printing money is the key to economic success, why then did they wait until now to increase the pace? At the risk of citing an example that may be a bit too blunt, perhaps the experience of the Weimar Republic indicates that countries simply cannot print their way to prosperity.

Economic growth, increased wealth and prosperity take effort and ingenuity. There is about as much of a correlation between the accelerated printing of paper money and the generation of new wealth as there is between doubling my children’s weekly allowance and their chances of getting into Harvard.

Of course, Chairman Bernanke is correct in claiming that rising equity prices and falling interest rates will encourage borrowing and spending. No argument against this one. That is exactly what happens during periods of money illusion and debt monetization. But where is all of this supposed to lead? Prosperity comes from effort, ingenuity, and investment in productive and human capital. It comes from the supply side of the economy. A policy of debt monetization does nothing to encourage the supply side. In fact, it discourages thrift, which means it discourages savings and investments. It eats away at the capital base.

I’ve gone on long enough about the Fed’s latest policy. No doubt, I will hear from many readers who vehemently disagree with the premise that an intentional policy of debasement of money will not help the economy. Many people are focused on debtors and consumers. For them, that is the key for the economy. In my framework, the key factors are the creditors and the producers. If the supply-side has proper incentives, then the debtors and the consumers will benefit as a secondary consequence. Unfortunately, policy is focused on the effects and not the causes of prosperity.

Is it worth saying it again? Well, here it goes: The dollar faces a dramatic and historic decline because the central bank is being used to monetize massive fiscal deficits. Commodities will remain my favorite asset class as long as the Policy Mix in Washington holds to its current course. We’ll have to see if the new political leadership has any ability to turn this thing around. I have my doubts. A tsunami of dollars is building up. It will crash onto the shores of the global economy, and threatens to undermine the global faith and credibility in U.S. economic leadership. This is a major turning point.

Illustration by Phil Couzens

Seth Sulkin is the President and CEO of Pacifica Malls K.K., a Tokyo-based real estate asset manager specializing in commercial properties.

Just as bilateral tensions were rising over Japan’s arrest of a Chinese boat captain, Finance Minister Noda roiled the waters further, so to speak, when he expressed concern about the recent increase in Chinese purchases of Japanese government bonds. The clear implication was that Chinese purchases of JGBs were inherently bad because they helped to push up the yen, thus making Japanese exports less competitive and reducing the earnings of Japanese companies repatriating money home.

Normally, governments welcome inward foreign investment and Japan in particular has been seeking an increase for years. Compared to foreign purchases of trophy assets like Rockefeller Center, which can trigger local resentment, investment in government bonds is normally welcomed as it contributes to lower interest rates without any loss of control.

It is not at all clear if Finance Minister Noda’s remarks were the official position of the Kan administration, but I saw clear parallels between the current situation and industrial policy in the period after World War Two, when the Japanese government channeled all available capital into rebuilding key export industries such as steel, automobiles, and shipbuilding at the expense of quality of life for the average citizen.

According to OECD statistics, inward foreign direct investment (FDI) to Japan has been highly volatile over the last 15 years. From a low of a mere $41 million in 1995, the mini-bubble in the two years before the Lehman shock saw inward FDI skyrocket to $22.5 billion in 2007 and $24.4 billion in 2008—a good chunk of which flowed into the real estate market. I certainly don’t recall any Japanese government warnings at the time that the huge inflow of capital, which naturally required foreigners to buy yen in order to invest, was hurting the economy by pushing up the yen.

Since Japanese companies are now wiring money overseas as quickly as they can to invest in countries with a future, Japan should be grateful when any foreign private or public sector entity is willing to invest here without making unreasonable demands. Given the huge size of the foreign exchange market, it is unlikely that Chinese purchases of a few billion dollars of JGBs has had much of a direct impact in pushing up the yen. Instead, the impression of China diversifying its foreign exchange holdings by buying JGBs had more of a symbolic impact on the market. Given that China is now Japan’s largest trade partner, what does Finance Minister Noda expect it to do with the yen generated by its exports?

Since the timing of Noda’s comments came so close to the now infamous boat incident in the Senkaku islands, it may be hard to separate the Japanese government’s general position on FDI from its China policy. If, however, the Japanese government wishes to discourage foreign investment to keep down the value of the yen, what does that say for prospects in the real estate market, where foreign investors have played a major role in the last few years? How about the interests of Japanese consumers, who benefit from the lower prices resulting from a strong yen?

