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, June 25, 2017, Issue No. 902

– What’s New — Fujitsu’s Bottom Line Caught in a Widening Culture Gap
– News — Stomach cancer sniffing dogs to start work
– Upcoming Events
– Corrections/Feedback
– Travel Picks — Cycling in Kyoto, Terrifying Temple in Tokyo
– News Credits

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For many years we have been fans of the investment site This site is a forum for mostly professional
investors to share insights and ideas about specific companies and their
management teams. Many of the comments are terse and cryptic, just being
sign-ins by competing fund managers looking to show they are still
alive. But some of the commentaries are deep and insightful. As luck
would have it, some of the best commentaries are from those hardy
investors interested in Japanese stocks. I suspect that they want to
educate the rest of the world that the black hole of information that is
Japan is actually not that black, or mysterious, if you put some effort
into researching it.

It is here that you can learn about the latest developments in obscure
topics like lithium supplies and how these will affect not only auto
makers like Tesla, but also the big Japanese players behind the scenes
(Panasonic and Sumitomo). So it was with some interest that we saw
several articles and one investor presentation about one of Japan’s
largest bedrock IT companies, Fujitsu. One of the articles was quite
upbeat about Fujitsu, making out that the company is ahead of the curve
in terms of restructuring and is getting ready for the future. If you
were to read it, you might even be tempted to invest in the company. On
the other hand, the presentation, an update on the last fiscal year,
tells a rather different story and one that is not quite so optimistic.
Today’s Take refers to pages in the presentation, so you might want to
open it up if you want to cross reference our comments. If you’re on a
mobile device without multiple windows, then just read on. [Ed: Presentation URL]

Fujitsu, like Panasonic, is one of those Japanese megalithic companies
that managed to grow by doing a bit of everything and using its vertical
structure to lock out competitors (easy to do if you own the parts
manufacturing firms, and by virtue of a 50-year association, the
customers, too). In the 1990’s and even early 2000’s this was a
successful strategy for both firms, and combined with overseas
investment, they were able to continue growing.

However, even though Fujitsu is still making money and has been pretty
consistent at it, the company is facing the most serious headwinds that it
has encountered since the post-war period. To be sure, business is still
going well here in Japan, and the company is still able to squeeze
overall sales and profit growth out of its local operations. However, as
the presentation clearly shows on page two, there is something seriously
wrong with its overseas operations, which have declined a huge 5% in the
last two years as a percentage of overall sales. The graph says that the
target is supposed to be 50% but currently it’s 35%. This is all the
more serious when you realize that Fujitsu has invested billions of
dollars over the last 15 years to grow its overseas businesses.

So what is going on here?

——— Seed Round Investment with Japan Travel ———

Readers will know that in late 2013 Japan Travel KK was established to
help develop the Inbound Travel market. Little did we know back then
that the market would swell from 13m visitors that year to around double
(26m estimated) this fiscal year. Japan Travel KK has been tracking the
market and has enjoyed 100% sales gains each year for the last 3 years,
with a repeat performance expected this year. The company is funded by
the founders and a few friends, and is now offering a late seed round
investment opportunity for up to 50 respondents. This will be a bridge
financing to get us through to a more fully priced Series A round next
year. We expect to go public sometime 2020~2022.

Anyone interested in learning more about investing in Japan Travel can
apply for an Investor Memo which outlines the opportunity and the
company’s achievements to date. Making an inquiry is obligation-free,
but per Japanese law, responses will be limited to the first 50 people.

For more information:

[…Article continues]

Our take is that while the home markets are somewhat secure and locked
up through personal relationships, overseas the company is being fully
exposed to the new realities of the SI market. These realities are the
massive move away from companies owning their own infrastructure and
onsite assets, ranging from mainframes and PCs to retail POS systems and
car navigation systems. The new masters of the universe are no longer
Fujitsu’s long-term competitors of IBM and Oracle, but instead are
Amazon and Google and a cluster of new firms in the Artificial
Intelligence (AI) and business applications space.

Of course Fujitsu can and probably will buy some of those smaller
software firms to stay in the game, but in doing so, they will be
repeating the previous M&A binge that brought them little or no
long-term benefit. And why is that? Well, a hint is to be found on Page
four of the presentation, which explains the strategic vision for the
company and its activities. You have all the usual strategies of teaming
with academia, with talent sources, and even with independent
businesses. This third group is particularly important because one thing
that has been happening overseas but which hasn’t really hit Japan yet
is the phenomenon of corporate collaboration – where you have big guys
with the inventories and resources and little guys who are nimbler and
better at selling online.

This collaboration trend requires the interconnection of systems and a
step down from “I’m the big guy here” attitude – something that with the
emergence of upstarts like Amazon and Tesla and the gradual displacement
of the incumbents, is making large traditional companies reassess their
value systems. Japanese big guys are still all about bullying their
little suppliers and micro-controlling their inter-company transactions,
so collaboration will be a tough move culturally for them. But pressed
by simple economics, even they will have to change eventually. It’s just
going to take time.

