Japan Inc as a Comeback Kid

choi

Eric Pfanner, Nuts-and-Bolts Companies Power Japan's Profit Revival. Wall Street Journal, Oct 6, 2014 (under the heading Bring Unsexy Back; front page).
online.wsj.com/articles/whats-behind-japans-profit-rebound-unsexy-companies-like-toray-1412562603

Quote:

(a) “Well into the 1960s, Japan’s top exports were steel, textiles, fish and ships, according to the Japan Foreign Trade Council. In 1962, consumer durable goods represented only 14% of Japan’s overall exports, according to the Japan Tariff Association.

“Global perceptions of ‘Japan Inc’ changed during Japan’s bubble era of the 1980s. Consumer-electronics brands like Sony, Nintendo Co and Panasonic Corp were among growth leaders—along with auto companies—and came to symbolize Japan’s ascent abroad.

(b) “The Nikkei’s rise also reflects the yen’s slump, which makes Japan’s exports more affordable in dollar terms and lifts the value in yen terms of overseas sales. That helps many parts providers, who tend to manufacture more in Japan than finished-goods makers [because japanese companies make financial statements in unit of Japanese yen.

My comment:
(a) “Toray President Akihiro Nikkaku * * * Toray started in 1926 as a maker of synthetic fabrics and later branched into other fabrics and chemicals. Textiles were a big ingredient in Japan’s postwar rebound”
(i) Akihiro NIKKAKU  社長 (~CEO) 日覚 昭広 (The "niche" and "kaku"are the Chinese pronunciations of 日 and 覚, respectively.)
(ii) Toray Industries was established by Mitsui Busan 三井物産 as Tōyō Rayon Co, Ltd 東洋レーヨン.

(b) SMBC Nikkō Securities   SMBC 日興 証券
(i) SMBC stands for Sumitomo Mitsui Banking Corporation  株式会社三井住友銀行 (As the name indicates, the bank was merged from banking arms of each of the two conglomerates: 三井 and 住友.
(ii) SMBC Nikkō Securities is a SMBC subsidiary.

(c) “Toshiba President Hisao TANAKA 田中 久雄 in May told analysts that the company intended to “‘accelerate our shift to b-to-b.’

business-to-business.
(d) “The shift is toward ‘upstream’ companies, says Shintaro OKUNO 奥野 信太郎, a Bain partner in Tokyo, especially parts makers. ‘It’s still manufacturing, but a completely different kind of manufacturing.’

The noun “ 奥 oku” means the back (of the house, for example) or interior (of the land, out of  beaten path).
(e) “In 2006, Toray struck a supply deal with Boeing set to run through 2021 for the 787 jetliner, in which carbon fiber is the main structural material. Expecting increased orders from Boeing, Toray recently announced plans to invest $1 billion in a new South Carolina factory.”

The Boeing plant is in South Carolina.
en.wikipedia.org/wiki/Boeing_South_Carolina

(f) “Toray’s trade-off for long-term supply deals, some analysts say, is its modest profit margins. Its 7.6% return on equity in its most recent year is less than half that of some global chemical-industry leaders, they say.”
(i) Go to the fourth panel of the graphic in this report, which shows annual “sales” and “net incomes” of Toray from 1999 to 2015 (forecast) fiscal year (inclusive). It is astonishing that a “successful” Japanese company (Toray here) has so thin a profit margin--just like Taiwanese ones.
(ii) The relationship between profit margin and return on equity (ROE) is discussed in
Definition of return on equity ROE
lexicon.ft.com/Term?term=return-on-equity--roe

Heed the last formula.

(g) “They suffered for it. Competitors in countries like South Korea and China eventually undercut their prices. Their smartphones, often designed for the Japanese market, never took off overseas. * * * Japanese suppliers of materials and components may eventually lose their global edge, some say. South Korea and China will eventually undercut Japanese parts suppliers just as they did with finished gadgets, says William Saito, a venture capitalist who advises the Japanese government on technology strategy. Japan needs to develop trendsetting consumer products or services to provide the profit margins the economy needs, he says.”
(i) Saitō is Japanese surname 斉藤.
(ii) Regarding the first two sentences: only Lenovo and Huawei distinguish themselves. Regarding the second part: I see none from China.

(h) What Corporate Japan is doing is essentially going back where Taiwan has been: back office. I have long said there is nothing wrong to be parts makers, as long as it makes money. Specialization is the key.