Perhaps I am being a bit cynical and these events are completely unrelated, but maybe the Japanese government intends to use our taxes to fill in the gap. The Development Bank of Japan (DBJ), which is 100 percent owned by the government, has been an increasingly active participant in the real estate and private equity markets over the last few years as an equity investor, lender, asset manager, and more. It is hard for me to understand why our tax money needs to finance these interventions in the private sector, but now the DBJ seems to have broader plans for our tax money. In August, Parco, a listed operator of shopping centers, announced that the DBJ would buy 15 billion yen in convertible bonds, giving the Japanese government, and indirectly us taxpayers, an 18.7% stake in the company. Mori Trust, Parco’s largest shareholder, protested, saying the deal was unnecessary. When asked about the plan, a DBJ spokesman quoted on Reuters said that DBJ is no longer a government agency. “We are now a commercial bank,” the spokesman said.

Is it a good idea for the government to scare away foreign investment and use our tax money to prop up the economy instead?

Illustration by Phil Couzens

Meanwhile in Japan, the population is predicted to decline by 25 percent over the next 40 years. Yet many domestic and certain international investors still see this as a “core” market, where, at least in central Tokyo, capital values, rents, and occupancy will be stable for the foreseeable future. If this trend continues as predicted, who or what will fill all of the buildings in Japan? Am I missing something here?

With apologies to Einstein, I have discovered a new “Theory of Relativity” to explain this phenomenon. Assuming that information travels at the speed of light, investors are either in a separate space/time continuum where Japanese families have multiple kids and senior citizens spend their savings with abandon, or there has to be an alternative explanation for their interest in Japanese property. While nobody that I have come across anywhere in the world believes in any kind of growth story for Japan, it seems that Asian investors with portfolios across the region are comparing the cost of buying property in Tokyo with Hong Kong, Shanghai, Singapore, and Taipei. And believe it or not, Japan appears to be cheap on a relative basis. Typically, institutional investors use an income-based approach as the primary means of making investment decisions. Based on low yields, falling rents and high vacancies, nobody would call Japan cheap by normal valuation methods. However, some Asian investors tell me that Japanese properties look attractive on a unit basis by leasable area, or in terms of replacement cost, when compared to other major countries in Asia.

In addition to getting a bargain price per pound, Asian investors love to visit their properties in Japan, where everything is clean, efficient, safe, the food is great, and the legal system affords high protection. These same investors actually mention political stability, but considering the current fragile state of the Cabinet and over the past few years, I think what they really mean is that the Japanese government won’t capriciously change rules on foreign investment or currency exchange, as sometimes happens in certain other countries around the region.

Seth Sulkin is the President and CEO of Pacifica Malls K.K., a Tokyo-based real estate asset manager specializing in commercial properties.

If my “Theory of Relativity” holds true, Japan actually has a future as the Switzerland of Asia, where foreigners buy second (or third or fourth, etc.) homes in Tokyo, or in resort areas such as Niseko, Karuizawa, or Hakone, and spend a few days a year here enjoying the onsen, skiing, medical treatment, and shopping. There is also the added benefit of a safe haven for some of their capital. In all of the talk about increasing Tokyo’s competitiveness as an international financial center, I don’t recall hearing any mention of private banking for foreigners as a key element, but that would naturally be an important part of emulating Switzerland’s success.

One way that Japan does not want to emulate Switzerland is in terms of population. The Swiss maintain an international banking center, tax haven, and investment destination with a population of only about 8 million. With more and more Japanese investment and production shifting abroad, Japan will quickly need to create new industries at home or the population may fall by much more than 25 percent over the next 40 years.

Illustration by Phil Couzens

Jesper Koll is a Managing Director and Head of Research at JP Morgan Japan Securities Inc. He has been analyzing and investing in Japan since becoming a resident in 1986.

Japanese policymakers are about to face some tough decisions. It’s autumn, and just like every other year, the cabinet must draft the national budget for the next year. And just like every other year, Japan’s overall fiscal situation has deteriorated even further in the past twelve months with tax revenues lower than originally forecast, while expenditures just keep on rising. Once again, to balance its books, it looks like Japan’s government will have to raise more debt than it has income (i.e. tax revenues). Every housewife, business leader, and salaryman knows that this cannot be the right way to run a home, company, or nation.

