Biotechnology in Japan: A Strategic Reference, 2006 0497823217, 9780497823214, 9781429499965

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Biotechnology in Japan: A Strategic Reference, 2006

Edited by

Philip M. Parker, Ph.D. Eli Lilly Chair Professor of Innovation, Business and Society INSEAD (Fontainebleau & Singapore)

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ii COPYRIGHT NOTICE ISBN 0-497-82321-7 All of ICON Group International, Inc. publications are copyrighted. Copying our publications in whole or in part, for whatever reason, is a violation of copyrights laws and can lead to penalties and fines. Should you want to copy tables, graphs, or other materials from our publications, please contact us to request permission. ICON Group International, Inc. often grants permission for very limited reproduction of our publications for internal use, press releases, and academic research. Such reproduction requires, however, confirmed permission from ICON Group International, Inc. Please read the full copyright notice, disclaimer, and user agreement provisions at the end of this report.

IMPORTANT DISCLAIMER

Neither ICON Group International, Inc. nor its employees can be held accountable for the use and subsequent actions of the user of the information provided in this publication. Great efforts have been made to ensure the accuracy of the data, but we cannot guarantee, given the volume of information, accuracy. Since the information given in this report is forward-looking, the reader should read the disclaimer statement and user agreement provisions at the end of this report.

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About Icon Group International, Inc. Icon Group International, Inc.’s primary mission is to assist managers with their international information needs. U.S.-owned and operated, Icon Group has field offices in Paris, Hong Kong, and Lomé, Togo (West Africa). Created in 1994, Icon Group has published hundreds of multi-client databases, and global/regional market data, industry and country publications. Global/Regional Management Studies: Summarizing over 190 countries, management studies are generally organized into regional volumes and cover key management functions. The human resource series covers minimum wages, child labor, unionization and collective bargaining. The international law series covers media control and censorship, search and seizure, and trial justice and punishment. The diversity management series covers a variety of environmental context drivers that effect global operations. These include women’s rights, children’s rights, discrimination/racism, and religious forces and risks. Global strategic planning studies cover economic risk assessments, political risk assessments, foreign direct investment strategy, intellectual property strategy, and export strategies. Financial management studies cover taxes and tariffs. Global marketing studies focus on target segments (e.g. seniors, children, women) and strategic marketing planning. Country Studies: Often managers need an in-depth, yet broad and up-to-date understanding of a country’s strategic market potential and situation before the first field trip or investment proposal. There are over 190 country studies available. Each study consists of analysis, statistics, forecasts, and information of relevance to managers. The studies are continually updated to insure that the reports have the most relevant information available. In addition to raw information, the reports provide relevant analyses which put a more general perspective on a country (seen in the context of relative performance vis-à-vis benchmarks). Industry Studies: Companies are racing to become more international, if not global in their strategies. For over 2000 product/industry categories, these reports give the reader a concise summary of latent market forecasts, pro-forma financials, import competition profiles, contacts, key references and trends across 200 countries of the world. Some reports focus on a particular product and region (up to four regions per product), while others focus on a product within a particular country.

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Table of Contents 1

INTRODUCTION & METHODOLOGY.............................................................................1

1.1

What Does This Report Cover?

1

1.2

How to Strategically Evaluate Japan

1

1.3

Latent Demand and Accessibility in Japan

3

2

BIOTECHNOLOGY IN JAPAN ...........................................................................................5

2.1

Latent Demand and Accessibility: Background

5

2.2

Latent Demand: Market Composition

5

2.3

Market Data

5

2.4 Latent Demand: Leading Segments 6 2.4.1 Pharmaceuticals.......................................................................................................................................... 6 2.4.2 Functional Foods ........................................................................................................................................ 6 2.4.3 Agriculture ................................................................................................................................................. 6 2.4.4 Equipment for Testing and Analysis .......................................................................................................... 7 2.5 Major Competitors 7 2.5.1 Pharmaceutical Companies ........................................................................................................................ 7 2.5.2 Functional Food Companies....................................................................................................................... 7 2.6 Accessibility: Market Entry 8 2.6.1 Import Market ............................................................................................................................................ 8 2.6.2 Restrictions on Imports .............................................................................................................................. 8 2.7

Accessibility: Trade Events

10

2.8

Key Contacts

10

3 FINANCIAL INDICATORS: PHARMACEUTICAL PREPARATIONS MANUFACTURING ...................................................................................................................11 3.1 Overview 11 3.1.1 Financial Returns and Gaps in Japan........................................................................................................ 12 3.1.2 Labor Productivity Gaps in Japan ............................................................................................................ 15 3.1.3 Limitations and Extensions ...................................................................................................................... 15 3.2 Financial Returns in Japan: Asset Structure Ratios 16 3.2.1 Overview .................................................................................................................................................. 16 3.2.2 Assets – Definitions of Terms .................................................................................................................. 16 3.2.3 Asset Structure: Outlook .......................................................................................................................... 19 3.2.4 Large Variances: Assets ........................................................................................................................... 20 3.2.5 Key Percentiles and Rankings .................................................................................................................. 23 3.3 Financial Returns in Japan: Liability Structure Ratios 38 3.3.1 Overview .................................................................................................................................................. 38 3.3.2 Liabilities and Equity – Definitions of Terms .......................................................................................... 38

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Contents 3.3.3 3.3.4 3.3.5

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Liability Structure: Outlook ..................................................................................................................... 40 Large Variances: Liabilities ..................................................................................................................... 41 Key Percentiles and Rankings .................................................................................................................. 44

3.4 Financial Returns in Japan: Income Structure Ratios 57 3.4.1 Overview .................................................................................................................................................. 57 3.4.2 Income Statements – Definitions of Terms .............................................................................................. 57 3.4.3 Income Structure: Outlook ....................................................................................................................... 59 3.4.4 Large Variances: Income.......................................................................................................................... 60 3.4.5 Key Percentiles and Rankings .................................................................................................................. 63 3.5 Financial Returns in Japan: Profitability Ratios 78 3.5.1 Overview .................................................................................................................................................. 78 3.5.2 Ratios – Definitions of Terms .................................................................................................................. 78 3.5.3 Ratio Structure: Outlook .......................................................................................................................... 80 3.5.4 Large Variances: Ratios ........................................................................................................................... 81 3.5.5 Key Percentiles and Rankings .................................................................................................................. 84 3.6 Productivity in Japan: Asset-Labor Ratios 99 3.6.1 Overview .................................................................................................................................................. 99 3.6.2 Asset to Labor: Outlook ......................................................................................................................... 100 3.6.3 Asset to Labor: International Gaps......................................................................................................... 101 3.6.4 Key Percentiles and Rankings ................................................................................................................ 104 3.7 Productivity in Japan: Liability-Labor Ratios 119 3.7.1 Overview ................................................................................................................................................ 119 3.7.2 Liability to Labor: Outlook .................................................................................................................... 120 3.7.3 Liability and Equity to Labor: International Gaps.................................................................................. 121 3.7.4 Key Percentiles and Rankings ................................................................................................................ 124 3.8 Productivity in Japan: Income-Labor Ratios 137 3.8.1 Overview ................................................................................................................................................ 137 3.8.2 Income to Labor: Outlook ...................................................................................................................... 138 3.8.3 Income to Labor: Gaps ........................................................................................................................... 139 3.8.4 Key Percentiles and Rankings ................................................................................................................ 142

4 4.1

MACRO-ACCESSIBILITY IN JAPAN............................................................................157 Executive Summary

157

4.2 Economic Trends and Outlook 158 4.2.1 Dynamic Markets ................................................................................................................................... 159 4.2.2 Agricultural Production.......................................................................................................................... 164 4.2.3 Government Intervention Risks.............................................................................................................. 164 4.2.4 Infrastructure Development.................................................................................................................... 165 4.3 Political Environment 166 4.3.1 Economic Relationship with the U.S...................................................................................................... 166 4.4 Marketing Products and Services 167 4.4.1 Distribution Channel Options................................................................................................................. 167 4.4.2 Pricing Issues.......................................................................................................................................... 168 4.4.3 Use of Agents/Distributors and Finding a Partner.................................................................................. 168 4.4.4 Franchising Activities............................................................................................................................. 169

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Contents 4.4.5 4.4.6 4.4.7 4.4.8 4.4.9 4.4.10 4.4.11 4.4.12

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Direct Marketing Options....................................................................................................................... 170 Joint Ventures and Licensing Options.................................................................................................... 170 Creating a Sales Office........................................................................................................................... 172 Selling Strategies.................................................................................................................................... 173 Advertising and Trade Promotion .......................................................................................................... 173 Public Sector Marketing......................................................................................................................... 175 Hiring Local Counsel ............................................................................................................................. 176 Due Diligence and Checking Bona Fides............................................................................................... 176

4.5 Trade Regulations, Customs, and Standards 177 4.5.1 Customs Regulations.............................................................................................................................. 177 4.5.2 Controls on Exports................................................................................................................................ 180 4.5.3 Local Standards ...................................................................................................................................... 180 4.5.4 Technical Regulations ............................................................................................................................ 181 4.5.5 Product Liability Law............................................................................................................................. 183 4.5.6 Free Trade Zone Options........................................................................................................................ 183 4.5.7 Adherence to Free Trade Agreements .................................................................................................... 183 4.5.8 Additional Trade Issues.......................................................................................................................... 183 4.6 Investment Climate 184 4.6.1 Liberalization of Investment Restrictions............................................................................................... 186 4.6.2 Limitations on Facility Development and Availability of Investment Real Estate ................................ 186 4.6.3 Corporate Tax Treatment ....................................................................................................................... 187 4.6.4 Investment Incentives............................................................................................................................. 187 4.6.5 Conversion and Transfer Policies........................................................................................................... 188 4.6.6 Expropriation and Compensation ........................................................................................................... 188 4.6.7 Dispute Settlement ................................................................................................................................. 188 4.6.8 Performance Requirements and Incentives ............................................................................................ 189 4.6.9 Right to Private Ownership and Establishment ...................................................................................... 189 4.6.10 Protection of Intellectual Property Rights .............................................................................................. 189 4.7 Transparency of the Regulatory System 190 4.7.1 Capital Markets and Portfolio Investment.............................................................................................. 191 4.7.2 Environment for Mergers and Acquisitions ........................................................................................... 191 4.7.3 Bankruptcy Laws.................................................................................................................................... 194 4.7.4 Credit Markets........................................................................................................................................ 194 4.7.5 Political Violence ................................................................................................................................... 194 4.7.6 Corruption .............................................................................................................................................. 194 4.7.7 Bilateral Investment Agreements ........................................................................................................... 195 4.7.8 OPIC and Other Investment Insurance Programs................................................................................... 196 4.7.9 Labor ...................................................................................................................................................... 196 4.7.10 Free Trade Zone Options........................................................................................................................ 196 4.7.11 Major Foreign Direct Investments by Foreign Companies .................................................................... 197 4.8 Trade and Project Financing 198 4.8.1 The Banking System .............................................................................................................................. 198 4.8.2 Foreign Exchange Control Risks............................................................................................................ 199 4.8.3 Financing Exports .................................................................................................................................. 200 4.8.4 Types of Available Export Financing and Insurance ............................................................................. 200 4.8.5 Availability of Project Financing ........................................................................................................... 201 4.8.6 Project Financing Options ...................................................................................................................... 202 4.8.7 Banks with Correspondent Banking Arrangements ............................................................................... 202 4.9

Travel Risks

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Travel Advisory and Visas ..................................................................................................................... 204 Work Week ............................................................................................................................................ 205 Infrastructure for Conducting Business.................................................................................................. 205 Entering Temporary Imports .................................................................................................................. 205 Country Data .......................................................................................................................................... 205

4.10 Key Contacts 206 4.10.1 U.S. Embassy Trade Personnel .............................................................................................................. 206 4.10.2 Contacts in Washington D.C. ................................................................................................................. 208 4.10.3 Japanese Trade Associations/Chambers of Commerce .......................................................................... 209 4.10.4 Agricultural Trade Associations............................................................................................................. 211 4.10.5 Japanese Government Agencies ............................................................................................................. 212 4.10.6 Market Research Firms .......................................................................................................................... 213 4.10.7 U.S. Federal Government....................................................................................................................... 214

5

DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS .........215

5.1

Disclaimers & Safe Harbor

215

5.2

Icon Group International, Inc. User Agreement Provisions

216

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1 1.1

INTRODUCTION & METHODOLOGY WHAT DOES THIS REPORT COVER?

The primary audience for this report is managers involved with the highest levels of the strategic planning process and consultants who help their clients with this task. The user will not only benefit from the hundreds of hours that went into the methodology and its application, but also from its alternative perspective on strategic planning relating to biotechnology in Japan. As the editor of this report, I am drawing on a methodology developed at INSEAD, an international business school (www.insead.edu). For any given industry or sector, including biotechnology, the methodology decomposes a country’s strategic potential along four key dimensions: (1) latent demand, (2) micro-accessibility, (3) proxy operating pro-forma financials, and (4) macro-accessibility. A country may have very high latent demand, yet have low accessibility, making it a less attractive market than many smaller potential countries having higher levels of accessibility. With this perspective, this report provides both a micro and a macro strategic profile of biotechnology in Japan. It does so by compiling published information that directly relates to latent demand and accessibility, either at the micro or macro level. The reader new to Japan can quickly understand where Japan fits into a firm’s strategic perspective. In Chapter 2, the report investigates latent demand and micro-accessibility for biotechnology in Japan. In Chapters 3 and 4, the report covers proxy operating pro-forma financials and macro-accessibility in Japan. Macro-accessibility is a general evaluation of investment and business conditions in Japan.

1.2

HOW TO STRATEGICALLY EVALUATE JAPAN

Perhaps the most efficient way of evaluating Japan is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to biotechnology are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).

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Introduction & Methodology

2

Framework for Prioritizing Countries Demand/Market Potential Driven Firm

High

Highest Priority

High Priority Latent Demand

Moderate Priority Low Priority

Low

Lowest Priority Low

High Relative Accessibility

Accessibility/Supply Averse Firm High Highest Priority High Priority Latent Demand

Moderate Priority Low Priority

Lowest Priority Low High

Low Relative Accessibility

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Introduction & Methodology

3

In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market – neither a market-driven nor a costdriven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).

1.3

LATENT DEMAND AND ACCESSIBILITY IN JAPAN

This report provides a detailed overview of factors driving latent demand and accessibility for biotechnology in Japan. Latent demand is largely driven by economic fundamentals specific to biotechnology. This topic is discussed in Chapter 2 using work carried out in Japan on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for biotechnology in Japan. I use the term “micro” since the discussion is focused specifically on biotechnology. Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Japan. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Japan. The numbers are only indicative of an average firm whose primary activity is in Japan. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Japan. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “pharmaceutical preparations manufacturing”, as defined in Chapter 3. Again, while “pharmaceutical preparations manufacturing” does not exactly equate to “biotechnology”, it nevertheless gives an indicator of how Japan compares to other countries for a proxy adjacent category along various dimensions. Chapter 4 deals with macro-accessibility and covers factors that go beyond biotechnology. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macroaccessibility in Japan: •

Openness to Trade in Japan

•

Openness to Direct Investment in Japan

•

Local Marketing and Entry Strategy Alternatives

•

Local Human Resources

•

Local Risks

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Introduction & Methodology

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Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Japan. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Japan. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.

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2 2.1

BIOTECHNOLOGY IN JAPAN LATENT DEMAND AND ACCESSIBILITY: BACKGROUND

Recently, the Japanese biotechnology industry has been making remarkable strides. The Japanese government has been providing considerable support to foster this industry. The industry’s rapid development is a visible result of the close cooperation among the Japanese public and private sectors and academia. The market size of the Japanese biotechnology industry in the 2005 was $16.8 billion, a 3.3% growth rate over the previous year. While the Japanese food, agricultural and IT sectors continue to expand their biotech related activities, the pharmaceutical sector is especially active. Japan is the second largest pharmaceutical market in the world. It is expected that the relationship between Japanese pharmaceutical companies and both Japanese and overseas biotechnology venture companies will become closer by means of strategic alliances and collaborative research and development.

2.2

LATENT DEMAND: MARKET COMPOSITION

Although Japan still lags behind the United States in the development of its biotechnology sector, it is making considerable efforts to grow this sector into a major industry. In March 2006, the Japanese government designated Life Sciences as one of four fields in science and technology that will receive prioritized allocation of national resources until 2010. The other three fields are: Information and Communications; Environmental Sciences; and Nanotechnology and Materials. This Japanese push for biotechnology is also seen in the growing number of Japanese biotech venture companies. According to a recent survey by the Japan Bioindustry Association (JBA), the number of ventures companies increased from 387 in 2003 to 531 in 2005. As of 2005, 13 biotechnology companies had gone public in Japan. Increased cooperation between the Japanese public and private sectors and academic institutions has led to the development of a vibrant industry—one capable of increasingly successful outcomes from its research efforts. Large Japanese pharmaceutical companies are already developing drugs using biotechnology. Food and beverage companies, chemical companies, agriculture-related firms, IT firms, and small and medium-sized biotechnology ventures are all following suit. These firms are expanding their bio-related activities and increasingly looking to form strategic partnerships, research collaborations, and licensing arrangements with U.S. and European biotech companies. Japanese pharmaceutical companies, in order to save on their R&D costs, are eagerly seeking lead compounds identified or developed by overseas biotech companies which they can further develop into new drugs. The diseases most targeted by pharmaceutical and biotechnology companies in Japan are “cancer” and “lifestyle-related illness” such as diabetes, arteriosclerosis, high blood pressure, and hyperlipemia, and the Japanese pharmaceutical companies are specially seeking seeds in these areas.

2.3

MARKET DATA

The biotechnology market in Japan consists of medical/pharmaceutical products, specialty chemicals, food and agriculture, research equipment, IT technologies and other related products. According to the Nikkei Bio Nenkan 2007, the market size of the Japanese biotechnology industry for 2005 was $16.8 billion, a 3.3% growth rate over the previous year. The same Nikkei study determined that one of the primary driving sources of this growth was the sales of antibody therapeutics.

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Biotechnology

2.4

6

LATENT DEMAND: LEADING SEGMENTS

The Japanese pharmaceutical, food, agricultural and IT sectors continue to expand their biotech related activities. Key market segments include pharmaceuticals and medical diagnostics, functional food, agriculture and equipment for biotech research (DNA chips; reagents, etc).

2.4.1

Pharmaceuticals

Among pharmaceuticals, the antibody therapeutics sector has high growth potential. Until recently, Japanese pharmaceutical companies did not focus on antibody therapeutics as their priority field and, as a result, fell considerably behind other multinational pharmaceutical companies. Given the recent market trend and market potential, however, large Japanese pharmaceutical companies are increasingly seeking opportunities to form strategic partnerships, research collaborations, and licensing arrangements with U.S. biotech companies and research institutes for their antibody therapeutics research. RNAi therapeutics and molecular-targeted therapeutics also have potential in Japan. Although there are no RNAi therapeutics on the market yet, a number of Japanese pharmaceutical companies, biotech companies and research institutes are involved in research and development of RNAi-related drugs.

2.4.2

Functional Foods

The current size of the Japanese market for health foods is approximately $11.7 billion. It is a growing market due to Japan’s rapidly aging population, the reform of national healthcare system, and a rise in health consciousness among Japanese consumers. The Japanese population over the age of 65 is rapidly accelerating, projected to reach 29.4 million by 2010, and 37.2 million by 2035. The population in this age group in 2000 was 22.1 million. Thus, by 2035, one out of three people in Japan will be over the age of 65. (Note: the current Japanese population is 127.7 million.) Currently, the Japanese government is striving to contain healthcare costs as much as possible due to the burden placed on the national healthcare system by the aging population. Therefore, there is now a strong nationwide emphasis on the importance of preventing chronic, life-style diseases such as diabetes and cardiovascular disease. Health foods including functional foods can play an important role in this goal and are gaining popularity among Japanese consumers. Japanese pharmaceutical companies and food manufacturers are seeking new ingredients and raw materials that have scientifically proven nutritional benefits for use in functional foods.

2.4.3

Agriculture

There is still skepticism among Japanese consumers about foods produced by recombinant DNA techniques, however, industry experts predict gradual growth as consumers get used to such products and see evidence of its safety. In 2004, Suntory Ltd., a large Japanese beer, spirit, beverage and food company developed a “blue rose” using genetic engineering in corporation with an Australian biotech company. Although Japanese consumers have some antipathy against genetically manufactured (GM) foods, they seem to accept GM flowers!

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Biotechnology

2.4.4

7

Equipment for Testing and Analysis

The market for research equipment, such as DNA chips and reagents, is still expanding in Japan, particularly as the Japanese research environment matures. U.S. companies are maintaining their superior position in these areas.

2.5

2.5.1

MAJOR COMPETITORS Pharmaceutical Companies

Takeda Pharmaceutical Co., Ltd. Takeda, founded in 1781, is the largest pharmaceutical company in Japan. Takeda’s core therapeutic areas of diseases are lifestyle-related diseases, oncology and urologic diseases, central nervous system diseases, and gastroenterologic diseases.

Daiichi Sankyo Co., Ltd. Daiichi Pharmaceutical Co., Ltd. and Sankyo Co., Ltd. merged in 2005, and became Daiichi Sankyo Co., Ltd., which became the number two pharmaceutical company in Japan. Daiichi Sankyo’s core therapeutic areas are cardiovascular diseases and glucose metabolism-related diseases.

Astellas Pharma Inc. Astellas Pharma was established in 2005 by a merger of Yamanouchi Pharmaceutical Co., Ltd. and Fujisawa Pharmaceutical Co., Ltd. Astellas is targeting urology, immunology and inflammation, diabetes, central nervous system and pain, and infectious diseases including viruses and cancer.

Eizai Co., Ltd. Eizai was founded in 1941. Eizai’s core therpeutic areas are neurology and gastroenteology. Global sales of Aricept for Alzheimer’s disease and Pariet, a proton pump inhibitor for the healing of erosive gastro esophageal reflux disease and duodenal ulcers achieved double-digit growth this past year.

Chugai Pharmaceutical Co., Ltd. Chugai was founded in 1925. Chugai merged with Nippon Roche K.K., which was the Japanese subsidiary of F. Hoffmann-La Roche. Currently Roche Pharmholding BV is its parent company. Chugai puts a strong emphasis on R&D and sales of antibody drugs.

2.5.2

Functional Food Companies

Ajimonoto Co., Inc. Ajinomoto is a global company that manufacturers food, amino acid-based fine chemicals and pharmaceuticals. Ajinomoto was established in 1909, and operates its business in 23 countries. Ajinomoto commercialized an amino acid supplement, Amino Vital, which helps to maintain muscle condition as well as maintaining glutamine and arginine that are essential for the small intestine and blood vessels.

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Biotechnology

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Kikkoman Corporation Kikkoman’s primary business is manufacturing soy sauce. Their soy sauce has achieved global sales. The company was founded in 1917, and currently it has 6,422 employees all over the world. Kikkoman has expanded its business into other foods, wine and pharmaceuticals. Kikkoman expanded its biotechnology-related businesses using its enzymology technologies developed through its long history of the producing of soy sauce.

Kirin Brewery Co., Ltd. Kirin is a large beer company established in 1905. In addition, Kirin is a manufacturer of soft drinks, pharmaceuticals and functional foods. Kirin also expanded into the agribio business and has been allocating research resources into its flower and potato businesses.

Meiji Seika Kaisha, Ltd. Meiji Seika is one of the largest confectionery companies in Japan. It also has large health food and pharmaceutical divisions. Meiji Seika’s pharmaceutical business started its operations in 1946 with the production of penicillin. Meiji Seika’s current core therapeutic areas are neurology and infectious disease sectors. Meiji Seika is expanding its health food and sports supplement businesses.

Suntory Limited Suntory is a very large food, alcoholic and non-alcoholic beverage company. It has 172 group companies with 19,462 employees. Suntory is expanding its business into the functional food and beverage sectors, and producing various nutritional supplements with newly developed ingredients. It is also expanding its agribio business sector. Suntory recently attracted significant industry and media attention by the development of its “blue rose” using genetic engineering.

2.6 2.6.1

ACCESSIBILITY: MARKET ENTRY Import Market

Pharmaceutical companies are eagerly looking for new lead compounds and early stage drugs developed by U.S. biotech companies. The pharmaceutical companies collect such information from their U.S. offices, consultants in Japan and the United States or by attending biotech trade and partnering events, such as the BIO International Convention in the United States or BioJapan, Bio Expo, and the BIO-Asia partnering conference in Japan. Japanese functional food manufacturers import health ingredients through trading companies or import directly from the United States. Those companies actively attend health ingredient trade shows, or collect information through Japanese trading companies. Since an importer needs to obtain an approval from the Japanese Ministry of Health, Labor and Welfare (MHLW) for new ingredients, U.S. suppliers need to find a Japanese partner who has experience in these application procedures.

2.6.2

Restrictions on Imports

Biotech-related companies must be mindful of various regulations as they consider exporting their products to Japan.

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Biotechnology

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Pharmaceuticals and Medical Devices Drugs and devices are governed by MHLW. There was a significant change in the Japanese Pharmaceutical Affairs Law (PAL) in April 2005. Under the new PAL, a company in Japan that intends to market imported drugs and medical devices needs to receive a “license for manufacturing/marketing business” (seizo hanbaigyo kyoka). The principal concept of this revision is to shift the foundation of the regulatory system from the point of manufacturing to the point of sale in order to put more importance on post marketing safety measures. Each imported product needs an “approval” (shonin) from MHLW, except devices that are classified as general medical devices, which need a registration only. The actual examination for this approval are conducted by the Pharmaceutical and Medical Devices Agency (PMDA). For more information on the revised Pharmaceutical Affairs Law in English, please visit the following Web sites: •

www5.cao.go.jp/otodb/english/houseido/hou/lh_02070.html

•

www.yakuji.co.jp/e/publications/PAL200507.pdf

•

www.pmda.go.jp/index-e.html

Functional Foods Importation of health foods is fairly difficult in Japan. First, exporters and importers must make sure that the product does not contain any ingredients that are categorized as drugs. Secondly, exporters and importers must make sure that the product does not contain any food additives that are not allowed in Japan. If the products contain any unauthorized ingredients, the manufacturer will be required to reformulate the product to meet Japanese requirements. Those procedures are fairly complicated and, unfortunately, there are no comprehensive lists or manuals that explains these systems in English. The best way is to find a business partner in Japan, and have that partner visit the local quarantine station, administered by MHLW for a prior consultation on the products in question. As long as the product is imported into Japan as a food, importers do not need to register the product. However, importers must submit an “Import Notification” to the MHLW quarantine station at the time of import, and then the importer must receive a “Certificate of Notification”. Without this certificate, the product cannot go through customs and cannot be marketed in Japan. To this “Import Notification”, the importer must attach an ingredients list and provide a flowchart of the manufacturing process. Please see MHLW’s Web site on food imports: www.mhlw.go.jp/english/topics/importedfoods/1-1.html. New health ingredients must obtain an approval from MHLW for import and an importer will be required by MHLW to submit an extensive amount of scientific and safety data.

Agriculture Any foods produced by recombinant DNA techniques must receive a safety assessment by MHLW and only approved foods can be imported, manufactured or sold in Japan. As of August 2006, products for which safety assessments were completed and allowed to merchandize were as follows: potato, soybean, sugar beet, corn, rapeseed, cotton and alfalfa as well as 13 food additives. Please see the following Web site for the updated list. www.mhlw.go.jp/english/topics/food/pdf/sec01-2.pdf. Products that include GM food ingredients must indicate that on the product label.

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Biotechnology

2.7

10

ACCESSIBILITY: TRADE EVENTS

Event: International Bio Expo Japan Dates: June 20-22, 2007 Location: Tokyo Big Sight Organizer: Reed Exhibitions Web site: www.bio-expo.jp Event: BioJapan 2007 World Business Forum Dates: September 19-21, 2007 Location: Pacifico Yokohama Organizer: BioJapan Organizing Committee/Nikkei Business Publications, Inc. Web site: expo.nikkeibp.co.jp/biojapan/

2.8

KEY CONTACTS

•

Ministry of Health, Labor and Welfare (MHLW): www.mhlw.go.jp/english/index.html

•

Ministry of Agriculture, Forestry and Fisheries (MAFF): www.maff.go.jp/eindex.html

•

Pharmaceutical and Medical Devices Agency (PMDA): www.pmda.go.jp/index-e.html

•

Japan Bioindustry Association (JBA): www.jba.or.jp

•

Kinki Bio-industry Development Organization: www.kinkibio.com

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11

3 3.1

FINANCIAL INDICATORS: PHARMACEUTICAL PREPARATIONS MANUFACTURING OVERVIEW

Is Japan competitive? With the globalization of markets, the increased mobility of corporate assets, and the need for productive human resources, this question has become all the more complex to answer. The financial indicators section was prepared to tackle this question by focusing on certain fundamentals: financial performance and labor productivity. Rather than focus on the economy as a whole, the analysis presented here considers only one sector: pharmaceutical preparations manufacturing. We are essentially interested in the degree to which firms operating in Japan have fundamentally different financial structures and performance compared to firms located elsewhere. With respect to this view of competitiveness, if one were to invest or operate in Japan, how would the firm’s asset structure likely vary compared to a firm operating in some other country in Asia or average location in the world? In Japan, do firms typically hold more cash and other short term assets, or do they concentrate their assets in physical plant and equipment? On the liability side, do firms operating in Japan have a higher percent of payables compared to other firms operating in Asia, or do they hold a higher concentration of long term debt? The structure of the income statement is also telling. Do firms operating in Japan have relatively higher costs of goods sold, operating costs, or income taxes compared to firms located elsewhere in the region or the world in general? Are returns on equity higher in Japan? Are profit margins greater? Are inventories held longer? The financial indicators section was designed to answer these and similar questions that naturally affect one’s decision to invest or operate in Japan. Again, we are particularly interested in pharmaceutical preparations manufacturing, and not the economy as a whole. In many instances, people make all the difference. In addition to financial competitiveness, we consider the extent to which labor deployment and productivity in Japan differs from regional and global benchmarks. In this case, we are interested in the amount of labor required to operate a typical business in Japan and the likely returns on this human investment. What is the typical ratio of short-term and long-term assets to employee (employed in pharmaceutical preparations manufacturing operations)? What are typical capital-labor ratios? How different are these ratios to those in Asia in general and the world as a whole? What are the average sales and net profits per employee in Japan compared to regional benchmarks? The goal of this section is to assist managers in gauging the competitive performance of Japan at the global level for pharmaceutical preparations manufacturing. With the globalization of markets, greater foreign competition, and the reduction of entry barriers, it becomes all the more important to benchmark Japan against other countries on a worldwide basis. Doing so, however, is not an obvious task. This report generates international benchmarks and measures gaps that might be revealed from such an exercise. First, data is collected from companies across all regions of the world. For each of these firms, data are standardized into comparable categories (assets, liabilities, income and ratios), by country, region and on a worldwide basis. From there, we eliminate all currency effects by standardizing within each category. Global benchmarks are then compared to those estimated for pharmaceutical preparations manufacturing in Japan. Though we heavily rely on historical performance, the figures reported are not historical but are forecasts and projections for the coming fiscal year.

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Financial Indicators

3.1.1

12

Financial Returns and Gaps in Japan

The approach used in this report to evaluate operating performance for pharmaceutical preparations manufacturing in Japan is called "vertical analysis." For those unfamiliar with this type of analysis, frequently taught in graduate schools of business, the reader is recommended Jae K. Shim and Joel G. Siegel’s recent book titled Financial Management.1 In their discussion of financial statement analysis and ratios, Skim and Siegel (p. 42-43), describe common-size statement (vertical analysis) as follows: A common-size statement is one that shows each item in percentage terms. Preparation of common-size statements is known as vertical analysis, in which a material financial statement item is used as a base value and all other accounts on the financial statement are compared to it. In the balance sheet, for example, total assets equal 100 percent, and each individual asset is stated as a percentage of total assets. Similarly, total liabilities and stockholders’ equity are assigned a value of 100 percent and each liability or equity account is then stated as a percentage of total liabilities and stockholders’ equity, respectively. … For the income statement, a value of 100 percent is assigned to net sales, and all other revenues and expense accounts are related to it. It is possible to see at a glance how each dollar of sales is distributed among various costs, expenses, and profits. The authors suggest that vertical analyses involve industry-based comparisons. Such a comparison “allows you to answer the question, ‘How does a business fare in the industry?’ You must compare the company’s ratios to… industry norms.” (p. 43-44) This approach is extended to country competitiveness (in this case Japan) for a particular sector (in this case pharmaceutical preparations manufacturing). This involves calculating country, regional and global norms. This introduction will describe the seven-stage methodology used to perform this analysis. Each stage should be seen as a working assumption behind the numbers presented in later chapters. Stage 1. Industry Classification. This stage begins by classifying the company into an industry. For this, we have relied on a combination of the North American Industry Classification System (NAICS pronounced “Nakes”), a relatively new system for classifying business establishments, and the older Standard Industrial Classification (SIC) system. Adopted in 1997, NAICS codes are the new industry classification codes used by statistical agencies of the United States. NAICS was developed jointly by the U.S., Canada, and Mexico to provide comparability in statistics about business activity across North America. After 60 years of service, the outdated SIC system was retired on October 1, 2000, leaving only the NAICS codes for official use. The NAICS classification system adds some 350 new industries and represents a revision to over 60% of the previous SIC industries. Despite its official retirement, the SIC system is still commonly used (and often reported in firm’s financial statements). For most companies in the world, classification within either the new NAICS or older SIC systems is a rather straight forward exercise. For some, however, it can be problematic. This is true for several reasons. The first being that the SIC or NAICS classification systems are rather broad for many product and industry categories (a firm’s products or services may be only a minor aspect of the classification’s definition). The second is that some firms’ activities span multiple codes. Finally, it is possible that a firm is classified by one source using its SIC code, and by another using its NAICS code, and by a third using both. Furthermore, some sources do not report either code, but instead use qualitative statements of the firm’s activities. Nevertheless, if one wishes to pursue a vertical analysis, some classification needs to take place which selects a peer group. In making this classification, one can rely on a number of sources. In some countries, firms must “self” classify in official periodic reports (e.g. annular reports, 10Ks, etc.) to public authorities (such as the Securities and Exchange Commission). These reports are then open for public scrutiny (e.g. EDGAR filings). In other cases, commercial data vendors or private research firms provide SIC/NAICS codes for specific companies. These include: •

Bloomberg - www.bloomberg.com

•

Datastream (Thomson Financial) - www.datastream.com

1

Skim and Siegel (2000), Financial Management published by Barron’s Educational Series, Inc. (BARON’S BUSINESS LIBRARY Series), ISBN: 0-7641-1402-6. www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators •

13

Dun & Bradstreet - www.dnb.com

•

Hoovers - www.hoovers.com

•

HarrisInfoSource - www.HarrisInfo.com

•

InfoUSA - www.infousa.com

•

Investext (Thomson Financial) - www.investext.com

•

Kompass International Neuenschwander SA. - www.kompass.com

•

Moody's Investors Service - www.moodys.com

•

Primark (Thomson Financial) - www.primark.com

•

Profound (The Dialog Corporation – A Thomson Company) - www.profound.com

•

Reuters - www.reuters.com

•

Standard & Poor's - www.standardandpoors.com

It is interesting to note that commercial vendors often report different qualitative descriptions and industrial classifications from one to another. These descriptions and classifications may also be different from those reported by the firm itself. Anyone hoping to perform a benchmarking study, therefore, has to make a judgment call across these various sources in order to determine a reasonable classification. In this report, we have decided a metaanalytic process, by combining various sources (including linking a classification’s keywords to qualitative descriptions of the firm’s product line). In cases of inconsistency, the most recent or globally comparable available is chosen. Again, the overall goal is to classify firms, which either produce similar products, offer similar services, or are in the same stage of the value chain for a particular industrial classification. In the case of this report, the SIC code selected is: 2834 which is defined as “pharmaceutical preparations manufacturing”. This classification should be seen as a working assumption. In order to obtain a more detailed discussion of this classification, the reader is referred to the Web sites developed by the U.S. Census Bureau: http://www.census.gov/epcd/www/naics.html. Basic definitions and descriptions are provided at: http://www.census.gov/epcd/www/drnaics.htm#q1. A full correspondence table between SIC and NAICS codes, and detailed definitions are given at http://www.census.gov/epcd/www/naicstab.htm. Stage 2. Firm-Level Data Collection. A global search was conducted across over 20,000 companies in over 40 major economies, including Japan, for those that report financials (balance sheet and income statements) and that are involved in pharmaceutical preparations manufacturing. It should be noted that the public-domain financials can be either historic or projections. It should also be noted that even historic figures can be modified in the future and often represent “estimates” of performance. Stage 3. Standardization. Once collected, public domain financial figures of firms identified in Stage 2 are standardize into comparable categories (assets, liabilities, and income). Again, these are limited to firms involved in some aspect of pharmaceutical preparations manufacturing (i.e. are members of the value chain). From there, we eliminate all currency effects by standardizing within each category (creating ratios). In order to maintain comparability over time and across countries, vertical analysis is used. In the case of a firm’s assets, we treat the total assets as equaling 100, irrespective of the value of the local currency. All other assets are then calculated as a percent of total assets. In this way, the structure of the firm’s assets can be easily interpreted and compared with international benchmarks. For liabilities, total liabilities and equity are indexed to equal to 100. For the income statement, total revenue is indexed to equal 100, and all other figures are calculated as a percent of these figures. Stage 4. Filtering. Not all the firms selected in Stage 2 or the ratios calculated in Stage 3 are used for the country, regional or global benchmarks, as a number of companies are purposely dropped from the analysis. This is justified by the “outlier” phenomenon that plagues such analysis. The problem lies in that any given company in the benchmarking pool may be facing some exceptional event or may be organized in an exceptional way so as to make its ratios vastly different from the norm. By including such firms, the global benchmarks can be overly skewed. In many countries, firms are organized into holding groups. These groups nominally have very few employees (e.g. 4

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Financial Indicators

14

to 25 employees), but have extremely large assets, liabilities, or revenues. As such, the inclusion or exclusion of firms having this form of management can affect the ratios and benchmarks reported. Likewise, some firms have no net sales, no assets, no liabilities, or ratios. Others have ratios that appear implausible for a normal or viable company. In order to not allow these firms to affect the global benchmarks, only those firms with reasonable financials have been chosen. Finally, in some countries, detailed financials are not available or are not comparable to either the company in question or the global norm (e.g. various forms of depreciation). In this case, only those which exist and are comparable are reported. The details, therefore, that comprise a given ratio or set of ratios may not be reported. This may lead to the addition of several ratios, not summing to the whole. Stage 5. Calculation of Global Norms. Once the filtering process has eliminated outliers, a final list of companies included is compiled. Based on this list, the ratios discussed in Stage 3 are calculated for every firm, and then averaged to create country, regional and global benchmarks. The world average is calculated using each country’s population as a weight. Stage 6. Projection of Deviations. The goal of this report is not only to estimate raw ratios or averages, but also to present the difference between Japan and projected global averages for that same ratio. Furthermore, it can be insightful to know the location of each ratio within the distribution of the countries represented in Stage 5. These deviations, in fact, can be seen as projections or likely scenarios for the future. This is often true for two reasons. First, while a company’s financials change from year to year, its ratios are often stable. This is especially true for the country, regional and global benchmarks which represent averages across companies. From a purely Bayesian sense, the difference between the company’s recent ratios and the benchmarks are a reasonable prior for future deviations. This is true, even if the entire industry is hit by an external or exogenous shock, such as an oil crisis or economic slowdown. In other words, we assume that the structure of the variance in the industry’s financials remains stable. Second, many of the data are based on preliminary reports that might be changed in future filings. As forecasts, therefore, the numbers derived from these are also forecasts of past and future performance (with associated uncertainties). The calculation of the difference between a country’s ratios and the global benchmarks is meant to yield roughly approximate forecasts, or "useful measures". Within Asia, the reliability of estimates varies from one country to another for those ratios given in tables that report national averages. This is true because reliable source statistics are not available for all countries in Asia. Countries with the highest reliability, or sample sizes after filtering in Stage 4, include China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, and South Korea. Others are generally econometrically extrapolated using models that use country characteristics (e.g. income per capita) as independent variables (i.e. countries having similar economic structures are assumed to have similar operating ratios). Again, the forecasts are based on the assumption of relative stability. This assumption has proven extremely robust in previous applications of this methodology (i.e. today’s weather is a good predictor of tomorrow’s weather, but not the weather three years from now). The results reported should be viewed as those for a “prototypical” firm operating in Japan whose primary activity is pharmaceutical preparations manufacturing. Stage 7. Projection of Ranks and Percentiles. Based on the calculation of deviations, relative ranks and percentiles are calculated across the firms used in the benchmarks. The percentile estimates the percent of a representative sample of countries in the world having values of the ratio lower than Japan. It is important to note that a percentile being high (or low) does not mean good (or bad) past, present or future financial performance. The reader must draw this conclusion on their own. The estimates provided were created to provide managerial insight, and not a recommendation with respect to particular investments within any country. We graphically report, for each part of the financial statement, the larger structural differences between Japan and the regional and global benchmarks, and provide a summary table of ranks and percentiles. These are estimates for firm which would be involved in pharmaceutical preparations manufacturing. A deviation from the global norm need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or perhaps signal a country's relative strength or weakness for the coming fiscal year.

