When Toyota founder's grandson inherited the throne, the company was in the red, for the first time in its history as a public company. But I was a bit cynical, believing that they were playing dead, and thought that they would come out miraculously quickly. My attitude came from the fact that I know through my friends at Toyota how carefully Akio was protected and nurtured. I thought they would NEVER put Akio in the CEO position in such an environment, unless they knew for sure that they would turn around quickly, so Akio would become a super hero.
Just about a year has passed since this announcement, and for sure the company's financial is expected to show a good recovery this fiscal year, but things do not seem too great in Toyota lately.
This morning, I heard a news on TV that Akio finally appeared in public, first time in 2 weeks since the recall problem started to go around. No video image was shown on TV - the press conference was held in Nagoya, Japan, and looks like the image was not widely available for the U.S. press.
It looks strange to me. I worked for Honda in the 80's, and even then, I learned that auto companies were VERY sensitive about such product quality issues, particularly for the U.S. market, where consumer rights are bigger than anywhere else and is the largest auto market in the world. So I have to assume that peole in the quality assurance and P.R. in Toyota must know how IMPORTANT it is, to take a quick damage control in such circumstances. And it is a common sense that the very top person should appear publicly as soon as the danger is found and show the public that he is taking care of it.
There is a conspiracy theory going around on the Japanese Net that the U.S. government (particularly LaHood) and the U.S. press are treating Toyota unfairly, compared to their U.S. counterparts on the similar situation. U.S. auto companies are getting a huge financial help from the U.S. government, the theory goes, and the government/press want to beat up Toyota to help sales of GM and Ford. OK, so what? Japanese auto makers have been dealing with such a situation since 1970's. That is the reality of this world, and they know how to deal with it. Right?
But a doubt has started to creep in to my belief in Toyota's invincibility lately. I wrote a small column on Nikkei Communication Feb.15 issue about IT and US auto makers. I wrote it in early January, right after Ford announced its MyFord Touch. In it, Ford CEO Alan Mulally calls himself "your fellow geek", and stressed that the new Ford IT system is based on Silicon Valley-style open architecture. I was really impressed by that quote, and added a few facts about Tesla, a Silicon Valley-based electric car venture, to write a new trend in the U.S. auto industry.
I was shocked to watch the 2006 documentary movie "Who Killed the Electric Car?", and at that point in the Bush era, I had an impression that the auto companies in the U.S. (including Japanese cars) were getting lots of influence from the oil industry, and the oid-industry-supported government. Now that the administration changed, maybe the whole power balance has shifted. Obama is close to Eric Shmidt, CEO of Google, and the current government may be positioning Silicon Valley as their "strength", rather than "traitors" which destroys the current industry order and the job market in elsewhere in the U.S. So that was my conclusion of my small column.
These days, when I watch Toyota's news, another concern creeps into my mind. I read a 2006 Japanese book on the demise of the Japanese electronic industry, written by Fumiaki Sato, and there, he was comparing the auto industry and electronic industry. Back then, GM was still bigger than toyota, and he says that it is important for Toyota to keep them alive and continue to be positioned as No. 2, rather than becoming the very top and destroying GM. Because then-inefficient GM was putting high prices, backed by their price leadership position, and Toyota could enjoy a fat margin based on that high market price. Sato says that in the electronic industry, such "wind shield" was lost by destroying the U.S. manufacturers altogether, and the unlimited cut-throat competition ultimately brought the success of Korea, Taiwan and China, rather than the high-cost Japan. So, it is quite symbolic that Toyota surpassed GM in terms of the numbers of cars sold and GM went into bankruptcy, when Toyota started to send out yellow signals.
Prof. Satoshi Matsubara at Toyo University was very active on Twitter today, about his negative views of Toyota as well as his support of electric cars. In fact, Toyota was not very enthusiastic about electric cars, and instead, they have built their leadership in hybrid cars. Prof. Matsubara speculates that it is because electric vehicle destroys the whole ecosystem of auto industry, from the parts manufacturers to the gas stations. It is a typical "disruptive technology" described in "Innovator's Dilemma". Toyota has been treated as the "eco" champion with Prius, but it actually may be just an effort to keep the status quo alive.
I have been following Tesla closely for the past 2 years or so. I am aware that there are too many problems with that company, but I have been feeling quite awkward that Japanese press has been totally ignoring it. It can become a part of this disruptive technology which may in the long run threaten the pillar of Japanese economy, Toyota and Japanese industry. I imagine many people would be more interested in what is going on in that front, but looks like nobody has cared, at least so far. I proposed a publisher that I write a book about Tesla early last year, and they were kinda half-hearted. It was good that I didn't, because nobody would have bought my book. Is it just me, or is it yet another example of "paradaisu sakoku (seclusion in paradise)" symptom?