We all know that something is wrong here. What we don’t know is how to fix it. Some argue that taxes should go up, some insist expenditures need to be slashed, and some suggest the Bank of Japan should simply print more money and buy more government debt. Anybody listening to the recent policy debates can only draw but one conclusion: There is no consensus on what should be done. This highlights the real problem: If the government does not know what to do and constantly flip-flops on its policies, the private sector will withdraw from the economy.

The best expression of the vital feedback between public policy, and private “animal spirits” comes from the economist and entrepreneur Jean-Baptiste Say who said, “In times of political confusion, and under an arbitrary government, many will prefer to keep their capital inactive, concealed, and unproductive, either of profit, or gratification, rather than run the risk of its display. This latter evil is never felt under good government.”

Say is most famous for articulating an insight regarding the functionality of an economy called “Say’s Law.” It stipulates that “Supply creates its own demand,” or in today’s business parlance, “If you build it, they will come.” Say’s law, in my view, is fundamental to solving Japan’s problems. This is because it emphasizes that entrepreneurs and companies must come first. Good government focuses on policies that promote business investment and private risk taking. That is what creates jobs, what creates income, and only rising incomes can fix Japan’s public deficit problems.

Bad, Bad GDP Statistics

But what about the fact that when you look at the GDP statistics, consumer spending accounts for, by far, the biggest part of the economy? In Japan, consumer spending is about 65 percent of the GDP, and in the U.S. it is even higher at slightly more than 70 percent. In contrast, business investment accounts for barely 10 percent. So shouldn’t policy focus on boosting consumer spending, since that’s where you’re most likely to get the most “bang for your buck”?

This is where the GDP statistics actually misrepresent what goes on in the economy; while consumption is 60-70 percent of GDP, it is not 60-70 percent of the economy.

Sound confusing? Well, let’s be clear on this one: There is an entire chain of production and activity before a good or service is sold to an end-consumer. All economic activity occurs along that line of production. Even the last consumer of the final product or service acts in the capacity of a producer. After all, without a salary, consumers cannot consume—unless, of course, another producer lends them the money. The moment the final good or service is sold to an end-consumer, the GDP statistics wipe out the entire chain of production and records it as “consumption.” The reason for that accounting method is to eliminate double-counting, which makes sense. However, it does not make sense to conclude that, therefore, 60 percent or 70 percent of the economy is consumption, even though it does make up 60-70 percent of the GDP statistics. It only appears that way because of the necessity to eliminate double-counting.

Let me give an example: Think of all the economic activity that goes into the production of a car. Iron ore is mined and transported. Fabricators make metal out of the iron. Electric components are made, bought, and sold within an entire sub-industry that supplies the auto manufacturers. Ditto for the engine block, the crankshaft, the painting, the design company, the seat-belt manufacturer, and the maker of the car stereo system. Yet when the car is sold to the “consumer,” all of that economic activity is eliminated and–for accounting purposes–the deal gets recorded as 100 percent consumption in the GDP statistics, nothing else. Assuming all cars are sold to final consumers, the GDP statistics would thus force you to conclude that the auto manufacturing industry is composed of 100 percent consumption. Does that make sense? Clearly not.

Seth Sulkin is the President and CEO of Pacifica Malls K.K., a Tokyo-based real estate asset manager specializing in commercial properties.

As Japan’s real estate market has internationalized and institutionalized during the last 10 years, the overall impact has been huge, but some things haven’t changed. Have you ever walked by a department store partially occupied by a pachinko parlor, or noticed a small, decrepit building occupying a prime location adjacent to a massive office or retail building? In large part because Japan’s inheritance system forcibly allocates land ownership among multiple relatives resulting in smaller and smaller parcels over time, the assembly of a large plot of land for development in Japan can take decades. Frequently, developers frustrated by small land owners who won’t sell for sentimental or tax reasons are forced to bring them into the project and grant them fractional ownership and/or use of prime space in the newly-completed building.