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Financial Indicators

3.1.2

15

Labor Productivity Gaps in Japan

In the case of labor productivity measures, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. The seven stage approach given above is used in a similar manner. We then report, for each part of the financial statement, the larger labor productivity gaps that Japan has vis-à-vis the worldwide average (for pharmaceutical preparations manufacturing). Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

3.1.3

Limitations and Extensions

Shim and Siegal (p. 60) stress that “while ratio analysis is an effective tool for assessing a company’s financial condition,” operating Japan or any other country, “its limitations must be recognized.” They find that (p. 59) “no single ratio or group of ratios is adequate for assessing all aspects of a company’s financial condition” operating in a particular country. The authors note the following limitations associated with ratio analyses which apply to the global benchmarking and vertical analysis presented here (p.60): •

Accounting standards or policies may limit useful comparisons across companies

•

Management accounting practices across companies and countries may not be performed in the same style

•

Ratios are static and do not reveal future trends

•

Ratios do not indicate the quality of the components used to calculate the ratios (i.e. ratios have ambiguous interpretations)

•

Reported ratios may not reflect real values

•

Companies may be highly diversified, limiting the comparability of their ratios to others

•

Industry averages or norms are approximate; finer industry definitions may be required for certain interpretations or comparisons

•

Financial statements and resulting ratios often mean different things to different people depending on their points of view or motivations.

Again, all figures reported here are estimates, so due caution is required. The above caveats, and the fact that statements made in this report are forward-looking, requires that this point be emphasized. A number of intervening factors can have material effect on the ratios and variances forecasted. These include changes in a company's management style, exchange rate volatility, changes in accounting standards, the lack of oversight or comparability in accounting standards, changes in economic conditions, changes in competition, changes in the global economy, changes in source data quality, and similar factors.

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Financial Indicators

3.2 3.2.1

16

FINANCIAL RETURNS IN JAPAN: ASSET STRUCTURE RATIOS Overview

In this chapter we consider the asset structure of companies involved in pharmaceutical preparations manufacturing operating in Japan benchmarked against global averages. The chapter begins by defining relevant terms. A commonsize statement, or vertical analysis of assets is then presented for companies operating in Japan and the average global benchmarks (total assets = 100 percent). For ratios where there are large deviations between Japan and the benchmarks, graphics are provided (sometimes referred to as a financial “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis asset ratios are highlighted across countries in the comparison group.

3.2.2

Assets – Definitions of Terms

The following definitions are provided for those less familiar with the asset-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of assets, only definitions covering certain terms used in this chapter’s tables and graphs are provided here. The glossary below reflects commonly accepted definitions across various countries and official sources. •

Accumulated Depreciation - Buildings. Accumulated depreciation is commonly understood as a contra asset account used to report the accumulation of periodic credits to reflect the use of the estimated service life of a fixed asset. Buildings are fixed assets which represent the acquisition and improvement costs of permanent structures owned or held by the company. Such structures typically include office buildings, storage quarters, or other facilities and also associated items such as loading docks, heating and airconditioning equipment, refrigeration equipment, and all other property permanently attached to or forming an integral part of the structure. However, it generally does not include furniture, fixtures, or other equipment which are not an integral part of the building.

•

Accumulated Depreciation - Land. Accumulated depreciation of land is commonly understood as a contra asset account used to report the accumulation of periodic credits to reflect the use of the estimated service life of land as a fixed asset. If land is purchased, its capitalized value typically includes the purchase price plus costs such as legal fees, filling and excavation costs which are incurred to put the land in condition for its intended use. If land is acquired by gift, its capitalized value typically reflects its appraised value at time of acquisition. Land does not typically include depletable resources.

•

Accumulated Depreciation - Transportation Equipment. Accumulated depreciation of transportation equipment is commonly understood to be contra asset account used to report the accumulation of periodic credits to reflect the use of the estimated service life of transportation equipment.

•

Accumulated Depreciation -Machinery & Equipment. Accumulated depreciation of machinery and equipment is commonly understood to be contra asset account used to report the accumulation of periodic credits to reflect the use of the estimated service life of machinery and equipment.

•

Buildings. Buildings are defined as fixed assets which represent the acquisition and improvement costs of permanent structures owned or held by the company. Such structures include office buildings, storage quarters, or other facilities and also associated items such as loading docks, heating and air-conditioning equipment, refrigeration equipment, and all other property permanently attached to or forming an integral

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Financial Indicators

17

part of the structure. However, it does not include furniture, fixtures, or other equipment which are not an integral part of the building. •

Cash. Cash is typically defined as money on hand, on deposit with chartered bank, or held in the form of eligible securities.

•

Current Assets. Current assets are generally defined to be resources which are available, or can readily be made available, to meet the cost of operations or to pay current liabilities.

•

Deferred Charges. Deferred charges are generally understood to represent the amount which has been paid for services already received by the company but has not been charged to operations.

•

Finished Goods. Finished goods generally comprise the ready-for-sale inventory.

•

Intangible Other Assets. Intangible assets are generally understood to be nonphysical assets such as legal rights (patents and trademarks) recorded at their historical cost then reduced by systematic amortization.

•

Investments in Unconsolidated Subsidiaries. Investments in unconsolidated subsidiaries are typically defined as investments for the purpose of generating revenue in subsidiaries whose financial statements are not combined with the company's.

•

land. Land is generally considered to be a fixed asset. If land is purchased, its capitalized value typically includes the purchase price plus costs such as legal fees, filling and excavation costs which are incurred to put the land in condition for its intended use. If land is acquired by gift, its capitalized value typically reflects its appraised value at the time of acquisition. Land typically does not include depletable resources.

•

long Term Receivables. Long-term receivables are commonly defined as amounts due within a period exceeding one year from private persons, businesses, agencies, funds, or governmental units which are expected to be collected in the form of moneys, goods, and/or services.

•

Machinery & Equipment. Machinery and equipment is commonly defined as a fixed asset classification which typically includes tangible property (other than land, buildings, and improvements other than buildings) with a life of more than one year. Such assets typically include office equipment, furniture, machine tools, and motor vehicles. Equipment may be attached to a structure for purposes of securing the item, but unless it is permanently attached to an integral part of the building or structure, it will generally be classified as equipment and not buildings. Equipment is generally defined as tangible property other than land, buildings, or improvements other than buildings, which is used in operations. Examples include machinery, tools, trucks, cars, furniture, and furnishings.

•

Prepaid Expenses. Prepaid expenses are typically defined as those supplies and/or services (not inventory) acquired or purchased but not consumed or used at the end of the accounting period.

•

Progress Payments. Progress payments are commonly defined as periodic payments to a supplier, contractor, or subcontractor for work as it is completed as desired, in order to reduce working capital requirements.

•

Property Plant and Equipment - Gross. Gross property, plant and equipment generally consists of the gross book value (rather than the more commonly-used measures of fixed capital stocks in current or real value), of all commercial buildings, associated land and equipment used therein that are owned by the company and that are either used or operated by the company or leased or rented to others.

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Financial Indicators

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•

Property Plant and Equipment - Net. Net PP&E equals the original cost of property, plant, and equipment (PP&E), less accumulated depreciation, depletion and amortization (DD&A).

•

Raw Materials. Raw materials are materials which will be converted by a manufacturer into a finished product.

•

Receivables (Net). Net receivables are defined as the net amount due to the company from private persons, businesses, agencies, funds, or governmental units which is expected to be collected in the form of moneys, goods, and/or services.

•

Rental/Lease Property. Rental or leased property is property necessary to the operation of the company and paid for the use of structures, land, roads, rolling stock and equipment.

•

Short Term Investments. Short-term investments are investments which can be typically liquidated in less than one year.

•

Tangible Other Assets. Other tangible assets are commonly understood to be something substantial or real that is capable of being given an actual or approximate value (market or estimated), not classified elsewhere.

•

Total Assets. Total assets are defined as the financial representation of economic resources, the beneficial interest in which is legally or equitably secured to a particular organization as a result of a past transaction or event.

•

Total Inventories. Total inventories are defined as the total amount of goods on hand.

•

Transportation Equipment. Transportation equipment is equipment used for the transportation of goods for sale.

•

Work in Process. Work in progress includes goods which have been started but are not yet ready for sale.

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Financial Indicators

3.2.3

19

Asset Structure: Outlook

Using the methodology described in the introduction, the following table summarizes asset structure benchmarks for firms involved in pharmaceutical preparations manufacturing in Japan. To allow comparable benchmarking, a common index of Total Assets = 100 is used. All figures are current-year projections for companies operating in Japan based on latest financial results available. Asset Structure Japan Asia World Avg.

_________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Rental/Lease Property Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Accumulated Depreciation - Land Accumulated Depreciation - Buildings Accumulated Depreciation -Machinery & Equipment Accumulated Depreciation - Transportation Equipment Accumulated Depreciation - Other Prop & Equip Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

14.45 11.20 3.63 25.41 10.97 2.37 3.57 5.44 0.09 0.96 2.74 53.66 0.62 2.44 7.45 33.57 86.14 8.90 19.95 31.96 18.13 0.24 9.61 52.66 0.00 13.10 33.96 0.11 3.00 5.25 0.20 2.15 1.33 100.00

11.78 5.67 6.11 18.34 12.90 4.53 1.65 6.01 0.87 1.49 1.01 44.70 0.67 2.47 3.19 33.39 59.85 5.43 13.32 35.23 2.73 2.75 7.00 27.24 0.29 5.26 21.07 3.97 2.51 4.25 0.33 0.85 2.15 100.00

10.47 5.61 5.95 19.58 14.85 4.60 1.82 6.81 1.21 1.50 1.42 47.08 1.20 2.45 2.54 36.46 64.40 3.86 13.93 41.51 1.06 1.48 6.96 28.80 0.13 4.25 21.33 1.60 2.16 5.67 0.44 0.72 3.57 100.00

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

3.2.4

20

Large Variances: Assets

The following graphics summarize for pharmaceutical preparations manufacturing the large asset structure gaps between firms operating in Japan and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Cash 12

11.2

10 8

5.67

6

5.61

5.59

4 2 0 Japan

Asia

World Average

Gap

Gap: Receivables (Net) 30

25.41

25 18.34

20

19.58

15 10

5.83

5 0 Japan

Asia

World Average

Gap

Gap: Current Assets - Total 60

53.66 44.7

50

47.08

40 30 20 6.58

10 0 Japan

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Asia

World Average

Gap

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Financial Indicators

21

Gap: Property Plant and Equipment - Gross 100

86.14

80

64.4

59.85

60 40

21.74

20 0 Japan

Asia

World Average

Gap

Gap: Land 10

8.9

8 5.43

6

5.04 3.86

4 2 0 Japan

Asia

World Average

Gap

Gap: Buildings 19.95 20 13.32

15

13.93

10

6.02

5 0 Japan

Asia

World Average

Gap

Gap: Machinery & Equipment 50 40

41.51 31.96

35.23

30 20 10 0 -10 Japan

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Asia

World Average

-9.55 Gap

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Financial Indicators

22

Gap: Rental/Lease Property 20

18.13

17.07

15 10 5

2.73

1.06

0 Japan

Asia

World Average

Gap

Gap: Accumulated Depreciation - Total 60

52.66

50 40 27.24

30

28.8

23.86

20 10 0 Japan

Asia

World Average

Gap

Gap: Accumulated Depreciation - Buildings 15

13.1 8.85

10 5.26 5

4.25

0 Japan

Asia

World Average

Gap

Gap: Accumulated Depreciation -Machinery & Equipment 40

33.96

30 21.07

21.33

20

12.63

10 0 Japan

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Asia

World Average

Gap

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Financial Indicators

3.2.5

23

Key Percentiles and Rankings

We now consider the distribution of asset ratios for pharmaceutical preparations manufacturing using ranks and percentiles. What percent of countries have a value lower or higher than Japan (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of asset structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical asset ratios are highlighted in additional tables. Asset Structure

Japan

Rank of Total

Percentile

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Rental/Lease Property Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Accumulated Depreciation - Land Accumulated Depreciation - Buildings Accumulated Depreciation -Machinery & Equipment Accumulated Depreciation - Transportation Equipment Accumulated Depreciation - Other Prop & Equip Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

14.45 11.20 3.63 25.41 10.97 2.37 3.57 5.44 0.09 0.96 2.74 53.66 0.62 2.44 7.45 33.57 86.14 8.90 19.95 31.96 18.13 0.24 9.61 52.66 0.00 13.10 33.96 0.11 3.00 5.25 0.20 2.15 1.33 100.00

19 of 53 15 of 53 31 of 48 14 of 53 45 of 53 51 of 53 4 of 48 40 of 53 33 of 48 17 of 40 5 of 45 23 of 53 22 of 43 22 of 49 3 of 47 25 of 53 11 of 52 6 of 45 17 of 52 36 of 52 1 of 8 34 of 34 16 of 52 10 of 52 21 of 21 5 of 46 16 of 46 31 of 31 21 of 43 27 of 53 28 of 37 9 of 34 35 of 49

64.15 71.70 35.42 73.58 15.09 3.77 91.67 24.53 31.25 57.50 88.89 56.60 48.84 55.10 93.62 52.83 78.85 86.67 67.31 30.77 87.50 0.00 69.23 80.77 0.00 89.13 65.22 0.00 51.16 49.06 24.32 73.53 28.57

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

24

Cash & Short Term Investments Countries

Value (total assets = 100)

Rank

Percentile

31.82 31.23 30.61 22.60 22.41 19.52 19.11 18.68 18.40 17.77 16.71 16.70 16.00 15.32 14.45 14.27 12.76 12.64 12.54 11.68 11.47 10.82 10.19 10.16 9.05 8.68 8.66 8.46 8.23 8.18 6.52 6.51 6.01 5.72 5.23 5.08 4.71 4.34 4.26 3.62 3.16 2.62 2.53 2.19 2.07

1 2 3 5 6 9 10 11 12 14 15 16 17 18 19 20 22 23 24 25 26 27 28 29 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 48 49 50 51 52

98.11 96.23 94.34 90.57 88.68 83.02 81.13 79.25 77.36 73.58 71.70 69.81 67.92 66.04 64.15 62.26 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 9.43 7.55 5.66 3.77 1.89

Region

_________________________________________________________________________________________________________

Singapore New Zealand Hong Kong Israel Ireland Indonesia Philippines Taiwan Pakistan Luxembourg South Africa Switzerland China Sweden Japan USA Thailand Malaysia the United Kingdom France South Korea Belgium Turkey Mexico Norway Hungary Canada Denmark Australia Netherlands Spain Germany Brazil Italy India Poland Chile Czech Republic Argentina Austria Russia Portugal Finland Peru Greece

Asia Oceana Asia the Middle East Europe Asia Asia Asia the Middle East Europe Africa Europe Asia Europe Asia North America Asia Asia Europe Europe Asia Europe the Middle East Latin America Europe Europe North America Europe Oceana Europe Europe Europe Latin America Europe Asia Europe Latin America Europe Latin America Europe Europe Europe Europe Latin America Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

25

Cash & Short Term Investments (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total assets = 100)

Rank

Percentile

Singapore Hong Kong Indonesia Burma Philippines Taiwan Maldives China Brunei Japan Sri Lanka Thailand Malaysia South Korea Mongolia Seychelles India Macau Cambodia Laos Vietnam Bangladesh Bhutan Nepal North Korea Papua New Guinea

31.82 30.61 19.52 19.18 19.11 18.68 17.80 16.00 15.08 14.45 14.04 12.76 12.64 11.47 11.38 9.01 5.23 4.20 3.97 3.83 3.47 2.98 2.83 2.54 2.12 1.48

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

26

Receivables (Net) Countries

Value (total assets = 100)

Rank

Percentile

51.49 38.82 32.10 30.82 30.14 29.39 29.15 27.83 26.54 26.46 26.39 25.63 25.41 24.94 24.85 24.67 24.66 24.18 23.69 23.31 23.25 23.23 23.05 23.04 22.90 22.54 22.09 21.81 20.48 19.95 19.20 19.19 18.88 18.43 18.20 17.14 16.97 16.93 16.60 15.02 13.57 11.30 9.20 8.50 7.00

1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 20 21 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 39 41 42 43 44 46 47 48 49 50 53

98.11 96.23 94.34 92.45 90.57 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 62.26 60.38 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 26.42 22.64 20.75 18.87 16.98 13.21 11.32 9.43 7.55 5.66 0.00

Region

_________________________________________________________________________________________________________

Greece Poland Portugal Italy Belgium Australia Russia France Turkey Mexico South Africa Philippines Japan Germany Indonesia Peru Denmark New Zealand Hong Kong Sweden Netherlands Israel Spain Ireland South Korea India Brazil the United Kingdom Austria Malaysia Taiwan Finland Chile Czech Republic Switzerland Thailand Hungary Norway USA China Canada Argentina Pakistan Singapore Luxembourg

Europe Europe Europe Europe Europe Oceana Europe Europe the Middle East Latin America Africa Asia Asia Europe Asia Latin America Europe Oceana Asia Europe Europe the Middle East Europe Europe Asia Asia Latin America Europe Europe Asia Asia Europe Latin America Europe Europe Asia Europe Europe North America Asia North America Latin America the Middle East Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

27

Receivables (Net) (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total assets = 100)

Rank

Percentile

Burma Philippines Japan Indonesia North Korea Hong Kong South Korea Maldives India Malaysia Taiwan Sri Lanka Seychelles Thailand Cambodia Papua New Guinea Laos Brunei Mongolia China Vietnam Bangladesh Bhutan Macau Nepal Singapore

25.72 25.63 25.41 24.85 23.95 23.69 22.90 22.65 22.54 19.95 19.20 17.87 17.63 17.14 17.10 16.75 16.49 16.44 15.29 15.02 14.96 12.83 12.22 11.14 10.93 8.50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

28

Total Inventories Countries

Value (total assets = 100)

Rank

Percentile

27.32 26.49 25.86 25.79 24.11 20.39 20.23 19.79 19.55 18.96 18.57 18.37 18.13 17.88 17.61 17.19 16.88 16.78 16.74 16.67 16.46 15.85 15.73 15.69 15.55 15.43 15.38 14.99 14.84 13.95 13.82 13.68 13.57 13.54 13.03 12.23 11.58 11.26 10.97 9.34 8.88 8.70 8.51 8.15 4.94

1 2 3 4 5 7 8 10 11 12 13 14 15 16 17 20 21 22 23 24 25 26 27 28 29 31 32 33 34 35 36 37 38 39 40 41 43 44 45 46 47 48 49 50 51

98.11 96.23 94.34 92.45 90.57 86.79 84.91 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

Peru Pakistan Turkey Mexico Portugal South Africa Finland Poland Brazil Denmark Hungary Netherlands Australia Belgium Germany Russia Israel India Ireland Norway Indonesia Sweden Austria France USA Switzerland the United Kingdom Greece Italy Taiwan Chile Thailand Malaysia Czech Republic South Korea Canada Philippines China Japan Spain New Zealand Hong Kong Singapore Luxembourg Argentina

Latin America the Middle East the Middle East Latin America Europe Africa Europe Europe Latin America Europe Europe Europe Oceana Europe Europe Europe the Middle East Asia Europe Europe Asia Europe Europe Europe North America Europe Europe Europe Europe Asia Latin America Asia Asia Europe Asia North America Asia Asia Asia Europe Oceana Asia Asia Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

29

Total Inventories (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total assets = 100)

Rank

Percentile

North Korea Seychelles Papua New Guinea India Indonesia Maldives Taiwan Brunei Thailand Malaysia South Korea Cambodia Laos Mongolia Sri Lanka Burma Philippines China Vietnam Japan Bangladesh Bhutan Hong Kong Singapore Nepal Macau

26.52 19.29 18.55 16.78 16.46 15.01 13.95 13.94 13.68 13.57 13.03 12.74 12.28 12.21 11.84 11.62 11.58 11.26 11.14 10.97 9.55 9.10 8.70 8.51 8.14 4.86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

30

Current Assets - Total Countries

Value (total assets = 100)

Rank

Percentile

68.62 65.39 64.96 64.78 64.36 64.19 64.08 63.89 62.71 62.19 59.24 59.17 57.96 57.55 56.97 56.87 56.74 55.52 55.11 53.66 53.00 52.41 51.83 51.67 51.43 51.05 50.64 50.58 49.91 48.15 47.99 47.67 46.46 45.71 44.86 44.75 44.12 43.52 41.53 39.50 38.36 36.98 35.45 33.47 20.87

1 2 3 4 5 6 7 8 9 10 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 32 33 34 35 36 37 39 40 41 42 43 44 46 47 48 49 51 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 33.96 32.08 30.19 26.42 24.53 22.64 20.75 18.87 16.98 13.21 11.32 9.43 7.55 3.77 0.00

Region

_________________________________________________________________________________________________________

Greece New Zealand Turkey Mexico Poland Indonesia Hong Kong South Africa Israel Ireland Belgium Portugal Philippines Australia France Pakistan Sweden Italy Peru Japan Denmark Switzerland Taiwan Germany the United Kingdom Netherlands USA Singapore Russia South Korea Brazil India Malaysia Hungary Thailand China Norway Finland Austria Spain Chile Czech Republic Canada Luxembourg Argentina

Europe Oceana the Middle East Latin America Europe Asia Asia Africa the Middle East Europe Europe Europe Asia Oceana Europe the Middle East Europe Europe Latin America Asia Europe Europe Asia Europe Europe Europe North America Asia Europe Asia Latin America Asia Asia Europe Asia Asia Europe Europe Europe Europe Latin America Europe North America Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

31

Current Assets - Total (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total assets = 100)

Rank

Percentile

Indonesia Hong Kong Maldives Burma Philippines Japan North Korea Taiwan Singapore South Korea India Seychelles Brunei Malaysia Sri Lanka Thailand China Mongolia Papua New Guinea Cambodia Laos Vietnam Bangladesh Bhutan Nepal Macau

64.19 64.08 58.52 58.16 57.96 53.66 53.49 51.83 50.58 48.15 47.67 47.48 47.33 46.46 46.16 44.86 44.75 40.02 37.40 36.17 34.88 31.65 27.13 25.84 23.13 20.56

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

32

Property Plant and Equipment - Net Countries

Value (total assets = 100)

Rank

Percentile

67.49 54.38 53.92 48.82 47.18 47.12 46.93 46.60 45.37 43.85 43.38 42.52 41.95 41.50 39.76 38.42 37.76 36.69 36.48 36.41 34.92 33.57 33.08 32.98 32.52 32.40 32.31 31.81 31.66 31.42 30.38 28.87 28.76 28.10 27.50 27.26 26.38 24.79 24.78 24.28 24.03 18.85 14.60 14.48 12.06

1 2 3 5 6 7 8 10 11 12 13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 36 37 39 41 42 43 44 45 46 47 50 51 52 53

98.11 96.23 94.34 90.57 88.68 86.79 84.91 81.13 79.25 77.36 75.47 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 32.08 30.19 26.42 22.64 20.75 18.87 16.98 15.09 13.21 11.32 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Argentina Luxembourg Canada Austria Spain Czech Republic Chile Hungary Finland Malaysia India Russia China Philippines South Korea Thailand Peru Denmark Portugal Netherlands Norway Japan Italy the United Kingdom Pakistan Turkey Mexico Switzerland Brazil Poland Indonesia Australia South Africa USA Greece Germany Sweden Singapore New Zealand Hong Kong France Belgium Israel Ireland Taiwan

Latin America Europe North America Europe Europe Europe Latin America Europe Europe Asia Asia Europe Asia Asia Asia Asia Latin America Europe Europe Europe Europe Asia Europe Europe the Middle East the Middle East Latin America Europe Latin America Europe Asia Oceana Africa North America Europe Europe Europe Asia Oceana Asia Europe Europe the Middle East Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

33

Property Plant and Equipment - Net (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total assets = 100)

Rank

Percentile

Macau Seychelles Malaysia India China Burma Philippines South Korea Thailand North Korea Mongolia Japan Cambodia Laos Indonesia Vietnam Brunei Maldives Papua New Guinea Singapore Bangladesh Hong Kong Bhutan Sri Lanka Nepal Taiwan

66.50 48.40 43.85 43.38 41.95 41.64 41.50 39.76 38.42 36.65 34.27 33.57 32.92 31.75 30.38 28.81 28.73 27.70 25.63 24.79 24.69 24.28 23.51 21.85 21.05 12.06

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

34

Accumulated Depreciation - Total Countries

Value (total assets = 100)

Rank

Percentile

86.35 84.72 83.10 77.62 63.08 61.40 52.66 47.91 46.31 43.55 43.42 40.69 40.15 39.94 39.17 39.17 38.67 36.58 36.51 36.30 36.20 34.30 32.58 30.08 27.66 27.34 26.34 26.26 26.12 24.37 24.37 23.44 23.00 22.62 21.03 20.79 19.33 18.02 12.11 11.52 11.42 9.52 8.03 7.87

1 2 3 4 8 9 10 11 12 14 15 16 17 18 19 20 21 22 23 24 25 26 28 29 30 31 32 33 34 35 36 37 38 39 40 41 43 44 47 48 49 50 51 52

98.08 96.15 94.23 92.31 84.62 82.69 80.77 78.85 76.92 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 57.69 55.77 53.85 51.92 50.00 46.15 44.23 42.31 40.38 38.46 36.54 34.62 32.69 30.77 28.85 26.92 25.00 23.08 21.15 17.31 15.38 9.62 7.69 5.77 3.85 1.92 0.00

Region

_________________________________________________________________________________________________________

Peru Austria Portugal Finland Czech Republic Spain Japan Germany Canada Brazil Russia Norway Switzerland Pakistan Thailand Belgium Poland Netherlands Italy Turkey Mexico France Philippines Denmark Greece India Hungary the United Kingdom Luxembourg South Korea USA Malaysia Sweden Chile China Indonesia Australia South Africa Singapore Israel Ireland Taiwan New Zealand Hong Kong

Latin America Europe Europe Europe Europe Europe Asia Europe North America Latin America Europe Europe Europe the Middle East Asia Europe Europe Europe Europe the Middle East Latin America Europe Asia Europe Europe Asia Europe Europe Europe Asia North America Asia Europe Latin America Asia Asia Oceana Africa Asia the Middle East Europe Asia Oceana Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

35

Accumulated Depreciation - Total (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total assets = 100)

Rank

Percentile

North Korea Papua New Guinea Japan Thailand Brunei Mongolia Burma Philippines Seychelles India South Korea Malaysia China Indonesia Cambodia Laos Maldives Vietnam Bangladesh Sri Lanka Bhutan Nepal Singapore Taiwan Hong Kong

83.82 58.61 52.66 39.17 36.25 34.95 32.69 32.58 27.36 27.34 24.37 23.44 21.03 20.79 20.75 20.01 18.96 18.15 15.56 14.95 14.82 13.26 12.11 9.52 7.87

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

96.00 92.00 88.00 84.00 80.00 76.00 72.00 68.00 64.00 60.00 56.00 52.00 48.00 44.00 40.00 36.00 32.00 28.00 24.00 20.00 16.00 12.00 8.00 4.00 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

36

Intangible Other Assets Countries

Value (total assets = 100)

Rank

Percentile

18.09 16.63 16.37 15.53 15.41 14.37 14.10 13.87 12.84 11.44 10.56 10.39 10.24 9.00 8.53 8.31 8.08 7.17 6.31 5.86 3.86 3.56 2.93 2.70 2.64 2.59 2.44 2.40 2.02 2.00 1.95 1.89 1.33 1.15 1.07 1.01 0.99 0.82 0.61 0.29 0.21 0.08 0.08 0.03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 19 20 21 22 23 24 25 27 28 29 30 31 32 33 34 35 36 38 39 40 42 43 44 45 46 47 49

97.96 95.92 93.88 91.84 89.80 87.76 85.71 83.67 81.63 79.59 77.55 75.51 73.47 71.43 69.39 67.35 63.27 61.22 59.18 57.14 55.10 53.06 51.02 48.98 44.90 42.86 40.82 38.78 36.73 34.69 32.65 30.61 28.57 26.53 22.45 20.41 18.37 14.29 12.24 10.20 8.16 6.12 4.08 0.00

Region

_________________________________________________________________________________________________________

USA Belgium Norway Israel Ireland the United Kingdom Sweden France Taiwan Germany Australia Netherlands Chile Canada Denmark Argentina Switzerland Italy Finland South Africa China Luxembourg Spain Poland Russia Malaysia New Zealand Hong Kong Austria Hungary India Portugal Japan Indonesia South Korea Pakistan Singapore Czech Republic Greece Thailand Philippines Turkey Mexico Brazil

North America Europe Europe the Middle East Europe Europe Europe Europe Asia Europe Oceana Europe Latin America North America Europe Latin America Europe Europe Europe Africa Asia Europe Europe Europe Europe Asia Oceana Asia Europe Europe Asia Europe Asia Asia Asia the Middle East Asia Europe Europe Asia Asia the Middle East Latin America Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

37

Intangible Other Assets (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total assets = 100)

Rank

Percentile

12.84 8.18 7.30 3.86 2.59 2.40 2.08 1.95 1.48 1.43 1.33 1.30 1.15 1.11 1.07 1.06 1.05 0.99 0.95 0.83 0.29 0.26 0.21 0.21

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

95.83 91.67 87.50 83.33 79.17 75.00 70.83 66.67 62.50 58.33 54.17 50.00 45.83 41.67 37.50 33.33 29.17 25.00 20.83 16.67 12.50 8.33 4.17 0.00

_________________________________________________________________________________________________________

Taiwan Macau Brunei China Malaysia Hong Kong Seychelles India Cambodia Laos Japan Vietnam Indonesia Bangladesh South Korea Bhutan Maldives Singapore Nepal Sri Lanka Thailand Mongolia Burma Philippines

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.3 3.3.1

FINANCIAL RETURNS RATIOS

IN

38

JAPAN: LIABILITY STRUCTURE

Overview

In this chapter we consider the liability structure of firms operating in Japan benchmarked against global averages. The chapter begins by defining relevant terms. A common-size statement, or vertical analysis of liabilities and shareholder equity is then presented for the proto-typical firm operating in Japan and the average global benchmarks (sometimes referred to as a financial “gap” analysis). The figure reflect firms involved in pharmaceutical preparations manufacturing in Japan. For ratios where there are large deviations between Japan and the benchmarks, graphics are provided (total liabilities and equity = 100 percent). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis liability ratios are highlighted.

3.3.2

Liabilities and Equity – Definitions of Terms

The following definitions are provided for those less familiar with the liability-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of liabilities and equity, only definitions covering certain terms used in this chapter’s tables and graphs are provided here. The glossary below reflects commonly accepted definitions across various countries and official sources. •

Accounts Payable. Accounts payable are defined as amounts owed on open account to private persons or organizations for goods or services received.

•

Accrued Payroll. Accrued payroll is defined as the cost of payroll that has been incurred but has not yet been paid. Payroll is typically defined as comprising records detailing the salaries, wages, allowances and deductions for each employee for a specific period of time.

•

Capital Surplus. Capital surplus is commonly defined as an amount of equity which is directly contributed capital in excess of the par value.

•

Capitalized Lease Obligations. A capitalized lease obligation is commonly defined as an ownership arrangement in which the item under lease is typically a long-term asset. Capital leases are generally recorded as assets with liability at the current value of the lease payment.

•

Common Equity. Common equity is defined to equal the company's net worth. It typically comprises capital stock, capital surplus, retained earnings, and, in some cases, net worth reserves. Common equity is the portion of total net worth belonging to the common stockholders. Synonyms which are often used for common equity are “common stock” and “net worth”.

•

Common Stock. Common stock is defined as the securities which represent the company's ownership interest. Common stockholders typically assume greater risk than preferred stockholders; although common stockholders maintain greater control and generally greater dividends and capital appreciation. Common stock can be used interchangeably with the term capital stock when the company has no preferred stock.

•

Current Liabilities - Total. Total current liabilities are defined as the total amount of obligations which would require the use of current assets or other current liabilities to pay.

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Financial Indicators

39

•

Current Portion of Long Term Debt. The current proportion of long term debt is typically defined as debt which is payable in more than one year.

•

Deferred Income. Deferred income is commonly defined as the amount for services rendered that has not yet been received.

•

Deferred Taxes. Deferred taxes are compulsory charges from a previous accounting period which are yet unpaid.

•

Deferred Taxes - Credit. Deferred tax credits are defined as credits against compulsory charges from a previous accounting period which are yet unpaid.

•

Income Taxes Payable. Income taxes payable are understood to mean taxes which are levied by state, federal, and local governments on the company's reported accounting profit. Income taxes payable are those which are due in the current accounting period.

•

Long Term Debt. Long-term debt is defined to be due in a period exceeding one year or one operating cycle, whichever is longer. Long-term debt can have an extended repayment period such as a many-year mortgage on land and buildings, or debt that's intended to be permanent such as bonds issued to investors.

•

Long Term Debt Excluding Capitalized Leases. Long term debt excluding capitalized leases is defined as debt which is typically due in a period exceeding one year or one operating cycle, whichever is longer, less capitalized leases (see Long Term Debt for exceptions). Capital leases are generally recorded as assets with liability at the current value of the lease payment.

•

Minority Interest. Minority interest is the proportional share of the minority ownership's interest (less than 50 percent) in the earnings or losses.

•

Non-Equity Reserves. Non-equity reserves are the amount set aside for losses or liabilities which are certain to arise but cannot be quantified with certainty, and are not part of the firm’s equity.

•

Retained Earnings. proprietary funds.

•

Shareholders Equity. Shareholders equity is commonly defined to be the amount of total equity reserved for common and preferred shareholders.

•

Short Term Debt. Short term debt is generally defined as debt payable within one year.

•

Total Liabilities. Total liabilities are generally defined to include all the claims against a corporation. Liabilities include accounts and wages and salaries payable, dividends declared payable, accrued taxes payable, fixed or long-term liabilities such as mortgage bonds, debentures, and bank loans.

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Retained earnings is an equity account reflecting the accumulated earnings of

2007 Icon Group International, Inc.

Financial Indicators

3.3.3

40

Liability Structure: Outlook

Using the methodology described in the introduction, the following table summarizes liability and equity structure benchmarks for firms involved in pharmaceutical preparations manufacturing in Japan. To allow comparable benchmarking, a common index of Total Liabilities & Shareholders Equity = 100 is used. All figures are current-year projections for companies operating in Japan based on latest financial results available. Liability Structure Japan Asia World Avg.

