A Healthy Change

One cannot not blame Japan if it shows reluctance or excessive caution to reform. Crises resulting from some economic reforms to create a more open atmosphere are yet to completely go away from Japan. Still, this country shows signs of a development that is expected to take a skyrocketing turn. More and more investors are discovering online trading and affordable investments in Japan’s brokerage activities. Forecasting a tremendous jump in the Internet economy, more Japanese are trading their conservative jobs in favor of doing business independently over the Net.
Naysayers would say these trends aren’t enough to transform Japanese economy. After all, over the decades, plenty of pundits have waited for Japan to change itself. Yet this time there’s something different about the forces at work. Some of the advocates for reform come from within the government. But much change is now inspired by foreigners, executives, entrepreneurs, and ordinary Japanese rather than orchestrated by the ministries. If the ministries cannot dictate all the change, they cannot control it either.
There’s also a profound shift in mood in Japan. Clearly, many Japanese want something different. Even among some of Japan’s managers and executives, there is a recognition that something has to give now that every old strategy to break out of stagnation has been exhausted. Executives at the banks, long the most protected of all industries, fear the fail-safe guarantees are gone. “We aren’t restructuring because MOF is telling us to. We are doing it because we need to survive.”
This dislocation is giving more opportunities to outsiders. Sometimes the outsiders are foreigners. Sometimes they are Japanese who have decided to check out of the traditional ways of corporate work to strike out on their own. Foreign capital, especially, is exerting an influence. It’s also a healthy change, because it means executives are free to go where they are most productive. Major e-biz players are setting up online trading services in Japan now that stock commissions are fully deregulated. There’s a corresponding pickup in foreign acquisitions in Japan. Britain and France are holding major stakes with Japanese telecom sector, etc. Such incursions would have been unthinkable a decade ago. Yet now, ten years after the bursting of the bubble economy, the Japanese are reacting calmly: “There isn’t any sense of [economic] nationalism in this regard,” says Kaoru Yosano, Minister of International Trade & Industry. “That’s a huge change in Japanese society.”
All told, foreign investment is running at an annualized rate of $125 billion. The huge influx of overseas portfolio investment since last fall has put some 15% of the Tokyo Stock Exchange’s $3.7 trillion market capitalization in foreign hands. That compares with 5% a decade ago-and now surpasses the holdings even of Japanese banks. Japanese companies will need to compete in global capital markets, where credit ratings, corporate governance, and capital efficiency matter. So they’ll have to raise their return on equity fast. Such cases convince Western investment bankers that Japan is the next big restructuring play. Japan is like the biggest emerging market in the world.
They’re the entrepreneurs of the Internet, and their restless energies are already causing a stir in official Japan. Some think the Net could have an explosive impact on Japan’s society. This is a different kind of world, where individuals and small groups really count.
The Internet is energizing a new breed of entrepreneurs, creating exciting jobs, and giving a voice to the silent majority that has been ignored. Japan’s information and technology sectors have been outstripping the country’s non-tech industrial output by a factor of three since 1995. Demand for information service jobs has been growing 3% annually, while sinking just about every where else. Shipments of all sorts of PCs, including new and sub-$1,000 models with one click Internet access, soared a record 80% in the first quarter. New corporate stars are emerging from this ferment. These high-tech startups are drawing even more foreign capital into Japan.