An Insider's comments on Japan's high tech business world

* * * * * * * * TERRIE’S TAKE – BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.

General Edition Sunday, April 03, 2016, Issue No. 845

– What’s New — Sharp: How Not to Sell a Company in Japan
– News — Trust banks start applying negative rates to clients
– Upcoming Events
– Corrections/Feedback — One man’s ramshackle hut is another’s ski resort
– Travel Picks — Sendai temple history, Sashimi in Shibuya
– News Credits

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Late last week, Mr. Terry Gou, the CEO of Foxconn Technology Group (also
known as Honhai) signed a JPY389bn deal to take control of Sharp, one of
Japan’s bedrock electronics firms. The signing came after a protracted
cat-and-mouse game played between Mr. Gou, the management of Sharp, and
in the wings, the public-private INCJ fund. Mr. Gou showed consummate
deal sense in luring Sharp’s board with a much more attractive offer
than the government’s INCJ (which wanted to break up the firm) then drag
out the negotiations as Sharp was facing a possible collapse. Lastly,
with impeccable timing he sprang a last minute demand to reduce the deal
price by 20% and completely out-maneuvered, Sharp’s executives and
shareholders, who eventually caved in and agreed.

Mr. Gou has already disclosed that he went into the deal with a
turnaround plan in mind. He is no stranger to Sharp’s bureaucracy
problems, having taken over the management of the company’s Sakai
flat-panel TV factory in 2012 when he made his first investment. The
factory reversed its money-losing status that same year, even as the
rest of Sharp continued to flounder. If there is one thing that Mr. Gou
knows better than his Japanese counterparts, it is how to demand cost
cuts and get them. Of course in the process, much of the existing board
of Sharp will be expected to fall on its collective sword as part of the
effort, which will certainly be a start.

Financially deep pockets will also be necessary, but given that Mr.
Gou’s Foxconn company makes more annual profit (US$4.1bn last year) than
what it is costing him to buy Sharp, he will still have adequate funds
for the changes he needs to make. Sharp’s own management didn’t have
this ability, even if they’d had a viable route forward. Still, it is no
sure thing that Mr. Gou and his team can turn about a behemoth like
Sharp, especially since its management have tried so many times already
to pull themselves out of the hole. However, as Mr. Ghosn of Nissan
demonstrated 17 years ago, sometimes a Japanese organization with inbred
senior management needs a determined and empowered foreign leader
capable of cutting out the existing powerbase of that stricken company
and replacing it with younger more flexible (and directed) minds can
actually turn it around. In Mr. Ghosn’s case, the process took about 3-4
years, and we expect that Mr. Gou is setting himself a similar time frame.

Nonetheless, it has to be said that Mr. Gou is taking a huge risk in
buying Sharp. Indeed, analysts overseas are falling over themselves with
conspiracy theories as to why Foxconn is putting out so much cash to buy
a company that is expected to report a massive JPY150bn net loss this
last financial year. The most popular theory is that Apple is behind the
deal, helping Foxconn with either order guarantees for Sharp’s Igzo and
regular LCD products, or some kind of soft payment terms for
transferring equipment it owns at Sharp’s factories, or perhaps a mix of
the two. Certainly for Apple to keep Sharp and its screen-building
capabilities close, it will buy up Sharp’s unloved LCDs while waiting
for Foxconn to upgrade Sharp’s facilities for AMOLED manufacturing,
something that will take it 3-5 years. In doing this, Apple gets to keep
a supplier which is not either Samsung or LG, two of its existing
suppliers who are also long-term competitors.

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Available for asking price of US$2,000,000 or near offer. Contact

[…Article continues]

So, Sharp is turning Taiwanese. Is this a bad thing? Not if the factories
and engineering stay in Japan, and so far Gou is saying he will continue
both in this country. No doubt he WILL move basic production to his
factories in China, but it sounds like he plans to move the remaining
operations upstream, either into direct competition with the Koreans for
AMOLED displays, or perhaps into some new direction as the innovative
engineering teams at Sharp keep turning out new products.

While watching this deal, we couldn’t help being reminded that Sharp was
doing everything a company should not do to be sold. In particular, the
senior management seemed to have this sinking ship quality about them
that marked them as sitting ducks for someone. Gou in the end happened
to be the party most able to draw value out of the deal, but they would
have been ripe for whomever plunked down the cash.