In Japan, there are two main types of split ownership of property: kubun shoyu and kyoyu. “Kubun shoyu,” often referred to in English as strata title, is when a party owns a particular floor or portion of a floor of a building, as in a residential condominium. “Kyoyu,” or ownership in common, is to own a percentage of a whole property, similar to owning shares in a company. In a residential condominium, owners of individual units are obligated to pay monthly maintenance fees and contribute to capital expenditure reserves, and to follow detailed sets of rules on all kinds of behavior such as pets, garbage, noise, etc. In a commercial condominium, however, the majority owner of the property usually has to make all kinds of concessions to bring in the minority owner/owners, so operating agreements are either weak or non-existent. This can create all kinds of problems visible to the naked eye such as luxury goods selling next to pachinko or fast food, or a lack of cleaning or maintenance in the portions of the building controlled by the minority owner/owners.

For kyoyu, there is an additional complication that unanimous agreement of all owners is needed for major decisions such as the sale of any portion of the property or renovation/reconstruction. The Japanese government has tried to make it easier to facilitate reconstruction of old residential condos by lowering the percentage of ownership consent necessary, but nothing has been done for commercial properties. With the Japanese property market still in the doldrums, investors only want to buy the best-located, newest, cleanest, simplest properties and complicated ownership is usually a deal killer.

Illustration by Phil Couzens

In other parts of Asia, however, the situation is entirely different. In Hong Kong and Singapore for example, single floors of office buildings are popular, highly liquid investment instruments. The result is that multiple owners of a single building all compete for the same tenants, but this doesn’t seem to turn off investors. As more investors from around Asia increase ownership of Japanese property, the market for fractional ownership here will probably expand. Already, I hear talk that some recent acquisitions of Japanese property by Asian investors are being syndicated (similar to kyoyu) or will be converted to condominiums. Historically, complicated ownership of property in Japan tends to result in lower quality maintenance, strange tenant mix and lower value, but I am curious to see whether Asian investors in Japan can bring new practices, shake up the market and generate demand for otherwise stagnating properties.

Illustration by Phil Couzens

Seth Sulkin is the President and CEO of Pacifica Malls K.K., a Tokyo-based real estate asset manager specializing in commercial properties.

Having just come back from another visit to Shanghai, the contrast between Japan and China is starker than ever. Shanghai is in a speculative frenzy with locals and foreign investors assuming never-ending growth. In Japan, “wide shows” on television are predicting that Japan will soon be a vassal of China and are comparing the coming wave of Chinese investment in Japanese real estate with the Japanese companies of the bubble era that acquired U.S. trophy assets such as Rockefeller Center and Pebble Beach.

This month, Japan is drastically lowering the visa requirements for Chinese tourists. It is clear both from anecdotal discussions with friends and business colleagues in Shanghai, as well as official sources, that Japan is a very popular tourist destination for middle- and upper-class Chinese. A number of businesses have cropped up in both countries to serve the needs of Chinese individuals looking to invest in Japanese real estate, and property tours are becoming an important part of the Tokyo travel itinerary. Chinese investment in Japanese real estate is good for Japan, as is spending by Chinese tourists at Ginza department stores and Akihabara electronic stores, but it is not enough to turn around the economy.

As long as allowing large-scale immigration is off the national agenda and the government fails to take aggressive action to increase the birth rate, any spending in Japan by foreigners is welcome, but it won’t be enough to overcome Japan’s systemic problems. As is widely known, Japan’s regional areas are suffering far more than Tokyo. The lack of economic activity leads to a drain of population as young people move to big cities for jobs, becoming a vicious downward cycle.

Hida Takayama in Gifu Prefecture is an interesting example of both the benefits of tourism and the problems of a small town. In June, I visited Takayama for the first time in more than 20 years and I had forgotten what an architectural gem of a town that it is. Most people probably think of Takayama only for its famous thatched roof country houses, but the old part of the city is a remarkable collection of beautifully preserved buildings, including the former city hall, which is one of the best historical museums that I have ever seen in Japan.

Even though Takayama has a very inconvenient location (2 1/2 hours from Nagoya), the number of foreign tourists has risen substantially in the last several years. In a town with a population of only about 93,000, the number of foreign tourists is about 150,000 per year and about a third of those come from Europe, so they really stand out walking down the street. The problem is that while businesses catering specifically to foreign tourists are enjoying the benefits, the contraction of the Japanese economy more than offsets this growth. In the last five years, as the number of foreign tourists to Takayama grew by 250 percent, the number of Japanese tourists fell by 275,000 to about 3.9 million, so the total visitor count is actually lower than before the foreign surge started. Takayama’s population, meanwhile, which peaked five years ago as a result of a merger with surrounding towns, has been falling 0.5 percent or more per year. In a town of only 93,000 people, the loss of 500-800 people per year is devastating, and without a university to keep young people at home, there may soon be a shortage of people to take care of Takayama’s precious tourism assets.