_________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision For Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Other Liabilities Total Liabilities Non-Equity Reserves Minority Interest Common Equity Common Stock Capital Surplus Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Retained Earnings Unrealized Foreign Exchange Gain/Loss Unrealized Gain/Loss on Marketable Securities Treasury Stock Total Liabilities & Shareholders Equity

12.79 12.42 1.25 1.17 9.34 34.08 8.57 8.57 0.00 4.67 0.00 -1.38 0.91 1.86 2.29 47.02 0.04 1.05 51.91 12.03 10.74 1.26 1.52 0.08 29.75 -0.32 0.57 0.46 100.00

8.33 10.72 1.41 1.40 5.29 25.22 7.67 7.61 0.07 1.08 0.11 1.28 2.63 1.07 0.88 35.73 0.05 1.49 49.83 15.39 9.84 2.28 3.31 10.84 13.46 -0.18 0.03 0.44 100.00

10.51 11.99 1.35 1.48 7.01 30.97 8.62 8.53 0.10 1.76 0.13 1.54 2.71 1.32 1.57 43.80 0.07 1.37 48.59 15.10 11.29 2.50 4.64 10.41 10.38 -0.12 0.02 0.61 100.00

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.3.4

41

Large Variances: Liabilities

The following graphics summarize for pharmaceutical preparations manufacturing the large liability structure gaps between firms operating in Japan and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Accounts Payable 15

12.79 10.51

10

8.33

5

2.28

0 Japan

Asia

World Average

Gap

Gap: Other Current Liabilities 10

9.34 7.01

8 5.29

6 4

2.33

2 0 Japan

Asia

World Average

Gap

Gap: Current Liabilities - Total 40

34.08

30

30.97 25.22

20 10

3.11

0 Japan

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Asia

World Average

Gap

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Financial Indicators

42

Gap: Provision For Risks and Charges 4.67

5 4

2.91

3 1.76

2

1.08

1 0 Japan

Asia

World Average

Gap

Gap: Deferred Taxes 2 1.38

1.5

1.54 1.28

1 0.5 0

-0.16

-0.5 Japan

Asia

World Average

Gap

Gap: Total Liabilities 50

47.02

43.8 35.73

40 30 20 10

3.22

0 Japan

Asia

World Average

Gap

Gap: Common Equity 60

51.91

49.83

50

48.59

40 30 20 10

3.32

0 Japan

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Asia

World Average

Gap

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Financial Indicators

43

Gap: Common Stock 20 15

15.39

15.1

12.03

10 5 0 -3.07

-5 Japan

Asia

World Average

Gap

Gap: Other Appropriated Reserves 6

4.64 3.31

4 2

1.52

0 -2 -3.12

-4 Japan

Asia

World Average

Gap

Gap: Unappropriated Reserves 15

10.84

10.41

10 5

0.08

0 -5 -10

-10.33

-15 Japan

Asia

World Average

Gap

Gap: Retained Earnings 30

29.75

25

19.37

20 13.46

15

10.38

10 5 0 Japan

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Asia

World Average

Gap

2007 Icon Group International, Inc.

Financial Indicators

3.3.5

44

Key Percentiles and Rankings

We now consider the distribution of liability ratios for pharmaceutical preparations manufacturing using ranks and percentiles. What percent of countries have a value lower or higher than Japan (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of liability structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical liability ratios are highlighted in additional tables. Liability Structure

Japan

Rank of Total

Percentile

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision For Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Other Liabilities Total Liabilities Non-Equity Reserves Minority Interest Common Equity Common Stock Capital Surplus Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Retained Earnings Unrealized Foreign Exchange Gain/Loss Unrealized Gain/Loss on Marketable Securities Treasury Stock Total Liabilities & Shareholders Equity

12.79 12.42 1.25 1.17 9.34 34.08 8.57 8.57 0.00 4.67 0.00 -1.38 0.91 1.86 2.29 47.02 0.04 1.05 51.91 12.03 10.74 1.26 1.52 0.08 29.75 -0.32 0.57 0.46 100.00

15 of 53 23 of 53 26 of 37 32 of 46 17 of 53 19 of 53 28 of 53 27 of 53 30 of 30 14 of 48 19 of 20 43 of 43 20 of 28 12 of 29 13 of 45 29 of 53 20 of 27 19 of 48 24 of 53 27 of 53 20 of 48 18 of 35 38 of 51 36 of 41 8 of 52 19 of 33 1 of 9 16 of 27

71.70 56.60 29.73 30.43 67.92 64.15 47.17 49.06 0.00 70.83 5.00 0.00 28.57 58.62 71.11 45.28 25.93 60.42 54.72 49.06 58.33 48.57 25.49 12.20 84.62 42.42 88.89 40.74

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

45

Accounts Payable Countries

Value (total liabilities & equity = 100)

Rank

Percentile

26.62 26.55 19.96 19.81 19.21 17.36 17.20 16.11 14.71 13.80 13.72 13.70 12.79 12.05 11.96 11.86 11.83 11.12 11.03 10.69 10.62 10.50 9.55 8.94 8.72 8.66 8.43 7.91 7.89 7.89 7.88 7.79 7.64 7.11 6.85 6.67 6.37 6.24 5.59 5.44 5.39 4.96 4.49 4.39 4.11

1 2 4 5 6 7 8 9 10 12 13 14 15 16 17 18 19 20 21 22 23 24 26 27 28 29 30 31 32 33 34 35 36 38 39 40 41 42 44 45 46 48 49 50 51

98.11 96.23 92.45 90.57 88.68 86.79 84.91 83.02 81.13 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 28.30 26.42 24.53 22.64 20.75 16.98 15.09 13.21 9.43 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

Turkey Mexico Poland Portugal Australia Brazil Belgium Italy France India South Africa Russia Japan Canada Spain Norway Netherlands Sweden Hungary the United Kingdom Indonesia Pakistan Thailand Denmark Germany Philippines Greece USA Peru Malaysia Argentina Austria Finland South Korea China Switzerland New Zealand Hong Kong Luxembourg Israel Ireland Czech Republic Taiwan Chile Singapore

the Middle East Latin America Europe Europe Oceana Latin America Europe Europe Europe Asia Africa Europe Asia North America Europe Europe Europe Europe Europe Europe Asia the Middle East Asia Europe Europe Asia Europe North America Latin America Asia Latin America Europe Europe Asia Asia Europe Oceana Asia Europe the Middle East Europe Europe Asia Latin America Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

46

Accounts Payable (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total liabilities & equity = 100)

Rank

Percentile

India Japan Seychelles Indonesia Cambodia Laos Maldives Thailand Vietnam Burma Philippines Mongolia Malaysia Bangladesh Macau North Korea Sri Lanka Bhutan South Korea China Nepal Hong Kong Brunei Papua New Guinea Taiwan Singapore

13.80 12.79 11.46 10.62 10.47 10.10 9.69 9.55 9.16 8.69 8.66 8.52 7.89 7.85 7.77 7.66 7.64 7.48 7.11 6.85 6.69 6.24 6.03 5.35 4.49 4.11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

47

Current Liabilities - Total Countries

Value (total liabilities & equity = 100)

Rank

Percentile

46.51 46.39 44.07 42.50 41.44 40.24 37.01 36.96 36.93 35.72 35.51 35.08 34.91 34.88 34.77 34.31 34.08 34.04 33.93 33.88 33.36 32.94 32.84 32.67 31.98 31.47 31.26 29.72 28.70 28.04 27.23 26.42 25.89 23.92 23.88 23.57 23.35 23.06 21.75 21.54 21.49 21.32 20.04 17.76 16.82

1 2 3 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 29 30 32 33 34 35 36 37 39 40 41 42 43 45 46 47 48 49 50 51

98.11 96.23 94.34 90.57 88.68 86.79 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 45.28 43.40 39.62 37.74 35.85 33.96 32.08 30.19 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 9.43 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

Turkey Mexico Greece Italy Poland Belgium Spain Australia Pakistan Brazil France India Peru Portugal Finland China Japan Sweden South Africa Netherlands the United Kingdom Israel Austria Ireland Indonesia Denmark Russia Germany South Korea Norway Taiwan New Zealand Hong Kong Thailand Czech Republic Singapore Switzerland Chile Philippines Argentina Malaysia USA Hungary Canada Luxembourg

the Middle East Latin America Europe Europe Europe Europe Europe Oceana the Middle East Latin America Europe Asia Latin America Europe Europe Asia Asia Europe Africa Europe Europe the Middle East Europe Europe Asia Europe Europe Europe Asia Europe Asia Oceana Asia Asia Europe Asia Europe Latin America Asia Latin America Asia North America Europe North America Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

48

Current Liabilities - Total (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total liabilities & equity = 100)

Rank

Percentile

India China Japan North Korea Indonesia Maldives South Korea Taiwan Cambodia Hong Kong Laos Thailand Papua New Guinea Singapore Vietnam Sri Lanka Burma Philippines Malaysia Mongolia Macau Brunei Seychelles Bangladesh Bhutan Nepal

35.08 34.31 34.08 33.89 31.98 29.16 28.70 27.23 26.62 25.89 25.67 23.92 23.70 23.57 23.29 23.00 21.83 21.75 21.49 21.34 21.22 21.09 20.82 19.97 19.02 17.02

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

49

Long Term Debt Countries

Value (total liabilities & equity = 100)

Rank

Percentile

29.35 26.96 25.10 24.89 22.10 22.02 21.39 20.75 19.01 18.93 16.44 16.00 15.69 14.66 14.47 12.13 11.80 11.35 9.98 9.85 9.31 9.24 9.06 8.81 8.57 8.52 7.76 6.18 5.87 5.58 5.52 5.01 4.73 4.72 4.44 3.84 3.81 3.55 3.53 3.48 1.82 1.33 1.28 1.28 0.28

1 2 3 4 5 6 7 8 9 10 12 14 15 16 17 18 19 20 21 22 24 25 26 27 28 29 30 32 33 34 35 36 37 38 39 40 41 42 43 44 47 48 49 50 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 77.36 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 54.72 52.83 50.94 49.06 47.17 45.28 43.40 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 11.32 9.43 7.55 5.66 0.00

Region

_________________________________________________________________________________________________________

Luxembourg Norway Israel Ireland Argentina Canada Finland Taiwan Denmark USA Switzerland Chile Austria Netherlands India Sweden Australia the United Kingdom France Italy Portugal Russia Brazil Peru Japan Germany South Korea Spain Pakistan Belgium South Africa Hungary Malaysia China Czech Republic Thailand Philippines New Zealand Indonesia Hong Kong Greece Poland Turkey Mexico Singapore

Europe Europe the Middle East Europe Latin America North America Europe Asia Europe North America Europe Latin America Europe Europe Asia Europe Oceana Europe Europe Europe Europe Europe Latin America Latin America Asia Europe Asia Europe the Middle East Europe Africa Europe Asia Asia Europe Asia Asia Oceana Asia Asia Europe Europe the Middle East Latin America Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

50

Long Term Debt (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total liabilities & equity = 100)

Rank

Percentile

Macau Taiwan Brunei India Cambodia Laos Vietnam Japan North Korea Bangladesh Bhutan South Korea Nepal Papua New Guinea Seychelles Malaysia China Thailand Burma Philippines Indonesia Hong Kong Mongolia Maldives Sri Lanka Singapore

21.77 20.75 14.85 14.47 10.98 10.59 9.61 8.57 8.55 8.23 7.84 7.76 7.02 5.98 5.21 4.73 4.72 3.84 3.82 3.81 3.53 3.48 3.42 3.22 2.54 0.28

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

51

Total Liabilities Countries

Value (total liabilities & equity = 100)

Rank

Percentile

61.77 60.35 59.88 59.86 59.56 59.30 58.07 57.82 56.31 55.91 54.43 54.24 54.07 54.02 53.89 53.87 51.19 50.85 50.25 50.23 49.95 49.88 49.34 48.56 48.05 47.37 47.08 47.02 46.56 45.99 44.80 44.29 42.26 41.91 41.69 40.38 37.16 31.47 31.26 30.63 28.12 27.82 26.13 26.02 25.05

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 22 23 24 25 26 27 28 29 30 31 34 35 36 37 38 39 40 43 44 45 47 48 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 35.85 33.96 32.08 30.19 28.30 26.42 24.53 18.87 16.98 15.09 11.32 9.43 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Austria Israel Italy Ireland Finland Germany Netherlands Norway Brazil India Denmark Luxembourg Sweden Turkey France Mexico Belgium Canada Australia Spain the United Kingdom Taiwan Switzerland Argentina Portugal Peru Greece Japan USA Pakistan Poland Russia South Africa South Korea Chile China Indonesia Czech Republic New Zealand Hong Kong Malaysia Thailand Philippines Hungary Singapore

Europe the Middle East Europe Europe Europe Europe Europe Europe Latin America Asia Europe Europe Europe the Middle East Europe Latin America Europe North America Oceana Europe Europe Asia Europe Latin America Europe Latin America Europe Asia North America the Middle East Europe Europe Africa Asia Latin America Asia Asia Europe Oceana Asia Asia Asia Asia Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

52

Total Liabilities (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total liabilities & equity = 100)

Rank

Percentile

India Taiwan Macau Japan North Korea Brunei Cambodia South Korea Laos China Indonesia Vietnam Maldives Papua New Guinea Bangladesh Hong Kong Bhutan Malaysia Thailand Nepal Seychelles Sri Lanka Burma Philippines Singapore Mongolia

55.91 49.88 47.84 47.02 45.98 44.55 42.43 41.91 40.91 40.38 37.16 37.13 33.88 32.15 31.82 30.63 30.31 28.12 27.82 27.12 27.02 26.72 26.22 26.13 25.05 24.82

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

53

Common Equity Countries

Value (total liabilities & equity = 100)

Rank

Percentile

73.41 71.05 70.77 68.61 68.53 68.04 67.16 65.81 61.99 57.02 56.68 56.15 56.10 54.60 54.00 52.63 52.57 52.09 51.91 51.81 49.79 48.94 48.80 48.35 47.74 47.05 46.46 45.98 45.85 45.77 45.01 43.67 43.67 43.12 43.11 41.00 40.11 40.06 39.62 39.54 39.21 37.89 34.29 32.68 32.60

1 2 3 4 5 6 7 9 10 13 14 15 16 17 19 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 38 39 40 41 43 44 45 46 47 48 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 83.02 81.13 75.47 73.58 71.70 69.81 67.92 64.15 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 28.30 26.42 24.53 22.64 18.87 16.98 15.09 13.21 11.32 9.43 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Singapore Thailand Hungary Malaysia Czech Republic Philippines New Zealand Hong Kong Indonesia Chile China South Korea South Africa Poland Pakistan Peru Russia USA Japan Portugal Switzerland Greece Australia the United Kingdom Belgium Argentina Canada Turkey Mexico Spain Denmark Brazil France Sweden India Norway Finland Netherlands Germany Israel Ireland Italy Luxembourg Taiwan Austria

Asia Asia Europe Asia Europe Asia Oceana Asia Asia Latin America Asia Asia Africa Europe the Middle East Latin America Europe North America Asia Europe Europe Europe Oceana Europe Europe Latin America North America the Middle East Latin America Europe Europe Latin America Europe Europe Asia Europe Europe Europe Europe the Middle East Europe Europe Europe Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

54

Common Equity (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total liabilities & equity = 100)

Rank

Percentile

Seychelles Singapore Thailand Malaysia Burma Philippines Hong Kong Mongolia Indonesia China Maldives South Korea Japan North Korea Macau Brunei Sri Lanka India Papua New Guinea Cambodia Taiwan Laos Vietnam Bangladesh Bhutan Nepal

73.51 73.41 71.05 68.61 68.27 68.04 65.81 63.39 61.99 56.68 56.52 56.15 51.91 51.09 46.35 44.96 44.58 43.11 35.72 32.71 32.68 31.54 28.62 24.53 23.36 20.91

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

55

Retained Earnings Countries

Value (total liabilities & equity = 100)

Rank

Percentile

35.08 34.07 32.63 32.63 31.72 31.09 30.84 29.75 29.08 28.84 24.56 24.50 24.27 24.04 22.67 21.90 21.00 20.77 19.95 19.35 17.83 16.48 15.92 15.00 14.42 14.37 13.26 13.09 11.47 11.26 7.56 6.97 6.67 6.53 6.42 5.84 5.46 4.48 1.86 1.86 1.05 -0.15 -1.85 -2.92

1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 24 25 26 27 28 30 31 32 33 34 35 36 37 38 39 41 43 46 47 49 50 51 52

98.08 96.15 94.23 92.31 90.38 88.46 86.54 84.62 82.69 80.77 78.85 76.92 75.00 73.08 69.23 67.31 65.38 63.46 61.54 59.62 57.69 53.85 51.92 50.00 48.08 46.15 42.31 40.38 38.46 36.54 34.62 32.69 30.77 28.85 26.92 25.00 21.15 17.31 11.54 9.62 5.77 3.85 1.92 0.00

Region

_________________________________________________________________________________________________________

South Africa Hungary USA Switzerland New Zealand Hong Kong Denmark Japan Israel Ireland Indonesia Brazil Canada Taiwan Chile Thailand the United Kingdom Malaysia Norway Finland Luxembourg Germany Netherlands Czech Republic Austria Australia Belgium Russia South Korea Philippines Peru Sweden Spain Italy France China Poland India Turkey Mexico Pakistan Argentina Portugal Greece

Africa Europe North America Europe Oceana Asia Europe Asia the Middle East Europe Asia Latin America North America Asia Latin America Asia Europe Asia Europe Europe Europe Europe Europe Europe Europe Oceana Europe Europe Asia Asia Latin America Europe Europe Europe Europe Asia Europe Asia the Middle East Latin America the Middle East Latin America Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

56

Retained Earnings (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total liabilities & equity = 100)

Rank

Percentile

Seychelles Hong Kong Japan Brunei Indonesia Taiwan Maldives Thailand Malaysia Mongolia Sri Lanka South Korea Burma Philippines North Korea China Papua New Guinea India Cambodia Laos Vietnam Bangladesh Bhutan Nepal Macau

35.39 31.09 29.75 29.46 24.56 24.04 22.40 21.90 20.77 19.54 17.66 11.47 11.29 11.26 7.34 5.84 5.13 4.48 3.40 3.28 2.97 2.55 2.43 2.17 -0.15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

96.00 92.00 88.00 84.00 80.00 76.00 72.00 68.00 64.00 60.00 56.00 52.00 48.00 44.00 40.00 36.00 32.00 28.00 24.00 20.00 16.00 12.00 8.00 4.00 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.4 3.4.1

57

FINANCIAL RETURNS IN JAPAN: INCOME STRUCTURE RATIOS Overview

In this chapter we consider the income structure of companies operating in Japan benchmarked against global averages. The chapter begins by defining relevant terms. A common-size statement, or vertical analysis of income is then presented for the proto-typical firm involved in pharmaceutical preparations manufacturing operating in Japan and the average global benchmarks (total revenue = 100 percent). For ratios where there are large deviations between Japan and the benchmarks, graphics are provided. Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis income ratios are highlighted across countries in the comparison group.

3.4.2

Income Statements – Definitions of Terms

The following definitions are provided for those less familiar with the income-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of income, only definitions covering certain terms used in this chapter’s tables and graphs are provided here. The glossary below reflects commonly accepted definitions across various countries and official sources. •

Amortization. Amortization generally refers to the depreciation, depletion, or charge-off to expense of intangible and tangible assets over a period of time. Amortization is commonly understood to be the taking as an expense (writing off) of the loss of value of an intangible asset such as a copyright, a patent, or a mailing list, in an accounting period.

•

Cost of Goods Sold (excluding depreciation). For retail companies, cost of goods sold is generally defined as the equivalent of starting inventory plus purchases minus ending inventory. In manufacturing, cost of goods sold is defined to equal the starting inventory plus the cost of goods manufactured minus ending inventory. Most pure service firms do not generally have cost of goods sold.

•

Current Domestic Income Tax. Current domestic income taxes are commonly defined as compulsory charges levied by the government where the company is located on current income.

•

Deferred Domestic Income Tax. Deferred domestic income tax is defined as a compulsory charge from a previous accounting period which is yet unpaid to the government where the company is located on current income.

•

Depletion. Depletion is commonly defined to be included as one of the elements of amortization, and is understood to be the portion of the carrying value (other than the portion associated with tangible assets) prorated in each accounting period for financial reporting purposes.

•

Depreciation. Depreciation generally is defined as the expiration in the service life of fixed assets, other than depletable assets, attributable to wear and tear, deterioration, action of the physical elements, inadequacy and obsolescence. Depreciation is commonly defined as the portion of the cost of a fixed asset charged as an expense during a particular period. In accounting for depreciation, the cost of a fixed asset, less any salvage value, is prorated over the estimated service life of such an asset, and each period is charged with a portion of such cost. Through this process, the cost of the asset is ultimately charged off as an expense.

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•

Earnings Before Interest and Taxes (EBIT). EBIT is a financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and non-operating profit before the deduction of interest and income taxes.

•

Equity in Earnings. Equity in earnings is defined as a company's proportional share (based on ownership) of the net earnings or losses of an unconsolidated company.

•

Gross Income. Gross income is commonly defined as all the money, goods, and property received by the company that must be included as taxable income.

•

Income Taxes. Income taxes are defined to include those taxes levied by state, federal, and local governments on the company's reported accounting profit. Income taxes generally include both deferred and paid taxes. They are generally determined after the interest expense has been deducted.

•

Interest Expense on Debt. Interest expenses on debt are those which are spent on current debt and added to the net income so avoid underestimating interest coverage.

•

Minority Interest. Minority interest is the proportional share of the minority ownership's interest (less than 50 percent) in the earnings or losses.

•

Net Income Available to Common. Net income available to common is defined as the net income available to common stockholders.

•

Net Income Before Preferred Dividends. Net income before preferred dividends is generally calculated as the difference between total revenues and total expense prior to the granting of preferred dividends.

•

Net Sales or Revenues. Revenues or net sales are defined as payments made to and received by an entity. May take the form of taxes, user fees, fines, fees for service, and so on.

•

Non-Operating Interest Income. Non-operating interest income is generally understood to be any interest received (e.g., royalty, production payment, net profits interest) that does not involve the operation of the company.

•

Operating Expenses. Operating expenses are generally defined as those incurred in paying for the company’s day-to-day activities.

•

Operating Income. Operating income is generally defined to equal operating revenues less operating expenses. It typically excludes items of other revenue and expense such as equity in earnings of unconsolidated companies, dividends, interest income and expense, income taxes, extraordinary items, and cumulative effect of accounting changes.

•

Pretax Equity In Earnings. Pretax equity in earnings is generally defined to equal a company's proportional share (based on ownership) of the gross earnings or losses of an unconsolidated company.

•

Pretax Income. Pretax income is generally defined as income before tax deductions.

•

Selling, General & Administrative Expenses. Selling, general and administrative expenses are expenses independent from cost of sales for the purpose of illustrating the amount of the company's selling and administrative costs. Generally included in this figure are the costs of employees' salaries, commissions, and travel expenses; company payroll and office costs; and advertising and promotion.

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59

Income Structure: Outlook

Using the methodology described in the introduction, the following table summarizes income structure benchmarks for firms involved in pharmaceutical preparations manufacturing in Japan. To allow comparable benchmarking, a common index of Net Sales or Revenues = 100 is used. All figures are current-year projections for companies operating in Japan based on latest financial results available. Income Structure Japan Asia World Avg.

_________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Pretax Equity In Earnings Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Pretax Income Income Taxes Current Domestic Income Tax Deferred Domestic Income Tax Minority Interest Equity in Earnings Net Income Before Extra Items/Prefer Dividends Net Income Before Preferred Dividends Net Income Available to Common

100.00 60.57 5.15 34.40 28.65 92.76 0.03 6.59 0.84 2.10 0.19 0.16 -0.01 5.89 0.56 5.37 2.41 2.98 -0.41 0.09 0.01 2.87 2.87 2.87

100.00 57.33 4.33 25.71 15.39 76.04 2.73 11.12 0.12 0.70 0.79 0.07 2.42 13.24 2.45 11.29 2.58 2.17 0.09 0.20 0.39 8.80 8.78 8.79

100.00 63.88 5.04 25.08 14.88 82.92 2.67 10.78 0.20 0.58 0.99 0.05 2.26 13.35 3.48 10.09 2.57 2.11 0.22 0.16 0.10 7.39 7.35 7.37

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

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60

Large Variances: Income

The following graphics summarize for pharmaceutical preparations manufacturing the large income structure gaps between firms operating in Japan and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Cost of Goods Sold (Excluding Depreciation) 80

60.57

60

57.33

63.88

40 20 0

-3.31

-20 Japan

Asia

World Average

Gap

Gap: Gross Income 40

34.4 25.71

30

25.08

20 9.32

10 0 Japan

Asia

World Average

Gap

Gap: Selling, General & Administrative Expenses 30

28.65

25 20

15.39

14.88

15

13.77

10 5 0 Japan

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Asia

World Average

Gap

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Gap: Other Operating Expenses 100

92.76 76.04

80

82.92

60 40 9.84

20 0 Japan

Asia

World Average

Gap

Gap: Operating Income 15 10

11.12

10.78

6.59

5 0 -4.19

-5 Japan

Asia

World Average

Gap

Gap: Earnings Before Interest and Taxes (EBIT) 13.24

15 10

13.35

5.89

5 0 -5

-7.46

-10 Japan

Asia

World Average

Gap

Gap: Interest Expense on Debt 3.48

4 2

2.45 0.56

0 -2 -2.92 -4 Japan

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Asia

World Average

Gap

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Gap: Pretax Income 15

11.29

10.09

10 5.37 5 0 -4.72 Gap

-5 Japan

Asia

World Average

Gap: Net Income Before Extra Items/Prefer Dividends 8.8

10 5

7.39

2.87

0 -4.52 Gap

-5 Japan

Asia

World Average

Gap: Net Income Before Preferred Dividends 8.78

10 5

7.35

2.87

0 -4.48

-5 Japan

Asia

World Average

Gap

Gap: Net Income Available to Common 8.79

10 5

7.37

2.87

0 -5 Japan

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Asia

World Average

-4.5 Gap

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63

Key Percentiles and Rankings

We now consider the distribution of income ratios for pharmaceutical preparations manufacturing using ranks and percentiles. What percent of countries have a value lower or higher than Japan (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of income structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical income ratios are highlighted in additional tables. Income Structure

Japan

Rank of Total

Percentile

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Pretax Equity In Earnings Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Pretax Income Income Taxes Current Domestic Income Tax Deferred Domestic Income Tax Minority Interest Equity in Earnings Net Income Before Extra Items/Prefer Dividends Net Income Before Preferred Dividends Net Income Available to Common

100.00 60.57 5.15 34.40 28.65 92.76 0.03 6.59 0.84 2.10 0.19 0.16 -0.01 5.89 0.56 5.37 2.41 2.98 -0.41 0.09 0.01 2.87 2.87 2.87

32 of 53 24 of 53 19 of 53 10 of 48 11 of 53 42 of 43 42 of 53 11 of 30 10 of 39 50 of 51 5 of 26 47 of 53 49 of 53 53 of 53 46 of 53 34 of 52 13 of 40 29 of 36 22 of 41 18 of 28 47 of 53 47 of 53 47 of 53

39.62 54.72 64.15 79.17 79.25 2.33 20.75 63.33 74.36 1.96 80.77 11.32 7.55 0.00 13.21 34.62 67.50 19.44 46.34 35.71 11.32 11.32 11.32

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Cost of Goods Sold (Excluding Depreciation) Countries

Value (total revenue = 100)

Rank

Percentile

86.98 84.66 79.45 78.89 77.47 77.34 75.31 74.97 74.50 74.11 73.33 72.93 72.50 70.31 69.33 69.26 68.53 68.34 68.29 66.70 65.78 65.32 64.69 64.62 64.51 63.48 63.16 60.57 59.46 57.96 56.70 56.36 55.67 55.63 54.34 52.66 52.62 52.23 51.96 51.06 50.46 49.44 47.44 43.52 34.85

1 2 3 4 5 6 8 9 10 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 29 30 32 33 34 35 36 37 38 39 40 41 42 43 45 46 47 48 50 53

98.11 96.23 94.34 92.45 90.57 88.68 84.91 83.02 81.13 79.25 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 45.28 43.40 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 9.43 5.66 0.00

Region

_________________________________________________________________________________________________________

Portugal Belgium India Austria Canada Thailand Czech Republic Spain Hungary Luxembourg Brazil Australia Russia Netherlands Peru Pakistan Turkey Mexico France Malaysia South Korea Greece South Africa Indonesia Finland China Italy Japan Poland Philippines Norway Argentina Sweden the United Kingdom Switzerland Israel Germany Ireland Denmark USA New Zealand Hong Kong Chile Taiwan Singapore

Europe Europe Asia Europe North America Asia Europe Europe Europe Europe Latin America Oceana Europe Europe Latin America the Middle East the Middle East Latin America Europe Asia Asia Europe Africa Asia Europe Asia Europe Asia Europe Asia Europe Latin America Europe Europe Europe the Middle East Europe Europe Europe North America Oceana Asia Latin America Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Cost of Goods Sold (Excluding Depreciation) (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total revenue = 100)

Rank

Percentile

India Seychelles Thailand Mongolia North Korea Malaysia South Korea Indonesia China Japan Cambodia Maldives Burma Laos Philippines Macau Vietnam Hong Kong Brunei Papua New Guinea Sri Lanka Bangladesh Taiwan Bhutan Nepal Singapore

79.45 77.38 77.34 69.00 67.30 66.70 65.78 64.62 63.48 60.57 60.28 58.92 58.16 58.13 57.96 55.53 52.75 49.44 49.07 47.06 46.47 45.21 43.52 43.06 38.54 34.85

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Selling, General & Administrative Expenses Countries

Value (total revenue = 100)

Rank

Percentile

39.78 37.74 35.58 34.43 33.26 31.83 31.18 30.26 28.73 28.65 28.61 27.62 25.66 25.08 23.91 23.61 23.43 23.04 22.69 22.59 22.50 18.95 18.75 17.95 17.44 16.71 16.67 16.53 16.08 15.84 14.64 12.79 12.14 10.85 10.70 10.67 9.15 9.07 8.93 8.33

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 26 27 28 29 30 31 34 36 38 40 42 43 44 45 46 47

97.92 95.83 93.75 91.67 89.58 87.50 85.42 83.33 81.25 79.17 77.08 75.00 72.92 70.83 68.75 66.67 64.58 62.50 60.42 58.33 56.25 54.17 52.08 50.00 45.83 43.75 41.67 39.58 37.50 35.42 29.17 25.00 20.83 16.67 12.50 10.42 8.33 6.25 4.17 2.08

Region

_________________________________________________________________________________________________________

France Singapore Denmark Sweden Germany Hungary Switzerland USA Norway Japan Italy the United Kingdom South Africa Chile New Zealand Poland Hong Kong Netherlands Israel Greece Ireland Indonesia Taiwan South Korea China Turkey Mexico Peru Malaysia Austria Russia Luxembourg Brazil Canada Argentina Pakistan India Australia Thailand Spain

Europe Asia Europe Europe Europe Europe Europe North America Europe Asia Europe Europe Africa Latin America Oceana Europe Asia Europe the Middle East Europe Europe Asia Asia Asia Asia the Middle East Latin America Latin America Asia Europe Europe Europe Latin America North America Latin America the Middle East Asia Oceana Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Selling, General & Administrative Expenses (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total revenue = 100)

Rank

Percentile

Singapore Seychelles Japan Brunei Hong Kong Indonesia Taiwan South Korea China Maldives Malaysia North Korea Sri Lanka Papua New Guinea Macau India Thailand Mongolia Cambodia Laos Vietnam Bangladesh Bhutan Nepal

37.74 33.06 28.65 28.16 23.43 18.95 18.75 17.95 17.44 17.28 16.08 16.05 13.63 11.22 10.54 9.15 8.93 7.97 6.94 6.70 6.08 5.21 4.96 4.44

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

95.83 91.67 87.50 83.33 79.17 75.00 70.83 66.67 62.50 58.33 54.17 50.00 45.83 41.67 37.50 33.33 29.17 25.00 20.83 16.67 12.50 8.33 4.17 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Operating Expenses - Total Countries

Value (total revenue = 100)

Rank

Percentile

24.68 13.75 12.90 12.87 12.63 7.35 7.26 7.23 6.79 6.64 5.27 4.23 4.14 4.10 4.06 3.78 3.66 3.04 3.01 1.96 1.89 1.86 1.79 1.67 1.49 1.01 0.96 0.73 0.43 0.30 0.25 0.10 0.10 0.04 0.03 -0.21

1 2 3 4 5 6 7 8 10 11 14 15 16 17 18 19 20 21 22 24 25 26 27 28 29 31 32 33 34 35 36 37 38 41 42 43

97.67 95.35 93.02 90.70 88.37 86.05 83.72 81.40 76.74 74.42 67.44 65.12 62.79 60.47 58.14 55.81 53.49 51.16 48.84 44.19 41.86 39.53 37.21 34.88 32.56 27.91 25.58 23.26 20.93 18.60 16.28 13.95 11.63 4.65 2.33 0.00

Region

_________________________________________________________________________________________________________

Finland South Africa Philippines Australia Spain France Germany Austria Russia Czech Republic Hungary New Zealand Hong Kong India Singapore Switzerland Netherlands Malaysia the United Kingdom Poland South Korea Peru Brazil Italy Sweden Portugal Canada China Belgium USA Pakistan Denmark Indonesia Greece Japan Thailand

Europe Africa Asia Oceana Europe Europe Europe Europe Europe Europe Europe Oceana Asia Asia Asia Europe Europe Asia Europe Europe Asia Latin America Latin America Europe Europe Europe North America Asia Europe North America the Middle East Europe Asia Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Operating Expenses - Total (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total revenue = 100)

Rank

Percentile

Burma Philippines Seychelles Hong Kong India Singapore Brunei Cambodia Malaysia Laos Vietnam Bangladesh Bhutan Nepal South Korea North Korea Papua New Guinea China Indonesia Maldives Sri Lanka Japan Mongolia Thailand

12.94 12.90 5.47 4.14 4.10 4.06 3.41 3.11 3.04 3.00 2.72 2.33 2.22 1.99 1.89 1.81 1.26 0.73 0.10 0.09 0.07 0.03 -0.18 -0.21

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

95.83 91.67 87.50 83.33 79.17 75.00 70.83 66.67 62.50 58.33 54.17 50.00 45.83 41.67 37.50 33.33 29.17 25.00 20.83 16.67 12.50 8.33 4.17 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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70

Operating Income Countries

Value (total revenue = 100)

Rank

Percentile

23.38 22.91 20.81 20.63 20.44 19.99 18.80 17.19 14.90 14.28 14.00 13.83 13.58 12.15 11.80 11.64 11.37 11.34 11.31 11.17 10.68 10.61 10.31 10.21 9.86 9.59 9.48 9.30 8.62 8.03 8.01 7.68 7.04 6.63 6.59 6.31 6.18 6.00 5.65 5.59 4.24 3.99 3.74 1.68 1.61

1 2 4 5 6 8 9 10 11 12 13 14 16 18 19 20 21 22 23 24 25 26 28 30 31 32 33 34 35 36 37 38 39 41 42 43 44 45 47 48 49 50 51 52 53

98.11 96.23 92.45 90.57 88.68 84.91 83.02 81.13 79.25 77.36 75.47 73.58 69.81 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 47.17 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 22.64 20.75 18.87 16.98 15.09 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

New Zealand Hong Kong Israel Ireland Argentina Singapore Chile Taiwan Pakistan Indonesia USA Philippines South Africa Czech Republic China Switzerland Turkey Mexico Brazil India Denmark the United Kingdom Malaysia South Korea Hungary Australia Peru France Canada Sweden Thailand Netherlands Poland Norway Japan Belgium Greece Luxembourg Germany Russia Italy Finland Spain Austria Portugal

Oceana Asia the Middle East Europe Latin America Asia Latin America Asia the Middle East Asia North America Asia Africa Europe Asia Europe the Middle East Latin America Latin America Asia Europe Europe Asia Asia Europe Oceana Latin America Europe North America Europe Asia Europe Europe Europe Asia Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Operating Income (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total revenue = 100)

Rank

Percentile

Hong Kong Macau Singapore Taiwan Indonesia Burma Philippines Maldives China India Brunei Malaysia Sri Lanka Seychelles South Korea North Korea Cambodia Laos Thailand Vietnam Mongolia Japan Papua New Guinea Bangladesh Bhutan Nepal

22.91 20.14 19.99 17.19 14.28 13.88 13.83 13.02 11.80 11.17 10.52 10.31 10.27 10.24 10.21 9.20 8.48 8.17 8.01 7.42 7.14 6.59 6.43 6.36 6.05 5.42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Earnings Before Interest and Taxes (EBIT) Countries

Value (total revenue = 100)

Rank

Percentile

31.81 24.29 23.55 23.08 21.99 21.81 18.88 18.18 16.95 16.90 16.42 16.21 15.10 14.75 14.55 14.52 14.38 14.04 13.90 13.16 12.78 12.39 12.35 12.02 11.93 11.37 11.25 10.67 10.44 10.24 8.99 8.91 8.86 8.75 8.73 8.52 8.22 8.21 6.95 6.16 5.89 4.96 3.76 3.33 3.04

2 3 4 5 6 7 9 10 12 13 14 15 17 18 19 20 21 22 23 25 26 27 28 29 30 31 32 33 36 37 38 39 40 41 42 43 44 45 47 48 49 50 51 52 53

96.23 94.34 92.45 90.57 88.68 86.79 83.02 81.13 77.36 75.47 73.58 71.70 67.92 66.04 64.15 62.26 60.38 58.49 56.60 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Argentina Singapore New Zealand Hong Kong Israel Ireland Brazil Taiwan Turkey Mexico Chile Pakistan Philippines India Indonesia South Africa China Switzerland USA Thailand Czech Republic Malaysia the United Kingdom Denmark South Korea France Sweden Peru Russia Australia Luxembourg Greece Belgium Poland Germany Hungary Canada Netherlands Spain Italy Japan Austria Norway Finland Portugal

Latin America Asia Oceana Asia the Middle East Europe Latin America Asia the Middle East Latin America Latin America the Middle East Asia Asia Asia Africa Asia Europe North America Asia Europe Asia Europe Europe Asia Europe Europe Latin America Europe Oceana Europe Europe Europe Europe Europe Europe North America Europe Europe Europe Asia Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Earnings Before Interest and Taxes (EBIT) (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total revenue = 100)