The things they did wrong were:

1. Waiting too long – wrong timing
Sharp knew at least 7-8 years ago that things were not well in the
Japanese electronics industry, no thanks to the high yen and aggressive
competition from Samsung and others. The company should have moved much
faster to fix its situation, especially around 2010 when it still had
credibility and funds, by moving into new product categories and
diversifying its risk, and by moving production to China but not
over-focusing on selling there. More importantly, they should have
broken the business into a group of companies and let each sink or swim
as they could. In that way they would have had a group of more flexible
smaller companies, where they could afford to lose one or two in the
portfolio. Of course, it’s understandable that with the huge investments
made in LCD manufacturing that Sharp wanted to keep all the businesses
in one company, but the high yen and cheaper offshore manufacturing
trends were obvious back in 2010 and the company’s leadership should
have rung the alarm bells then. NEC learned this lesson well, shedding
its PCs and LCDs businesses, and unlike Sharp, it has survived

2. In-bred management
Especially in multi-generational companies that don’t have strong
merchantilist cultures (i.e., opposite of Japanese trading companies),
even though the senior management may be self-disciplined as
individuals, they grow up through the ranks by getting along with others
rather than by taking quick and sometimes harsh actions. This is because
the Japanese management system is built on joint experience and a
jointly-invested (emotionally invested) social group where the members
have known each other all their adult working lives. As a result, they
worry too much about their friends, colleagues, and other employees who
are the weft of the business. This social spider’s web makes them too
hesitant to make the cuts or reorganizations that are needed. In the end
they hide the problems – as was done in Olympus and Toshiba. This is an
underlying problem for society here – any aggressive behavior has been
bred out of the people.

3. Wrong tools, wrong decisions
Lastly, while most directors of publicly listed companies are basically
honest, hardworking people who are doing the best they can in archaic
management structures (don’t say anything negative to the boss), they
are also unfortunately equipped with often archaic management tools and
insufficient global information. In such an environment, certain
internal business “truths” emerge that are cooked up in a bubble and
without proper understanding of how the outside world works. This makes
these companies very vulnerable to international economic and political
power shifts, and as in Sharp’s case, they can make well-meaning major
investments then get broadsided by the yen and by their competitors
being more nimble and better attuned to market needs.

Actually, these three failings sound very much like the same criticisms
made of the current LDP political party as well, don’t they? Probably
that is no accident, and shows that uninformed “stuck” management is
indeed a deep and systemic problem.

…The information janitors/


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for either a Japanese dish or one from your own country, that uses soy
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applications is May 31, 2016.

Grand prize – 100,000 yen x 1 person
Silver prize – 50,000yen x 2 persons
Bronze prize – 30,000 yen x 7 persons.


+++ NEWS

– How to have immigration without an immigration policy
– Trust banks start applying negative rates on clients
– An even bigger Big Mac?
– Free infrared satellite mapping data
– Another economic stimulus on its way – says Abe

=> How to have immigration without an immigration policy

Abe’s LDP party understands one thing very well, you can do almost
anything you like so long as you don’t let it become a public issue. In
this case, relaxation of immigration controls to help Japan’s population
and economy recover is a taboo subject, so it’s interesting to see that
the government is nonetheless allowing so many foreign “workers” into
Japan this year. There are now 1m workers, up from 910,000 last October.
***Ed: How are they able to do this? Although this Japan Times article
doesn’t say, the fact that 35% of them are Chinese suggests that the 1m
figure includes university and language-learning students, as well as
agricultural trainees. Students are allowed to work part time, and at 28
hours a week, plus maybe some quiet overtime on the side, you can have a
hardworking sub-community without any of the inconvenience of them
staying on later.** (Source: TT commentary from, Apr
02, 2016)

=> Trust banks start applying negative rates on clients

When the Bank of Japan imposed negative interest rates on banks several
weeks ago, the expectation was that this would force banks to apply
their surplus funds in the economy rather than parking them with the
BoJ. Unfortunately, instead of that desired effect, it looks like a more
risky distortion is starting to emerge, whereby some of those banks are
now turning around and charging their own institutional clients for
placing funds with them as well. It’s mind boggling to think that banks
may not actually want their clients’ money, but it seems that we are
entering an era where this is going to be the case. ***Ed: Now it seems
that the Japanese consumers’ run on safes to store paper currency and
gold is reasonable after all.** (Source: TT commentary from,
Mar 30, 2016)

=> An even bigger Big Mac?

McDonald’s Japan has realized that its customers like gross, and what
better improvement on chocolate fries than an even bigger burger than
the Big Mac? The new fat blob is taller and wider than a usual Big Mac,
and comes with two extra beef patties that, according to McDonald’s,
offers 2.8x the amount of meat. You can get your giant burger with a
double-size soda and 1.7x box of fries. ***Ed: It surprises us that the
government doesn’t tax McDonald’s and others for creating these dietary
monstrosities. After all, they tax us for “Kaigo hoken” (Nursing
Insurance) when we hit 40, but as it is obvious to anyone, it’s not just
your age that defines your need for such insurance, it’s also your genes
and most importantly your lifestyle choices. (Source: TT commentary from, Apr 3, 2016)

=> Free infrared satellite mapping data

NASA and JAXA have announced that they will make free infrared mapping
data from their ASTER camera onboard NASA’s Terra satellite. The ASTER
device array has been providing data since 1999 and until now has
produced about 2.95m high-definition snapshots of the earth’s surface.
Traditionally if you wanted to use that data you had to pay METI a fee,
but now the imagery will be publicly available for free. What can you do
with it? Basically the data gives a daily flyover record of changes in
temperature-related geographical features, such as volcanoes, terrain
after storms, wildfires, etc. Terra and ASTER were designed to work for
just five years, and now, 17 years later they are still going strong.
(Source: TT commentary from, Apr 2, 2016)