I support the opinion of Prof. Matsubara, that they should consider electric cars more seriously and do away with all the negative myth about it. I also sympathize him on his concerns about Toyota's recent direction.
What is going on in Toyota now? Japan's economy depends on Toyota and auto industry so much. And I have too many friends at Toyota. I hope my concerns are just my imagination, and that they know what they are doing.
On October 17th, Japan's leading business newspaper Nihon Keizai Shinbun (so called "Nikkei") reported that the US, EU and Japan are going to suspend mark-to-market accounting. I read this news on Nikkei Net (online version newspaper) and was unpleasantly surprised . As far as I know, none of the countries has plan to "suspend" mark to market accounting so far.
Under this troubled market, accounting standard boards in the US, EU and Japan have announced interpretations regarding application of mark to market accounting on hard to value assets. The main purpose of the interpretations is to remind financial institutions that they don't need to use fire sale prices when evaluating their hard to price assets. It actually gave banks more leeway on mark to market. However, it did not mean to suspend mark to market accounting.
In fact, Accounting Standard Board of Japan (ASBJ) immediately announced that it was misinformation due to the misunderstanding of ASBJ's recent press release. Nikkei kept silent on it.
I was wondering why Nikkei made such a big mess. I could not believe that it was just a simple mistake... I've been carefully reading Japan and US news regarding subprime crisis and noticed that Japanese media is more aggressive in blaming mark to market accounting than US media.
Interestingly, subprime crisis did not affect much on Japanese financial industries as they did not bet too much on mortgage backed securities and other exotic financial instruments. However, some Japanese financial firms are facing trouble in maintaining capital adequacy ratios and Japanese media is insisting mark to market rule is making troubles. Why?
The real issue to Japanese firms is mark to market accounting on publicly traded stocks, not on hard to value assets. Unlikely the US or other countries, Japan has business practices mutual share holding between enterprises ("Kabushiki Mochiai"). It's been considered as a heritage of the past. During Japanese financial crisis era around 2000, many companies sold shares to mitigate the effect from troubled stock market. As a result, the ratio of mutual share holding dropped to 8.6% in 2003, compared to 32.9% in 1990.
However, the ratio of mutual share holding has been increased since 2004 as Japanese company started protecting from hostile take over. The idea was to hold shares among friendly companies and avoid unknown parties to take majority of shares. The ratio of mutual share holding was 12% in 2006, and appears to be higher in 2007/2008.
In response, recent sharp drop in stock market hit Japanese companies significantly. Of course, publicly traded stocks are to be valued at the price as of balance sheet date, and then, Japanese banks started warring about impairment of their assets.
US and EU rules ease mark to market accounting on hard to value assets but publicly traded stocks. And there is no good reason to stop valuing the assets which have certain market value. This is not saving anything...is resulting "cheating" investors.
Think hard about real problem...is real problem that mark-to-market accounting is dragging down financial institutions and world economy? Nope. Shouldn't get away from real problm that many banks made poor decisions and lost credibility with investors.
You've got a meltdown and should deal with it, without cheating investors anymore.
It is Action Day today! So I will write "not exactly it, but related to it" entry today.
I have been interested in what is going on in Korean economy recently. Everyone in the world is suffering from the financial crisis, but according to Japanese "2-Channel" bulletin board, the crisis in Korea is much deeper than the rest of the world. I usually don't read this type of info on the mainstream media (as Korea draws small attention from the US press, and Japanese press is "sensitive" about whatever related to Korea), so I would like to know if this is true... if anybody knows, please let me know.
Korean economy in general has not been doing great these days, and its currency has been quite volatile. (The 2-Channel theory says it is because Korean Won has been a target by vulture funds.) The external trade balance turned to deficit last year, although 70% of its economy is dependent to external trade. Because of its dependency, if Won becomes too high, export suffers, so the Korean central bank intervened many times to sustain the currency, spending lots of their dollar reserves.
Then came September 2008, the due date of money they borrowed from IMF during the crisis 10 years ago. They have to pay back in dollars, but the country did not have dollars, especially with cheaper Won - meaning they need more Won to pay back the same amount of dollars. It drew down all their foreign currency reserves but still not enough, so they had to even take out money from people's pension funds and sell off state-owned infrastructures. Even that was not enough, so they basically had to borrow again, this time with much higher interest rate. It is like paying back the mortgage with credit card loan. Very dangerous move.