Rank

Percentile

Macau Singapore Hong Kong Taiwan Burma Philippines India Indonesia China Maldives Thailand Brunei Malaysia South Korea Mongolia Cambodia Laos Sri Lanka North Korea Vietnam Seychelles Bangladesh Bhutan Papua New Guinea Nepal Japan

31.34 24.29 23.08 18.18 15.15 15.10 14.75 14.55 14.38 13.27 13.16 12.68 12.39 11.93 11.74 11.19 10.79 10.46 10.36 9.79 8.85 8.39 8.00 7.24 7.16 5.89

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

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74

Pretax Income Countries

Value (total revenue = 100)

Rank

Percentile

22.97 22.69 22.23 22.08 19.83 19.66 16.39 15.35 14.47 14.35 12.99 12.84 12.20 12.12 12.12 12.09 11.92 10.73 10.71 10.47 10.20 10.19 9.61 9.56 9.12 9.00 7.86 7.82 7.80 7.41 7.09 6.59 6.27 6.21 6.01 6.00 5.87 5.37 5.25 4.00 3.16 2.50 2.04 1.61 1.00

1 2 3 4 6 7 8 10 12 13 14 15 17 18 19 20 21 22 23 24 25 26 27 28 30 31 32 33 34 35 36 37 38 39 40 41 43 46 47 48 49 50 51 52 53

98.11 96.23 94.34 92.45 88.68 86.79 84.91 81.13 77.36 75.47 73.58 71.70 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 18.87 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Singapore New Zealand Hong Kong Argentina Israel Ireland Taiwan Philippines South Africa Pakistan Indonesia Chile USA Switzerland Thailand Hungary China Malaysia the United Kingdom France India Australia South Korea Denmark Czech Republic Sweden Belgium Poland Peru Germany Greece Netherlands Canada Brazil Turkey Mexico Russia Japan Luxembourg Spain Italy Austria Portugal Finland Norway

Asia Oceana Asia Latin America the Middle East Europe Asia Asia Africa the Middle East Asia Latin America North America Europe Asia Europe Asia Asia Europe Europe Asia Oceana Asia Europe Europe Europe Europe Europe Latin America Europe Europe Europe North America Latin America the Middle East Latin America Europe Asia Europe Europe Europe Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Pretax Income (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total revenue = 100)

Rank

Percentile

Singapore Hong Kong Macau Taiwan Burma Philippines Indonesia Seychelles Thailand China Maldives Brunei Mongolia Malaysia India South Korea Sri Lanka Cambodia North Korea Laos Vietnam Bangladesh Bhutan Japan Papua New Guinea Nepal

22.97 22.23 21.76 16.39 15.41 15.35 12.99 12.56 12.12 11.92 11.85 10.95 10.81 10.73 10.20 9.61 9.34 7.74 7.57 7.46 6.77 5.80 5.53 5.37 5.29 4.95

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

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Income Taxes Countries

Value (total revenue = 100)

Rank

Percentile

7.24 4.64 4.63 4.04 3.99 3.91 3.71 3.61 3.52 3.51 3.50 3.47 3.37 3.34 3.11 3.00 2.97 2.88 2.86 2.85 2.79 2.78 2.72 2.58 2.53 2.53 2.48 2.48 2.41 2.32 2.30 2.26 2.25 1.64 1.57 1.37 1.34 1.34 0.97 0.76 0.54 0.40 0.27 0.09

1 2 3 4 5 6 8 9 11 12 13 14 15 16 18 19 20 21 22 23 24 25 26 27 29 30 32 33 34 35 36 37 38 40 41 42 43 44 46 47 48 49 51 52

98.08 96.15 94.23 92.31 90.38 88.46 84.62 82.69 78.85 76.92 75.00 73.08 71.15 69.23 65.38 63.46 61.54 59.62 57.69 55.77 53.85 51.92 50.00 48.08 44.23 42.31 38.46 36.54 34.62 32.69 30.77 28.85 26.92 23.08 21.15 19.23 17.31 15.38 11.54 9.62 7.69 5.77 1.92 0.00

Region

_________________________________________________________________________________________________________

Singapore South Africa Philippines Czech Republic Poland USA Pakistan Chile France Indonesia the United Kingdom Denmark Israel Ireland Australia India Switzerland Greece Sweden South Korea Germany Taiwan Belgium Malaysia Russia New Zealand Hong Kong Peru Japan China Thailand Netherlands Canada Norway Italy Spain Turkey Mexico Austria Luxembourg Hungary Finland Brazil Portugal

Asia Africa Asia Europe Europe North America the Middle East Latin America Europe Asia Europe Europe the Middle East Europe Oceana Asia Europe Europe Europe Asia Europe Asia Europe Asia Europe Oceana Asia Latin America Asia Asia Asia Europe North America Europe Europe Europe the Middle East Latin America Europe Europe Europe Europe Latin America Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

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77

Income Taxes (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value (total revenue = 100)

Rank

Percentile

Singapore Burma Philippines Indonesia Maldives India South Korea Taiwan Brunei Malaysia Sri Lanka Hong Kong Japan North Korea China Thailand Cambodia Laos Mongolia Vietnam Bangladesh Papua New Guinea Bhutan Nepal Seychelles

7.24 4.65 4.63 3.51 3.20 3.00 2.85 2.78 2.68 2.58 2.52 2.48 2.41 2.41 2.32 2.30 2.28 2.19 2.05 1.99 1.71 1.68 1.63 1.46 0.56

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

96.00 92.00 88.00 84.00 80.00 76.00 72.00 68.00 64.00 60.00 56.00 52.00 48.00 44.00 40.00 36.00 32.00 28.00 24.00 20.00 16.00 12.00 8.00 4.00 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.5 3.5.1

78

FINANCIAL RETURNS IN JAPAN: PROFITABILITY RATIOS Overview

In this chapter we consider additional financial ratios estimated for firms involved in pharmaceutical preparations manufacturing operating in Japan benchmarked against global averages. The chapter begins by defining relevant terms. Estimates are then presented for the proto-typical firm operating in Japan compared to average global benchmarks. For ratios where there are large deviations between the average firm in Japan and the benchmarks, graphics are provided. Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key ratios are highlighted across countries in the comparison group.

3.5.2

Ratios – Definitions of Terms

The following definitions are provided for those less familiar with financial ratio analysis. As this chapter deals with the global benchmarking of ratios, only definitions covering certain terms used in this chapter’s tables and graphs are provided here. The glossary below reflects commonly accepted definitions across various countries and official sources. •

Accounts Receivables Days. The number of days' receivable sales generally correlates to the amount of the accounts receivables to the average daily sales on account. Accounts receivables days is often determined by dividing the gross receivables by (net sales/365).

•

Cash Earnings Return On Equity (%). Cash earnings return on equity generally measures the return of revenues to the shareholders. This ratio is generally calculated by dividing (net income before nonrecurring items minus preferred dividends) by the average common equity.

•

Cash Flow. Cash flow is generally defined as being equal to the company's net income plus the charge-off amounts for depreciation, depletion, amortization, extraordinary charges to reserves. These are bookkeeping deductions which are not paid out as cash.

•

Current Ratio. The current ratio is generally defined as a ratio of liquidity measuring the ability of a business to pay its current obligations when due. The current ratio is generally calculated by dividing total current assets by total current liabilities. Managers and lenders often want the current ratio to be 2.00 or greater. This ratio is often seen as an indication of short-term debt-paying ability. The higher the ratio, the more liquid the company.

•

Dividend Payout (% Earnings) - Total Dividends (%). The dividend payout ratio is generally used to measure the amount of current earnings per common share which are paid out in dividends. This ratio is generally determined by dividing dividends per common share by diluted earnings per share.

•

Fixed Charge Coverage Ratio. The fixed charge coverage ratio is generally seen as an indication of the company's ability to cover its fixed charges. This ratio is typically determined by dividing recurring earnings excluding interest expense, tax expense, equity earnings, and minority earnings plus interest from rentals by interest expense including capitalized interest and interest from rentals.

•

Gross Profit Margin (%). The gross profit margin is typically defined to equals the difference, in percent, between net sales revenue and the cost of goods sold.

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•

Inventories (# of Days) Held. Inventory days held is generally determined by dividing the ending inventory by (the cost of goods held/365). The number of days held results in the average daily cost of goods held.

•

Inventory Turnover (%). Inventory turnover is used as a measure of the balance of inventory. It generally compares the amount of inventory with the total sales for the year. The ratio can reflect both on the quality of the inventory and the efficiency of management. Typically, the higher the turnover rate, the greater the likelihood that profits would be larger and less working capital bound up in inventory.

•

Net Margin (%). The net margin is the ratio of net income dollars generated by each dollar of sales.

•

Operating Profit Margin (%). Operating profit margin percent is the ratio of operating profit to net sales. Operating profit (loss) is income or loss before taxes calculated by the difference between total revenues and total expense disregarding the effects of any extraordinary transactions.

•

Quick Ratio. The quick ratio, also commonly known as the “acid test ratio”, is a refined current ratio and is often seen as a more conservative measure of liquidity. The quick ratio is generally determined by dividing cash and equivalents plus trade receivables by total current liabilities. The ratio shows the degree to which a company's current liabilities can be covered by the most liquid current assets. Financial management texts generally conclude that any value of less than 1 to 1 implies a reciprocal dependency on inventory or other current assets to liquidate short-term debt.

•

Reinvestment Rate - Total (%). The reinvestment rate is typically defined as the rate at which an investor assumes interest payments made on a debt security can be reinvested over the life of that security.

•

Return on Assets (%). Return on assets is generally used to measure a company's ability to use assets to create profit.

•

Return on Equity - Total (%). The return on total equity ratio is often seen to reflect the profitability of the company's operations after income taxes. Return on equity is often considered to be a good measure of the company's profitability. Tax laws and tax loss carryovers can affect the net income and therefore can also affect the return on equity.

•

Return on Invested Capital (%). The ratio of return on invested capital is typically defined as an evaluation of earnings performance without regard to the method of financing. This ratio measures the earnings on investment and is an indication of how well the company utilizes its asset base. Return on investment is a type of return on capital, therefore this ratio can be an indication of the company’s ability to reward investors who provide long-term funds and to attract future investors.

•

Tax Rate (%). The tax rate is typically defined as the average rate of domestic tax owed to government by the company.

•

Working Capital. Net working capital equals the difference between total current assets and total current liabilities. Working capital often reflects a company's ability to expand volume and meet obligations. Since growth is usually one goal, the amount of working capital on this year's balance sheet should be greater than that of the previous year's. This is an efficiency, or turnover, ratio which benchmarks the rate at which current assets less current liabilities are used by the company in making sales. A low ratio can indicate a less profitable use of working capital in making sales. On the other hand, a very high ratio can indicate the company is wasting current assets which could be more efficiently deployed in production and in increasing sales and profits; or that the company my be undercapitalized, and thus vulnerable to liquidity problems in a period of weak business conditions.

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3.5.3

80

Ratio Structure: Outlook

Using the methodology described in the introduction, the following table summarizes ratio structure benchmarks for firms involved in pharmaceutical preparations manufacturing in Japan. All figures are current-year projections for companies operating in Japan based on latest financial results available. Ratios Japan Asia World Avg.

_________________________________________________________________________________________________________

Profitability Return on Equity - Total (%) Reinvestment Rate - Total (%) Return on Assets (%) Return on Invested Capital (%) Cash Earnings Return On Equity (%) Cash Flow % Sales Cost Goods Sold / Sales (%) Gross Profit Margin (%) Selling, General & Administrative Expense/Net Sales (%) Research & Development / Net Sales (%) Operating Profit Margin (%) Operating Inc / Total Capital (%) Pretax Margin (%) Tax Rate (%) Net Margin (%) Total Asset Turnover (X) th USD Asset Utilization Inventory Turnover (%) Net Sales % Working Capital Capital Expenditure % Gross Fixed Assets Capital Expenditure % Total Assets Capital Expenditure % Total Sales Accumulated Depreciation % Gross Fixed Assets Leverage Total Debt % Total Capital Long Term Debt % Total Capital Equity % Total Capital Fixed Charge Coverage Ratio Dividend Payout (% Earnings) - Total Dividends Fixed Assets % Common Equity Working Capital % Total Capital Liquidity Quick Ratio Current Ratio Inventories % Total Current Assets Accounts Receivables Days Inventories (# of Days) Held

3.73 2.04 2.38 3.31 25.62 6.94 60.57 34.40 23.25 5.52 6.59 8.51 5.37 50.91 2.87 0.83

16.86 13.65 9.50 11.53 -89.05 12.30 57.33 25.71 13.92 1.36 11.12 -143.74 11.29 22.17 8.78 0.77

13.50 9.82 8.97 12.50 11.23 12.37 63.88 25.08 13.58 1.30 10.78 2.04 10.09 27.61 7.35 0.89

6.99 6.01 5.64 4.45 5.98 58.66

4.90 -1.13 7.44 4.35 6.20 36.25

5.23 13.29 8.40 4.94 7.83 38.93

28.86 16.39 81.76 174.12 37.35 213.54 25.98

23.12 12.16 72.56 52.10 19.06 77.90 23.54

27.04 14.12 77.26 33.59 24.09 72.03 21.63

1.56 2.06 21.17 116.71 94.06

1.62 2.23 25.74 83.27 100.78

1.25 1.85 29.87 91.90 101.73

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Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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3.5.4

81

Large Variances: Ratios

The following graphics summarize for pharmaceutical preparations manufacturing the large ratio structure gaps between firms operating in Japan and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Return on Equity - Total (%) 20

16.86 13.5

15 10 5

3.73

0 -5 -9.77 Gap

-10 Japan

Asia

World Average

Gap: Return on Invested Capital (%) 15

11.53

12.5

10 5

3.31

0 -5 -10 Japan

Asia

World Average

-9.19 Gap

Gap: Cash Earnings Return On Equity (%) 100

89.05

80 60 40

25.62 11.23

20

14.39

0 Japan

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World Average

Gap

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Gap: Gross Profit Margin (%) 40

34.4 25.71

30

25.08

20 9.32

10 0 Japan

Asia

World Average

Gap

Gap: Selling, General & Administrative Expense/Net Sales (%) 25

23.25

20 13.92

15

13.58 9.67

10 5 0 Japan

Asia

World Average

Gap

Gap: Tax Rate (%) 60

50.91

50 40 30

22.17

27.61

23.3

20 10 0 Japan

Asia

World Average

Gap

Gap: Accumulated Depreciation % Gross Fixed Assets 60

58.66

50 36.25

40

38.93

30

19.73

20 10 0 Japan

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World Average

Gap

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Gap: Fixed Charge Coverage Ratio 200

174.12 140.53

150 100 52.1 50

33.59

0 Japan

Asia

World Average

Gap

Gap: Dividend Payout (% Earnings) - Total Dividends 40

37.35

30

24.09 19.06

20

13.26

10 0 Japan

Asia

World Average

Gap

Gap: Fixed Assets % Common Equity 250

213.54

200 141.51

150 77.9

100

72.03

50 0 Japan

Asia

World Average

Gap

Gap: Accounts Receivables Days 120

116.71

100

83.27

91.9

80 60 40

24.81

20 0 Japan

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World Average

Gap

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3.5.5

84

Key Percentiles and Rankings

We now consider the distribution of financial ratios for pharmaceutical preparations manufacturing using ranks and percentiles. What percent of countries have a value lower or higher than Japan (what is the ratio's rank or percentile)? The table below answers this question with respect to financial ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key financial ratios are highlighted in additional tables. Ratios

Japan

Rank of Total

Percentile

3.73 2.04 2.38 3.31 25.62 6.94 60.57 34.40 23.25 5.52 6.59 8.51 5.37 50.91 2.87 0.83

50 of 53 43 of 53 52 of 53 52 of 53 23 of 53 51 of 53 32 of 53 19 of 53 14 of 48 13 of 38 42 of 53 44 of 53 46 of 53 4 of 52 47 of 53 37 of 53

5.66 18.87 1.89 1.89 56.60 3.77 39.62 64.15 70.83 65.79 20.75 16.98 13.21 92.31 11.32 30.19

6.99 6.01 5.64 4.45 5.98 58.66

8 of 53 24 of 53 38 of 52 33 of 53 26 of 53 9 of 52

84.91 54.72 26.92 37.74 50.94 82.69

28.86 16.39 81.76 174.12 37.35 213.54 25.98

25 of 53 25 of 53 27 of 53 6 of 53 13 of 49 1 of 53 32 of 53

52.83 52.83 49.06 88.68 73.47 98.11 39.62

1.56 2.06 21.17 116.71 94.06

16 of 53 22 of 53 47 of 53 10 of 53 25 of 53

69.81 58.49 11.32 81.13 52.83

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Profitability Return on Equity - Total (%) Reinvestment Rate - Total (%) Return on Assets (%) Return on Invested Capital (%) Cash Earnings Return On Equity (%) Cash Flow % Sales Cost Goods Sold / Sales (%) Gross Profit Margin (%) Selling, General & Administrative Expense/Net Sales (%) Research & Development / Net Sales (%) Operating Profit Margin (%) Operating Inc / Total Capital (%) Pretax Margin (%) Tax Rate (%) Net Margin (%) Total Asset Turnover (X) th USD Asset Utilization Inventory Turnover (%) Net Sales % Working Capital Capital Expenditure % Gross Fixed Assets Capital Expenditure % Total Assets Capital Expenditure % Total Sales Accumulated Depreciation % Gross Fixed Assets Leverage Total Debt % Total Capital Long Term Debt % Total Capital Equity % Total Capital Fixed Charge Coverage Ratio Dividend Payout (% Earnings) - Total Dividends Fixed Assets % Common Equity Working Capital % Total Capital Liquidity Quick Ratio Current Ratio Inventories % Total Current Assets Accounts Receivables Days Inventories (# of Days) Held

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Gross Profit Margin (%) Countries

Value

Rank

Percentile

Singapore New Zealand Hong Kong Chile USA Israel Ireland Denmark Germany Switzerland Sweden the United Kingdom Philippines Taiwan Norway Poland Japan Indonesia South Africa Argentina Italy China South Korea Greece Finland Turkey Mexico Malaysia Pakistan France Peru Netherlands Australia Hungary Brazil Russia Luxembourg Spain Thailand Czech Republic Canada India Austria Belgium Portugal

61.79 48.31 47.34 45.37 44.37 43.49 43.13 42.80 41.97 39.68 39.38 39.35 38.11 35.94 35.36 35.09 34.40 32.98 32.21 31.14 30.52 29.92 29.79 28.98 28.75 27.48 27.40 27.05 26.94 25.89 25.61 25.30 23.93 21.77 21.30 19.70 18.78 17.76 17.35 17.27 16.10 15.74 12.88 8.60 7.98

1 2 3 4 5 6 7 8 9 11 12 13 14 16 17 18 19 20 21 22 24 25 26 27 28 29 30 31 32 33 34 36 37 39 40 43 45 46 47 48 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 79.25 77.36 75.47 73.58 69.81 67.92 66.04 64.15 62.26 60.38 58.49 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 32.08 30.19 26.42 24.53 18.87 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Asia Oceana Asia Latin America North America the Middle East Europe Europe Europe Europe Europe Europe Asia Asia Europe Europe Asia Asia Africa Latin America Europe Asia Asia Europe Europe the Middle East Latin America Asia the Middle East Europe Latin America Europe Oceana Europe Latin America Europe Europe Europe Asia Europe North America Asia Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Gross Profit Margin (%) (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value

Rank

Percentile

Singapore Hong Kong Burma Philippines Taiwan Brunei Japan Indonesia Macau Maldives China South Korea Malaysia North Korea Sri Lanka Seychelles Papua New Guinea Thailand India Mongolia Cambodia Laos Vietnam Bangladesh Bhutan Nepal

61.79 47.34 38.25 38.11 35.94 35.83 34.40 32.98 30.68 30.07 29.92 29.79 27.05 24.86 23.72 22.61 17.38 17.35 15.74 15.48 11.95 11.52 10.45 8.96 8.53 7.64

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

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Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Pretax Margin (%) Countries

Value

Rank

Percentile

Singapore New Zealand Hong Kong Argentina Israel Ireland Taiwan Philippines South Africa Pakistan Indonesia Chile USA Switzerland Thailand Hungary China Malaysia the United Kingdom France India Australia South Korea Denmark Czech Republic Sweden Belgium Poland Peru Germany Greece Netherlands Canada Brazil Turkey Mexico Russia Japan Luxembourg Spain Italy Austria Portugal Finland Norway

22.97 22.69 22.23 22.08 19.83 19.66 16.39 15.35 14.47 14.35 12.99 12.84 12.20 12.12 12.12 12.09 11.92 10.73 10.71 10.47 10.20 10.19 9.61 9.56 9.12 9.00 7.86 7.82 7.80 7.41 7.09 6.59 6.27 6.21 6.01 6.00 5.87 5.37 5.25 4.00 3.16 2.50 2.04 1.61 1.00

1 2 3 4 6 7 8 10 12 13 14 15 17 18 19 20 21 22 23 24 25 26 27 28 30 31 32 33 34 35 36 37 38 39 40 41 43 46 47 48 49 50 51 52 53

98.11 96.23 94.34 92.45 88.68 86.79 84.91 81.13 77.36 75.47 73.58 71.70 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 18.87 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Asia Oceana Asia Latin America the Middle East Europe Asia Asia Africa the Middle East Asia Latin America North America Europe Asia Europe Asia Asia Europe Europe Asia Oceana Asia Europe Europe Europe Europe Europe Latin America Europe Europe Europe North America Latin America the Middle East Latin America Europe Asia Europe Europe Europe Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Pretax Margin (%) (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value

Rank

Percentile

Singapore Hong Kong Macau Taiwan Burma Philippines Indonesia Seychelles Thailand China Maldives Brunei Mongolia Malaysia India South Korea Sri Lanka Cambodia North Korea Laos Vietnam Bangladesh Bhutan Japan Papua New Guinea Nepal

22.97 22.23 21.76 16.39 15.41 15.35 12.99 12.56 12.12 11.92 11.85 10.95 10.81 10.73 10.20 9.61 9.34 7.74 7.57 7.46 6.77 5.80 5.53 5.37 5.29 4.95

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Quick Ratio Countries

Value

Rank

Percentile

4.35 4.26 3.53 2.56 2.41 2.28 2.22 2.12 2.08 1.85 1.70 1.56 1.53 1.51 1.50 1.48 1.47 1.43 1.39 1.38 1.37 1.34 1.32 1.27 1.26 1.23 1.21 1.20 1.20 1.16 1.15 1.14 1.10 1.04 0.98 0.98 0.97 0.96 0.86 0.85 0.79 0.79 0.78 0.72 0.67

1 2 3 6 7 8 10 11 12 13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 33 34 35 37 38 39 40 41 42 43 44 45 46 47 48 49 52 53

98.11 96.23 94.34 88.68 86.79 84.91 81.13 79.25 77.36 75.47 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 37.74 35.85 33.96 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 1.89 0.00

Region

_________________________________________________________________________________________________________

New Zealand Hong Kong Philippines Singapore Indonesia Malaysia Switzerland Thailand USA Poland Hungary Japan the United Kingdom Canada South Korea South Africa Luxembourg Germany Israel Ireland Chile Portugal Czech Republic Sweden Australia Greece Spain China France Denmark Taiwan Russia Belgium Netherlands Pakistan Peru Italy Norway India Austria Turkey Mexico Brazil Argentina Finland

Oceana Asia Asia Asia Asia Asia Europe Asia North America Europe Europe Asia Europe North America Asia Africa Europe Europe the Middle East Europe Latin America Europe Europe Europe Oceana Europe Europe Asia Europe Europe Asia Europe Europe Europe the Middle East Latin America Europe Europe Asia Europe the Middle East Latin America Latin America Latin America Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Quick Ratio (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value

Rank

Percentile

Hong Kong Burma Philippines Singapore Indonesia Malaysia Maldives Thailand Brunei Mongolia Seychelles Sri Lanka Japan South Korea China Taiwan North Korea India Macau Papua New Guinea Cambodia Laos Vietnam Bangladesh Bhutan Nepal

4.26 3.55 3.53 2.56 2.41 2.28 2.20 2.12 2.00 1.89 1.76 1.73 1.56 1.50 1.20 1.15 0.95 0.86 0.71 0.67 0.65 0.63 0.57 0.49 0.47 0.42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Current Ratio Countries

Value

Rank

Percentile

4.88 4.79 4.40 3.21 3.18 3.15 3.07 2.99 2.96 2.93 2.90 2.81 2.36 2.35 2.28 2.12 2.08 2.06 2.04 1.99 1.97 1.96 1.93 1.92 1.90 1.89 1.89 1.86 1.76 1.70 1.64 1.63 1.60 1.60 1.59 1.57 1.46 1.45 1.45 1.45 1.39 1.39 1.38 1.30 0.97

1 2 3 6 7 8 9 11 12 13 14 15 16 17 19 20 21 22 23 24 25 26 27 28 29 30 31 32 34 36 37 38 39 40 41 42 43 44 45 47 48 49 50 52 53

98.11 96.23 94.34 88.68 86.79 84.91 83.02 79.25 77.36 75.47 73.58 71.70 69.81 67.92 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 35.85 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 11.32 9.43 7.55 5.66 1.89 0.00

Region

_________________________________________________________________________________________________________

New Zealand Hong Kong Philippines Indonesia Switzerland USA Malaysia Thailand Singapore Poland Hungary Portugal Chile Germany Canada South Africa the United Kingdom Japan South Korea Luxembourg Sweden Peru Czech Republic Denmark Israel Pakistan Ireland Australia Russia France Netherlands China Norway Greece Belgium Taiwan India Turkey Italy Mexico Spain Austria Brazil Finland Argentina

Oceana Asia Asia Asia Europe North America Asia Asia Asia Europe Europe Europe Latin America Europe North America Africa Europe Asia Asia Europe Europe Latin America Europe Europe the Middle East the Middle East Europe Oceana Europe Europe Europe Asia Europe Europe Europe Asia Asia the Middle East Europe Latin America Europe Europe Latin America Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Current Ratio (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value

Rank

Percentile

Hong Kong Burma Philippines Indonesia Malaysia Seychelles Thailand Singapore Maldives Brunei Mongolia Sri Lanka Japan South Korea North Korea China Taiwan India Papua New Guinea Cambodia Laos Vietnam Macau Bangladesh Bhutan Nepal

4.79 4.42 4.40 3.21 3.07 3.01 2.99 2.96 2.93 2.88 2.67 2.31 2.06 2.04 1.90 1.63 1.57 1.46 1.33 1.11 1.07 0.97 0.95 0.83 0.79 0.71

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Inventories % Total Current Assets Countries

Value

Rank

Percentile

Peru Pakistan Finland Turkey Mexico Brazil Hungary Portugal Canada Austria Norway Denmark Netherlands Chile India Germany Russia South Africa Czech Republic USA the United Kingdom Belgium Switzerland Poland Thailand Australia Malaysia South Korea Sweden France Israel Ireland Italy Indonesia China Spain Luxembourg Argentina Philippines Greece Taiwan Japan Singapore New Zealand Hong Kong

48.47 45.91 45.79 39.99 39.88 39.81 38.80 38.50 38.36 37.69 37.09 36.97 36.12 36.04 35.46 34.86 33.86 32.61 31.54 31.35 31.08 30.86 30.56 30.36 29.98 29.70 29.02 28.17 28.13 28.00 26.92 26.70 26.62 26.32 26.03 25.65 24.36 23.66 22.53 22.38 22.25 21.17 17.80 14.34 14.05

1 2 3 4 5 6 7 8 9 10 11 13 14 15 17 18 20 21 22 23 24 25 26 27 29 30 31 32 33 34 35 36 37 38 39 40 42 43 44 45 46 47 49 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 75.47 73.58 71.70 67.92 66.04 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 20.75 18.87 16.98 15.09 13.21 11.32 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

Latin America the Middle East Europe the Middle East Latin America Latin America Europe Europe North America Europe Europe Europe Europe Latin America Asia Europe Europe Africa Europe North America Europe Europe Europe Europe Asia Oceana Asia Asia Europe Europe the Middle East Europe Europe Asia Asia Europe Europe Latin America Asia Europe Asia Asia Asia Oceana Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Inventories % Total Current Assets (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value

Rank

Percentile

North Korea Seychelles India Papua New Guinea Thailand Malaysia South Korea Brunei Cambodia Mongolia Indonesia China Laos Maldives Vietnam Macau Burma Philippines Taiwan Japan Bangladesh Bhutan Sri Lanka Singapore Nepal Hong Kong

47.04 40.30 35.46 32.90 29.98 29.02 28.17 27.60 26.91 26.74 26.32 26.03 25.95 24.00 23.54 23.31 22.60 22.53 22.25 21.17 20.18 19.22 18.93 17.80 17.20 14.05

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

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Accounts Receivables Days Countries

Value

Rank

Percentile

Greece Italy China Israel Ireland Portugal Spain Philippines Japan Malaysia Indonesia Taiwan the United Kingdom Russia France Chile New Zealand Peru Hong Kong Belgium Czech Republic South Korea India Singapore Switzerland Australia Germany South Africa Denmark Sweden Poland Austria Turkey Mexico Thailand Norway Netherlands Finland Hungary USA Brazil Canada Luxembourg Argentina Pakistan

178.46 137.45 132.11 131.13 130.04 127.65 122.93 119.70 116.71 113.13 110.76 108.37 105.35 100.72 100.47 99.98 99.80 99.05 97.79 95.64 91.28 91.01 89.42 79.57 79.07 74.87 74.62 73.37 73.29 72.69 70.73 70.26 69.64 69.45 69.21 68.84 63.18 60.95 60.22 56.76 50.35 48.76 44.06 42.67 28.92

2 3 4 5 6 7 8 9 10 11 12 13 14 17 18 19 20 21 22 23 24 25 27 30 31 32 33 34 36 37 38 39 40 41 42 43 45 46 47 48 49 50 51 52 53

96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 49.06 43.40 41.51 39.62 37.74 35.85 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Europe Europe Asia the Middle East Europe Europe Europe Asia Asia Asia Asia Asia Europe Europe Europe Latin America Oceana Latin America Asia Europe Europe Asia Asia Asia Europe Oceana Europe Africa Europe Europe Europe Europe the Middle East Latin America Asia Europe Europe Europe Europe North America Latin America North America Europe Latin America the Middle East

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

96

Accounts Receivables Days (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value

Rank

Percentile

China Burma Philippines Japan Malaysia Indonesia Taiwan Maldives Hong Kong North Korea South Korea India Sri Lanka Singapore Brunei Thailand Cambodia Papua New Guinea Laos Seychelles Mongolia Vietnam Bangladesh Bhutan Nepal Macau

132.11 120.12 119.70 116.71 113.13 110.76 108.37 100.99 97.79 96.14 91.01 89.42 79.65 79.57 71.40 69.21 67.85 67.23 65.43 62.55 61.74 59.37 50.89 48.47 43.38 42.04

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

97

Inventories (# of Days) Held Countries

Value

Rank

Percentile

Philippines Germany Switzerland Israel Ireland Taiwan Denmark USA China Malaysia Peru Singapore Norway Portugal Chile Sweden the United Kingdom Italy Pakistan France Japan South Korea New Zealand Hong Kong Russia Indonesia Czech Republic Hungary Turkey Mexico Austria Finland Greece South Africa India Luxembourg Netherlands Thailand Belgium Poland Australia Canada Spain Brazil Argentina

281.83 246.14 190.33 177.93 176.46 147.05 146.64 142.64 137.98 135.29 132.79 130.05 128.09 122.58 117.39 113.16 109.40 102.43 97.96 95.30 94.06 92.09 90.98 89.14 88.82 86.70 85.79 85.57 84.43 84.20 78.60 76.99 76.60 76.26 75.28 70.93 69.97 68.67 68.27 62.06 60.19 59.27 57.61 56.75 35.03

1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 20 23 24 25 26 27 29 30 31 32 33 34 35 37 39 40 41 42 43 44 45 46 48 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 62.26 56.60 54.72 52.83 50.94 49.06 45.28 43.40 41.51 39.62 37.74 35.85 33.96 30.19 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Asia Europe Europe the Middle East Europe Asia Europe North America Asia Asia Latin America Asia Europe Europe Latin America Europe Europe Europe the Middle East Europe Asia Asia Oceana Asia Europe Asia Europe Europe the Middle East Latin America Europe Europe Europe Africa Asia Europe Europe Asia Europe Europe Oceana North America Europe Latin America Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

98

Inventories (# of Days) Held (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value

Rank

Percentile

Burma Philippines Brunei Taiwan China Malaysia Singapore North Korea Japan South Korea Papua New Guinea Hong Kong Seychelles Indonesia Maldives India Thailand Sri Lanka Mongolia Cambodia Laos Vietnam Bangladesh Bhutan Nepal Macau

282.81 281.83 171.87 147.05 137.98 135.29 130.05 128.89 94.06 92.09 90.13 89.14 88.87 86.70 79.05 75.28 68.67 62.35 61.26 57.12 55.08 49.98 42.84 40.80 36.52 34.51

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.6 3.6.1

99

PRODUCTIVITY IN JAPAN: ASSET-LABOR RATIOS Overview

In this chapter, we consider numerous asset-labor ratios for pharmaceutical preparations manufacturing in Japan benchmarked against global averages. Productivity and utilization ratios are presented for companies oprating in Japan and the average global benchmarks for pharmaceutical preparations manufacturing. For ratios where there are large deviations between Japan and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain asset-labor ratios are highlighted across countries in the comparison group. In the case of asset-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. We then report the larger asset-labor ratio gaps for pharmaceutical preparations manufacturing that Japan has vis-àvis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

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2007 Icon Group International, Inc.

Financial Indicators

3.6.2

100

Asset to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for pharmaceutical preparations manufacturing in Japan based on latest financial results available. Labor-asset Ratios ($k/employee) Japan Asia World Avg.

