OPINION> Commentary
Japanese enterprises target emerging markets
By Liu Junhong (China Daily)
Updated: 2009-02-18 07:43

While American and European firms are scaling down their global investments amid the financial crisis, Japanese enterprises are going on the offensive in key areas of the global market with cross-border mergers and acquisitions.

Since the financial crisis broke out, not only have Japanese financial firms been engaging in spectacular bottom-fishing acquisitions, but enterprises are looking abroad to take cross-border mergers and acquisitions. The difference is that these enterprises will target the emerging markets with a population of 2.7 billion. The mergers and acquisitions will be concentrated in the sectors of food, pharmaceuticals, nuclear power, biological energy, solar power, transportation and communication, targeting the command points of future industrial competition.

Confronting the crisis, Japanese enterprises, rich with overseas experience, are realizing that the rise of emerging markets is creating a new "middle class" whose income level and consumption propensity is approaching that in the developed world, where consumption and product quality are higher. A bunch of famous Japanese enterprises, such as Itochu, Shinmei Co. Ltd, and Asahi Beer, are diving headlong into emerging markets, especially China, opening up multi-national operations and trying to secure a monopoly. For example, Itochu signed a mutual grain procurement agreement with China National Cereals, Oils and Foodstuffs Corp, and invested last autumn in Tinghsin Group, which boasts the largest share in the Chinese food market. Itochu aims to build a cross-border industrial chain in food production through international business links and the introduction of Japanese food into the Chinese market. Shinmei Co, a Japanese rice wholesaler that has traditionally specialized in the domestic market, started an overseas venture in Langfang development region, an industrial zone near Beijing. Shinmei Co acquired a 36 percent share in a Chinese rice processor, using the rice from Changchun to equal Japanese quality with the requisite rice-processing techniques and safety standards, in order to target the high-income stratum. Capitalizing on the Chinese milk powder scandal, Asahi Beer acted quickly in China to produce "Japanese standard" milk powder for high-income earners.

An 850-gram tin reportedly sells for 300 yuan.

China now has the largest cluster of Internet users in the world, with sound prospects for online businesses. At the end of last year, 100 Japanese retailers and relevant companies founded an e-business joint venture. In coordination with the Sumitomo Credit Card Corporation and the strategic cooperation with China Unionpay and China Post, it is selling Japanese products after setting up a cross-border e-business system between China and Japan. Amid harsh competition in the Internet business, the key to success of this cross-border venture has been to address two conundrums: Firstly, the challenge of online payment risks was overcome with cooperation between China Unionpay and Sumitomo Credit Card; and secondly, capitalizing on the traditional networks of China Post minimized delivery costs.

Amid the burning issues of global energy and environment, building multi-national energy-saving and environmentally friendly enterprises and corresponding technological systems is key for developed countries to remain leaders in future industrial technology. More important is COP15, the United Nations Climate Change Conference Copenhagen that will try to reach an agreement on a new global emission-cut deal.

Whoever makes the run-ning in energy-saving and environmentally friendly technology will assume the leading position of future industrial competition. Japanese enterprises are actively making use of their advantages in technology and capital, targeting electric power, metal and new energy in the emerging markets. They are also highly active in cross-border mergers and acquisitions, gripping the industrial frontline in emerging markets and leading the international division of labor.

For instance, Toshiba purchased Westinghouse, an American nuclear power appliances producer, with the demand for nuclear power in emerging markets in mind. Amid the energy crisis, it transferred 10 per cent share of Westinghouse to the state-owned uranium mine of Kazakhstan, in exchange for operation rights to the mine, so that it could set up a monopoly on nuclear fuel and nuclear power appliances.

In order to secure an international monopoly, the overseas mergers and acquisitions of Japanese firms usually run parallel with those among domestic companies. Toyota encouraged its largest battery supplier Panasonic to acquire Sanyo. Panasonic is a leader in solar power nickel batteries, while Sanyo possesses the largest solar power lithium battery system. The merger will likely lead to control of the next-generation solar power batteries and establish the foundation for Toyota to lead new auto technologies.

The activism of Japanese enterprises in overseas mergers and acquisitions amid the crisis derives from a recognition of new trends in the world economic development. In Japan, Paul Krugman, the latest Nobel laureate in economics, has gained the attention of firms. Krugman postulates that globalization, directed by multi-national enterprises, has fostered the development of free trade in which multi-national intra-industry trade has become the main channel of global commerce, in place of inter-industry trade.

Krugman provides the theoretical basis the integrated domestic and overseas mergers and acquisitions of Japanese enterprises. Before the crisis, domestic and overseas activism and reshuffles of Japanese enterprises were rarely large in scale, frequent, or strategic ally oriented. Their latest actions in emerging markets will definitely bring profound effects on the international industrial division of labor and the global industrial competition. Therefore, it will inevitably pose new challenges to the "Go Global" strategy of Chinese enterprises and Chinese capital.

The author is a researcher with the China Institutes of Contemporary International Relations.

(China Daily 02/18/2009 page9)