Increasing the birth rate is the best solution to all of these problems, but at the moment, the Japanese government seems too distracted by the upper house election and the World Cup to focus on the future.

Illustration by Phil Couzens

Jesper Koll is a Managing Director and Head of Research at JP Morgan Japan Securities Inc. He has been analyzing and investing in Japan since becoming a resident in 1986.

So it seems the world is turning Japanese after all. For longer than a generation, global investors have tried hard to lecture Japan’s corporate community on the supposed evils of keeping high cash balances and saving too much. Now over the past year, corporations around the world appear to be competing to build higher and higher cash reserves. Indeed, data suggests that corporate cash-piles in America now stand at their highest levels in almost two generations. “Cash-is-king” seems to have become the rallying cry for corporate leaders around the world in the current post-financial crisis era.

For serious economists, there is no easy answer to the question as to why the corporate preference for cash has suddenly surged. In my view, a key top-down insight is that we are going through a period of massive “crowding out”—government deficits have been surging lock-step with increased public intervention in almost all aspects of the economy. The impact in the real world is that this cuts down private entrepreneurship and investment opportunities. It also raises risks of higher regulatory costs and, longer term, almost ensures that taxes will have to go up. All said, corporate leaders will want to build reserves for future costs, rather than go out and invest aggressively in increasingly uncertain future returns. In the money world, the growing need to fund budget deficits traps these private savings in government bonds.

Before we get too complex and theoretical, Japan’s corporate community offers many insights into why firms are savings so much. To lighten the debate a bit, let me tell you about the “hyaku-oku club” rule. It goes like this: The most exclusive clubs in the Ginza entertainment district have always been very clear about their membership policy. If you work for a company that has less than “hyaku-oku”—10 billion yen—in liquid cash on its balance sheet, you can not get admitted, no matter what. Clearly tastes in status symbols and preferences in leisure and entertainment may differ globally, but here in Japan there is no question that, for many corporate leaders, this iron rule of the Ginza Mama-san offers a perfectly fine incentive to hoard cash. It seems you’re better off entertaining your shareholders in one of these exclusive clubs than earning an extra ten or twenty basis points of return on equity.

The Ginza Mama-san does, of course, have a point: The higher the cash reserve, the greater the chance of survival during a crisis. Cash is a very tangible cover against hidden liabilities arising from, say, sudden lawsuits, a banking crisis, a global recession, an earthquake or the political regime changing to a system of imposing stricter regulations. The greater the uncertainty, the greater the value of cash holdings. Let’s not forget that at the height of the post-Lehman global financial seizure, even global Fortune 50 companies were denied letters of credit for simple cross-border trade finance.

So it seems that the prudence of the Ginza Mama-san was a leading indicator of global developments. Unfortunately, the actual result of this has not been a happy one here in Tokyo. Compared to the early 1990s, about one out of two clubs in Ginza had to close down for lack of business and relentless structural recession. In the end, high cash balances may be a good first line of defense in a crisis, but they do nothing to guarantee growth, management acumen, wage and employment growth, or value creation. Make no mistake: The Ginza Mama-san rule is lousy investment advice. Personally, I am not sure what is more tragic, the fact that about half of the Ginza clubs went bust, or the prevailing reality that all of the supposedly inefficient Japanese companies with excessive cash balances are still in business. In Japan, everyone seems to have lost. High cash prevails and so do low returns. The only real change is that we have fewer clubs to choose from.

On a more serious note, the new global corporate savings dynamics is starting to have a potentially negative impact on policy debate here in Japan, in my view. Can you imagine the schadenfreude-laced snickers in many boardrooms in Tokyo right now, as American companies, in particular, are busy building their cash-piles faster than ever? Policymakers and technocrats are also overjoyed: If foreign corporates are changing to “become Japanese” and save rather than invest, surely it must mean that Japan-specific factors—the tax and regulatory regime or corporate governance and ownership structure—are no longer a valid argument to push for change in Japan. The global corporate savings glut is but another development helping to justify the Japan status-quo here in Tokyo.