So with this corporate culture gap looming before us, we can look at
that strategic vision chart on page four with fresh eyes and realize
that there is one hugely important piece totally missing from Fujitsu’s
strategy plan – collaboration with outsiders on software. The chart does
say that the company will collaborate with smaller firms in “Ubiquitous
Solutions” and “Devices”, but this basically means Internet of Things
sensors and a range of other hardware, and on a later page they refer to
AI and Security, but no where is there mention of independent business
software. So it appears that Fujitsu fully intends to develop the
software applications itself, something it’s not that good at (and
certainly not in international markets), or buy the companies making
such software.

So, on page six there is a diagram showing that the company plans to
work with Open-source Software partners, but using what? The company’s
K5 cloud platform shows a patchwork of major brands that Open-source
companies are trying to escape the clutches of – the Oracles, SAPs, and
VMWares of the world. Furthermore, none of these technologies really
addresses the real trend overseas, which is the move to small cloud apps
for mobile devices for consumers and companies. So instead, Fujitsu
intends to stay with huge systems that require an army of engineers to

This page six slide really indicates the bind that Fujitsu is in. Google
and Apple (but not Amazon, which is a vertical megalith-in-the-making
exception) have taught us is that if you want to have world domination
for your standards and technologies then you need to co-opt a community
of talented independent software companies that will be writing on top
of your platform and providing their own solutions in and around your
framework. Without this approach, all parts of your solutions will
otherwise have to be developed by your less motivated internal staff,
who are hardly incentivized to create world-changing excellent
solutions. As a result, a company like Fujitsu and its customers will
always be behind the curve on new market trends, and this will further
stretch the firm’s ability to keep up overseas.

Fujitsu needs to thoroughly study the transformation happening over at
Microsoft, which is now realizing (once again) the importance of small
developers, after several decades of focus on large systems and large
partners. Microsoft is moving to a software utility model (a la Google)
for little guys to plug in to, providing them access to deep technology
that would be prohibitively expensive for them to develop from scratch –
think AI, analytics, global data distribution, etc.

To be sure, Fujitsu is trying to create similar-looking framework with
MetaArc, but not only do they not own anything original or even that
interesting, their collaboration with outsiders is all ONE WAY – they
suck information in and give little back. Thus, unless they can create
their own meaningful technology and also get the collaboration religion
then we think they are doomed to see their international business shrink
at an increasing rate. Furthermore, once the collaboration wave hits
Japan, which it surely will over the next five years, then they will be
caught flat-footed here in Japan as well.

…The information janitors/



+++ NEWS

– Sailors to be allowed to sue TEPCO from USA
– Mobike coming to Japan
– Alipay and Lawson to tie up
– Is PM Abe about to be done in by another favors scandal?
– Stomach cancer sniffing dogs to start work

=> Sailors to be allowed to sue TEPCO from USA

While TEPCO, the power utility behind the Fukushima disaster, has been
protected in Japan itself, a major legal decision in the USA has
potentially opened the floodgates for legal claims against the company
there. A U.S. Appeals court has said that 318 sailors aboard the USS
Ronald Regan aircraft carrier that came to the aid of Fukushima are
allowed to sue TEPCO for compensation from the U.S. and do not have to
file suit in Japan. The sailors have brought a US$1bn class action suit
against the company after being engulfed by the radioactive plume that
was emitted after three of the plant reactors exploded. (Source: TT
commentary from, Jun 23, 2017)

=> Mobike coming to Japan

Chinese bike rental phenomenon, Mobike, has announced that it plans to
launch its bike sharing services in Japan later this year. The company
will start in Fukuoka and expand out from that location. It’s not clear
how Mobike will overcome the strict Japanese municipal regulations
governing the parking of bikes on roads and sidewalks, although it
appears that they will use private land plots to park bikes. These may
include convenience store lots and temporary parking locations. ***Ed:
This move will certainly spur Japanese players into action, as Mobike’s
bikes are much simpler and thus lower cost (think 80% cheaper) to
operate than are the high-end electric models popular with Japanese
operators.** (Source: TT commentary from, Jun 22, 2017)

=> Alipay and Lawson to tie up

China’s largest smart phone payment system, Alipay, is making large
inroads in Japan on the back of free-spending Chinese tourists. Now
Alipay and the Lawson convenience story group have agreed to accept
Alipay payment methods at 13,000 of Lawson’s Japan stores. To
incentivize spending, Lawson will give 1~5% cash rebates on customer
purchases, in addition to their being able to use discount coupons.
Alipay’s parent, Ant Financial, reckons it can increase this beachhead
move into at least 45,000 stores in Japan by the end of the year. ***Ed:
Currently more than 80% of domestic mobile transactions are being made
via Alipay, although WeChatPay is reporting growing its marketshare much
faster and is likely to be a major competitor over the next 12 months.**
(Source: TT commentary from, Jun 23, 2017)

=> Is PM Abe about to be done in by another favors scandal?