_________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Rental/Lease Property Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Accumulated Depreciation - Land Accumulated Depreciation - Buildings Accumulated Depreciation -Machinery & Equipment Accumulated Depreciation - Transportation Equipment Accumulated Depreciation - Other Prop & Equip Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

69.10 52.42 21.97 113.93 46.83 14.41 19.15 30.68 0.32 9.99 12.52 243.20 3.52 12.78 38.55 153.48 404.21 41.65 91.76 154.38 230.51 1.54 44.14 243.94 0.00 59.46 161.87 0.42 14.90 23.27 0.93 9.90 5.85 459.09

44.50 20.53 29.49 44.82 30.33 9.60 4.98 14.83 4.84 2.71 1.81 122.83 2.89 14.72 55.59 127.84 190.39 19.05 38.74 112.54 24.83 6.44 34.42 80.75 0.42 11.06 63.45 6.06 11.13 17.51 1.62 2.48 12.34 322.04

78.18 14.28 81.81 50.50 40.00 9.40 4.87 13.18 17.70 5.05 2.53 173.67 8.60 35.33 51.78 125.96 210.61 10.52 45.10 143.93 6.19 5.40 36.56 84.80 0.17 11.40 70.35 3.63 9.44 19.35 1.99 2.16 15.63 395.63

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.6.3

101

Asset to Labor: International Gaps

The following graphics summarize for pharmaceutical preparations manufacturing the large labor-asset gaps between firms operating in Japan and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Cash ($k/employee) 60

52.42

50

38.14

40 30

20.53 14.28

20 10 0 Japan

Asia

World Average

Gap

Gap: Short Term Investments ($k/employee) 81.81

100 50

21.97

29.49

0 -50

-59.84

-100 Japan

Asia

World Average

Gap

Gap: Receivables (Net) ($k/employee) 120

113.93

100 80

63.43

60

44.82

50.5

40 20 0 Japan

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Asia

World Average

Gap

2007 Icon Group International, Inc.

Financial Indicators

102

Gap: Current Assets - Total ($k/employee) 250

243.2 173.67

200 122.83

150 100

69.53

50 0 Japan

Asia

World Average

Gap

Gap: Property Plant and Equipment - Gross ($k/employee) 500

404.21

400 300 190.39

200

210.61

193.6

100 0 Japan

Asia

World Average

Gap

Gap: Buildings ($k/employee) 100

91.76

80 60 38.74

40

46.66

45.1

20 0 Japan

Asia

World Average

Gap

Gap: Rental/Lease Property ($k/employee) 250

230.51

224.32

200 150 100 24.83

50

6.19

0 Japan

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Asia

World Average

Gap

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Financial Indicators

103

Gap: Accumulated Depreciation - Total ($k/employee) 250

243.94

200

159.14

150 80.75

100

84.8

50 0 Japan

Asia

World Average

Gap

Gap: Accumulated Depreciation - Buildings ($k/employee) 60

59.46 48.06

50 40 30 20

11.06

11.4

10 0 Japan

Asia

World Average

Gap

Gap: Accumulated Depreciation -Machinery & Equipment ($k/employee) 200

161.87

150 91.52

100

63.45

70.35

50 0 Japan

Asia

World Average

Gap

Gap: Total Assets ($k/employee) 500

459.09 395.63

400

322.04

300 200 63.46

100 0 Japan

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Asia

World Average

Gap

2007 Icon Group International, Inc.

Financial Indicators

3.6.4

104

Key Percentiles and Rankings

We now consider the distribution of asset-labor ratios using ranks and percentiles across . What percent of countries have a productivity indicator lower or higher than Japan (what is the indicator's rank or percentile)? The table below answers this question with respect to asset-labor structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key asset-labor ratios are highlighted in additional tables. Asset Structure ($k/employee)

Japan

Rank of Total

Percentile

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Rental/Lease Property Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Accumulated Depreciation - Land Accumulated Depreciation - Buildings Accumulated Depreciation -Machinery & Equipment Accumulated Depreciation - Transportation Equipment Accumulated Depreciation - Other Prop & Equip Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

69.10 52.42 21.97 113.93 46.83 14.41 19.15 30.68 0.32 9.99 12.52 243.20 3.52 12.78 38.55 153.48 404.21 41.65 91.76 154.38 230.51 1.54 44.14 243.94 0.00 59.46 161.87 0.42 14.90 23.27 0.93 9.90 5.85 459.09

11 of 53 7 of 53 14 of 48 4 of 53 12 of 53 14 of 53 2 of 48 7 of 53 30 of 48 5 of 40 3 of 45 6 of 53 6 of 43 16 of 49 4 of 47 6 of 53 3 of 52 2 of 45 4 of 52 12 of 52 1 of 8 19 of 34 9 of 52 3 of 52 21 of 21 2 of 46 7 of 46 28 of 31 10 of 43 18 of 53 20 of 37 5 of 34 26 of 49 7 of 53

79.25 86.79 70.83 92.45 77.36 73.58 95.83 86.79 37.50 87.50 93.33 88.68 86.05 67.35 91.49 88.68 94.23 95.56 92.31 76.92 87.50 44.12 82.69 94.23 0.00 95.65 84.78 9.68 76.74 66.04 45.95 85.29 46.94 86.79

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

105

Cash & Short Term Investments Countries

Value ($K/employee)

Rank

Percentile

284.93 215.34 139.12 108.05 107.16 89.30 84.19 76.43 75.35 69.32 69.10 48.43 47.94 47.45 38.33 34.97 32.77 32.37 32.18 29.73 27.58 26.36 25.36 23.96 21.85 17.85 17.70 17.26 17.16 16.89 16.84 16.12 14.15 11.18 10.06 9.56 8.72 8.10 5.90 5.79 5.19 4.78 4.15 3.51 2.53

1 2 3 4 5 6 7 8 9 10 11 14 15 16 17 18 19 20 21 22 23 24 25 26 27 29 30 31 32 33 34 35 37 38 39 40 42 43 45 46 47 48 49 50 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 45.28 43.40 41.51 39.62 37.74 35.85 33.96 30.19 28.30 26.42 24.53 20.75 18.87 15.09 13.21 11.32 9.43 7.55 5.66 0.00

Region

_________________________________________________________________________________________________________

China South Korea Singapore Israel Ireland Taiwan USA Luxembourg Switzerland Canada Japan New Zealand Argentina Hong Kong Sweden France Philippines the United Kingdom Belgium Brazil Thailand Netherlands Australia Spain Norway Pakistan South Africa Denmark Malaysia Turkey Mexico Italy Germany Hungary Indonesia Chile Czech Republic Austria Finland Portugal Greece Poland Peru India Russia

Asia Asia Asia the Middle East Europe Asia North America Europe Europe North America Asia Oceana Latin America Asia Europe Europe Asia Europe Europe Latin America Asia Europe Oceana Europe Europe the Middle East Africa Europe Asia the Middle East Latin America Europe Europe Europe Asia Latin America Europe Europe Europe Europe Europe Europe Latin America Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

106

Cash & Short Term Investments (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

China South Korea Singapore Taiwan Japan Brunei Hong Kong Macau Burma Philippines Thailand Mongolia Malaysia Seychelles Indonesia Maldives Sri Lanka North Korea India Papua New Guinea Cambodia Laos Vietnam Bangladesh Bhutan Nepal

284.93 215.34 139.12 89.30 69.10 68.05 47.45 47.23 32.88 32.77 27.58 24.60 17.16 11.62 10.06 9.17 7.23 4.03 3.51 2.82 2.66 2.57 2.33 2.00 1.90 1.70

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

107

Receivables (Net) Countries

Value ($K/employee)

Rank

Percentile

294.22 129.76 127.10 113.93 111.06 110.14 98.53 94.25 91.79 90.01 72.72 71.40 67.59 63.78 60.30 58.16 58.15 57.49 52.88 48.98 47.64 46.22 45.11 44.32 43.31 38.53 37.76 35.35 35.25 33.44 30.80 30.12 29.19 28.17 27.48 26.80 26.26 24.25 22.88 22.76 20.70 20.58 19.38 13.37 7.40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 32 33 34 36 37 38 39 40 41 42 44 45 47 49 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 39.62 37.74 35.85 32.08 30.19 28.30 26.42 24.53 22.64 20.75 16.98 15.09 11.32 7.55 0.00

Region

_________________________________________________________________________________________________________

South Korea Greece Argentina Japan Israel Ireland China Belgium Taiwan Italy Spain France Australia Austria Germany the United Kingdom Canada USA Switzerland Portugal Denmark Sweden Brazil Netherlands Finland Peru Poland Turkey Mexico Norway Chile Luxembourg Singapore Malaysia Thailand New Zealand Hong Kong Czech Republic Philippines South Africa Hungary Russia India Indonesia Pakistan

Asia Europe Latin America Asia the Middle East Europe Asia Europe Asia Europe Europe Europe Oceana Europe Europe Europe North America North America Europe Europe Europe Europe Latin America Europe Europe Latin America Europe the Middle East Latin America Europe Latin America Europe Asia Asia Asia Oceana Asia Europe Asia Africa Europe Europe Asia Asia the Middle East

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

108

Receivables (Net) (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Macau Japan China Taiwan Brunei North Korea Singapore Malaysia Thailand Hong Kong Papua New Guinea Mongolia Burma Philippines Seychelles India Cambodia Laos Indonesia Vietnam Maldives Bangladesh Bhutan Sri Lanka Nepal

294.22 125.23 113.93 98.53 91.79 47.75 37.40 29.19 28.17 27.48 26.26 26.15 24.52 22.96 22.88 21.50 19.38 14.71 14.18 13.37 12.87 12.19 11.03 10.51 9.61 9.40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

109

Total Inventories Countries

Value ($K/employee)

Rank

Percentile

213.55 94.18 80.72 80.05 66.71 55.57 55.51 52.55 47.54 47.06 46.93 46.83 45.53 43.72 40.75 40.28 36.62 36.58 36.16 35.07 35.00 33.44 33.36 32.99 31.04 30.96 28.67 27.99 26.41 25.50 25.07 23.62 21.13 19.52 17.64 17.54 17.12 16.43 13.69 12.57 12.28 11.74 7.32 6.43 6.30

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 28 29 30 31 32 34 35 36 37 38 39 40 41 42 44 45 49 51 52

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 47.17 45.28 43.40 41.51 39.62 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 16.98 15.09 7.55 3.77 1.89

Region

_________________________________________________________________________________________________________

South Korea China Israel Ireland Taiwan Belgium Argentina Canada USA Switzerland Italy Japan Australia Finland France Austria Sweden Denmark Germany Luxembourg Greece Norway Netherlands Peru Turkey Mexico the United Kingdom Chile Brazil Spain Thailand Portugal Hungary Malaysia Poland Czech Republic Pakistan South Africa India Singapore Russia Philippines Indonesia New Zealand Hong Kong

Asia Asia the Middle East Europe Asia Europe Latin America North America North America Europe Europe Asia Oceana Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Latin America the Middle East Latin America Europe Latin America Latin America Europe Asia Europe Europe Asia Europe Europe the Middle East Africa Asia Asia Europe Asia Asia Oceana Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

110

Total Inventories (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea China Taiwan Macau Japan Brunei North Korea Thailand Papua New Guinea Mongolia Seychelles Malaysia India Singapore Burma Philippines Cambodia Laos Vietnam Bangladesh Bhutan Indonesia Maldives Nepal Hong Kong Sri Lanka

213.55 94.18 66.71 54.69 46.83 42.50 32.03 25.07 22.39 22.37 21.95 19.52 13.69 12.57 11.78 11.74 10.39 10.01 9.09 7.79 7.42 7.32 6.68 6.64 6.30 5.27

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

111

Current Assets - Total Countries

Value ($K/employee)

Rank

Percentile

737.66 487.31 299.83 297.36 247.80 243.20 234.62 204.92 184.22 183.34 182.83 182.75 172.28 170.10 150.56 143.94 142.66 125.67 123.54 120.31 116.57 114.95 106.08 103.41 103.26 96.94 90.88 85.86 85.63 82.10 82.02 80.45 78.95 77.21 70.57 69.30 65.22 60.78 57.03 55.02 51.41 44.59 39.73 35.73 32.35

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 32 33 35 37 38 39 40 41 43 44 45 47 48 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 33.96 30.19 28.30 26.42 24.53 22.64 18.87 16.98 15.09 11.32 9.43 5.66 3.77

Region

_________________________________________________________________________________________________________

South Korea China Israel Ireland Taiwan Japan Argentina USA Canada Switzerland Belgium Singapore Italy Greece France Luxembourg Australia Sweden the United Kingdom Spain Germany Austria Netherlands Brazil Denmark Finland Norway Turkey Mexico New Zealand Thailand Hong Kong Portugal Peru Chile Philippines Malaysia Poland South Africa Hungary Czech Republic Pakistan India Russia Indonesia

Asia Asia the Middle East Europe Asia Asia Latin America North America North America Europe Europe Asia Europe Europe Europe Europe Oceana Europe Europe Europe Europe Europe Europe Latin America Europe Europe Europe the Middle East Latin America Oceana Asia Asia Europe Latin America Latin America Asia Asia Europe Africa Europe Europe the Middle East Asia Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

112

Current Assets - Total (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea China Taiwan Japan Macau Singapore Brunei Thailand Hong Kong North Korea Mongolia Burma Philippines Malaysia Seychelles Papua New Guinea India Indonesia Cambodia Maldives Laos Vietnam Sri Lanka Bangladesh Bhutan Nepal

737.66 487.31 247.80 243.20 231.17 182.75 165.56 82.02 80.45 74.95 73.18 69.54 69.30 65.22 57.15 52.41 39.73 32.35 30.15 29.50 29.07 26.38 23.27 22.61 21.53 19.27

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

113

Property Plant and Equipment - Net Countries

Value ($K/employee)

Rank

Percentile

1073.86 758.82 324.55 270.07 233.88 153.48 137.82 115.63 110.25 108.06 101.96 101.34 101.20 97.07 97.02 86.95 75.27 73.99 69.80 69.52 69.46 69.45 69.22 68.56 65.93 62.11 61.92 61.41 60.68 59.15 58.91 57.68 56.74 49.69 48.35 46.44 43.34 43.22 36.70 29.31 29.28 29.08 29.00 28.42 16.97

1 2 3 4 5 6 7 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 40 41 43 45 46 47 48 49 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 24.53 22.64 18.87 15.09 13.21 11.32 9.43 7.55 3.77

Region

_________________________________________________________________________________________________________

South Korea Argentina Canada China Luxembourg Japan Spain Thailand Austria USA Chile Finland Switzerland Italy Brazil Singapore Netherlands Denmark Israel Malaysia Australia Norway Ireland Portugal the United Kingdom Czech Republic Sweden Hungary Peru Germany Greece Taiwan France Belgium Philippines India Turkey Mexico Pakistan Russia South Africa Poland New Zealand Hong Kong Indonesia

Asia Latin America North America Asia Europe Asia Europe Asia Europe North America Latin America Europe Europe Europe Latin America Asia Europe Europe the Middle East Asia Oceana Europe Europe Europe Europe Europe Europe Europe Latin America Europe Europe Asia Europe Europe Asia Asia the Middle East Latin America the Middle East Europe Africa Europe Oceana Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

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114

Property Plant and Equipment - Net (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Macau China Japan Thailand Mongolia Brunei Singapore Malaysia Seychelles North Korea Taiwan Burma Philippines India Papua New Guinea Cambodia Laos Vietnam Hong Kong Bangladesh Bhutan Nepal Indonesia Maldives Sri Lanka

1073.86 747.66 270.07 153.48 115.63 103.16 91.38 86.95 69.52 63.79 58.90 57.68 48.52 48.35 46.44 41.18 35.24 33.98 30.83 28.42 26.43 25.17 22.53 16.97 15.47 12.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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115

Accumulated Depreciation - Total Countries

Value ($K/employee)

Rank

Percentile

719.33 312.25 243.94 211.13 198.19 179.14 170.07 167.58 129.45 123.01 112.36 110.90 108.99 107.15 100.16 98.72 82.90 82.23 81.42 79.78 73.80 69.81 60.33 55.07 54.62 53.57 50.42 49.60 46.74 46.61 45.51 45.10 42.35 40.92 40.80 36.85 36.45 35.22 34.95 28.44 26.34 15.11 8.05 7.89

1 2 3 4 5 7 9 10 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 37 38 39 41 42 43 44 45 46 47 50 51

98.08 96.15 94.23 92.31 90.38 86.54 82.69 80.77 78.85 75.00 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 57.69 55.77 53.85 51.92 50.00 48.08 46.15 44.23 42.31 40.38 38.46 36.54 34.62 32.69 28.85 26.92 25.00 21.15 19.23 17.31 15.38 13.46 11.54 9.62 3.85 1.92

Region

_________________________________________________________________________________________________________

South Korea Canada Japan Portugal Finland Spain Peru Brazil Austria China Luxembourg Switzerland Italy Belgium Czech Republic Germany Netherlands USA Chile France Norway Thailand Denmark Israel Ireland Sweden Australia the United Kingdom Turkey Mexico Taiwan Pakistan Hungary Malaysia Greece Russia Singapore Poland Philippines India South Africa Indonesia New Zealand Hong Kong

Asia North America Asia Europe Europe Europe Latin America Latin America Europe Asia Europe Europe Europe Europe Europe Europe Europe North America Latin America Europe Europe Asia Europe the Middle East Europe Europe Oceana Europe the Middle East Latin America Asia the Middle East Europe Asia Europe Europe Asia Europe Asia Asia Africa Asia Oceana Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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116

Accumulated Depreciation - Total (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Japan North Korea China Papua New Guinea Brunei Thailand Mongolia Taiwan Seychelles Malaysia Singapore Burma Philippines India Cambodia Laos Vietnam Bangladesh Bhutan Indonesia Nepal Maldives Sri Lanka Hong Kong

719.33 243.94 165.08 123.01 115.43 100.15 69.81 62.28 45.51 43.99 40.92 36.45 35.08 34.95 28.44 21.58 20.81 18.88 16.19 15.42 15.11 13.80 13.78 10.87 7.89

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

96.00 92.00 88.00 84.00 80.00 76.00 72.00 68.00 64.00 60.00 56.00 52.00 48.00 44.00 40.00 36.00 32.00 28.00 24.00 20.00 16.00 12.00 8.00 4.00 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

117

Intangible Other Assets Countries

Value ($K/employee)

Rank

Percentile

93.38 85.68 85.19 74.27 73.66 61.38 59.55 50.50 47.61 39.30 36.86 30.15 29.03 28.32 27.55 26.22 26.03 20.10 17.46 15.30 14.93 14.66 8.31 6.76 5.85 4.45 4.36 4.24 2.73 2.69 2.47 2.40 1.75 1.73 1.65 1.29 1.15 0.85 0.84 0.59 0.38 0.22 0.14 0.14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 24 25 26 27 28 29 30 31 32 33 34 35 37 38 39 40 41 42 45 46 47 48

97.96 95.92 93.88 91.84 89.80 87.76 85.71 83.67 81.63 79.59 77.55 75.51 73.47 71.43 69.39 67.35 65.31 63.27 61.22 59.18 57.14 55.10 51.02 48.98 46.94 44.90 42.86 40.82 38.78 36.73 34.69 32.65 30.61 28.57 24.49 22.45 20.41 18.37 16.33 14.29 8.16 6.12 4.08 2.04

Region

_________________________________________________________________________________________________________

Argentina South Korea USA Israel Ireland Taiwan Belgium the United Kingdom Norway Sweden France Germany Switzerland Australia China Italy Canada Netherlands Denmark Luxembourg Chile Finland Spain South Africa Japan New Zealand Hong Kong Austria Poland Malaysia Portugal Hungary Pakistan India Russia Greece Czech Republic Thailand Singapore Indonesia Brazil Philippines Turkey Mexico

Latin America Asia North America the Middle East Europe Asia Europe Europe Europe Europe Europe Europe Europe Oceana Asia Europe North America Europe Europe Europe Latin America Europe Europe Africa Asia Oceana Asia Europe Europe Asia Europe Europe the Middle East Asia Europe Europe Europe Asia Asia Asia Latin America Asia the Middle East Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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118

Intangible Other Assets (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

92.01 85.68 61.38 27.55 26.22 5.85 4.36 2.69 2.49 1.73 1.31 1.27 1.15 0.98 0.94 0.85 0.84 0.84 0.76 0.59 0.54 0.42 0.22 0.22

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

95.83 91.67 87.50 83.33 79.17 75.00 70.83 66.67 62.50 58.33 54.17 50.00 45.83 41.67 37.50 33.33 29.17 25.00 20.83 16.67 12.50 8.33 4.17 0.00

_________________________________________________________________________________________________________

Macau South Korea Taiwan China Brunei Japan Hong Kong Malaysia Seychelles India Cambodia Laos Vietnam Bangladesh Bhutan Thailand Singapore Nepal Mongolia Indonesia Maldives Sri Lanka Burma Philippines

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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2007 Icon Group International, Inc.

Financial Indicators

3.7 3.7.1

119

PRODUCTIVITY IN JAPAN: LIABILITY-LABOR RATIOS Overview

In this chapter we consider the liability-labor ratios of companies operating in Japan benchmarked against global averages for pharmaceutical preparations manufacturing. For ratios where there are large deviations between Japan and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of productivity ratios is presented in the form of ranks and percentiles. Certain key liability-labor ratios are highlighted for pharmaceutical preparations manufacturing across countries in the comparison group. Definitions of liability statement terms are given in Chapter 3. In the case of liability-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. I then report the larger liability-labor ratio gaps for pharmaceutical preparations manufacturing that Japan has vis-àvis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

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Financial Indicators

3.7.2

120

Liability to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for pharmaceutical preparations manufacturing in Japan based on latest financial results available. Labor-liability Ratios ($k/employee) Japan Asia World Avg.

_________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision For Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Other Liabilities Total Liabilities Non-Equity Reserves Minority Interest Common Equity Common Stock Capital Surplus Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Retained Earnings Unrealized Foreign Exchange Gain/Loss Unrealized Gain/Loss on Marketable Securities Treasury Stock Total Liabilities & Shareholders Equity

57.85 56.46 5.23 5.42 41.49 153.33 40.45 40.44 0.01 20.71 0.03 -5.27 4.38 7.98 9.03 212.90 0.17 4.67 241.40 55.12 48.55 5.09 6.92 0.39 142.51 -0.88 2.94 2.32 459.09

25.57 45.82 2.44 5.12 19.59 94.50 35.65 35.52 0.13 7.94 0.42 2.97 19.29 4.51 13.38 151.75 0.28 21.20 146.85 39.89 47.32 5.70 14.21 18.41 36.29 -0.18 1.53 2.37 322.04

33.20 49.45 5.07 3.44 31.01 122.48 25.87 25.71 0.17 5.96 0.30 3.01 9.86 3.34 19.74 174.80 0.22 31.51 188.35 57.88 94.07 4.65 23.28 10.72 30.87 -0.25 0.79 2.91 395.63

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

3.7.3

121

Liability and Equity to Labor: International Gaps

The following graphics summarize for pharmaceutical preparations manufacturing the large labor-liability gaps between firms operating in Japan and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Accounts Payable ($k/employee) 60

57.85

50 40

33.2 25.57

30

24.65

20 10 0 Japan

Asia

World Average

Gap

Gap: Current Liabilities - Total ($k/employee) 200 153.33 150

122.48 94.5

100

30.85

50 0 Japan

Asia

World Average

Gap

Gap: Long Term Debt Excluding Capitalized Leases ($k/employee) 50

40.44

40

35.52 25.71

30 20

14.73

10 0 Japan

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Asia

World Average

Gap

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122

Gap: Provision For Risks and Charges ($k/employee) 25

20.71

20 14.75

15 7.94

10

5.96

5 0 Japan

Asia

World Average

Gap

Gap: Total Liabilities ($k/employee) 250

212.9

200

151.75

174.8

150 100 38.1

50 0 Japan

Asia

World Average

Gap

Gap: Minority Interest ($k/employee) 40 30 20 10 0 -10 -20 -30

31.51 21.2 4.67

-26.84 Japan

Asia

World Average

Gap

Gap: Common Equity ($k/employee) 250

241.4 188.35

200 146.85

150 100

53.05

50 0 Japan

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Asia

World Average

Gap

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123

Gap: Capital Surplus ($k/employee) 94.07

100 50

48.55

47.32

0 -45.52 Gap

-50 Japan

Asia

World Average

Gap: Other Appropriated Reserves ($k/employee) 30

23.28

20 10

14.21 6.92

0 -10 -16.36

-20 Japan

Asia

World Average

Gap

Gap: Retained Earnings ($k/employee) 150

142.51 111.64

100 36.29

50

30.87

0 Japan

Asia

World Average

Gap

Gap: Total Liabilities & Shareholders Equity ($k/employee) 500

459.09 395.63

400

322.04

300 200 63.46

100 0 Japan

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Asia

World Average

Gap

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3.7.4

124

Key Percentiles and Rankings

We now consider the distribution of liability-labor ratios using ranks and percentiles across . What percent of countries have a value lower or higher than Japan (what is the indicator's rank or percentile)? The table below answers this question with respect to liability-labor ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key liabilitylabor ratios are highlighted in additional tables. Liability Structure ($k/employee)

Japan

Rank of Total

Percentile

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision For Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Other Liabilities Total Liabilities Non-Equity Reserves Minority Interest Common Equity Common Stock Capital Surplus Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Retained Earnings Unrealized Foreign Exchange Gain/Loss Unrealized Gain/Loss on Marketable Securities Treasury Stock Total Liabilities & Shareholders Equity

57.85 56.46 5.23 5.42 41.49 153.33 40.45 40.44 0.01 20.71 0.03 -5.27 4.38 7.98 9.03 212.90 0.17 4.67 241.40 55.12 48.55 5.09 6.92 0.39 142.51 -0.88 2.94 2.32 459.09

4 of 53 9 of 53 13 of 37 11 of 46 4 of 53 6 of 53 16 of 53 16 of 53 27 of 30 6 of 48 15 of 20 43 of 43 11 of 28 8 of 29 8 of 45 9 of 53 17 of 27 14 of 48 6 of 53 11 of 53 12 of 48 15 of 35 26 of 51 36 of 41 2 of 52 22 of 33 2 of 9 12 of 27 7 of 53

92.45 83.02 64.86 76.09 92.45 88.68 69.81 69.81 10.00 87.50 25.00 0.00 60.71 72.41 82.22 83.02 37.04 70.83 88.68 79.25 75.00 57.14 49.02 12.20 96.15 33.33 77.78 55.56 86.79

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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125

Accounts Payable Countries

Value ($K/employee)

Rank

Percentile

228.03 88.64 73.70 57.85 57.37 53.12 50.73 48.08 47.42 39.56 38.41 37.33 34.08 33.99 28.84 25.99 25.78 24.03 23.94 23.57 22.26 22.25 21.49 21.48 21.14 20.82 19.53 19.51 19.36 18.62 16.69 15.23 12.36 11.36 11.09 11.01 10.50 9.15 8.84 7.41 7.35 6.83 5.39 5.28 5.18

1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 34 35 36 37 38 39 40 42 43 44 45 46 47 48

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 35.85 33.96 32.08 30.19 28.30 26.42 24.53 20.75 18.87 16.98 15.09 13.21 11.32 9.43

Region

_________________________________________________________________________________________________________

South Korea Argentina China Japan Belgium Canada Portugal Australia Italy Brazil France Spain Turkey Mexico USA Israel Ireland Luxembourg Austria Netherlands Peru Sweden Germany Taiwan the United Kingdom Norway South Africa Finland Poland Switzerland Denmark Thailand Hungary Malaysia Chile Greece India Pakistan Russia Singapore Czech Republic Philippines New Zealand Hong Kong Indonesia

Asia Latin America Asia Asia Europe North America Europe Oceana Europe Latin America Europe Europe the Middle East Latin America North America the Middle East Europe Europe Europe Europe Latin America Europe Europe Asia Europe Europe Africa Europe Europe Europe Europe Asia Europe Asia Latin America Europe Asia the Middle East Europe Asia Europe Asia Oceana Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

126

Accounts Payable (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Macau China Japan North Korea Taiwan Brunei Thailand Papua New Guinea Mongolia Seychelles Malaysia India Cambodia Laos Singapore Vietnam Burma Philippines Bangladesh Bhutan Hong Kong Indonesia Nepal Maldives Sri Lanka

228.03 87.33 73.70 57.85 21.60 21.48 16.82 15.23 15.11 13.59 12.84 11.36 10.50 7.97 7.69 7.41 6.97 6.86 6.83 5.98 5.69 5.28 5.18 5.10 4.72 3.73

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

127

Current Liabilities - Total Countries

Value ($K/employee)

Rank

Percentile

968.42 319.05 242.17 157.51 156.21 153.33 130.18 129.36 124.47 122.72 111.99 105.07 88.61 88.54 87.68 86.48 75.74 75.57 75.11 74.51 73.56 72.40 72.34 66.82 65.31 64.53 62.76 62.59 60.19 55.81 51.76 51.00 42.70 36.42 33.95 32.22 31.23 31.08 29.81 24.99 24.48 23.64 20.47 19.36 14.42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 32 33 34 36 37 38 39 40 41 43 44 45 49 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 32.08 30.19 28.30 26.42 24.53 22.64 18.87 16.98 15.09 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

South Korea China Argentina Israel Ireland Japan Taiwan Italy Belgium Brazil Greece Spain Singapore Austria Australia France Finland Switzerland USA Germany Canada Sweden Luxembourg the United Kingdom Portugal Netherlands Turkey Mexico Denmark Norway Thailand Peru Poland Chile Pakistan India South Africa Czech Republic Malaysia New Zealand Hong Kong Hungary Russia Philippines Indonesia

Asia Asia Latin America the Middle East Europe Asia Asia Europe Europe Latin America Europe Europe Asia Europe Oceana Europe Europe Europe North America Europe North America Europe Europe Europe Europe Europe the Middle East Latin America Europe Europe Asia Latin America Europe Latin America the Middle East Asia Africa Europe Asia Oceana Asia Europe Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

128

Current Liabilities - Total (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea China Macau Japan Taiwan Singapore Brunei Thailand North Korea Mongolia Papua New Guinea India Malaysia Seychelles Hong Kong Cambodia Laos Vietnam Burma Philippines Bangladesh Bhutan Nepal Indonesia Maldives Sri Lanka

968.42 319.05 238.61 153.33 130.18 88.61 68.24 51.76 49.50 46.18 34.62 32.22 29.81 24.55 24.48 24.44 23.57 21.39 19.43 19.36 18.33 17.46 15.63 14.42 13.15 10.37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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2007 Icon Group International, Inc.

Financial Indicators

129

Long Term Debt Countries

Value ($K/employee)

Rank

Percentile

279.65 248.45 140.81 126.24 120.02 119.03 99.19 89.58 56.25 51.51 49.40 48.10 41.95 40.45 38.21 36.83 30.19 29.57 28.53 28.08 25.31 23.09 22.30 21.39 19.80 18.16 16.84 15.51 13.39 12.60 10.26 9.95 7.84 7.63 6.53 6.02 3.88 3.76 3.53 3.46 2.75 1.67 1.67 1.33 0.20

1 2 3 4 5 6 7 8 9 10 11 12 14 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 32 33 34 35 37 38 39 40 41 42 43 44 45 48 49 51 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 73.58 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 33.96 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 9.43 7.55 3.77 0.00

Region

_________________________________________________________________________________________________________

South Korea Argentina Canada Luxembourg Israel Ireland Taiwan USA Norway Switzerland Finland Brazil Austria Japan Chile Denmark Netherlands Sweden the United Kingdom Italy Thailand Australia France Peru Germany India Spain Portugal Belgium Pakistan Malaysia China Russia Hungary South Africa Czech Republic Philippines Greece New Zealand Hong Kong Indonesia Turkey Mexico Poland Singapore

Asia Latin America North America Europe the Middle East Europe Asia North America Europe Europe Europe Latin America Europe Asia Latin America Europe Europe Europe Europe Europe Asia Oceana Europe Latin America Europe Asia Europe Europe Europe the Middle East Asia Asia Europe Europe Africa Europe Asia Europe Oceana Asia Asia the Middle East Latin America Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

130

Long Term Debt (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Macau Taiwan Brunei Japan Thailand Mongolia North Korea India Papua New Guinea Cambodia Laos Vietnam Bangladesh Malaysia China Bhutan Nepal Seychelles Burma Philippines Hong Kong Indonesia Maldives Sri Lanka Singapore

279.65 244.80 99.19 46.52 40.45 25.31 22.58 20.77 18.16 14.52 13.78 13.29 12.06 10.34 10.26 9.95 9.84 8.81 7.93 3.89 3.88 3.46 2.75 2.51 1.98 0.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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Financial Indicators

131

Total Liabilities Countries

Value ($K/employee)

Rank

Percentile

1563.45 545.98 389.99 289.44 288.58 286.19 238.50 233.31 212.90 191.32 179.47 178.80 165.39 158.14 152.33 145.14 144.98 135.16 133.04 121.53 119.86 117.66 115.04 114.23 107.87 105.76 95.16 88.59 80.44 80.27 77.41 71.44 71.24 58.31 51.17 45.75 43.86 42.26 40.44 32.29 30.35 29.42 28.83 23.72 18.30

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 33 34 38 39 40 41 42 43 44 47 48 49 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 37.74 35.85 28.30 26.42 24.53 22.64 20.75 18.87 16.98 11.32 9.43 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

South Korea Argentina China Canada Israel Ireland Taiwan Luxembourg Japan USA Brazil Italy Switzerland Austria Belgium Germany Spain France Finland Sweden Norway Greece Australia Netherlands the United Kingdom Denmark Singapore Portugal Peru Chile Thailand Turkey Mexico India Pakistan Poland Malaysia South Africa Czech Republic Hungary Russia New Zealand Hong Kong Philippines Indonesia

Asia Latin America Asia North America the Middle East Europe Asia Europe Asia North America Latin America Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Oceana Europe Europe Europe Asia Europe Latin America Latin America Asia the Middle East Latin America Asia the Middle East Europe Asia Africa Europe Europe Europe Oceana Asia Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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Financial Indicators

132

Total Liabilities (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Macau China Taiwan Japan Brunei Singapore North Korea Thailand Mongolia India Papua New Guinea Cambodia Malaysia Laos Vietnam Seychelles Bangladesh Bhutan Hong Kong Nepal Burma Philippines Indonesia Maldives Sri Lanka

1563.45 537.95 389.99 238.50 212.90 149.36 95.16 78.09 77.41 69.06 58.31 54.60 44.25 43.86 42.67 38.72 33.54 33.19 31.61 28.83 28.29 23.80 23.72 18.30 16.68 13.16

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

133

Common Equity Countries

Value ($K/employee)

Rank

Percentile

691.24 548.89 528.96 319.98 251.10 241.40 224.31 189.05 187.49 186.36 156.24 153.20 147.47 145.59 141.07 130.29 128.20 128.08 123.80 120.16 117.87 115.50 113.67 111.01 104.96 95.07 91.73 91.56 91.11 90.94 90.80 90.52 88.37 87.06 80.32 70.11 64.63 62.45 62.28 50.39 50.18 47.41 37.67 37.00 33.34

1 2 3 4 5 6 7 8 9 10 12 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 45 46 47 49 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 77.36 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 15.09 13.21 11.32 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

South Korea China Argentina Singapore Canada Japan USA Israel Ireland Switzerland Taiwan Belgium Luxembourg Thailand Spain Australia the United Kingdom Malaysia France Italy New Zealand Hong Kong Chile Greece Sweden Norway Denmark Hungary Austria Finland Germany Czech Republic Netherlands Philippines Brazil Peru Portugal Turkey Mexico South Africa Pakistan Poland India Russia Indonesia

Asia Asia Latin America Asia North America Asia North America the Middle East Europe Europe Asia Europe Europe Asia Europe Oceana Europe Asia Europe Europe Oceana Asia Latin America Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Asia Latin America Latin America Europe the Middle East Latin America Africa the Middle East Europe Asia Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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134

Common Equity (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea China Macau Singapore Japan Brunei Taiwan Thailand Mongolia Malaysia Hong Kong Seychelles Burma Philippines North Korea Papua New Guinea India Indonesia Maldives Cambodia Laos Vietnam Sri Lanka Bangladesh Bhutan Nepal

691.24 548.89 521.18 319.98 241.40 168.29 156.24 145.59 129.89 128.08 115.50 95.10 87.37 87.06 68.05 47.58 37.67 33.34 30.40 28.58 27.56 25.01 23.98 21.44 20.41 18.27

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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135

Retained Earnings Countries

Value ($K/employee)

Rank

Percentile

265.78 142.51 139.07 138.59 137.92 133.98 120.25 114.93 76.67 74.46 61.20 50.13 49.77 48.27 46.90 45.13 44.28 43.38 40.18 36.66 35.72 35.68 33.66 29.48 28.83 21.43 20.21 18.44 18.38 17.95 17.87 14.93 12.27 11.64 10.56 6.99 4.53 3.25 3.11 3.10 0.69 -1.72 -4.91 -6.85

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 37 41 43 45 46 47 49 50 51 52

98.08 96.15 94.23 92.31 90.38 88.46 86.54 84.62 82.69 80.77 78.85 76.92 75.00 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 57.69 55.77 53.85 51.92 50.00 48.08 46.15 44.23 42.31 40.38 38.46 36.54 34.62 28.85 21.15 17.31 13.46 11.54 9.62 5.77 3.85 1.92 0.00

Region

_________________________________________________________________________________________________________

South Korea Japan Israel Canada Ireland Switzerland USA Taiwan Luxembourg Denmark the United Kingdom Malaysia Belgium Hungary Austria Finland New Zealand Hong Kong China Chile Australia Germany South Africa Norway Netherlands Italy Czech Republic Thailand Spain France Sweden Brazil Philippines Indonesia Russia Peru Poland India Turkey Mexico Pakistan Argentina Portugal Greece

Asia Asia the Middle East North America Europe Europe North America Asia Europe Europe Europe Asia Europe Europe Europe Europe Oceana Asia Asia Latin America Oceana Europe Africa Europe Europe Europe Europe Asia Europe Europe Europe Latin America Asia Asia Europe Latin America Europe Asia the Middle East Latin America the Middle East Latin America Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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136

Retained Earnings (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Japan Brunei Taiwan Seychelles Malaysia Hong Kong China Thailand Mongolia Burma Philippines Indonesia Maldives Sri Lanka North Korea Papua New Guinea India Cambodia Laos Vietnam Bangladesh Bhutan Nepal Macau

265.78 142.51 120.99 114.93 50.14 50.13 43.38 40.18 18.44 16.45 12.31 12.27 11.64 10.62 8.37 6.79 4.75 3.25 2.47 2.38 2.16 1.85 1.76 1.58 -1.70

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

96.00 92.00 88.00 84.00 80.00 76.00 72.00 68.00 64.00 60.00 56.00 52.00 48.00 44.00 40.00 36.00 32.00 28.00 24.00 20.00 16.00 12.00 8.00 4.00 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.8 3.8.1

137

PRODUCTIVITY IN JAPAN: INCOME-LABOR RATIOS Overview

In this chapter we consider the income-labor ratios for pharmaceutical preparations manufacturing in Japan benchmarked against global averages. For ratios where there are large deviations between the average firm operating in Japan and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key income-labor ratios are highlighted across countries in the comparison group. In the case of income-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. We then report the larger income-labor ratio gaps for pharmaceutical preparations manufacturing that Japan has visà-vis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

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Financial Indicators

3.8.2

138

Income to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for pharmaceutical preparations manufacturing in Japan based on latest financial results available. Labor-income Ratios ($k/employee) Japan Asia World Avg.