マイケル・フィリップス Pro Commerce社長
Photography by hiromi iguchi

マスターカード創設者で、ビジネスブログ「Pro Commerce」社長のマイケル・フィリップス氏（75）が4月23日、ウェスティンホテル東京で「短期顧客と長期顧客へのマーケティング手法の違い」をテーマに講演した。

まず新規顧客の開拓には、ロイヤリティカードは不向きで、無料サービスや「口コミ」などの推薦コメントが有効な定番手法だと指摘した。返品や払い戻し方法の明示も不可欠で、さらに店頭やウェブサイトで「購買意欲をそそる」情報を提供し、潜在顧客の関心を維持する。

長期顧客の囲い込みはより複雑で、自社分野の「専門性を絶えず更新し、顧客の求めるものがあることを常に示す必要がある」。苦情を言いやすい環境づくりや、アマゾンのボーナスポイントのような「ねぎらい」も重要だ。

そして①自社サービスの優位性を納得させ、②関連商品や関連部門とリンクし、③継続的なサポートや多様な推薦コメントで顧客の好感を維持する3つの戦略で締めくくった。

illustration by phil couzens

国際通貨基金（IMF）は5月、日本の債務残高は2015年までに国内総生産（GDP）の250％に達すると予測した。長引く高失業率や外国直接投資（FDI）への厳しい規制がその根拠だ。

Doing Business誌は2010年、ビジネス環境が最も整った国としてシンガポールを1位に選んだ。一方、日本は起業のしやすさにおいて91位、中小企業向け税制で123位に沈んでおり、アジアで競合するマレーシアや香港にも大きく水をあけられている。

アカウンティング・アジアのクリス・アルダーソン最高執行責任者は「経済成長に見合った外国投資への規制緩和の必要性を、日本は認識してこなかった」と指摘する。

例えばシンガポールでは、多国籍企業のアジア拠点設置を奨励しているほか、外国投資呼び込みのために新設された経済開発庁が外国起業家の移住を促進している。

アジアの競合国に経済衰退の気配はない。日本が将来の繁栄を目指すならば、より大胆で積極的な施策が必要となる。

illustration by phil couzens

日本の不動産業界に多少回復の兆しが見えているが、その原動力は業界のファンダメンタルズ（経済の基礎的条件）の向上ではなく、国内外プライベート・ファンドの活発化だ。市場の活性化と外国投資は歓迎すべきだが、日本の不動産業界が人口減少という「時限爆弾」を抱えている点は明らかだ。

予想では現在1億2700万人の人口は、2050年には9500万人まで減少するが、人口が四分の一減れば日本の不動産供給は過剰となる。現在、東京の事業用不動産の稼働率はピークだった2008年の半分以下だ。郊外はおろか都心の需要減は深刻で、デフレと人口減少が現在のペースで進めば空き室は恒常化するであろう。

鳩山政権は子ども1人につき月額1万3000円（初年度）の子ども手当てを支給した。方向性は正しいが、少子化対策の決定打になるとは思えない。出産手当てとして500万円、さらに年額200万円の補助金を支給するくらいの思い切りでもなければ、日本の家族計画、ひいては人口減少に変化は望めないだろう。

illustration by phil couzens

日本の携帯電話端末市場は国内大手が独占してきたが、2008年ソフトバンクが米アップルのiPhoneの販売を開始、日本のスマートフォン市場の72％を占める300万台を売り上げ、旋風を巻き起こした。

独自の閉鎖的なインフラを発展させてきた日本の携帯市場は「ガラパゴス諸島」と揶揄されるほどだ。ソフト面でも、複雑な機能や10年来ほとんど変化のないインターフェイスは使いづらさが目立つ。一方、iPhoneは簡単に使いこなせる手軽さが売りだ。

しかし日本メーカーも、ようやく新ソフトの導入や事業統合による国際化に乗り出した。米グーグルの携帯端末用OS、アンドロイドを採用するキャリアも現れた。NTTドコモは日本メーカー4社の支援で独自に携帯端末OSを開発し、海外にも売り込む計画だ。NEC、カシオ、日立も2009年、新合弁会社「NECカシオモバイルコミュニケーションズ」を設立して海外展開を狙い、2012年の目標出荷台数1200万台の3分の1は米国その他への輸出を掲げている。