One of PM Shinzo Abe’s greatest strengths and now a major weakness is
his image as a clean, honest, but hard-driving politician. As Japanese
have already shown, they are willing to accept a more-than-comfortable
right-wing bent from their ruling party, so long as they don’t see a
return to the corruption of the previous 50 years. Unfortunately for
Abe, this makes him very vulnerable politically whenever he is seen as
doing something dirty. He is now at the center of a third scandal this
year, all involving putting personal favors for friends. Firstly there
was the low-priced land sale to the Moritomo Gakuen headed by a friend
at the Nippon Kaigi lobby group, then the no-strings attached JPY90bn
loan to another friend wanting to establish a veterinary school in
Ehime. Now, however, Abe seems to be getting dragged into the worst
scandal, involving a journalist friend who was being investigated by the
police for raping a fellow journalist, when someone “from the top”
ordered the investigation to be terminated. What with the discovery of
incriminating documents in the Ministry of Education row over the vet
school scandal, this latest development puts the PM under great
pressure. The question is: will this negatively rebound on the LDP in
the upcoming Tokyo elections?** (Source: TT commentary from, Jun 20, 2017)

=> Stomach cancer sniffing dogs to start work

One thing you gotta like about the Japanese is their willingness to
pursue unconventional medical research. Take for example their herbal
compendium of about 400 treatments (“Kampoyaku”), which are fully
reimbursable on national health. Now the Nippon Medical School is
rolling out a stomach cancer sniffing dog program for residents of a
remote town in Yamagata Prefecture. Residents will collect and freeze
urine samples which will then be couriered to the school for trained
cancer sniffing dogs to preview. Apparently the dogs are almost 100%
accurate with positive indications of cancer. ***Ed: Each dog costs
about JPY4.5m to train, so this experiment is not a cost-saver, yet.
However, a UK dog is on record as having sniffed an average 1,000
samples a year for five years at 93%, which works out to JPY900/sample
with accuracy rivaling the world’s best labs – so there may be something
in this.** (Source: TT commentary from, Jun 20, 2017)

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.



———- ICA Event – Thursday 27th July —————–

Speaker: John Kirch – Regional Director North Asia of Darktrace
Title: “Leveraging Artificial Intelligence to detect New, Emerging Cyber
Threats in Realtime “

Details: Complete event details at
Date: Thursday 27th July, 2017
Time: 6:30pm Doors open
Cost: 1,000 yen (members), 2,000 yen (non-members). Open to all. No sign
ups at the door!!!!!!!
RSVP: By 5pm on Monday 24th July 2017, Venue: Room F, 9F, Sumitomo
Fudosan Roppongi Grand Tower, 3-2-1 Roppongi, Minato-ku, Tokyo, 106-0032


No corrections today.



=> Ine Cycling, Kyoto
Two wheeled therapy by the seashore

The ancients channeled Ebisu and the elixir of eternity on the cliffs
beyond the horizon, but today the only spirits we will imbibe are from
the sake brewery – freshly-made sake from Kuramoto Mukai, famous for
squeezing every bit of goodness from the Murasaki Komachi, a beautiful
strain of purple rice that is truly a drink worthy of the divine.

It is a beautiful spring day. We snake and skirt the water’s edge, with
the sun behind us and the biggest smile on our face. We have this place
to ourselves, in this preserved old town that thousands may have flown
past from Japan to the Eurasian landmass. Where are we? Only three hours
from Kyoto Station.

Even migrating birds like the Bar-tailed godwit, Eastern Curlew, Grey
tailed Tattler, Great knot have seen more of Ine than their human
counterparts from Australia, America or Russia.

By the way, the local guide has seen some of these bikes in far away
Amanohashidate, a good hour away by bus. Not that these bikes have a
migratory instinct, but as they are free, some too-clever bloke has
taken it far beyond its nest in Ine Village, even with the tell-tale Ine
logo prominently stamped on the side of the bike. Yes you have read it
right; this is the cheapest bike hire in the world.

=> Tamagawa Daishi
An impressive temple in the suburbs of Tokyo

If you’re out in the riverside Tokyo suburb of Futako-Tamagawa, ten or
fifteen minutes to the west on the train from Shibuya, then it’s worth
walking a few minutes away from the huge shopping center that’s the
area’s main draw. In a quiet residential area just to the north of the
station and shopping center, there are a handful of ancient temples and
shrines, of which Tamagawa Daishi is one of the most impressive.

I came first to a small shrine at the side, with a path through
plentiful greenery to a small worship hall, which was pleasant in a
low-key way.
Then I came to the main part of the temple, which is home to a
population of various, interesting Buddhist statues, small and large,
serene and fierce. There’s one very imposing statue of a giant pilgrim,
his head above the treetops: I didn’t measure it, but it must be at
least seven or eight meters tall.



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