By HIROKO TABUCHI
Published: September 14, 2010
TOKYO — The purchases pale in prestige compared with deals like Sony’s takeover of Columbia Pictures, or Mitsubishi’s purchase of the Rockefeller Center, both at the peak of Japan’s economic bubble in 1989.
But current circumstances — most notably, a strong yen that is elevating Japan’s purchasing power overseas — could send Japanese companies shopping again overseas, making them bigger global players despite a stagnant economy at home.
Japanese businesses have spent $27 billion buying overseas companies so far in 2010, already more than in all of 2009. That includes a string of deals by the telecom giant NTT, including its July agreement to buy Dimension Data, a network service provider based in South Africa, for $3.24 billion. Last week, the convenience store chain 7-Eleven, owned by Japan’s Seven & I Holdings, made a $2 billion offer to buy a smaller American rival, Casey’s General Stores.
Just as aggressive, on a smaller financial scale, is Japan’s biggest e-commerce company, Rakuten. In the last four months it has acquired the American online retailer Buy.com for $250 million and paid a similar amount for a European Web shopping site, PriceMinister.
“This is a rare opportunity for Japanese companies to aggressively acquire foreign companies,” Hiroshi Mikitani, Rakuten’s founder and chief executive, said in a recent interview. “They have cash, they can finance it. They should do it, and build a presence globally.”
The soaring yen has weighed on Japan’s export-led recovery as manufacturers like Toyota and Sony wring their hands, watching foreign competitors easily beat their prices. But businesses like Rakuten are mining the dark cloud’s silver lining, using their high-value yen to go on global shopping sprees.
“Japan’s economy needs to renew, to foster new businesses,” said Kazuki Ohara, a senior consultant at the Nomura Research Institute in Tokyo. “It would be a shame for Japan to deal with the strong yen as it always has — by trying to devalue its currency, or scraping by until the yen weakens again.” Those who cheer the merger boomlet cannot always be heard, given all the depressed grumbling here about the strong yen, which has risen about 10 percent against the dollar this year as investors look for relative safe havens in volatile global markets. The currency, hovering at around 15-year highs, has hurt Japan’s manufacturers by making their exports less competitive — a big concern for a country that depends on exports for much of its economic growth.
On Wednesday, however, Japan intervened in currency markets for the first time in six years to weaken the yen against the dollar, a move that showed the government was still eager to prop up Japan’s exporters.
But rather than counting on the government action to help companies, analysts say that Japan must reorient its economy toward more value-added industries like services and information technology — and raise its standing in these fields overseas.That is the strategy Rakuten is following.
Since Mr. Mikitani, a Harvard Business School graduate, founded Rakuten here in 1997 and took it public in 2000, his Internet vending business has grown on the popularity and efficiency of its business model.
The company, with 64 million customers in Japan and sales of 298 billion yen ($3.54 billion) last year, has not set up its own warehouses or carried its own inventory. Instead, it serves as a portal to nearly 36,000 merchants from around Japan that sell a diversity of products, like cosmetics and sporting equipment. And Rakuten’s overseas activities are likewise based on playing the digital middleman, little encumbered by physical products or real estate.
After setting up shop in Taiwan in 2008 and Thailand in 2009, Mr. Mikitani has picked up the pace. In January, Rakuten announced a joint e-commerce venture with the Chinese search giant Baidu. It struck the Buy.com deal in May, and later that same month announced a joint venture in Indonesia. The PriceMinister deal, in June, gave Rakuten access to customers in France, Britain and Spain, and plans are under way to bring the service to more European countries.
A similar services dynamic and global expansion is behind NTT’s acquisitions. Dimension Data, based in Sandton, South Africa, provides systems maintenance for corporate information networks in 49 countries. In August, NTT said it was acquiring a Swedish digital information security company, Secode, for about $23 million.
Those deals follow the purchase last year by NTT’s mobile phone unit NTT DoCoMo of a 26 percent stake in Tata Teleservices of India for $2.7 billion and almost 80 percent of Net Mobile of Germany for about $51 million.
Earlier this year, Softbank, the Japanese cellphone carrier and Internet services company, increased its investment in two start-ups based in Silicon Valley: the microblogging service Twitter and the live video-streaming company UStream.
Beyond mergers and acquisitions, the strong yen has helped other Japanese industries, too. Japan’s airlines have benefited, as the rising currency has effectively lowered the cost of fuel from foreign sources, along with landing charges at foreign airports and other expenses.
The yen’s buying power has also encouraged Japanese to travel overseas, further helping the nation’s airline industry. Almost four million people used Narita International Airport, Tokyo’s main hub, in the peak summer season this year, up 8.6 percent over summer 2009.
Japan’s biggest airline, All Nippon, said last week it would set up a low-cost carrier — a plan that would very likely be aided by cheaper costs overseas.
The lofty yen could also help Japan in the global race to secure resources and develop infrastructure. The trading house Mitsui, flush with cash, has said it plans to make $14.29 billion worth of foreign investments over the next two years.
In August, for example, Mitsui announced a $237 million water business venture with the Singaporean water solutions company Hyflux to enter China’s water treatment and infrastructure business.
In 2008, the strong yen helped fuel a record $68 billion in Japanese M.&A. deals, before the full fury of the global economic crisis forced corporate Japan to retrench. But now, having held back from investments, many companies have hoarded cash that many analysts say should be put to better use.
Total cash held by nonfinancial companies in the main section of the Tokyo Stock Exchange reached a record high of $580 billion earlier this year, increasing their “firepower for acquisitions,” according to a report issued by Goldman Sachs in late August.
“Increased M.&A. activity is likely to be positive for Japan as a whole since it can lead to higher growth potential and result in economies of scale to enable Japanese firms to compete more effectively in global markets,” Kathy Matsui, chief strategist for Japan at Goldman Sachs, wrote in the report.
At Rakuten, the strong yen is helping propel the company toward its goal of entering more than two dozen overseas markets in the next three to five years. Although the company has branched out into a small universe of online services — like a travel site, an auction site and Internet stock trading — the potential for further growth in Japan is limited, compared with the opportunities overseas, Mr. Mikitani says.
Rakuten is also flush with cash after earning a record operating profit of $336.5 million in the first half of this year, up 20.6 percent from the same period last year.
And yet, while dominant in Japan, the company is still dwarfed almost everywhere else by Amazon, whose sales are about five times Rakuten’s.
Mr. Mikitani knows it will take more than a high-flying currency to help him build a more global company. Earlier this year, he shocked corporate Japan by declaring that Rakuten’s working language would henceforth be English, even for conversations between Japanese employees.
“We’re going to see many American managers, many European managers, many Chinese managers here in this office,” Mr. Mikitani said in the interview.
“And we’re going to send Japanese managers abroad. This is going to be a global organization,” he said. “If you don’t want to learn English, you should just leave.”