_________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Pretax Equity In Earnings Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Pretax Income Income Taxes Current Domestic Income Tax Deferred Domestic Income Tax Minority Interest Equity in Earnings After Tax Other Income/Expense Net Income Before Extra Items/Prefer Dividends Net Income Before Preferred Dividends Net Income Available to Common

367.80 236.43 17.19 114.55 98.82 337.47 0.14 22.04 2.63 6.74 0.73 0.62 -0.13 19.92 2.07 17.88 8.11 10.41 -1.27 0.26 0.07 -0.01 9.52 9.52 9.52

204.50 134.34 11.34 53.42 37.89 211.87 15.61 21.22 3.49 2.51 1.82 0.11 6.85 29.30 6.67 23.34 4.28 2.76 0.03 1.32 0.82 -0.01 18.65 18.63 18.62

249.17 178.86 12.25 57.14 40.68 264.09 11.08 17.62 2.15 2.09 3.11 0.07 9.19 28.72 6.86 22.24 5.42 2.60 0.19 2.32 2.61 0.05 16.81 16.76 16.77

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.8.3

139

Income to Labor: Gaps

The following graphics summarize for pharmaceutical preparations manufacturing the large labor-income gaps between firms operating in Japan and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Net Sales or Revenues ($k/employee) 400

367.8

300

249.17 204.5

200

118.63

100 0 Japan

Asia

World Average

Gap

Gap: Cost of Goods Sold (Excluding Depreciation) ($k/employee) 250

236.43 178.86

200 134.34

150 100

57.57

50 0 Japan

Asia

World Average

Gap

Gap: Gross Income ($k/employee) 120

114.55

100 80 53.42

60

57.14

57.41

40 20 0 Japan

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Asia

World Average

Gap

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140

Gap: Selling, General & Administrative Expenses ($k/employee) 100

98.82

80 58.14

60 37.89

40

40.68

20 0 Japan

Asia

World Average

Gap

Gap: Other Operating Expenses ($k/employee) 400

337.47 264.09

300 211.87 200

73.38

100 0 Japan

Asia

World Average

Gap

Gap: Operating Expenses - Total ($k/employee) 20 15 10 5 0 -5 -10 -15

15.61 11.08 0.14

-10.94 Japan

Asia

World Average

Gap

Gap: Other Income/Expense Net ($k/employee) 9.19

10

6.85

5 0.13 0 -5 -9.06

-10 Japan

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Asia

World Average

Gap

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141

Gap: Earnings Before Interest and Taxes (EBIT) ($k/employee) 29.3

30

28.72

19.92 20 10 0 -10 Japan

Asia

World Average

-8.8 Gap

Gap: Current Domestic Income Tax ($k/employee) 12

10.41

10

7.81

8 6 4

2.76

2.6

2 0 Japan

Asia

World Average

Gap

Gap: Net Income Before Extra Items/Prefer Dividends ($k/employee) 18.65

20 15 10

16.81

9.52

5 0 -5

-7.29

-10 Japan

Asia

World Average

Gap

Gap: Net Income Available to Common ($k/employee) 18.62

20 15 10

16.77

9.52

5 0 -5

-7.25

-10 Japan

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Asia

World Average

Gap

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3.8.4

142

Key Percentiles and Rankings

We now consider the distribution of income-labor ratios using ranks and percentiles across . What percent of countries have a value lower or higher than Japan (what is the ratio's rank or percentile)? The table below answers this question with respect to income-labor ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key income-labor ratios are highlighted in additional tables. Income Structure ($k/employee)

Japan

Rank of Total

Percentile

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Pretax Equity In Earnings Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Pretax Income Income Taxes Current Domestic Income Tax Deferred Domestic Income Tax Minority Interest Equity in Earnings After Tax Other Income/Expense Net Income Before Extra Items/Prefer Dividends Net Income Before Preferred Dividends Net Income Available to Common

367.80 236.43 17.19 114.55 98.82 337.47 0.14 22.04 2.63 6.74 0.73 0.62 -0.13 19.92 2.07 17.88 8.11 10.41 -1.27 0.26 0.07 -0.01 9.52 9.52 9.52

6 of 53 8 of 53 9 of 53 5 of 53 3 of 48 7 of 53 38 of 43 15 of 53 7 of 30 7 of 39 41 of 51 4 of 26 47 of 53 26 of 53 41 of 53 22 of 53 10 of 52 3 of 40 31 of 36 17 of 41 18 of 28 6 of 8 26 of 53 25 of 53 26 of 53

88.68 84.91 83.02 90.57 93.75 86.79 11.63 71.70 76.67 82.05 19.61 84.62 11.32 50.94 22.64 58.49 80.77 92.50 13.89 58.54 35.71 25.00 50.94 52.83 50.94

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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143

Cost of Goods Sold (Excluding Depreciation) Countries

Value ($K/employee)

Rank

Percentile

1021.17 436.61 406.43 318.89 308.03 293.26 251.10 236.43 207.79 199.96 195.83 181.46 180.61 176.65 173.45 169.02 167.38 157.48 145.02 137.05 135.91 131.94 129.71 129.35 125.95 113.26 108.98 108.45 101.37 99.39 92.47 91.23 84.72 84.63 83.19 77.58 71.90 68.14 63.92 48.30 42.62 41.76 41.16 40.03 38.43

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 27 28 29 30 31 32 33 34 35 36 37 39 40 41 43 44 45 46 47 48

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 26.42 24.53 22.64 18.87 16.98 15.09 13.21 11.32 9.43

Region

_________________________________________________________________________________________________________

South Korea Argentina China Australia Canada Belgium Portugal Japan Brazil Netherlands USA Luxembourg Austria France Finland Germany Spain Italy Sweden Israel Ireland Switzerland Turkey Mexico Thailand Taiwan Denmark the United Kingdom Norway Peru Greece Hungary Poland South Africa Czech Republic Malaysia Chile India Pakistan Russia New Zealand Hong Kong Philippines Indonesia Singapore

Asia Latin America Asia Oceana North America Europe Europe Asia Latin America Europe North America Europe Europe Europe Europe Europe Europe Europe Europe the Middle East Europe Europe the Middle East Latin America Asia Asia Europe Europe Europe Latin America Europe Europe Europe Africa Europe Asia Latin America Asia the Middle East Europe Oceana Asia Asia Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

144

Cost of Goods Sold (Excluding Depreciation) (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Macau China Japan Thailand Brunei Taiwan Mongolia North Korea Seychelles Malaysia India Papua New Guinea Cambodia Laos Vietnam Hong Kong Burma Philippines Indonesia Bangladesh Singapore Bhutan Maldives Nepal Sri Lanka

1021.17 430.19 406.43 236.43 125.95 119.15 113.26 112.37 96.47 94.76 77.58 68.14 67.46 51.71 49.86 45.24 41.76 41.30 41.16 40.03 38.78 38.43 36.93 36.50 33.06 28.78

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

145

Selling, General & Administrative Expenses Countries

Value ($K/employee)

Rank

Percentile

305.16 115.49 98.82 96.52 83.35 82.86 77.79 77.55 75.57 75.38 72.00 64.05 59.04 58.55 58.55 54.51 48.79 42.86 37.87 32.77 31.30 30.59 30.16 29.98 29.90 29.36 28.62 24.92 24.40 22.67 19.76 19.37 16.80 15.48 13.77 12.40 12.14 11.18 10.03 7.95

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 29 30 31 32 33 34 35 36 39 40 41 43 47

97.92 95.83 93.75 91.67 89.58 87.50 85.42 83.33 81.25 79.17 77.08 75.00 72.92 70.83 68.75 66.67 64.58 62.50 60.42 58.33 56.25 54.17 52.08 50.00 47.92 45.83 43.75 39.58 37.50 35.42 33.33 31.25 29.17 27.08 25.00 18.75 16.67 14.58 10.42 2.08

Region

_________________________________________________________________________________________________________

South Korea France Japan USA Germany Argentina Sweden Switzerland China Denmark Italy Netherlands Israel Ireland the United Kingdom Norway Taiwan Singapore Canada Hungary Luxembourg Austria Greece Turkey Mexico South Africa Chile Poland Australia Spain New Zealand Hong Kong Peru Brazil Thailand Russia Malaysia Indonesia Pakistan India

Asia Europe Asia North America Europe Latin America Europe Europe Asia Europe Europe Europe the Middle East Europe Europe Europe Asia Asia North America Europe Europe Europe Europe the Middle East Latin America Africa Latin America Europe Oceana Europe Oceana Asia Latin America Latin America Asia Europe Asia Asia the Middle East Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

146

Selling, General & Administrative Expenses (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Japan Macau China Brunei Taiwan Singapore Seychelles Hong Kong North Korea Thailand Mongolia Malaysia Papua New Guinea Indonesia Maldives Sri Lanka India Cambodia Laos Vietnam Bangladesh Bhutan Nepal

305.16 98.82 81.64 75.57 70.03 48.79 42.86 34.03 19.37 16.31 13.77 12.28 12.14 11.40 11.18 10.19 8.04 7.95 6.03 5.82 5.28 4.52 4.31 3.86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

95.83 91.67 87.50 83.33 79.17 75.00 70.83 66.67 62.50 58.33 54.17 50.00 45.83 41.67 37.50 33.33 29.17 25.00 20.83 16.67 12.50 8.33 4.17 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

147

Operating Expenses - Total Countries

Value ($K/employee)

Rank

Percentile

332.39 66.37 45.68 40.15 26.50 18.30 13.01 12.54 9.66 9.60 9.41 9.19 8.15 7.99 6.78 6.46 5.43 5.09 4.89 4.81 4.64 3.41 2.95 2.91 2.84 2.60 1.98 1.10 1.09 0.51 0.23 0.19 0.14 0.07 0.04 -0.03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 20 22 23 24 25 26 27 28 29 30 31 32 35 36 37 38 39 40 43

97.67 95.35 93.02 90.70 88.37 86.05 83.72 81.40 79.07 76.74 74.42 72.09 69.77 67.44 65.12 62.79 60.47 53.49 48.84 46.51 44.19 41.86 39.53 37.21 34.88 32.56 30.23 27.91 25.58 18.60 16.28 13.95 11.63 9.30 6.98 0.00

Region

_________________________________________________________________________________________________________

South Korea Finland Australia Germany Spain France Austria Brazil Philippines New Zealand Hong Kong Netherlands Switzerland Czech Republic Hungary South Africa Singapore Russia the United Kingdom China Italy India Poland Canada Sweden Portugal Malaysia Belgium Peru USA Denmark Pakistan Japan Greece Indonesia Thailand

Asia Europe Oceana Europe Europe Europe Europe Latin America Asia Oceana Asia Europe Europe Europe Europe Africa Asia Europe Europe Asia Europe Asia Europe North America Europe Europe Asia Europe Latin America North America Europe the Middle East Asia Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

148

Operating Expenses - Total (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea Burma Philippines Hong Kong Brunei Seychelles Singapore China India Cambodia Laos Vietnam Malaysia Bangladesh Bhutan Nepal North Korea Papua New Guinea Japan Indonesia Maldives Sri Lanka Mongolia Thailand

332.39 9.70 9.66 9.41 7.36 7.04 5.43 4.81 3.41 2.59 2.50 2.27 1.98 1.94 1.85 1.66 1.06 0.74 0.14 0.04 0.04 0.03 -0.02 -0.03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

95.83 91.67 87.50 83.33 79.17 75.00 70.83 66.67 62.50 58.33 54.17 50.00 45.83 41.67 37.50 33.33 29.17 25.00 20.83 16.67 12.50 8.33 4.17 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

149

Operating Income Countries

Value ($K/employee)

Rank

Percentile

158.36 83.44 54.14 53.69 53.52 44.74 36.92 29.17 25.27 24.57 23.89 23.88 23.63 22.44 22.04 20.51 20.39 20.09 19.89 19.72 19.69 18.73 18.67 18.66 18.42 17.89 17.17 15.61 15.37 14.69 13.80 13.28 12.75 11.21 11.01 9.95 9.12 8.84 8.43 8.23 7.82 6.97 6.33 6.30 3.80

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 27 29 31 32 33 34 35 36 37 38 39 41 42 43 44 46 47 48 49 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 49.06 45.28 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 22.64 20.75 18.87 16.98 13.21 11.32 9.43 7.55 0.00

Region

_________________________________________________________________________________________________________

Argentina South Korea Israel Ireland USA Taiwan Canada Switzerland France Singapore Chile the United Kingdom Australia Denmark Japan Sweden Netherlands New Zealand Belgium China Hong Kong Turkey Mexico Thailand Brazil Czech Republic Germany Pakistan South Africa Luxembourg Norway Peru Greece Hungary Italy Finland India Spain Indonesia Malaysia Portugal Poland Austria Philippines Russia

Latin America Asia the Middle East Europe North America Asia North America Europe Europe Asia Latin America Europe Oceana Europe Asia Europe Europe Oceana Europe Asia Asia the Middle East Latin America Asia Latin America Europe Europe the Middle East Africa Europe Europe Latin America Europe Europe Europe Europe Asia Europe Asia Asia Europe Europe Europe Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

150

Operating Income (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

Macau South Korea Taiwan Brunei Singapore Japan China Hong Kong Thailand Mongolia North Korea Seychelles India Papua New Guinea Indonesia Malaysia Maldives Cambodia Laos Burma Philippines Sri Lanka Vietnam Bangladesh Bhutan Nepal

156.03 83.44 44.74 26.34 24.57 22.04 19.72 19.69 18.66 16.65 12.89 11.64 9.12 9.01 8.43 8.23 7.69 6.92 6.67 6.32 6.30 6.06 6.05 5.19 4.94 4.42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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151

Earnings Before Interest and Taxes (EBIT) Countries

Value ($K/employee)

Rank

Percentile

246.39 138.24 57.23 56.76 56.01 53.25 47.30 35.19 34.46 31.05 30.39 29.54 28.73 27.82 26.97 26.90 26.83 26.38 25.71 24.91 23.57 22.01 21.96 20.46 19.92 19.88 19.48 18.14 17.59 17.02 16.43 16.34 15.97 15.92 14.16 11.94 10.65 9.81 9.76 8.62 8.13 7.72 6.90 6.61 6.26

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 21 22 23 24 25 26 27 28 29 30 31 32 33 34 36 38 39 40 42 43 45 46 47 48 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 32.08 28.30 26.42 24.53 20.75 18.87 15.09 13.21 11.32 9.43 5.66 3.77

Region

_________________________________________________________________________________________________________

Argentina South Korea Israel Ireland China USA Taiwan Switzerland Brazil Australia Singapore Canada France Belgium Turkey Mexico the United Kingdom Germany Sweden Denmark Thailand Luxembourg Netherlands Chile Japan New Zealand Hong Kong Greece Czech Republic Pakistan South Africa Spain Italy Austria Peru India Hungary Malaysia Poland Portugal Finland Norway Philippines Russia Indonesia

Latin America Asia the Middle East Europe Asia North America Asia Europe Latin America Oceana Asia North America Europe Europe the Middle East Latin America Europe Europe Europe Europe Asia Europe Europe Latin America Asia Oceana Asia Europe Europe the Middle East Africa Europe Europe Europe Latin America Asia Europe Asia Europe Europe Europe Europe Asia Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

152

Earnings Before Interest and Taxes (EBIT) (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

Macau South Korea China Taiwan Brunei Singapore Thailand Mongolia Japan Hong Kong North Korea India Seychelles Malaysia Papua New Guinea Cambodia Laos Vietnam Burma Philippines Bangladesh Bhutan Indonesia Nepal Maldives Sri Lanka

242.77 138.24 56.01 47.30 31.78 30.39 23.57 21.02 19.92 19.48 13.74 11.94 11.06 9.81 9.61 9.06 8.73 7.93 6.92 6.90 6.79 6.47 6.26 5.79 5.71 4.50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

153

Pretax Income Countries

Value ($K/employee)

Rank

Percentile

171.05 98.88 51.60 51.17 47.55 46.88 42.64 30.65 30.32 28.84 26.92 25.25 23.64 22.92 21.14 20.43 19.99 19.91 19.77 19.37 18.42 17.88 15.92 15.78 14.56 14.29 13.68 13.31 12.86 11.15 11.12 10.04 9.77 9.47 9.32 8.78 8.64 8.30 8.21 7.86 7.00 3.82 3.80 2.79 2.41

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 29 30 32 33 35 36 37 38 39 40 41 42 43 47 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 45.28 43.40 39.62 37.74 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 11.32 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Argentina South Korea Israel Ireland USA China Taiwan Switzerland Australia Singapore France Belgium the United Kingdom Germany Sweden Thailand Canada Denmark New Zealand Hong Kong Netherlands Japan South Africa Chile Pakistan Greece Hungary Czech Republic Luxembourg Turkey Mexico Spain Peru Austria Italy Malaysia Philippines India Indonesia Poland Portugal Finland Russia Brazil Norway

Latin America Asia the Middle East Europe North America Asia Asia Europe Oceana Asia Europe Europe Europe Europe Europe Asia North America Europe Oceana Asia Europe Asia Africa Latin America the Middle East Europe Europe Europe Europe the Middle East Latin America Europe Latin America Europe Europe Asia Asia Asia Asia Europe Europe Europe Europe Latin America Europe

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Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Pretax Income (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

Macau South Korea China Taiwan Singapore Brunei Thailand Hong Kong Mongolia Japan Seychelles North Korea Malaysia Burma Philippines India Indonesia Maldives Papua New Guinea Cambodia Laos Sri Lanka Vietnam Bangladesh Bhutan Nepal

168.54 98.88 46.88 42.64 28.84 27.68 20.43 19.37 18.23 17.88 14.21 9.48 8.78 8.67 8.64 8.30 8.21 7.48 6.63 6.30 6.08 5.90 5.51 4.73 4.50 4.03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

96.15 92.31 88.46 84.62 80.77 76.92 73.08 69.23 65.38 61.54 57.69 53.85 50.00 46.15 42.31 38.46 34.62 30.77 26.92 23.08 19.23 15.38 11.54 7.69 3.85 0.00

_________________________________________________________________________________________________________

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Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Income Taxes Countries

Value ($K/employee)

Rank

Percentile

30.41 14.68 10.21 9.26 9.08 9.00 8.97 8.76 8.69 8.11 8.05 7.70 7.60 7.24 7.23 7.19 6.52 6.44 6.31 4.99 4.38 3.73 3.72 3.69 3.69 3.40 3.39 3.31 3.28 3.10 2.95 2.85 2.63 2.58 2.56 2.28 2.27 1.92 1.86 1.59 0.96 0.59 0.41 -0.85

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 32 34 35 36 37 38 40 41 43 44 47 48 49 50 52

98.08 96.15 94.23 92.31 90.38 88.46 86.54 84.62 82.69 80.77 78.85 76.92 75.00 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 57.69 55.77 53.85 51.92 50.00 48.08 46.15 44.23 38.46 34.62 32.69 30.77 28.85 26.92 23.08 21.15 17.31 15.38 9.62 7.69 5.77 3.85 0.00

Region

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South Korea USA France China Australia Singapore Belgium Israel Ireland Japan Canada the United Kingdom Germany Taiwan Switzerland Denmark Sweden Czech Republic Netherlands South Africa Chile Poland Greece Pakistan Italy Turkey Mexico Spain Norway Peru Thailand India New Zealand Hong Kong Philippines Indonesia Malaysia Austria Luxembourg Russia Finland Hungary Portugal Brazil

Asia North America Europe Asia Oceana Asia Europe the Middle East Europe Asia North America Europe Europe Asia Europe Europe Europe Europe Europe Africa Latin America Europe Europe the Middle East Europe the Middle East Latin America Europe Europe Latin America Asia Asia Oceana Asia Asia Asia Asia Europe Europe Europe Europe Europe Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Income Taxes (Pharmaceutical Preparations Manufacturing) Countries in Asia

Value ($K/employee)

Rank

Percentile

South Korea China Singapore Japan Taiwan Brunei North Korea Thailand India Mongolia Hong Kong Burma Philippines Indonesia Malaysia Cambodia Papua New Guinea Laos Maldives Vietnam Sri Lanka Bangladesh Bhutan Nepal Seychelles

30.41 9.26 9.00 8.11 7.24 6.53 3.01 2.95 2.85 2.64 2.58 2.57 2.56 2.28 2.27 2.16 2.11 2.09 2.08 1.89 1.64 1.62 1.55 1.38 0.62

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

96.00 92.00 88.00 84.00 80.00 76.00 72.00 68.00 64.00 60.00 56.00 52.00 48.00 44.00 40.00 36.00 32.00 28.00 24.00 20.00 16.00 12.00 8.00 4.00 0.00

_________________________________________________________________________________________________________

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Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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4

MACRO-ACCESSIBILITY IN JAPAN

4.1

EXECUTIVE SUMMARY

Japan is a vibrant, prosperous country, with the world’s second largest economy. Japanese consumers spend hundreds of billions of dollars on food, clothing, travel, entertainment and a wide variety of other consumer goods and services. The top Japanese firms are among the most efficient and best-run firms in the world. Unemployment, while high by historic Japanese standards, is around 4.7% -- lower than in most developed countries. The average Japanese household has around $90,000 in savings, and disposable income of $3,800 per month. Japan is the largest overseas market for U.S. exporters. However, the prosperous Japan described in the preceding paragraph is not the Japan that most Americans have been reading or hearing about. Japan’s economic malaise is well known: •

A decade or more of slow or no growth

•

A banking system struggling to deal with a crushing bad loan problem

•

Several years of deflation

•

Soaring government debt

•

Unprofitable and often uncompetitive domestic firms

•

A political system seemingly incapable of taking the decisive action necessary to fix these problems

These problems are real, and they are serious. However, considerable reform has taken place, particularly at the corporate level. Structural reform of the economy is key for Japan to return to the path of strong growth. Of particular concern is the non-performing loan (NPL) problem. It is unclear how much bad debt there is in the banking sector -- the Japanese Government’s official estimate of the volume of NPLs is approx. $290 billion, or around 6% of GDP, but private analysts’ estimates range as high as 17 percent of GDP. Japan has sufficient resources to clean up the bad-loans in its banking system without provoking a crisis. Other key concerns are de-regulation, and ending deflation. The government has taken steps to address all of these areas, but thorough-going reform will require difficult, painful measures, and it remains to be seen if Japan can muster the political will to deal aggressively with these problems. The fact remains, however, that for most U.S. firms the prospects for structural reform in the Japanese economy are less important than the fact that Japan remains the largest overseas market for U.S. goods and services. And in many ways, opportunities for competitive U.S. companies in the world’s second largest economy are better than they have ever been. Japan’s consumers buy American products ranging from music to furniture. Japanese consumers eat almost 60 percent of the cherries the U.S. sends overseas, and the over four million plus Japanese who visit the United States each year buy more than $12 billion worth of plane tickets, hotel rooms, restaurant meals, souvenirs and other goods and services. Japanese firms are major purchasers of U.S. computers, machinery, medical devices, pharmaceuticals, chemicals and services. As the Japanese economy has weakened, Japanese consumers have become more willing to buy imported products and work for foreign firms; and Japanese firms have become more willing to accept foreign investment and cooperate with foreign partners. Market barriers have fallen across the board, and Japan has never been more open to foreign goods and services than it is today. The contrast between the serious macroeconomic situation that Japan faces and the significant opportunities that exist in the Japanese market for competitive U.S. firms is a theme that runs through this Country Commercial Guide. Contradictions abound. Although a well-known coterie of Japanese firms are world-class competitors, many Japanese firms are inefficient and uncompetitive in world markets. Japanese firms tend to have very poor margins, and few Japanese firms make an adequate return on their invested capital. Competition from fast-rising competitors www.icongrouponline.com

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- particularly China and Korea -- is increasing. Government debt has been climbing steadily over the last decade, and now exceeds 160 percent of GDP. Local government debt, corporate debt and consumer debt are all high as well. But Japan also has fundamental strengths that are easily overlooked amidst the torrent of bad news. Japan has an enormous base of capital -- physical, human and financial -- that has been created over the past 50 years. Japanese society and its political system are stable. Japan has an industrious, educated population and a cadre of world-class manufacturers. Japan has a history of economic success in the face of daunting obstacles. And finally, Japan is rich. U.S. firms will find excellent markets for their goods and services across a broad range of sectors. Financial services will continue to be a growth area as Japan works through its banking problems and attempts to make its capital markets more efficient. Firms in the energy business will find new opportunities as Japan deregulates its power generation market and studies the privatization of the national oil exploration company. Japan’s population is aging, and there are growing opportunities in the “silver services” sector, services for the increasingly healthy, affluent seniors. Japan’s government has an ambitious program to increase the use of information technologies throughout Japanese society, which will open up new opportunities for U.S. suppliers of IT equipment and services. Japan’s consumers are rich, sophisticated and highly diverse in their interests and tastes, and U.S. firms that can find a way to cater to those tastes and interests will find that the world’s second largest consumer market can be very profitable. More information on these and other markets of opportunity can be found in the “Leading Sectors for U.S. Exports and Investment” section of this report. Optimism about the opportunities in this four trillion dollar economy must be tempered with realism. While Japan is more open to foreign goods and services today than it has ever been, Japan’s reputation for protectionism, red tape, collusion and competitiveness is well deserved. This is still a difficult market. Although blatant protectionism has mostly disappeared -- with the major exception of agriculture -- the Japanese economy remains over-regulated, and those regulations can be used to hinder foreign firms’ attempts to gain access to the market. Even when government red tape is not meant to hinder foreign firms, in areas such as transportation equipment or healthcare it often has that effect. Moreover, despite the government’s active role in the economy, collusive practices among local firms are still widely tolerated -- especially in more traditional industries such as construction, and the manufacture of basic materials such as steel, chemicals, paper and glass. Finally, straightforward business competition in Japan can be ruthlessly fierce. When faced with a new foreign competitor, Japanese firms will often use any tactic available -from severe price cutting to pressuring clients and customers -- to keep the foreign competitor from succeeding. The above-mentioned difficulties notwithstanding, the bottom line is that the size of the market opportunities in Japan dwarfs any other overseas market, and competitive U.S. companies should be here.

4.2

ECONOMIC TRENDS AND OUTLOOK

Japan is the United States’ largest non-NAFTA trading partner. It is also the world’s second largest economy. Japan’s annual output is almost equivalent to that of Germany and France combined. It is roughly three and a half times the annual output of China, and nine times that of India. The pressing need for Japanese firms to restructure and lower costs has been felt in terms of layoffs or reductions in salaries, wages, and bonuses. At the same time, however, the push to find more cost-effective ways of doing business has led to a reexamination of traditional keiretsu and other buyer-supplier relationships. Manufacturers have begun to look for ways to bring in high-quality, low-cost components and materials from foreign suppliers. Should such developments continue, overseas suppliers will see new opportunities in some areas of the Japanese market, although they will be challenged to supply products at competitive prices. The ongoing process of financial and corporate restructuring also means that opportunities for foreign direct and portfolio investment are on the rise. With banks focused on consolidation and balance sheet improvement, Japanese firms are increasingly looking overseas for investment capital. Further, consolidation and reorganization throughout www.icongrouponline.com

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the Japanese corporate sector has led to a wave of asset sales--properties, plant and equipment, and subsidiary companies--as firms seek to spin-off poorly performing or non-core elements of their operations. Some of the most noteworthy foreign investment deals in recent years have occurred in the financial sector, where the failure of some institutions and the need to return nationalized assets to private hands led to a relaxation of long-standing barriers and negative attitudes toward foreign investment. Business tie-ups, joint ventures, and distribution affiliations between foreign and Japanese financial services providers have also accelerated as new opportunities arise as a result of financial deregulation. Improvements in land and labor mobility have also raised new possibilities for greenfield investment, although entry costs for some industries still remain high. A key demographic trend with profound implications for Japan in years to come is the aging of its population. Because individual health care expenditures rise rapidly after the age of 60, the graying of Japan’s population will lead to a substantial rise in spending on health care over the next three decades. By 2025, the Ministry of Health and Welfare predicts that more than one in four Japanese will be 65 or older (up from about one in seven now). As a result of this demographic shift, fewer workers will have to support more retirees, and productivity per worker will need to climb to maintain national output. This will have implications for the pattern of demand, with greater opportunities in health care and retirement industries.

4.2.1

Dynamic Markets

Following the U.S.-Japan Framework Agreement of 1993, new opportunities developed for U.S. companies to sell to Japanese Government entities, especially in the fields of computer hardware and software, telecommunications, medical equipment, pharmaceuticals and construction services. In recent years, the Japanese Government has taken several measures to increase access for foreign suppliers to the government procurement market. They voluntarily expanded the number of agencies and lowered the threshold procurement amount covered under WTO rules. In addition, they revised the following procurement activities so that they now: •

Hold annual seminars to provide anticipated procurement information

•

Provide more transparency through public announcements

•

Provide advance notice of single tendering procedures

•

Provide separate announcements for procurement under the WTO

•

Provide an on-line system for Internet access to all GOJ procurement announcements

•

Use the overall-greatest-value evaluation method for telecommunications and medical technology products over 800,000 SDR’s

•

Use complaint review procedures

A wide range of construction projects is now open to competitive bidding. Construction tenders are regularly announced in the industry newspapers “Kensetsu Kogyo Shimbun and Kensetsu Tsushin Shimbun.” Under the WTO Agreement, to which Japan is a signatory, 47 prefectures and 12 government-designated cities have begun to improve opportunities for motivated U.S. companies to sell to Japanese local governments. Japan is the world’s second largest market for information technology equipment and services (telecommunications, computers, peripherals, software, and multimedia). Current investment in telecommunications infrastructure is $40 billion annually. Japan’s recent exponential growth in the market demand for networking, for IP/broadband-based communications, Internet applications, wireless communications (3G, wireless LAN, etc), and satellite communications is expected to continue for the next decade. Surveys have shown that Japanese houses are two to three times more expensive than equivalent American houses, and many Japanese people are not satisfied with either the quality or price of their current housing stock. In contrast, www.icongrouponline.com

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imported American-style homes are regarded as offering high quality, low cost, and earthquake resistance. Hundreds of U.S. companies in building materials, manufactured housing and home building industries are already working with Japanese companies to build American-style 2x4 platform frame construction homes in Japan. Over the next several years, a multitude of new opportunities should be seen in regional markets outside Tokyo as price-pressured key buyers show increased receptivity to foreign-supplied goods in leisure, as the Japanese worker finds more time and money to spend off the job; in retirement communities and health care with the “graying” of Japanese society, as well as in meeting the needs of the handicapped; and in changing and broadening consumer tastes, as the Japanese consumer has become more cosmopolitan with greater exposure to foreign products. Pressure to reduce Japan’s large fiscal deficit will inevitably have some impact on infrastructure spending, particularly in such traditional priorities as roads and airports. However, new areas such as information technology infrastructure and a continued shortage of housing will still provide opportunities for foreign suppliers. In the final analysis, even an economically sluggish Japan remains a prime market that should not be ignored or neglected. Major regional opportunities are described below.

Tokyo The population of metropolitan Tokyo and the neighboring prefectures of Kanagawa, Saitama, and Chiba exceeds 31 million, equivalent to the New York and Los Angeles metropolitan areas combined. Tokyo is the governmental, business, higher education, information, media, fashion, and cultural center of Japan. Most major Japanese companies, trade associations, and foreign companies have their headquarters or major branches in Tokyo. A presence in Japan usually means a presence in Tokyo. Despite the high cost of residential and commercial office space, most U.S. companies establish a presence in Tokyo because of the need to interface with their Japanese customers, obtain market information and, in many cases, to maintain relations with Japanese government ministries. Consumers in Tokyo are more likely to come into contact with foreign products, food and styles than elsewhere in Japan, and consumer trends and fashion often originate in Tokyo.

Kansai “Kansai” is the historical name given to the nine-prefecture region of western-central Japan, consisting of Osaka, Hyogo, Kyoto, Shiga, Nara, Wakayama, Mie, Fukui, and Tokushima (note: these last three prefectures are also “claimed” by other regions). The Kansai region has a richly varied topography and covers an area with a radius of approximately 150 km (95 miles). While occupying only 10% of Japan’s total land area, the Kansai has a population of some 24 million people (19% of Japan’s total), mainly concentrated in the cities of Osaka, Kobe, Kyoto and Nara. The Kansai region is Japan’s second-largest industrial, financial, commercial and population center after the Tokyo area (Kanto). It is the birthplace of the country’s trading companies, home to several of the world’s largest banks, the world’s fourth-largest stock market, and scores of the world’s largest corporations. Kansai offers many advantages to American companies looking to enter the Japanese market. Lower prices than Tokyo provide an incentive for firms to conduct business in the Kansai area -- the average office rental price is approximately 80% of Tokyo’s and the initial deposit can be less than a third; labor and housing costs are also much lower than Tokyo’s. Nevertheless, Osaka is the third most expensive city in the world, according to a well-known survey; Tokyo is the first. The region affords superb transportation, communication and other infrastructure support. In addition, there is a progressive environment with a pragmatic, non-bureaucratic business orientation and the willingness to innovate. Kansai is the home of tens of thousands of important Japanese companies and the center of Japan’s textile and apparel, sporting goods, electronic component, pharmaceutical and chemical industries. Eighty-eight Japanese corporations were listed in “The Fortune Global 500” (July 22, 2002), of which 23 were Kansai-based companies. In addition to being the headquarters of such large companies as Sumitomo, Matsushita, Sanyo, Minolta and Sharp, the region is also a center of medium and small enterprises, which provide employment to 92 percent of the local work force. Many of Japan’s foremost trading companies started in Osaka, a city with a population of over 2.6 million (8.8 million in Osaka Prefecture, 7% of Japan’s total population). The highly www.icongrouponline.com

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competitive and entrepreneurial Osaka business community is always willing to try new ideas. For example, Japanese instant noodles, “karaoke,” business hotels, automatic vending machines and underground shopping malls all made their debut in the Kansai before being adopted in other parts of Japan, making Kansai a great point of entry. Consumers in the Kansai have a reputation for being particularly choosy and demanding, so that many companies, including Procter and Gamble, consider the area to be a great place to do product testing and market acceptability studies. Although the numbers are down over the last several years, Kansai local governments (Hyogo and Osaka Prefectures and the cities of Kobe and Osaka in particular) still have public works projects planned that amount to several hundred billion dollars. As in previous years these consist of massive land reclamation and improvement, complexes for commercial use, industrial and research facilities, and waterworks and waterfront projects (e.g. Kansai International Airport, Kansai Science City, the Ashiyagawa Island Development Project, the Asia and Pacific Trade Center and the North Hankyu Rail Urban Redevelopment Project). Incubation facilities, such as Imedio (Incubator for Multimedia Industry Osaka), the Business Innovation Center Osaka, Kyoto Research Park (KRP), and the Kobe Industrial Promotion Center, offer office space as well as consultation services for new businesses. While not available until recently, such business incubator space, tax breaks for new businesses, and other economic development incentives are now increasingly commonplace. Kansai also has great strengths in the biotechnology field with a concentration of pharmaceutical, chemical, textile, and precision machinery companies that have diversified into the bio-genome industry. Along with these private companies are many national, prefectural and university-affiliated research laboratories, creating a community of researchers, academics and businesspersons. With more than 1,000 private research institutions in the Kansai, as well as an accumulation of university research institutions, Kansai is a hub for research and development in Japan. This works to promote technology transfer and exchange of technical information as well as to support the establishment of venture companies resulting from their research. Over one-third of foreign affiliates operating in Kansai are in the manufacturing sector, including chemicals and pharmaceuticals, general machinery and electrical machinery, while the rest are engaged in non-manufacturing areas such as the wholesaling of machinery, chemicals, and consumer goods, as well as the information technology and service sectors. One of the most significant recent trends has been the rapid expansion of U.S. companies in the retail sector with store openings for CostCo, Office Depot, Ace Hardware, Tiffany’s and Chelsea Premium Outlets over the past several years. The Starbucks and Seattle’s Best coffee house chains have also been expanding apace. Because of its geographical and traditional proximity to the Asian continent, trade with Asia is particularly large in the Kansai region. More than 50% of Kansai’s exports and imports are within Asia. Commercial Service Osaka-Kobe aggressively promotes and advocates for American companies, especially in public works projects, sporting goods, apparel, textile, housing, as well as medical, biotechnology, environmental, and hightech industries. Working closely with the American Chamber of Commerce in Japan (ACCJ) and other regional multipliers, CS Osaka helps promote American products, services and tourism through a number of ways and means such as targeted events, U.S. Pavilions at trade fairs, market research on emerging commercial opportunities, business counseling, networking, partnership searches, key introductions, and advocacy. For more information visit our CS Japan Web site at: http://www.buyusa.gov.

Chubu Region Strategically located midway between the Tokyo and Osaka metropolitan areas, the Chubu Region of Japan consists of nine prefectures, Aichi, Ishikawa, Fukui, Gifu, Mie, Nagano, Shizuoka, Toyama, and Yamanashi, clustered together in the center of Honshu, Japan’s largest island (though some of these prefectures are also claimed by other regions, as noted above). Taken together, these nine prefectures have a total population of 21 million, making Chubu the third most populous region in the country. Most of the region’s population and industry is concentrated along the Pacific coast, in an area known as the Tokai Region (Aichi, Gifu, Shizuoka, and Mie Prefectures). www.icongrouponline.com

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Chubu is the manufacturing heartland of Japan and an export powerhouse. Supported by well-developed infrastructure and advanced manufacturing technology, the region is home to world-class Japanese manufacturers Toyota Motor Corporation, Daido Steel, Brother Industries, Makita, Denso Corporation, Yamazaki Mazak, INAX, Suzuki Motor, Yamaha, Noritake, NGK Insulators, and many others. The region as a whole accounts for roughly 17 percent of Japan’s GNP and roughly half of Japan’s total trade surplus with the United States. The political, economic, and transportation center of the region is the City of Nagoya and surrounding Aichi Prefecture. Aichi ranks first among all Japanese prefectures in terms of the monetary value of its product shipments. Nagoya is one of Japan’s premier industrial and technological centers as well as a huge market in its own right. Despite being a major economic center, the city is well known for its high quality of life and competitive business costs. Housing costs and office rents are substantially below those found in Tokyo or Osaka. The city government and the Nagoya Chamber of Commerce and Industry have been actively promoting foreign direct investment in the region. Dana Japan, Cabot Microelectronics, TRW Steering Systems, Pfizer Pharmaceuticals, and PPG Industries are but a few of the many American firms that have set up manufacturing or distribution bases in and around Aichi. American chains Kinko’s, Toys’ R Us, Starbucks, and The Sports Authority have also opened outlets in the area. The Nagoya Station neighborhood symbolizes urban development in the region. The JR Central Tower opened above the station in March 2000. This multi-million dollar project, which includes a 780 room Marriott hotel, has redefined Nagoya’s skyline and injected cosmopolitan style into the city’s hospitality and retail industries. Through its close relationship with Chubu public and private sector entities, the Commercial Service in Nagoya works to uncover commercial opportunities for U.S. firms in a variety of sectors. CS Nagoya believes that particularly good prospects exist for U.S. firms in architectural design and construction services, intelligent transportation systems (ITS), environmental remediation, automotive recycling technologies, and general aviation services.

Kyushu/Yamaguchi Region The Kyushu/Yamaguchi Region, located in the southwestern Japan, is the nation’s fourth largest economic center, representing about 10 percent of the national economy and population. The eight-prefecture region’s GRP for fiscal year 2001 (the latest data available) was $388.6 billion (at yen 125.13 per dollar), comparable to that of South Korea and Australia. Asia Week Magazine selected Fukuoka as “the most livable city in Asia” in 1997, 1999 and 2000. This region is also known as Japan’s gateway to Asia and enjoys extensive cultural, trade and tourism ties with continental Asia, particularly South Korea, Taiwan and China. While the United States is the region’s largest single trading partner, both exports to and imports from Asia are roughly 45-50%. Kyushu’s economic dynamism stems from its diversified economy and the development of its services sector and high-tech industries. This includes a 30% share of Japan’s total production of semiconductors, for which Kyushu has been dubbed Japan’s “Silicon Island.” As a leading center for research, Kyushu hosts numerous R&D facilities in such diversified fields as nuclear fusion, robotics, ceramic materials and high-speed ocean transport carriers. Japan’s commercial and research space-launching facilities are based in Kagoshima in southern Kyushu. More traditional industries important to Kyushu include steel and automobile manufacturing, shipbuilding, tourism, and agriculture. Many sectors of the Kyushu/Yamaguchi economy offer promising business opportunities for American firms. Major American companies already have established research and production facilities in electronics, computers, and medical devices, and are also active in architecture, design and construction, energy, insurance and finance. In recent years U.S.-based investment funds have made major acquisitions of hotels and related leisure facilities in Kyushu. Another sector of growing interest is environmental products and services, particularly focused in Kitakyushu City, a historical center of heavy industry that is seeking to become a regional leader in the environmental sector. Ongoing major development projects in Kyushu region include the Kyushu University Relocation Project, the New Kitakyushu Airport, new port facilities in Kitakyushu and Fukuoka, and Fukuoka City’s man-made Island City reclamation project.