ベス・ブルック EYグローバル副会長

大手監査法人アーンスト・アンド・ヤング（EY）は先日、グローバル時代のビジネスと「多様性」に関する3本のレポートを発表した。同社のジェームズ・S・ターレー会長兼CEOは、トップ企業や経営者が現れる地域の多様化を予測する。絶え間ないイノベーションが競争を左右する中で、多様性への適応は企業にとって正しく、また賢い戦略である。

来日したベス・ブルックEYグローバル副会長はACCJで「多様性」の担い手の一翼として女性を強調した。女性のもつ潜在性を阻む文化的バリアの中でも、最も変化が見込めるのが企業文化だ。EYの報告書「グラウンドブレーカー（改革者）」は、キャリアのスタートアップ支援によって女性が活躍の場を広げる足がかりを作ろうとしている。

ブルック副会長はまた、多様性の「臨界点」に達して初めて長期的なプラス効果が得られるとも指摘した。他者との差異を受け入れ、先進市場と新興市場の双方に明るく、競争的協力を糧とできる人材の確保と維持が、ビジネス戦略としての多様性にとって鍵となる。

世界的な経済危機の中、米経済には大勝利の可能性がある。

第1に米国は今も世界一のイノベーション大国だ。2009年の米企業の出願特許は4万5790件で、2位の日本（2万9827件）、3位の独（1万6736件）を引き離している。特許出願企業の幅も広く、上位30企業は出願数全体の20％にすぎない。日本では対照的に全体の半数を上位30企業が、独では40％を上位12企業が占める。

第2に米国は今も世界中の最も優秀な人材をひきつけている。過去10年の留学生の増加率は30％で卒業後も、能力主義を風土とする米企業が、国籍や性別に関係なく人材を採用する受け皿となっている。

第3にマネーフローのダイナミクスを生んでいる非常に効率的な税制度だ。国民所得の増加1％につき税収は1.2％増加している。

そして第4に準備通貨、連動通貨としての米ドルは、浮き沈みはあっても依然強固だ。ドルの国際的地位の不動性は何よりも、米経済に対する楽観的展望を可能にしてくれるであろう。

John V. Roos
Ambassador
United States of America

日本在住の米国人の皆さま

独立記念日は、米国人にとって最も重要な祝日のひとつです。特に家族や友人たちから遠く離れ、外国に暮らす私たちにとって、この日は一層大きな意味を持ちます。独立記念日は、私たち米国人の立場を明確にし、さらに一体化させる価値観、すなわち自由、平等、民主主義をたたえる日です。これらの理念は、建国の父たちが自分たちの命を賭して戦うに値すると考えたものであり、以来、米国社会の揺るぎない礎となっています。勇敢な彼らのたぐいまれな英知が、世界中の人々を勇気づけてきた民主主義制度の発展と安定をこれまで支えてきました。建国の父たちがそれを知れば、きっと誇らしく感じることでしょう。

オバマ大統領が先日、陸軍士官学校の卒業式で演説したように、「米国は建国以来、未来を信じてきました。たとえこれからの道が定かでない時も、過去よりも未来の方が、より良い世界だと信じてきました。この期待を実現させるために、米国民は何世代にもわたり、機会を見いだし、不正と 戦い、より完全な連邦を形成するという建国の父たちが築いた基盤をもとに前進してきました」

234年前に建国の基盤となった価値観をたたえながら、日本と米国の揺るぎないパートナーシップもたたえましょう。両国の運命は、かつてないほど密接に結び付いています。日米両国は自由と民主主義という価値観を共有する同盟国であり、両国のみならずアジア太平洋地域にとって、未来がより平和で繁栄したものとなるよう共に取り組んでいます。

今年は日本で、そして2011年には米国で、アジア太平洋経済協力会議(APEC)が開催されます。両国のパートナーシップを強化する素晴らしい機会となるでしょう。ACCJは、貿易を拡大しAPECの全参加国・地域に持続的な経済成長をもたらすために、APECを通じて日米両国が連携する方法について提言するなど、重要な役割を果たしています。

独立記念日に際し、ACCJ会員企業1000社のすべての読者の皆さまにごあいさつを差し上げるとともに、日本の皆さまの絶えることない友情とご支援に心から感謝いたします。日米両国が自由の恩恵を末永く享受できるよう願ってやみません。