2-Channel says that there will be another deadline coming in November - will they somehow survive, or IMF intervene again? This time around, US is fighting its own crisis and Japan is busy helping US, and I wonder how much of money can be used for Korea, which has been acting almost "irrationally" hostile against both countries....
So the details aside, the broader economic problem of this country seems to be the inequality in wealth distribution within the country. Now there are several major Korean brands known internationally, such as Hyundai, Samsung and LG, but these "zaibatsu" (conglomerate) controls too much of its economy, giving little room to develop healthy small/medium enterprise sector. Because of it, Samsungs and Hundais have to import much of the components from Japan, causing the trade deficit, despite of its very strong export drive. Those big Korean brands, although well-known, have not enjoyed "high quality" brand recognition that compares to Sony or Toyota, and that is because of lack of home-grown reliable component suppliers.
The country also looks to have failed to nurture the middle-class population (such as SME owners and employees) and thus the domestic market has not developed well. That causes the economy's heavy dependency to external trade, thus making it more sensitive to the foreign currency volatility and the economic weakness of U.S. and other major trade partners.
So I still need some help in making sure if all the above is true (especially because 2-channel is notoriously anti-Korea), and the actual seriousness of the country's economy, but in general, if the above is true (and sounds pretty legit to me), Korea's case is one of the extreme cases of the "poverty in the middle-class" problem, which is the base tone of the current economic crisis in the U.S., and in Japan in lesser extent.
From the point of view of wireless industry watcher, I have been concerned that once-mighty Korean handset brands have not really come up with good handsets lately. They were successful in coming in to the U.S. market with sleek clamshell phones with multimedia funcionality at the time of digital transition in the late 90's, taking the advanced designs and technologies from the home country (which they had quickly adopted from Japan by then). Now Samsung and LG only makes also-run handsets, such as cheapy looking iPhone copycat.
So what is really going on in Korea still remains to be a concern for me.
The demise of Lehman Brothers and Merrill Lynch reminded me of my home country Japan 10 years ago. Amid the post-real-estate-bubble mess, In 1997, Yamaichi Secirities, then one of the "Big Four" brokers in Japan, closed its doors. Long Term Credit Bank and Nippon Credit Bank wend under as well.
Today's Wall Street Journal article "The Japan Lesson: U.S. Must Own Up To Its Bank Crisis" talks about how Japan was slow in taking drastic measures, and that one of the reasons was the fear of causing social instability with massive and sudden unemployment. So-called life time employment system still is not quite gone away in Japan today, and was still very intact 10 years ago, so the career flexibility was not woven into its social system yet.
In the end, many employees from those failed brokers and banks found jobs in other financial institutions. Some still had to go out and seek the opportunity in the new world. It is not an official story, but I have my own theory that this "spill over" employment issue caused a chain reaction in the form of "mobile phone boom" and pushed Japan up to one of the most sophisticated mobile countries in the world.
I don't know who brokered it, but I started seeing many "ex-Yamaichi" or "ex-LTCB" executives in NTT DoCoMo, the largest mobile phone carrier in Japan. I don't know how many of them actually ended up in DoCoMo either, but I can tell it was not a single digit. DoCoMo had to give them something to do, but they didn't know anything about base stations or mobile billing systems, so many of them went to business development. And it was 1999, when DoCoMo launched its flagship mobile internet service called "i-Mode".
It is cumbersome (=high cost) to work with many small content providers (CPs), so US carriers limit the number of official CPs, but because DoCoMo had so many people that needed work, they could afford to have wide range of CPs. They basically threw people at it (instead of money). I should also mention that it was not only the failed financial institutions who provided extra work force to DoCoMo around that time; they accommodated thousands of people from NTT's landline phone units around the same time.
After the success of i-Mode, its pioneer Mr. Natsuno tried another push to transform DoCoMo into a financial institution, with its mobile wallet service "Osaifu Keitai", although he had to leave the company before it sees the project completion. I suspect maybe his idea was hatched by his ex-financial staff - or at least this is something they are familiar with and they probably had little resistance.
It was a new thing for a Japanese company to accommodate such a big chunk of white collar work force from totally other industry, and it is quite interesting that DoCoMo had such a drastic transformation around that time. The situation in the US is different, and there is no lesson to learn from them on this side, but I just thought it may be an interesting observation for the mobile industry insiders.