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Northern Japan Hokkaido and Tohoku have a population of 15.5 million and a GRP of approximately $417 billion, slightly larger than the economy of Mexico. Hokkaido is Japan’s northernmost island, approximately 511 miles north of Tokyo. Sapporo, Hokkaido’s capital and largest city, has a population of 1.8 million. The Tohoku region consists of six prefectures in northern Honshu, Japan’s main island. Tohoku’s economic commercial center is Sendai (population one million) the capital of Miyagi Prefecture. The region is Japan’s agricultural heartland, with dairy and farming in Hokkaido and Japan’s highly prized rice growing regions in Akita and Miyagi. With a GRP of $180 billion, Hokkaido supplies 11 percent of Japan’s agricultural products, including 100 percent of sugar beet production (3.8 million tons), 41 percent of milk, 77 percent of potatoes, 50 percent of onions and 12% of Japan’s fish catch. High internal transport cost in Japan can sometimes double the costs of products shipped from the United States to seaports and airports in northern Japan. Container traffic from the United States is increasing at the ports of Ishikari and Tomakomai (both near Sapporo), as well as Hachinohe (Aomori Prefecture) and Sendai, promising to reduce transportation costs. There are also increasing numbers of U.S. containers arriving in northern Japan from Pusan, South Korea, (with which Ishikari port has a special tie-up agreement); Pusan’s port and cargo handling charges are much lower than in Tokyo, Yokohama and Osaka ports. Northern Japan’s well-developed infrastructure, highly skilled workers, and relatively low real estate costs, combined with city and regional government investment incentives, have prompted many U.S. companies to view Hokkaido and Tohoku as attractive locations for investment and overseas operations. Home building products and interiors, packaged homes, pharmaceuticals, medical equipment, marine products, and outdoor leisure goods are particularly promising import sectors in northern Japan. Northern Japan’s two main international airports -- Chitose (Sapporo) and Sendai--have good passenger and cargo handling capacities and are eager to develop more international routes. Growing economic ties with the Russian Far East, as well as the prospect for future development of Russia’s oil and gas sector, have led to regular commercial flights between Hokkaido and Sakhalin.

Okinawa Prefecture Okinawa Prefecture, population 1.35 million, is a sub-tropical archipelago also known as the Ryukyu Islands, located 2.5 hours south of Tokyo by air. Okinawa’s economy depends heavily on construction, tourism, government public investment, and services. The prefectural government has invested heavily in strengthening the tourism infrastructure and a number of new high-quality resort hotels are being built. Okinawa offers U.S. suppliers potential business opportunities in design, architecture and interior furnishing for resort hotels and other related fields. Companies specializing in outdoor/leisure activities, including sporting goods, marinas, boating, diving and fishing equipment and related services may also find attractive business opportunities in Okinawa. In addition, the southern islands of Miyako and Ishigaki are the sites of large tourism development projects. There are plans to build a new international airport on Ishigaki, as well as plans to build an additional runway offshore at Naha International Airport on the main island. Several special development zones in Okinawa offer tax and other benefits to foreign investors in trading, information and telecommunications, and resort businesses. U.S. service companies have found it profitable to locate their back office operations in Okinawa, taking advantage of the youngest, cheapest and most under-employed workforce in Japan. Okinawa’s economy is also influenced by its role as home to a number of U.S. military installations and a major portion of the 50,000 American military personnel stationed in Japan. Many business opportunities supplying the U.S. military bases in Okinawa are available and Okinawans are particularly receptive to the introduction of American consumer goods, in large part because of their familiarity with such goods because of

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the U.S. military presence. Okinawa could also be used as a platform for stimulating demand for U.S. goods elsewhere in Japan by targeting the 5 million free-spending Japanese tourists who visit Okinawa annually.

4.2.2

Agricultural Production

Japanese agricultural production is steadily contracting on a year-by-year basis, with key sectors seeing decreasing production in most years. Cereals, rice, dairy, beef and pork, and fruits and vegetables are all sharing this decline to greater or lesser degrees. Efficiency is hampered by the small and scattered nature of farmlands and by inordinately high input costs. Increasingly strict environmental regulations also limit any economies of scale for Japanese agriculture. The government and the farm cooperatives still have a powerful influence over farmers’ decisions regarding production, pricing and marketing. In an attempt to differentiate their products, some producers are raising organic products aimed at Japanese consumers who have concerns about the use of agricultural chemicals. While the Japanese food market is open to a vast number of U.S. agricultural products, market access problems for a range of products remain a concern for U.S. producers and exporters. Due to persistent negotiations in the WTO by the United States and others throughout much of the 1980’s and 1990’s, Japan has eliminated many of the agricultural market access barriers for which it was once famous. Where earlier quotas and outright bans restricted the market for U.S. beef, citrus, fruit juice, cherries, apples and ice cream, all of these markets have now been opened. However, access issues still hamper farm trade due to high tariffs on processed food products, restrictive plant quarantine measures on fruits and vegetables, trade-limiting quotas, complicated labeling practices, strict inspection requirements on imported goods and time-consuming approval processes for products of biotechnology. The combination of the improved market access and declining domestic production resulted in excellent export growth for American agriculture through most of the 1990’s, making Japan our top overseas export market. About 20 percent of all U.S. agricultural, forestry and fishery products exports, valued at $12 billion, are destined for Japan. While exports have suffered a setback since 1997 due to Japan’s on-going recession, tough third-country competition and food safety concerns, long-term prospects are excellent for the following reasons: •

Growing consumer demand for value plays to U.S. strengths (U.S. foods typically cost less than local products)

•

Japanese agriculture continues to decline, leading to increased dependence on imports for stable food supplies

•

Continued westernization of the Japanese diet away from fish and rice toward meats, dairy products and other American staples. Export stars include pork, ice cream, broccoli, citrus, wine, cherries, processed snack foods, nuts, and dried fruits.

For additional information about U.S. agricultural, food, fishery product exports to Japan and other countries, please see the Foreign Agricultural Service Homepage at http://www.fas.usda.gov.

4.2.3

Government Intervention Risks

Traditionally, the bureaucracy -- created in 1868 -- has played a leading role in the Japanese economy. The ministries’ power was drawn from the thousands of required licenses, permits and approvals that tightly regulated business activity in Japan and by informal, but in practice virtually compulsory, edicts called “administrative guidance.” The reach of the bureaucracy has been further extended by a plethora of organizations that perform semiregulatory functions. Business in Japan has maintained very close relations with the bureaucracy and politicians--a set of relationships commonly referred to as the “iron triangle.” Japanese ruling party politicians have depended on contributions by business. Major companies and industry associations also provided lucrative “amakudari” (“descent from heaven”) employment for high-level bureaucrats retiring from government service. Bureaucratic paternalism blocked new companies from entering the market and pushed up prices. Members of the Japanese National Diet

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(parliament) have small staffs and traditionally have relied on bureaucrats for policy initiatives and the drafting of legislation. The role of government institutions in the economy has been changing over the last several years as Tokyo pursues administrative reform and deregulation. On January 6, 2001, the bureaucracy was reorganized from 22 ministries and agencies to 13. A Cabinet Office was established and located above the other ministries on government organization charts to serve as a think tank for politicians and to coordinate policies among the other ministries. At the same time, the number of politicians posted to senior positions in the ministries was increased from an average of two or three to five, to try to increase the administration’s control over the bureaucracy. The reorganization -together with changes to political contribution laws, stricter guidelines on the use of administrative guidance, and increased criticism of “descent from heaven” (amakudari) employment practices -- is slowly eroding the strength of the “iron triangle” (close relations among business leaders, the bureaucracy and the politicians), and weakening the bureaucracy’s influence over the economy. Until 1980, the Japanese Government controlled access to the market by allocating foreign exchange and by conditioning foreign investment approvals on technology transfer to Japanese companies. These controls are largely gone, but the Japanese Government continues to play a significant role in promoting certain favored industries. Many bureaucrats believe that the proper role of a national government is to lead industry into higher value-added manufacturing. While nods have been made in the direction of improving the average citizen’s standard of living, GOJ policy and regulatory framework continue to favor domestic producers over consumers. This can sometimes translate into a “protective attitude” when it comes to foreign competition and new products from the outside. When Japan’s asset “bubble” burst in 1991 and the economy worsened, businesses strengthened their call for deregulation of the economy in order to stimulate growth and to respond to foreign competition. At the same time, companies began to move production off shore in order to cut costs. This prompted fears of a “hollowing-out” of Japanese industry. In areas where deregulation effectively took place, such as consumer goods and distribution, markets experienced explosive growth and imports reached previously unheard of highs. However, in areas like industrial goods, deregulation efforts have been less visible. In general, it is increasingly possible for foreign companies to participate in the Japanese market. The Japanese Government has removed most legal restrictions on exports and foreign investment in Japan. The U.S. and Japanese governments continue to work on removing anti-competitive and exclusionary business practices and resolving market access problems through bilateral dialogue While Japan’s business system is different from the United States, American companies can successfully adapt. The 1,000 companies, 3,200 member American Chamber of Commerce in Japan (ACCJ) is the largest overseas AmCham in the world, and its 40-plus committees and sub-committees are highly visible lobbyists for U.S. business interests. U.S. Embassy officers are liaison to over 20 of these committees, and work closely with the ACCJ on market access and investment issues. Some knotty regulatory barriers and discrimination still exist, and when a company cannot solve such problems by itself or through its legal advisers in Japan, the U.S. Government stands ready to help.

4.2.4

Infrastructure Development

Japan has a fully developed physical infrastructure of roads, highways, railroads, airports, harbors, warehouses and telecommunications for distribution of all types of goods and services. Japan is also engaged in a large, though slightly reduced, expansion of public works projects both to enhance the business infrastructure and to help stimulate the economy. However, urban roads and highways remain inadequate, overcrowded, and toll roads are expensive. In addition, Japan’s airports, among the world’s most expensive, contribute to the high cost of doing business. Japan’s port practices are generally opaque and inefficient by global standards; and import processing, while improving, remains relatively slow. Japan has recently made progress, reducing Customs overtime fees by fifty

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percent and extending hours of operation at major air and seaports to make them 24/7 facilities. More reforms, however, are needed if Japan is to once again become internationally competitive.

4.3

POLITICAL ENVIRONMENT

Japan is a parliamentary democracy. The parliament is called the Diet, which is divided into two houses, the House of Representatives (lower house) and the House of Councillors (upper house). The lower house is the more powerful of the two houses. In the event of a disagreement between the two houses on budget bills or the selection of the Prime Minister, the lower house prevails. The lower house may also pass an ordinary bill over the objections of the upper house if it is passed by a two-thirds majority of the lower house members present. The head of the government is the Prime Minister, who is elected by both houses of the Diet (although the lower house selection takes precedence in case of a split vote). The Emperor’s role, both under the constitution and in practice, is essentially symbolic. Japan’s bureaucracy is a powerful political force. Most bills that pass the Diet are written by bureaucrats in various ministries, as are the regulations to implement those bills. Although ministers are usually selected from the members of the Diet, the ministries have traditionally been run by vice ministers who are promoted from within the career bureaucracy. Many Diet members are former ministry bureaucrats who are sympathetic to the bureaucratic interests of their former ministry. In reforms designed to increase political control over the bureaucracy, the number of ministries was shrunk from 22 to 12 and the number of politicians in those ministries was increased from two (the Minister and a Vice Minister) to three or more as of January 6, 2001. The reforms also created a cabinet office under the Prime Minister to create and coordinate fundamental policies. Strong bureaucrats, close links between the long-ruling LDP and key interest groups, and a traditional deference to authority make the Japanese economy much more inflexible than that of the United States. The LDP’s strong protection for Japan’s inefficient farmers against the interests of the majority of Japanese consumers is infamous. Less well known is the fact that the Japan Medical Association works closely with the LDP to thwart needed changes in Japan’s healthcare system, that Japan’s construction firms are locked in an unholy alliance with LDP politicians to build roads to nowhere and ozymandian edifices at the public expense, or that the partially privatized telecommunications monopoly funnels large amounts of funds to LDP politicians while keeping telecommunications charges in Japan among the highest in the developed world.

4.3.1

Economic Relationship with the U.S.

Japan enjoys strong and close political relations with the U.S. The political relationship, based in large part on the mutual security treaty, which underpins the U.S. security presence in the Far East, is characterized by cooperation on a broad variety of issues, from ensuring peace and security on the Korean peninsula, to supporting the anti-terrorism effort in Afghanistan and Iraq, to cooperation in the U.N. Security Council. Japan has supported U.S. policy in such areas as providing assistance to Indonesia, funding a substantial portion of Afghan reconstruction, and assisting in building Iraq. U.S. businesspeople working in Japan will find that many elements in Japan’s political economy are similar to our own. Diet members tend to be very sensitive to “pocketbook” issues, interest groups play a key role in promoting and/or blocking legislation and regulations, the free press plays a key watchdog role. But they will find the specifics of the Japanese system very different. Bureaucrats and regulators are much more powerful in Japan than they are in the U.S., and they have more discretion to act as they see fit. Disputes in Japan are rarely settled in court, and it is difficult to appeal an unfavorable ruling by a regulator to a higher authority. Business lobbying in Japan is more often done by associations rather than by individual firms.

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MARKETING PRODUCTS AND SERVICES Distribution Channel Options

Japan’s distribution system remains complex, labor-intensive and filled with outmoded business practices. It is also expensive and accounts for much of the difference between prices in Japan and the rest of the world. The last decade was a difficult time for the distribution industry. Consumers demanded a more efficient market, lower retail prices and better selection of goods. This trend has become stronger, as Japanese buyers face tougher economic conditions. Nevertheless, the traditional system stubbornly survives in many industries. The drag on the domestic economy has been recognized, and is slowly changing, but remains a formidable barrier to imports of goods and services. Difficulties with Japanese distribution are often due to inherent, deep-rooted business practices. Domestic consumers have a strong demand for a wide variety of goods and services, but can be hesitant to disrupt longstanding relationships with suppliers--even when a U.S. supplier can offer a superior product at a lower price. Although the trend is changing, some retailers and wholesalers still fear retaliation from existing Japanese vendors if they switch to new overseas sources. At the same time, they may also be concerned that a foreign supplier will not make timely shipments or may lack adequate after-sales service ability, for which Japanese expectations run very high. These doubts stem in part from a traditional reluctance to do business with strangers, who could introduce uncertainty into predictable, existing business relationships. A clearly demonstrated commitment to foster long-term relationships with a Japanese counterpart is crucial to overcome this reluctance. An established presence in the market (if only through a knowledgeable and committed agent) is also vital to winning trust. Until quite recently, about half of all consumer purchases were made at neighborhood “mom and pop” stores (with five or fewer employees), and these stores rarely carry imported goods. These stores often maintained strong ties to major domestic manufacturers that included product consignments, low interest loans, equity investments, and/or exclusive marketing arrangements. However, the economic stagnation over the past decade has taken a serious toll on small retailers. Their numbers are declining to such a level that soon they’ll disappear - - convenience stores, selfservice discount stores, and “superstores” have taken over. The ascendance of more efficient retailers is also helping to reduce the layers in the distribution system and make imported goods more price competitive. Imported consumer goods have traditionally been found at larger outlets such as department stores and discount houses. The new millennium has also brought about dramatic growth in specialty retailers, notably foreign names. Hand-in-hand with this development, direct importing--bypassing trading houses and as many other intermediaries as possible--has become increasingly popular as companies become leaner and more cost conscious. As larger retail outlets have spread in Japan, the regulation of “large stores” (those stores with over 500 square meters of sales space) is now part of the bureaucratic landscape. In 2000, the Large-Scale Retail Store Location Law went into effect. The law is intended to give local authorities the power to regulate new large stores only on the basis of environmental considerations. The new law applies both to new store openings and to significant changes in the business operations of existing stores (such as an expansion of floor space or an extension of business hours). Many municipalities in Japan are taking advantage of the new law to draft ordinances that mandate parking space provisions and operating restrictions stricter than national norms or those recommended by METI. Japanese deflation has made consumers of the world’s second largest economy appreciate low prices. Giant foreign distributors and retailers who survived fierce competition in their home and overseas markets with cost competitiveness and merchandise development have focused on the Japanese market. For example, Toys ‘R’ Us, which entered the market in 1991, now operates 140 stores in Japan. COSTCO opened its first store in 1999 and has expanded to four stores in four years. Wal-Mart, which is in the process of buying out a Japanese chain store, Seiyu, has several hundred stores in Japan. Metro (Germany) opened its first store in December 2002 jointly with a Japanese major trading company Marubeni, to focus on food business customers. Recently, Tesco (UK) announced its entrance into the Japanese market by buying out a medium-size supermarket chain.

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However, Japanese consumers do not always accept the “foreign” way of retailing. Carrefour (France) operates four stores but has had to change their newest store to a more “Japanese style” -- for example, by lowering fixture heights, increasing delicatessen space, and adding prestigious brand merchandise that it does not carry in France.

4.4.2

Pricing Issues

Tough economic times have made price an increasingly important factor for Japanese consumers. Traditionally, many people made their buying decisions based on a product’s attributes, quality and brand name, and were willing to pay more for superior quality. However Japanese consumers more than ever are becoming price conscious, and the notion of a “bargain” and considerations of “value for money” have become mainstream. If a comparable imported product or service can be purchased at a relative discount to those produced domestically, consumers will be interested. This has helped prove to many Japanese that affordable U.S. products are in fact of quality similar to, or in some cases higher than, Japanese goods. This recent ability to compete on price is opening doors for U.S. products, especially during the last few years. However, landed cost is not the only consideration for U.S. firms interested in exporting to Japan, as it is only one part of a total pricing scheme. Distribution mark-ups in Japan often cause imported products to end up being priced at levels far higher than comparable domestic products. Shipping costs, for instance, between the port of Osaka and Tokyo have been shown to be three times higher than shipping costs from the West Coast of the United States to Osaka. A good example is imported US apparel products, where street prices often are three to four times FOB. Regional ports are seeking to compete, particularly with imports from China that are bringing deflation to Japan. Japanese manufacturers of products such as consumer goods traditionally set prices at each level of the distribution chain and enforce compliance using complicated rebate systems. This kind of “price maintenance” has come under pressure from consumers who are demanding lower prices and from manufacturers who themselves find the rebate system burdensome. As distribution in Japan continues to be deregulated as a result of outside forces or from internal pressures, costs have been coming down and distributors have gained additional flexibility in selecting and purchasing items. In the meantime, U.S. exporters should consider yen fluctuation and internal distribution costs in their product pricing and sales strategies in Japan. The pricing structure of imported goods in Japan varies according to the types of distribution channels and services that importers or wholesalers provide (e.g. inventory, advertisement costs, packaging costs, financing system, acceptance of unsold/returned goods, etc.) It is a multi-layered system, with established lines of product flow. In light of the recent economic downturn, more and more middlemen are either being eliminated or forced to cut prices and accept lower margins. As Japanese consumers have become more price conscious, markups along the various distribution stages have tended to become smaller. Also, there are some retailers who import products directly in order to be able to offer lower retail prices. U.S. suppliers should understand that retailers tend to import smaller quantities and that importers/wholesalers will usually not be interested in representing products that are also directly imported by retailers.

4.4.3

Use of Agents/Distributors and Finding a Partner

Establishing a direct presence in Japan is the best way to penetrate the Japanese market, but can be a prohibitively expensive strategy to launch. The use of agents/distributors is a more realistic marketing strategy for a small or medium-sized U.S. firm, but this approach requires great care in the selection of the representative.

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Distributors in Japan usually cover a specific territory or industry. Import agents are often appointed as sole agents for the entire country (although there is no statutory requirement that this be done). In some cases exclusivity may be necessary to ensure a strong commitment by the Japanese agent towards expanding sales. But under no circumstances should a U.S. company be pressured into handing over control of the whole market if there is doubt as to the ability or willingness of the Japanese company to develop the entire market. Regional exclusivity, a limited term of representation, minimum sales, or qualitative indicators of sales efforts are good strategies as a safeguard in exclusive agency contracts. While the Japanese Fair Trade Commission has guidelines applicable to exclusive agency contracts, there are no statutory damages required upon termination of an agency contract. Given the close-knit nature of business circles and the traditional wariness towards foreign suppliers, replacing a Japanese agent or distributor could cause reputation problems if not handled in an extremely sensitive manner. The U.S. company may be viewed as lacking adequate commitment to Japanese business relationships. Japanese agents may request “parting compensation” in the event the foreign exporter decides to dissolve a business relationship. It’s a common practice domestically, so U.S. companies should address the eventuality with a potential agent/distributor prior to executing a contract. A common mistake made by many U.S. firms is to try to use a list of importers as a basis for “cold calls” on prospective agents. The Japanese prefer to do business with someone only when they have been properly introduced and have met face-to-face. To help dispel reluctance on the Japanese side, an introduction by a “go-between” typically serves to vouch for the reliability of both parties. Appropriate third parties for such introductions include other Japanese firms, U.S. companies that have successfully done business in Japan, banks, trade associations, chambers of commerce, the U.S. Department of Commerce and the U.S. Commercial Service in Japan, etc. U.S. state representative offices in Japan, JETRO, or even Japanese government ministries can also offer assistance. U.S. companies should be selective in choosing a Japanese business partner. Credit checks, a review of the Japanese company’s industry standing and existing relations with Japanese competitors, and trust-building are all part of the process. A company should conduct the same due diligence that it would do if it were partnering with another U.S. firm. Part of the difficulty in choosing a Japanese agent is assuring that the agent will devote sufficient attention to expanding the market share of the U.S. product. A U.S. company should probably avoid a distributor that targets only limited, high-price niches; is compromised by strong ties to one particular industry group (“keiretsu”); fails to compete directly with established Japanese products; or is not prepared to pursue volume sales for the U.S. exporter. Also, companies should be wary of distributors that co-handle competitors lines, or products that are complimentary in nature and could present conflicts of interest for the distributor. To attract a Japanese business partner, a U.S. exporter must present an image of dependability, innovation, superior quality, competitiveness, and a commitment to building personal relationships. A U.S. company should show that it is well regarded in its industry; that it has researched the market; that it is prepared to respond to cultural requirements (e.g., by preparing high-quality marketing materials in Japanese on the company and its products/services); and that it responds promptly to all inquiries from Japan. Frequent communication by fax, email or phone is crucial. Regular visits to Japan are a must, as are offers to host new partners on reverse trips to U.S. headquarters to view manufacturing and operations.

4.4.4

Franchising Activities

With over 1,000 chains, Japan’s growing franchise industry is the second largest in the world in total sales. The number of outlets in Japan exceeds 218,000. Approximately 40 percent of total sales at franchise outlets are from convenience stores, and about 20 percent from food service chains.

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American franchising heavily influenced the development of Japan’s franchise industry in the 1980s and most of the successful U.S. chains entered the market during this period. Although consumers are generally receptive to American franchise concepts, products and service must be localized to ensure success in Japan. It usually proves impractical for U.S. franchisers to recruit new individual franchisees directly from the United States. U.S. franchisers are more often successful by seeking either a master franchisee or joint venture partner to develop the market in Japan. Identifying the right business partner always requires time and effort. A master franchisee need not always be from the industry of the franchise business, but the successful franchise is often one run by a company that has already established similar business. Although the Japanese economy is beginning to recover from its decade-long slump, it remains difficult to find companies that are willing to invest in master franchise rights.

4.4.5

Direct Marketing Options

Direct marketing, which includes mail order, telemarketing, direct response television, network sales, and Internet sales, is an attractive sales method for suppliers attempting to reach the Japanese consumer while bypassing traditional distribution channels. Direct marketing sales are still modest by U.S. standards but increasing rapidly, particularly in the case of Internet sales. Shopping from foreign catalogs, whether hard copy or on the web (generally referred to as “personal importing”), surged in the mid 1990s as a combination of novelty, a very strong yen, and an appreciation of foreign consumer goods grew. Although providing adequate customer service and handling product returns challenged those firms that did not have in-country representation, many U.S. companies enjoyed an enormous expansion of orders from Japan. Since 1996, however, the strengthening of the dollar and the passing of the “fad” component of the boom have caused the market to cool considerably. Nevertheless, opportunities still exist for companies that can offer Japanese consumers quality products with unique attributes. U.S. companies must overcome a number of challenges such as language, international shipping costs, and other issues that pertain when marketing directly to a Japanese consumer. U.S. companies aiming to enter this market should be prepared to make an investment in service and what is generally referred to as direct marketing infrastructure. A representative in Japan can act as a liaison with the U.S. supplier to handle receipt of claims, customs clearance, public relations and the preparation of Japanese-language materials. A local representative can also manage warehousing, delivery, and returns.

4.4.6

Joint Ventures and Licensing Options

American companies with limited resources or a short investment horizon may wish to consider product licensing as a means of entering the market. The direct costs of finding an appropriate Japanese licensee are small compared to other forms of market entry. Once a suitable agreement is reached, a licensing fee and royalties are low-cost, lowmaintenance income for the U.S. company. However, U.S. companies should note that licensing represents a minimal form of participation in the Japanese market. Whether a company should license its technology depends upon several factors. First, a U.S. company should consider its long-term plans for the Japanese and other Asian markets. Licensing necessarily means a loss of control over market strategy, and perhaps “opportunity costs.” Second, U.S. licensors should understand the strength of their company’s patent protection in Japan. Japan uses a “first to file” patent system, and this has ominous implications should a licensee explore becoming a competitor. Finally, the degree to which U.S. firms must disclose trade secrets or proprietary information is a key consideration. A Japanese licensee’s interest or enthusiasm for the U.S. technology is a direct reflection of the licensee’s assessment of the product’s competitiveness and sales

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expectations in a technologically sophisticated market. Thus a U.S. company’s long-term interest may lie in another form of market entry, even if it carries higher costs and longer payback periods. A licensor also sacrifices potential returns from manufacturing and marketing efficiencies. While Japan is a highcost country for marketing, it is also a large market over which to spread the costs of marketing, even for relatively specialized technology. Even after adapting a product for the Japanese market, U.S. manufacturers may realize better profit margins and market penetration by selling their own product, as opposed to through a licensee. Harder to quantify are the costs of managing or--in some instances--”policing” the licensing agreement. In the worst cases, a licensee will improve upon or modify the U.S. product or technology, patent it as its own, and become a competitor in Japan, the U.S. or third countries. It is also possible that the Japanese licensee could under-report sales in order to remit lower royalty payments to the U.S. company. The final drawback of licensing is that it provides the U.S. company with very little information or practical experience in the market. The Japanese market is very demanding, and it is important for a US company to develop direct experience here in order to successfully expand its presence. Japan is also a very good, though demanding, training ground. American companies can apply the lessons learned here to other markets, as well as improve the quality of their product or technology through direct contact with the market. The pitfalls mentioned above account for the declining popularity of licensing in some industries. However, it may still be the best path for products with short life cycles where short-term income generation is desirable. Despite the warnings above, it makes business sense in industry sectors where the costs of entry are prohibitively high, or there are political sensitivities (such as defense-related equipment). The key to a successful licensing agreement is a Japanese partner whose goals match those of the U.S. company. A strong licensee will have something to bring to the partnership as well. Perhaps the ideal license agreement will provide for an exchange of technology and know-how to strengthen both partners. It is essential that the U.S. licensor maintain close and frequent contact with the licensee, including visiting Japan regularly. A local representative, other than the licensee, can provide additional perspective on the market, and help represent both support and accountability to the licensee. Royalties paid by the Japanese licensee to the U.S. licensor are subject to a 20 percent withholding tax, which may be reduced to 10 percent if the necessary documentation is filed under the provisions of U.S.-Japan tax treaties. According to Japan’s Foreign Exchange and Foreign Trade Control Law, a foreign company granting a license to an independent Japanese corporation, either a wholly-owned subsidiary or a joint venture corporation that involves manufacturing in Japan, must notify the Ministry of Finance through the Bank of Japan in cases involving the transfer of specially regulated and/or designated technologies. Additionally, the export of any form of technical data from the U.S. abroad is subject to U.S. export control laws. In this case, a thorough review of the U.S. Department of Commerce’s Export Administration Regulations (EAR) should precede the signing of any licensing agreement. Joint ventures remain a popular form of selling to Japan. Advantages include access to local market information and conditions, a stronger market presence, technology development, and gaining immediate access to a distribution system and customers. Most joint ventures take the form of a separate or third company established between an American and Japanese company, with a range of agreements covering shared functions, personnel, management, and ownership. In most cases, the Japanese partner has control over marketing and distribution functions. American companies must be prepared to share ownership, control, and of course profits, with its Japanese joint venture partner, and therefore issues of communication, trust, and common business interest are absolutely crucial. Joint venture partnerships that involve technology transfer or license agreements with Japanese partners have the same pitfalls as a direct license agreement. The value of the joint venture may diminish as either party becomes less dependent on the other’s marketing prowess, customer base, or technological innovations. American companies www.icongrouponline.com

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should also understand that many large trading companies have a large “ready-made” pool of existing customer relationships. This produces a rapid increase in initial sales, but once its “share” of the market is tapped, the Japanese partner often has little interest in prospecting for new customers, unless the product has extraordinary technological or price advantages. American companies should take the same precautions about divulging proprietary know-how in a joint venture as with license agreements. A joint venture in Japan can be an unincorporated, contractual joint venture or an entity created by the acquisition of stock of an existing corporation. More typically, a JV is the incorporation either in the U.S., or more commonly in Japan, of a new company in which the Japanese and U.S. corporation mutually decide upon management control and the roles and responsibilities of each party. The Ministry of Finance (through the Bank of Japan) must be notified of the establishment of any joint venture. In addition, if the joint venture is intended to last more than one year, the joint venture agreement must be submitted to the Japanese Fair Trade Commission for review within thirty days of its execution.

4.4.7

Creating a Sales Office

Although still very costly, establishing a presence and an office in Japan has become a less expensive undertaking given the recent decrease in the cost of labor, office rent, and other expenses. A U.S. company that wishes to collect information and/or improve communication with business contacts in Japan may wish to establish a representative office. A liaison office can obtain market data and other information and provide necessary promotional and service support. A representative office is not subject to Japanese taxes and it is not necessary to obtain special approval to be established. However, a representative office must not involve itself in commercial transactions or generate income, and therefore cannot handle commercial orders directly. The liaison office may provide guidance and support to an agent and manage all marketing activities except for the actual sale. A branch office of a U.S. company can engage in trading, manufacturing, retailing, services, or other business. A branch office may take and fill orders and carry out a full marketing program, including arranging for advertising, recruiting a sales force and performing all necessary promotional activities. A branch is liable for payment of Japanese taxes. The branch must appoint a resident representative in Japan and must register with the Legal Affairs Bureau of the Ministry of Justice. In addition, the establishment of a branch office is considered a direct investment under the Foreign Exchange and Foreign Trade Control Law requiring reporting to the Ministry of Finance through the Bank of Japan within 15 days after the establishment of the branch office. Prior notification is required when the investment involves types of industries that could endanger Japan’s national security, or disrupt the country’s law and order, and also which might adversely and seriously affect the smooth performance of the Japanese economy. Industry sectors that may be affected include aircraft manufacturing, arms, nuclear energy and related industries, narcotics and vaccine manufacturing, agriculture, forestry, fisheries, oil, and leather product manufacturing. An alternative to a branch office is a wholly owned corporation. Prior notification is required when the investment involves the industry sectors listed in the previous paragraph. Setting up a wholly-owned subsidiary will involve more time and expense, but it can offer an effective means to guarantee better protection for proprietary information, obtain credit and penetrate markets which have subtle but substantial barriers to imports. A fourth approach is to pool resources of several firms having complementary product lines. Such a group might establish a marketing association, consortium, or jointly owned export management company, and set up a sales and service branch or subsidiary office in Japan. The financial crunch affecting many Japanese companies now provides U.S. companies with excellent opportunities to establish or acquire businesses in Japan. U.S. companies should also carefully examine the Japanese Ministry of Economy, Trade & Industry’s (METI) programs for promoting imports and foreign investment into Japan. Programs include loans available through the Japan Bank for International Cooperation and the Development Bank of Japan. Entry-level business support

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programs are provided by the Japan External Trade Organization (JETRO) as well as some municipal and prefectural governments. Current information on investing in Japan, establishing an office, and other JETRO programs for foreign businesses can be found on JETRO’s Web site: http://www.jetro.go.jp/.

4.4.8

Selling Strategies

Sustained personal contact with customers is especially important. A visiting U.S. representative or resident agent in Japan should accompany their Japanese agent or distributor on visits to existing or potential Japanese customers. Making joint sales calls demonstrates commitment to the clients and is also an excellent way to obtain market feedback. A common mistake made by U.S. companies in Japan is failure to provide ample support for their Japanese business partner after enjoying some initial successes, which can cause the relationship to turn sour after a successful honeymoon period. It is important to prevent a distributor from implementing a conservative, low-volume, highmarkup marketing strategy that will protect their own interests while leaving the U.S. product’s full sales potential undeveloped. Stay engaged! To be successful selling in Japan, foreign exporters should know how to negotiate and maintain relationships with Japanese. Japanese language skills can be invaluable, as can a thorough background in Japanese culture and etiquette. Absent these capabilities, it remains just as important to be honest and direct, while avoiding appearing overbearing. Also be prepared to attend after-work social events. These informal gatherings go a long way towards establishing mutual trust and understanding between new partners. It’s been said that most business deals in Japan are made “after five”, that is, after work hours in a social setting. Initial contacts between Japanese firms are usually formal and made at the executive level, while more detailed negotiations are often carried out at the working level. Typically, the first meeting is to get acquainted, establish the broad interest of the calling party, and to allow both sides an opportunity to “size each other up.” Don’t expect too much from a first meeting -- sometimes the actual business subject may be overtaken by more mundane topics. A series of meetings with a large number of Japanese company representatives is common, as part of the “sizing up” process. Business negotiations may proceed slowly, as the Japanese side may prefer to avoid an agreement rather than being criticized later for making a mistake. While many Japanese business executives speak some English, a skilled and well-briefed interpreter, while expensive, is essential to prevent communication problems. A good interpreter is worth the extra money. Though some U.S. firms do business in Japan without a signed contract, written contracts between U.S. and Japanese firms have become a universally accepted practice in Japan. They satisfy tax, customs and other legal requirements. Japanese companies prefer short, general contracts, while U.S. companies prefer to spell out rights and obligations in detail. A contract should be viewed as part of a greater effort to create an understanding of mutual obligations and expectations, rather than simply a tool in case of a lawsuit.

4.4.9

Advertising and Trade Promotion

Because many products from the United States fit a cultural or industrial environment that may not exist in Japan, educating the Japanese consumer as to the product’s purpose, use, features and quality may be necessary. However, not all companies can afford to place ads in Japan’s major national daily newspapers or place commercials on Japanese television (all of which accept advertisements or commercials for either national or regional coverage). Regional and local newspapers and television stations, (including newly established cable operators) and sports daily newspapers are less expensive and might make sense for a product with strong distribution in a specific region. A more affordable option for small- to medium-size or new-to-market U.S. companies may be advertising in some of

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Japan’s 2,250 weekly or monthly magazines. These publications often represent a cost-effective means to reach a specific target consumer -- whether gourmet or gardener, cyclist or camper. For industrial and commercial products, Japan’s many industrial daily, weekly or monthly newspapers and trade journals may be the most cost-effective advertising option. While Japan has relatively few radio stations (Tokyo, for example, has only four AM and six FM commercial stations), radio advertising potential may be worth investigating. Much of Japan’s broadcast and print media do not deal with advertisers directly but go through Japan’s top five advertising agencies: Dentsu, Hakuhodo, Asatsu, Tokyu Agency International and NTT Advertising. In general, “mood” or “image” advertising is generally thought to sell better in Japan. Hard-selling, comparative or combative advertising used to be considered in bad taste and to be counter- productive, although comparative selling is now becoming more mainstream in the tight economy. Transit advertising should not be overlooked in Japan, where railroads are the primary means of transportation for commuters in major cities, carrying over 21 billion passengers annually. Transit advertisements are located either inside commuter rail cars or buses, or in stations. Ads inside trains and buses include hanging flyers, framed posters, stickers and on some train lines, flat-panel video screens. The major ad companies control ad space, as with the other media. Another common means of introducing, promoting and selling consumer products is to take part in large crowd events, such as regional import bazaars or American product festivals at shopping centers. These events can be a cost-effective means to reach masses of consumers with a product message, as well as providing a means of sampling and selling product to first time customers. Industry specific trade shows, such as for fishing equipment or outdoor products, may include days open to the general public, thus providing another means of reaching a target consumer audience. Advertising and promotions should be part of a coordinated strategy, usually in cooperation with an advertising and/or PR firm. A great advertising campaign in the right magazine may turn out to be a waste of money if not coordinated with a distribution program whereby consumers can purchase the product being marketed. Advertising/PR firms can also help clients get free or low cost publicity, something the U.S. Commercial Service in Japan can also help provide for companies that participate in events it sponsors. It is key for U.S. exporters of all kinds of goods and services to get onto the Japanese trade event circuit -- not only in Tokyo and Osaka, but in the huge regional economies and industrial centers, where 65 percent of Japan’s over 1,000 international conferences, seminars and trade shows take place. These events are being attended more and more by regulatory officials and decision-makers from throughout Asia. American companies should also consider U.S. Department of Commerce-sponsored trade shows and trade missions, as well as events sponsored by individual U.S. states, or industrial organizations. In some circumstances U.S. Government facilities such as U.S. Consulate multi-purpose rooms in Osaka, Nagoya, Fukuoka and Sapporo can be used for trade promotions, seminars, meetings and receptions. However, commercial use is generally restricted to states, associations, committees, and other uses for U.S. export or tourism promotion, where more than a single American company benefits. Interested companies should inquire directly with the consulate(s) of interest. Supplying It cannot be emphasized enough: excellent product service and customer support throughout the sales cycle are important in Japan. This includes the establishment of solid business relationships with Japanese partners early in the relationship. Every effort should be made to answer technical questions in detail and ensure delivery dates and other issues regarding shipments of products are clear. Misunderstandings, lack of communication and misinterpretations of language, as well as differing business practices, often lead to problems in these areas. Arrival times for shipments and the condition they arrive in are critical. Shipments should arrive at the agreed time, and should be well-packed and undamaged upon arrival. Japanese buyers are very concerned with the quality of packing and have used poor packaging as an explanation for market entry problems. Missed deadlines and damaged goods through poor shipping practices can lead to lost business in Japan. Many successful U.S. companies doing

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business in Japan have established some kind of local presence to handle sales and to provide customer support and service. In some cases, local agents or distributors provide this support.