=> Another economic stimulus on its way – says Abe

PM Shinzo Abe has announced that he plans to add another stimulus kick
to the economy, to try to get people spending again. He wasn’t giving
away too many details, but hinted that there would be a wage rise for
childcare workers along with other incentives to help people “work and
live actively”. He also said that he planned to go ahead with the
consumption tax rise to 10% unless there was an international financial
crisis or another natural catastrophe – pretty much putting the lid on
any speculation that he wouldn’t hold the tax rise back. ***Ed: We think
Abe is strongly influenced by US financial experts and will stay the
course of putting higher consumption taxes in place. Unfortunately he
won’t do the most important thing needed to kick-start the economy,
which is to cut out vested interests and deregulate business. So as a
result we think people are going to continue to restrain their spending
and instead the economy will sink even further.** (Source: TT commentary
from, Mar 29, 2016)

NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links — we apologize for the inconvenience.



——— [NEW!] Wildcard Incubator Program —————

KOEI COMPANY Inc. Presents its latest “Up Close” Tokyo Session 2016 seminar

KOEI COMPANY is a San Francisco based consulting/M&A practice, and the
co-founder of the Wildcard Incubation Program. We will be hosting our
latest seminar session in Tokyo for startups, entrepreneurs, and other
internationally-minded business people, focusing on the Inbound business
in Japan and how to launch a new businesses.

Main Speaker: Terrie Lloyd, Serial Entrepreneur, Founder/CEO Japan
Travel K.K.
Moderator: Nobu Kumagai, Founder, KOEI COMPANY, Inc.
Title: “The Real Deal of Running an Inbound Business in Japan”

Details: Complete event details at
Date/Time: April 12, 7-9pm, 6:30pm doors open
Venue: Connecting the Dots co-working space, Shibuya, Tokyo
Cost: 2,000 yen, please purchase tickets via Peatix Event Page:
More information:

+++ CORRECTIONS/FEEDBACK — One man’s Ramshackle hut is another’s ski resort

Back in TT-832 we referred to the lack of awareness in Japan by tourism
authorities seeking to replicate the success of Niseko. We made the
following statement: “An important lesson for the Japan Tourism Agency,
and the bureaucrats who control its budget, is that making world-class
ski resorts is not achieved by slapping some paint on decrepit buildings
of the type you usually find in Japan’s ramshackle ski towns and
resorts, and making a pretty brochure.”

=> Several readers commented:

* Another great article, Terrie. Always amazes me how you can be driving
in a beautiful mountain resort and turn the corner to find what looks
like a cluster of Russian fish factories dominating the landscape.

* “Ramshackle.” Perfect word choice!



=> The Monk, the Wanderer, and the Dead, Miyagi-ken
Toukou-ji Temple in Sendai is for history lovers

Toukou-ji Temple is located in the Iwakiri suburbs of Sendai City,
Miyagi Prefecture. Situated along the gently flowing Nanakita River,
this small temple is quite unassuming and seems to be nothing special.
There isn’t much to look at and it is difficult to access without a car.
Plus there is an unusually high number of graves here, which even in the
daytime can be a little discomforting. BUT, Toukou-ji is really special
is you like history, which is why I made the trip.

The temple dates back to the 9th century, long before the reign of lord
Date Masamune in the 1500’s, who turned Sendai into a castle town and
eventually a thriving metropolis. Instead, the temple was founded by
famous Tendai sect monk Ennin (Jikaku Daishi), a highly respected monk
who devoted his life to studying, evangelizing, and developing Buddhism
in Japan. His travels took him to Mount Hiei near Kyoto, all the way to
China, all throughout Japan, then here. Caves near the temple contain
many intricate stone wall carvings from the Kamakura period and Nanboku
period (so roughly in the 1300s). The main attractions are images of
Amida Nyorai and Yakushi Nyorai.

=> Shibuya Restaurant Tora Dogenzaka, Tokyo
Japanese gourmet and sake with fantastic presentation and value

Japan’s culinary finesse is known far and wide, and when one comes
across a restaurant with top quality food, affordable prices and a
convenient location it is certainly worth remembering and recommending
to friends. That is exactly what we have found with Tora Dogenzaka in

Upon stepping in, you quickly see hints guaranteeing a wholesome dining
experience: wooden sliding doors, wooden furniture, quintessential
Japanese ornaments, dimmed lighting, and soft koto music playing in the
background. Small and large groups can both easily be accommodated in
private rooms with excellent decor.

Our meal started off with appetizers – a combination of smelt and
potato, which was shortly followed by two of the night’s star dishes – a
fresh vegetable medley that came with a heated scrumptious anchovy
garlic dip and a plum dip. The veges included a range of freshly cut
crunchy lotus roots and watermelon radishes that packed a punch of
flavors and textures. That was followed by a large platter covered with
a myriad of fresh sashimi slices precisely arranged. The sashimi
included yellowtail, tuna, octopus and more and each piece was an
absolute treat for the taste buds.



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