4.4.10

Public Sector Marketing

On January 1, 1996, Japan implemented the new WTO Agreement on Government Procurement in an effort to expand opportunities for foreign firms and increase international competition in government procurement in Japan. The new agreement extends coverage to include the procurement of services as well as procurement throughout Japan by what are referred to as “sub-central government entities.” These entities include all of the prefectural (regional) governments in Japan, major cities and designated municipalities, and a host of other quasi-governmental agencies, corporations, companies and authorities. Government procurement contracts covered by the agreement must have a value not less than the thresholds (denominated in special drawing rights or “SDRs”) specified by the agreement, and include the procurement of products and services by purchase, lease, or rental by the agencies and organizations subject to the agreement. Under the agreement, the specified threshold for procurement by central government entities is 130,000 SDRs (except for construction and architectural, engineering and other technical services). As a voluntary measure, Japan issued SDR thresholds beyond those specified in the agreement, e.g., 100,000 SDRs for procurement by central government entities (again, except for construction and architectural, engineering and other technical services). For sub-central government entities, with the same exceptions as above, Japan’s threshold is 200,000 SDRs. There are three types of government tendering procedures in Japan covered by the new agreement: 1) open tendering, 2) selective tendering and 3) limited or single tendering. Under an open tender, the procuring entity publishes an invitation for qualified suppliers to participate in the tendering process. Contracts are awarded to the bidder that offers the greatest advantage in terms of price. Selective tendering is done in a case when open tendering is not necessary because there is only a small number of suppliers that could participate (due to the nature of the contract), or when open tendering is otherwise regarded as inappropriate. In this case, the procuring entity designates those companies it considers capable from a list of qualified suppliers and invites them to bid. Again, the contract is awarded to the bidder with the best price advantage. Limited (single) tenders award contracts without open competition. Limited tenders are used in a variety of cases (e.g., where products could not be obtained through open or selective procurement procedures, where there has been an absence of bids in response to a public notice, where it has been determined there is a need for protection of exclusive rights such as patents, or procurements of extreme urgency). Open tender and selective tender invitations are published in Japan’s official (central) government procurement gazette, called the “Kanpo,” or in an equivalent regional level publication, or other local publication. The procuring entity publishes the invitation to tender at least 50 days (40 days is required by the agreement) in advance of the closing date for receipt of bids. In order to increase access opportunities for foreign suppliers, as a voluntary measure, many procuring entities publish notices on the use of limited (closed) tenders at least twenty days in advance of the awarding of a contract. When the tender is announced on open bids, the type and quantity of products, time limits set for submission of bids, and names and contact data of the procuring entity are published within the announcement in English. Notices on selective tendering also contain the requirements to be designated to participate in the tender. It is important to read the tender notice carefully (the English-language text is mixed in with the Japanese language text), and most companies find it useful to directly contact the procuring entity with any specific questions before a tender is submitted. Japan’s Ministry of Foreign Affairs hosts a Government Procurement Seminar every April where central government procuring entities explain their procurement plans for the fiscal year. Individual ministries sometimes follow this with their own seminars as well. Notice of these meetings can also be found in the Kanpo gazette. U.S. suppliers can also find information about Japanese government procurement at JETRO’s web site at (http://www3.jetro.go.jp/cgi-bin/gov/gove0100.cgi).

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Potential suppliers must first be qualified by the procuring agency and registered on the tendering agency’s permanent list of qualified suppliers. Each procuring entity in Japan specifies the qualifications required of any potential supplier participating in open or selective tenders. Procuring entities are allowed to review a company’s capacity to implement a contract, including the scale of business and past business performance. In most cases, Japanese subsidiaries, agents, or distributors of a U.S. company can register on behalf of the firm. Documents required for qualification are set out in the public notice, but typically include: an application form, registration certificate, company history, financial statements, and tax payment certificate. The qualification is usually valid for one to two years. Sealed bids must be submitted to the designated place by the closing date and time specified in the tender notice. Although a 5 percent guarantee fee is stipulated, payment of the fee is usually waived since those participating are normally pre-qualified. If there are tenders made by unqualified suppliers or in violation of the tender requirements, the procuring entity will rule them invalid and notify the unsuccessful bidder. The contract is normally awarded to the lowest qualified bid and bidders are informed of the result in writing by the procuring entity. Pursuant to the 1996 agreement, Japan has established a mechanism to process complaints about procurements by entities other than sub-central government entities. Complaints by qualified bidders may be filed with the Secretariat of the Board in the Office for Government Procurement Challenge System (CHANS), Coordination Bureau, Cabinet Office (http://www5.cao.go.jp/access/english/chans_main_e.html).

4.4.11

Hiring Local Counsel

A U.S. company resident in Japan is not legally required to use a Japanese attorney for filings, registrations, contracts or other legal documents, which can be prepared by in-house staff, but retaining a competent Japanese attorney (bengoshi), patent practitioner (benrishi) or other legal professional is a practical necessity. A U.S. company not resident in Japan should also retain competent Japanese counsel. Patents and trademarks must be filed through a Japanese agent, which should be a licensed attorney or patent practitioner.

4.4.12

Due Diligence and Checking Bona Fides

In recent years, Japanese industry has been shaken by a record number of bankruptcies. Japanese commerce has also witnessed an unprecedented number of mergers and acquisitions. This rapid pace of industrial restructuring has created some increased level of risk for American companies selling into Japan. The U.S. Embassy in Tokyo continues to see trade dispute cases of all kinds. It has become more common for smalland medium-sized Japanese trading companies to run into payment problems. Importers, wholesalers and distributors without real estate assets may find it more difficult to obtain trade financing in the present environment. Banks in Japan have become less inclined to provide credit to small- and medium-sized enterprises of all types. Larger companies with excessive debt may also experience problems obtaining finance. As a result, American companies are well advised to perform due diligence procedures and check the bona fides of their Japanese agents and/or customers. A number of commercial agencies provide this type of service. For a list of information providers, please see “other business services” and “business consulting” at http://www.buyusa.gov/japan/en/9.html.

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TRADE REGULATIONS, CUSTOMS, AND STANDARDS

According to the Japan Tariff Association, the average applied tariff in Japan is one of the lowest in the world. In addition, import duties on many agricultural items continue to decrease, and tariffs in many major sectors, such as autos and auto parts, software, computers, and industrial machinery are zero. However, certain products including leather goods, certain processed foods and some manufactured goods have relatively high tariff rates. Although tariffs are generally low, Japan does have barriers that impede or delay the importation of foreign products to Japan. Although competition, U.S. and other foreign government pressure, as well as other factors have lessened the impact of these impediments, U.S. companies may still encounter non-tariff barriers such as the following: •

Standards unique to Japan (formal, informal, de facto, or otherwise);

•

A requirement for companies to demonstrate prior experience in Japan, effectively shutting out new entrants in the market.;

•

Official regulations that favor domestically-produced products and discriminate against foreign products;

•

Licensing powers in the hands of industry associations with limited membership, strong market influence, and the ability to control information and operating without oversight:

•

Cross stock holding and interconnection of business interests among Japanese companies that disadvantages suppliers outside the business group;

•

Cartels (both formal and informal) and;

•

The cultural importance of personal relationships in Japan and the reluctance to break or modify business relationships.

The tools available to overcome these non-tariff barriers depend on the industry, the product or service’s competitiveness, and the creativity and determination of the firm’s management. In addition, it is important to note that these non-tariff barriers exist in a highly competitive market -- Japan is a large and sophisticated market, and the competition can be fierce. A fair number of companies have benefited or failed simply as a result of timing and general economic conditions. However, the vast majority of successful foreign companies have had to evaluate and adjust their initial market entry strategy as their understanding of the market and their ability to adapt to the Japanese market increased.

4.5.1

Customs Regulations

Japan assesses tariff duties on the CIF value at ad valorem or specific rates, and in a few cases, charges a combination of both. Japan’s Ministry of Finance maintains a Web site that describes import clearance and customs procedures, and provides contact information and other detailed information in English (http://www.customs.go.jp/index_e.htm). Japanese customs regulations, like those of the United States, can be cumbersome, difficult to understand, and sometimes frustrating, but they are largely mechanical. Nearly all customs difficulties result from first time applications. Japanese customs officials are generally very helpful when it comes to explaining procedures and regulations, and once these are understood and followed, difficulties are usually minor and rare. Japan prohibits the importation of certain items including narcotics, firearms, counterfeit currency, pornography, and products that violate intellectual property laws. In addition, Japan imposes restrictions on the sale or use of certain products including those related to health such as medical products, pharmaceuticals, agricultural products,

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chemicals and explosives. For these products, Japanese Customs reviews and evaluates the product for import suitability before shipment to Japan.

Tariff Rates The Customs and Tariff Bureau of Japan’s Ministry of Finance administer tariffs. As a member of the Harmonized System Convention, Japan shares the same trade classification system as the United States (limited to six-digit code). Japan’s tariff schedule has four columns of applicable rates: general, WTO, preferential, and temporary. Goods from the United States are charged WTO rates unless a lesser “temporary” rate exists. Japan’s preferential system of tariffs grants lower or duty-free rates to products imported from developing countries. A simplified tariff system for low-value imported freight valued at less than 100,000 yen, such as small packages for personal imports, simplifies determination of tariff rates. This system also eliminates the extra time necessary to classify the product and its precise value, and thereby minimizes customs brokers’ handling charges. Importers can choose either the normal rate or the simple tariff, which could be higher or lower. Japanese Customs can provide an advance ruling on tariff classification and duty rates.

Import Taxes Including Value Added Taxes, Purchase Taxes, Uplifts and Surcharges, and Local Taxes In addition to customs duty, a five- percent consumption tax (general excise tax) is levied on all goods sold in Japan. Payment is required at the time of import declaration. The consumption tax is assessed on the CIF value of the product plus the import duty. Duties and consumption tax are payable when making an import declaration at the time of customs clearance by the importer. The Import Declaration Form (Customs Form C 5020) is filled out by the importer and is used as both an import declaration and tax payment declaration form. Packages are exempt from duty and the consumption tax if they contain items with a value of 10,000 yen or less. Certain specific products are exceptions to this rule, such as leather goods, and some knit products.

Licenses Required for Imports Most goods now qualify as “freely importable,” and do not require an import license. The only exception is for those commodities that fall under import quota. In these cases, the Japanese importer must apply for license approval. Rice, wheat, rice flour and leather are among the few products for which import quotas remain.

Entering Temporary Imports Japan is a member of the International Convention to Facilitate the Importation of Commercial Samples and Advertising Materials under the ATA Carnet System. Use of a Carnet allows goods such as commercial and exhibition samples, professional equipment, musical instruments and television cameras to be carried or sent temporarily into a foreign country without paying duties or posting bonds. A Carnet should be arranged for in advance by contacting a local office of the United States Council for International Business (http://www.uscib.org/) or its New York office by phone: 212-354-4480 or e-mail: [email protected]. Advertising materials, including brochures, films and photographs, may enter Japan duty free. Articles intended for display but not for sale at trade fairs and similar events are also permitted to enter duty free in Japan only when the fair/event is held at a bonded exhibition site. These bonded articles must be re-exported after the event, or stored at a bonded facility. A commercial invoice for these goods should be marked “no commercial value, customs purposes only” and “these goods are for exhibition and are to be returned after conclusion of the exhibition.” It is also important to identify the name of the trade show or exhibition site, including exhibition booth number (if known), on shipping documents.

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Special Import/Export Requirements and Certifications Documents required for customs clearance in Japan include standard shipping documents such as a commercial invoice, packing list, and an original and signed bill of lading, or, if shipped by air, an air waybill. Air shipments of values greater than ¥100,000 must also include a commercial invoice. The commercial invoice should be as descriptive as possible on each item in the shipment. The packing list should include the exact contents of each container, the gross and net weights of each package, and all container measurements using metric sizes. Certain items may require a Japanese import license. These include hazardous materials, animals, plants, perishables, and in some cases articles of high value. Import quota items also require an import license, usually valid for four months from the date of issuance. Other necessary documents for U.S. Exporters may include an Import Declaration Form (Customs Form C-5020) and a certificate of origin if the goods are entitled to favorable duty treatment determined by preferential or WTO rates. In practice, shipments from the United States are routinely assessed using WTO or “temporary” rates without a certificate of origin. Any additional documents necessary as proof of compliance with relevant Japanese laws, standards, and regulations at the time of import may also apply.

Labeling Issues Correct packing, marking, and labeling are critical to smooth customs clearance in Japan. Straw packing materials are prohibited. As noted above, the Japanese Measurement Law requires that all imported products and shipping documents show metric weights and measures. For most products there is no requirement for country of origin labeling; however, some categories such as beverages and foods do require such labeling. However, if labels indicating origin are determined to be false or misleading, the labels must be removed or corrected. False or misleading labels which display the names of countries, regions or flags other than the country of origin, and/or names of manufacturers or designers outside the country of origin are not permissible. Items that are required by Japanese law to bear labels cover four product categories: textiles, electrical appliances and apparatuses, plastic products and miscellaneous household/consumer goods. Because all these regulations apply specifically to individual products, it is important to work with a prospective agent/importer to ensure your product meets the requirements, if applicable. In general, most labeling laws are not required at the customs clearance stage, but at the point of sale. Consequently, it is most common for Japanese importers to affix a label before or after clearing customs.

Restrictions on Imports Japan strictly prohibits entry of narcotics and related utensils, firearms, firearm parts and ammunition, counterfeit or imitation money, obscene materials, or goods that violate intellectual property rights. The use of chemicals and other additives in foods and cosmetics is severely restricted by regulations that follow a “positive list” approach. Restricted items include but are not limited to certain agricultural and meat products, endangered species and products such as ivory, animal parts and fur whose international trade is banned by international treaty, and more than two months’ supply of medicines and cosmetics for personal use.

Warranty and Non-Warranty Repairs The warranty and non-warranty repairs vary by product and manufacturer in Japan. In general, the warranty coverage for consumer electrical appliances is one year, but one to five years for auto parts. Japanese machine tool manufacturers set the minimum warranty period at one year, but some manufacturers offer a two-year warranty for their own machines. There are no government regulations regarding warranty period. Warranty minimums, when they exist, are generally set by the local Japanese trade associations. Occasionally manufacturers and retailers offer longer warranty periods as a sales promotional strategy, while Japanese regulatory agencies have rules for nonwarranty repairs by products.

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Controls on Exports

As an active member of the Wassenaar Arrangement as well as various international export control regimes, Japan enjoys the least restrictive treatment under U.S. export control law. In response to the threat from global terrorists, the Japanese government this year implemented “catch-all” controls to prevent Japanese firms from exporting goods and technologies that may be related in some way to the development of weapons of mass destruction. At the same time, Japanese firms are engaged in business activities with countries that the United States currently has embargoes against. As such, U.S. exporters are encouraged to conduct thorough research and background checks pertaining to any potential sale of controlled or sensitive items, especially with an eye towards potential transshipment through Japan. For the latest in U.S. export and re-export control regulations, please contact the Department of Commerce Bureau of Industry and Security (BIS) at www.bis.doc.gov. For defense-related articles, contact the Department of State Office of Defense Trade Controls at www.pmdtc.org. For current U.S. embargo information, contact the Department of Treasury Office of Foreign Assets Control at http://www.treas.gov/offices/enforcement/ofac/.

4.5.3

Local Standards

Many domestic and imported products alike are subject to product testing and cannot be sold in Japan without certification of compliance with prescribed standards. Knowledge of, and adherence to, these standards and their testing procedures can be the key to making or breaking a sale. Product requirements in Japan fall into two categories: technical regulations (or mandatory standards) and non-mandatory voluntary standards. Compliance with regulations and standards is also governed by a certification system in which inspection results determine whether or not approval (certification/quality mark) is granted. Approval is generally required to sell a product or even display it in a trade event; unapproved medical equipment may be displayed if accompanied by a sign indicating that the product is not yet approved for sale. To affix a mandatory quality mark or a voluntary quality mark requires prior product type approval and possibly factory inspections for quality control assessment. Regulated products must bear the appropriate mandatory mark when shipped to Japan in order to clear Japanese Customs. Regulations may apply not only to the product itself, but also to packaging, marking or labeling requirements, testing, transportation and storage, and installation. Compliance with “voluntary” standards and obtaining “voluntary” marks of approval can greatly enhance a product’s sales potential and help win Japanese consumer acceptance. There are two ongoing trends in Japan regarding standards. One is a move toward reform of such standards, and the other is a move toward bringing them into harmony with prevailing international standards. While reform is underway, a long list of laws containing mandatory standards remain on the books and most have not been translated into English. Therefore, it is important that a Japanese agent or partner be fully aware of the wide variety of legislation that could affect the sale of the exported product in Japan. Major laws stipulating standards that apply to products in Japan include the following: •

Electrical Appliance and Material Control Law

•

Consumer Product Safety Law

•

Gas Utility Industry Law

•

Food Sanitation Law

•

Pharmaceutical Affairs Law

•

Road Vehicles Law

•

Building Standards Law

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The Japan Industrial Standards Committee (JISC)(http://www.jisc.go.jp/eng/index.html) plays a central role in standards activities in Japan. Its mission consists of four elements: 1) establishment and maintenance of Japan Industrial Standards (JIS), 2) administration of accreditation and certification, 3) participation in international standards activities, and 4) development of measurement standards and technical infrastructure for standardization. JISC publishes plans each month for the preparation of new and revised JIS drafts on its Web site: http://www.jisc.go.jp/eng/jis-act/drafts-preparation.html. Existing JIS standards are reviewed and revised every 5 years. Once a new or revised draft JIS standard has been prepared, JISC posts these draft standards for a sixty-day public comment period: see http://www.jisc.go.jp/app/pager. The JISC Web site also provides information regarding how foreign entities may participate in the JIS drafting process. The “voluntary” JIS mark, administered by the Ministry of Economy, Trade, and Industry (METI), applies to nearly 600 different industrial products and consists of over 8,500 standards. Adherence to JIS is also an important determinant for companies competing on bids in the Japanese government procurement process. Products that comply with these standards will be given preferential treatment in procurement decisions under Japan’s Industrial Standardization Law. JIS covers all industrial products except for those products regulated by specific national laws or for which other standard systems apply (e.g., the Pharmaceutical Affairs Law and Japan Agricultural Standards). The Japan Agricultural Standards (JAS) mark is another “voluntary” but widely used product quality and labeling mark. JAS applies to beverages, processed foods, forest products, agricultural commodities, livestock products, oils and fats, products of the fishing industry, and processed goods made from agricultural, forestry, and fishing industry raw materials. Specific JAS marks exist for various types of plywood, paneling, flooring boards, lumber, and timber. The JAS marking system is administered by Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF). Japan’s Ministry of Health, Labor and Welfare (MHLW) administers separate mandatory standards for quality labeling of processed foods and beverages.

Accreditation/Conformity Assessment The Japan Accreditation System for Product Certification Bodies of JIS Mark (JASC) is an accreditation program defined by the JIS Law, and operated by the JASC Office in METI. JASC accredits product certification bodies in the private sector and allows them to certify companies so that they may place the JIS Mark on their products. A list of Japanese and foreign organizations accredited by JASC as “JIS mark” certification bodies is available at the JISC Web site (http://www.jisc.go.jp/eng/jis-mark/acc-insp-body.html). This list provides contact information as well as the JIS field of certification for these testing organizations. The two major non-governmental accreditation bodies in Japan are IAJapan (within the quasi-governmental National Institute of Technology and Evaluation) and the Japan Accreditation Board for Conformity Assessment (JAB). IAJapan operates several accreditation programs including the Japan National Laboratory Accreditation System (JNLA) and the Japan Calibration Service System (JCSS). IAJapan’s Web site (http://www.nite.go.jp/asse/iajapan/en/index.html) provides lists of laboratories accredited under its programs, and laboratories accredited by JAB can be found at: http://www.jab.or.jp/cgibin/jab_exam_proof.cgi?page=1&eng=1. A limited number of testing laboratories in the United States not listed on the above Web sites have also been designated by various Japanese government agencies to test and approve U.S. products for compliance with Japanese mandatory certification systems and laws. Products not covered by these arrangements must be tested and approved by Japanese testing labs before these products can be sold in Japan.

4.5.4

Technical Regulations

Each Japanese ministry posts draft regulations for public comment on their respective Web sites. It should be noted that although U.S. entities may submit comments, the amount of time given for submissions varies widely and most postings are made only in Japanese. To assist U.S. entities that wish to participate in the Japanese regulatory process, CS Tokyo prepares a weekly summary translation of public comment announcements by Japanese government www.icongrouponline.com

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agencies available at http://www.buyusa.gov/japan/en/mac.html. Finalized technical regulations and standards are published in Japan’s national gazette known as the “kanpo” (http://kanpou.npb.go.jp/, Japanese only).

Product Certification and Labeling/Marking As noted above, Japanese laws requiring product certification and labeling are numerous. A good reference for information on these requirements is JETRO’s Handbook for Industrial Product Import Regulations available at: http://www.jetro.go.jp/se/e/standards_regulation/index.html.

Contact Information The following two organizations are the designated WTO inquiry points in Japan for standards information: Standards Information Service First International Organizations Division Economic Affairs Bureau Ministry of Foreign Affairs (MOFA) 2-2-1 Kasumigaseki, Chiyoda-ku Tokyo 100, JAPAN Tel: +81-3-5501-8344 Fax: +81-3-5501-8343 Email: [email protected] Note: Standards Information Service at MOFA mainly handles enquiries in the fields of drugs, cosmetics, medical devices, foodstuffs, food additives, telecommunications facilities, motor vehicles, ships, aircraft and railway equipment (excluding enquiries concerning Japanese Industrial Standards (JIS) which are handled by JETRO). Standards Information Service Information Service Department Japan External Trade Organization (JETRO) 2-2-5 Toranomon, Minato-ku Tokyo 107, JAPAN Tel: +81-3-3582-6270 Fax: +81-3-3589-4179 Email: [email protected] Note: Standards Information Service at JETRO mainly handles enquiries in the fields of electric equipment, gas appliances, measurement scales, foodstuffs, food additives, etc. Those enquiries concerning JIS on medical devices, motor vehicles, ships, aircraft and railway equipment are handled by JETRO. In addition, the Japan Standards Association maintains a library of information about JIS requirements. The Association will translate JIS information into English for a fee based on the number of pages to be translated. If an inquiry is too specific for the Association to answer, it will refer the inquiry to the appropriate Japanese industry organization for a response. Japan Standards Association 4-1-24 Akasaka, Minato-ku Tokyo 107, JAPAN Tel: +81-3-3583-8005 Fax: +81-3-3586-2014 http://www.jsa.or.jp/default_english.asp

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The point of contact for standards issues at CS Tokyo is: Mark Wildman Compliance Officer Commercial Service Japan U.S. Embassy Tokyo Tel: +81-3-3224-5316 Fax: +81-3-3224-5093 Email: [email protected]

4.5.5

Product Liability Law

In addition to standards, another point to bear in mind regarding the sale of merchandise in Japan is the Product Liability Law. This law, which went into effect in July 1995, makes manufacturers liable for compensation for injury, death, or damage to property resulting from the sale of defective products whether or not such defects can be attributed to accidental or willful faulty manufacture. Although only a few lawsuits have been filed under this law so far, the number is expected to rise in the future. Manufacturers should take full note of the fact that revisions of the Civil Proceedings Act, which went into effect in early 1998, have made it easier for lawsuits to be filed and heard in court.

4.5.6

Free Trade Zone Options

Japan has no free trade zones. However, customs officials do allow the bonding of some warehouses, processing facilities, and exhibition sites on a case-by-case basis. A law enacted in 1992 created a total of 22 Foreign Access Zones (FAZ) scattered throughout Japan. Each FAZ offers a comprehensive range of facilities to handle all stages of importing, from customs clearance to product sorting, processing, and distribution. Many FAZ’s are equipped with business development facilities such as exhibition halls and seminar rooms. Some FAZ’s offer full-service bonded areas for foreign cargo. Information on the location and facilities available at each FAZ can be obtained by contacting the Japan External Trade Organization (JETRO).

4.5.7

Adherence to Free Trade Agreements

Japan concluded an FTA with Singapore in January 2002, and is finalizing an FTA with Mexico. Agricultural issues, however, have hindered Japan’s efforts to conclude FTA’s. Japan is a member of APEC, which has established a goal of APEC-wide free trade and investment for developed economy members by 2010, and for all APEC member economies by 2020.

4.5.8

Additional Trade Issues

Japan places few formal barriers on imported goods and its average tariff rates are among the lowest in the world, in line with other industrialized nations. Nevertheless, tariff rates on many imported agricultural products remain high. Moreover, many imports face a wide and complex range of standards, certifications, and other informal and technical barriers, including health and sanitary regulations. Thus, the import process is at times slow and difficult. In response to complaints from trading partners that Japan discourages the consumption of foreign products, years ago the Government of Japan launched a number of programs to help foreign companies export to Japan. The Japan www.icongrouponline.com

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External Trade Organization (JETRO), the Manufactured Imports Promotion Organization (MIPRO), and Japan’s Ministry of Economy, Trade and Industry (METI) administer these programs. Assistance available includes low interest loans to encourage imports, assistance in finding Japanese business partners, market research, export study programs, and the provision of free temporary office space in six Japanese cities. Emphasis has recently been switching from import promotion to the promotion of investment into Japan. For example, JETRO’s long-term Senior Trade Advisors, initially dispatched to U.S. state governments to offer advice on exporting to Japan, now are also providing investment advice. JETRO still organizes “study tours” to Japan for U.S. business people to better understand the Japanese market, and operates Business Support Centers in Tokyo, Yokohama, Nagoya, Osaka, Kobe, and Fukuoka. JETRO also publishes numerous market research and trade facilitation information, maintains business-matchmaking databases, organizes import fairs in Japan, and provides business counseling. Information about JETRO and its programs is available at http://www.jetro.go.jp/.

Customs Contact Information Customs and Tariff Bureau, Ministry of Finance 3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8940 Phone: 81/3/3581-4111 www.mof.go.jp/english/tariff/tariff.htm Customs Counselors System in Japan Tokyo Headquarters Phone: 81/3/3529-0700 www.customs.go.jp/zeikan/seido/index_e.htm Japan Tariff Association Chibiki 2nd Bldg., 8F. 4-7-8 Kojimachi, Chiyoda-ku, Tokyo 102-0083 Phone: 81/3/3263-7221 Fax: 81/3/3263-7972 www.kanzei.or.jp/english/ APEC Tariff Database www.apectariff.org/

4.6

INVESTMENT CLIMATE

Japan, the world’s second-largest economy, is an immense potential market for U.S. foreign direct investment (FDI). The Government of Japan (GOJ) imposes few formal restrictions on FDI in Japan, and has removed or liberalized most legal restrictions that apply to specific economic sectors. The government does not impose export-balancing requirements or other trade-related FDI measures on firms seeking to invest in Japan. Risks associated with investment in many other countries, such as expropriation and nationalization, are not an issue in Japan. Moreover, Prime Minister Koizumi has pledged to double the amount of FDI in Japan over the next five years. The current low-growth environment in Japan has created many new opportunities for FDI in this extremely rich and broad market: •

Prices are down to their lowest point in a decade.

•

More Japanese companies are actively looking for foreign partners to inject needed capital and know-how.

•

There are distressed assets that can be profitably acquired and returned to economic viability.

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The challenges facing foreign investors seeking to establish or enhance their presence in Japan -- many of the most important of which are matters of private business practice rather than of government regulation -- include: •

A high overall cost structure that makes market entry, exit, and expansion expensive;

•

Cultural and linguistic challenges to doing business;

•

Corporate practices and market rules that inhibit foreign acquisition of Japanese firms, such as insufficient financial disclosure practices, cross-holding of shares among companies belonging to the same business grouping (keiretsu), the low proportion of publicly traded common stock relative to total capital in many companies, and public attitudes about foreign takeovers;

•

Exclusive buyer-supplier networks and alliances are still maintained by some “keiretsu,” which limit competition from foreign firms and domestic newcomers;

•

Laws and regulations that directly or indirectly restrict the establishment of business facilities and hinder market access for foreign products, services, and FDI.

•

Labor practices which inhibit labor mobility, repress productivity, and negatively impact development of skills.

All of these issues are currently being addressed in government-to-government talks, and progress is being made in many areas. FDI in Japan has soared since the mid 1990s. In fact, FDI stock in Japan has more than tripled (on an yen basis) in the period 1998-2003, from 3.0 trillion yen at the end of 1998 to 9.6 trillion yen at the end of 2003. Reforms in the financial, communications, and distribution sectors have encouraged foreign investment into these sectors. Improvements in corporate laws, bankruptcy laws, and accounting principles have also helped attract foreign capital to Japanese companies. However, Japan continues to host the smallest amount of inward foreign investment as a proportion of total output of any major OECD nation. Foreign participation in mergers and acquisitions (M&A), which account for some 80% of FDI in other OECD countries, although on an upward trend, also lags in Japan. Meanwhile, Japan continues to run an imbalance between its inward and overseas FDI. Japan’s relative lack of foreign investment also acts as a restraint on the expansion of imports. Ongoing economic restructuring (due in large part to the more competitive financial sector and greater emphasis on rate of return), and changes in Japan’s financial markets contributed to growth in foreign direct investment in Japan in non-financial sectors. Distribution affiliations, joint ventures, and mergers and acquisitions involving foreign and Japanese financial services providers have accelerated rapidly, as foreign firms take advantage of business opportunities being created in Japan’s financial sector as a result of the Japanese government’s “Big Bang” and the U.S. government’s deregulation initiative with Japan. Japanese financial firms have started to look overseas for assistance in the form of new products, technologies and capital to meet these challenges. In addition, foreign firms have stepped in to buy the assets of domestic financial services firms that have recently failed. At the same time, structural impediments to foreign investment remain, and it is not certain that inward foreign investment flows will continue to accelerate. Acknowledging that FDI in Japan lags far behind that of other industrialized economies, the GOJ has in recent years taken some welcome steps to address investment-related problems. Of most recent significance is the GOJ initiative to revise the Commercial Code. Other legislation reforming bankruptcy procedures has provided M&A opportunities, as distressed Japanese companies are able to seek partners or buyouts. The Ministry of Economy, Trade and Industry (METI) in particular is taking seriously the challenge of attracting greater foreign investment to Japan. At the regional level, a number of prefectural and city governments are intensifying their efforts to attract foreign investors.

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Liberalization of Investment Restrictions

Japan has gradually eliminated most of the formal restrictions governing its FDI regime. In 1991, the GOJ amended the Foreign Exchange and Foreign Trade Control Law (which also controls foreign investment) to replace the longstanding “prior notification” requirement for all FDI with an “ex post facto notification” requirement for investment in non-restricted industries. “Prior notification” (and thus case-by-case approval) is now required only for investment in certain restricted sectors, including agriculture, forestry, petroleum, electrical/gas/water utilities, aerospace, telecommunications, and leather manufacturing. Administrative approval for foreign investment in some of these sectors is quite certain, while in other sectors it is likely to be subject to greater scrutiny based on “national sovereignty” or national security concerns. U.S. investment has become increasingly common in some traditionally restricted sectors, particularly in the petroleum and telecommunications industries. The only legal restriction on foreign ownership in Japan’s telecommunications sector applies to Nippon Telegraph and Telephone (NTT): foreign investment in NTT, which is 46-percent owned by the government of Japan, is limited to one third by the NTT Law. In the fall of 2001, Europe’s Vodafone mobile telecommunications group took control of one of Japan’s competing telecommunications operators, Japan Telecom, with an $11 billion investment that remains the single largest foreign investment in Japan. Japan’s Radio Law and Broadcasting Law limit foreign investment in broadcasters to 20 percent, or at one third for a broadcasters categorized as facility-supplying. This limit does not apply to communications satellite facility owners and program suppliers or to cable television operators. Several sections of the Japanese Antimonopoly Law (AML) are relevant to FDI. For example, chapter four of the AML includes extensive antitrust provisions pertaining to international contract notification (section 6), stockholding (sections 10, 14), interlocking corporate directorates (section 13), mergers (section 15), and acquisitions (section 16). The stated purpose of these sections is to restrict any stockholding, management, joint venture, and M&A activities that constitute unreasonable restraints on competition or involve unfair trade practices. These provisions are not intended to discriminate against foreign companies or to discourage FDI.

4.6.2

Limitations on Facility Development and Availability of Investment Real Estate

Potential foreign investors find that high prices of commercial office space an obstacle to investment in Japan. Urban land prices (although less than half the 1991 high) remain expensive. Lack of information on land prices and ownership also impedes foreign and domestic investors, by making it harder to assess the real asset value of potential business partners or acquisition targets. Revisions to the Securities Investment Trust Law, enacted in November, 2000, lifted the ban on real estate investment trusts (REITs) to permit marketing of mutual funds that invest in property rights. Although growth has been slow, REITs are already increasing demand for transparency and accurate pricing in the real estate market. Aiming to increase the liquidity of Japanese real estate markets, over the recent years the government has progressively lowered capital gains, registration, and license taxes on real estate. Japan continues to restrict the development of industrial and commercial facilities in some areas in an attempt to prevent excessive concentration of development in the environs of Tokyo, Osaka, and Nagoya, and also to protect land designated as optimal for agriculture. Generally speaking, Japan’s zoning laws give local Japanese officials and residents considerable discretionary authority to screen almost all aspects of a proposed building. These factors effectively reduce the real estate available for development and often lead to delays in construction and higher building costs.

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Corporate Tax Treatment

Local branches of foreign firms are generally taxed only on corporate income derived from within Japan, whereas domestic Japanese corporations are taxed on their worldwide income. Calculation of taxable income and allowable deductions, and payments of the consumption tax (sales tax), is otherwise the same as those for domestic companies, with national treatment for foreign firms. Corporate tax rules classify corporations as either foreign or domestic depending on the location of their “registered office,” which may be the same as or a proxy for -the place of incorporation. The United States has a tax treaty with Japan that generally allows Japan to tax the business profits of a U.S. resident only to the extent those profits are attributable to a “permanent establishment” in Japan, and in addition provides measures intended to mitigate double taxation. A new bilateral tax treaty between the United States and Japan came into force in March 2004. Under the terms of the new bilateral tax treaty, cross-border dividends on listed stock are not subject to source country withholding tax if the parent company owns 50% or more of the foreign subsidiary. Interest on financial transactions payable to a nonresident as well as royalties paid to a foreign licenser are also no longer subject to source country withholding tax. A special tax measure allows designated inward investors to carry over certain losses for tax purposes for ten years rather than for the normal five years. The option of consolidated taxation was made available to corporations since April 1, 2002. Consolidated taxation should facilitate investment and corporate restructuring, because the losses usually expected from a new venture or recently acquired subsidiary can be charged against the profits of the parent firm or holding company.

4.6.4

Investment Incentives

In Japan, both government and the private sector are increasingly promoting inward FDI. Local governments are also increasing their efforts to attract foreign capital. Osaka Prefecture, Osaka City and the Osaka Chamber of Commerce established the Osaka Business and Investment Center (O-BIC) as a one-stop center for providing information on entering the Osaka market and shortened the processing time for starting a company to six months instead of 12 months. The prefecture also improved tax incentives so that incoming companies in Osaka Prefecture receive up to 90% corporate enterprise tax cuts as well as a 50% reduction in real estate acquisition tax. Hokkaido Prefecture provided information on Hokkaido’s investment environment by setting up Hokkaido industrial tours, targeting foreign diplomatic offices, promoting the prefecture’s investment environment and assisting JETRO’s Invest in Japan Study Program (IJSP), which invites foreign companies interested in investing in Japan. Another Japanese Government program started in April 2003 is called “Special Zones for Structural Reform.” This program designates certain areas as exempt from regulations in order to develop the areas’ special features. These zones are based on ideas developed by local governments and private companies. In the first phase, 57 special zones were certified on April 21. Among them is a Special Zone for International Distribution with a 24-hour/365-day customs clearance, which is expected to greatly enhance the environment for FDI. Under the zone program, it is possible to set up other special regulatory exemptions that benefit the investment environment. For instance, zones could eventually be developed allowing corporations to own hospitals, schools, agricultural enterprises and special elderly nursing homes that have been barred to private companies and could introduce special exemptions for visas/resident qualifications to expand the acceptance of foreign engineers, tourists and exchange students. The Headquarters for the Promotion of Special Zones for Structural Reform will continue to invite ideas on new zones from local governments and private companies. Foreign governments and companies can also submit ideas to the local government. When local governments and private companies join with foreign governments and companies, creative ideas for new special zones could be developed that contribute to attracting inward FDI. Therefore, active involvement of all parties is encouraged.

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Conversion and Transfer Policies

All foreign exchange transactions to and from Japan -- including transfers of profits and dividends, interest, royalties and fees, repatriation of capital, and repayment of principal -- are, in principle, freely permitted unless expressly prohibited. With the April 1998 revision of the Foreign Exchange Law, Japan moved to an ex-post notification system. This means that all foreign exchange transactions (unless specifically prohibited, including certain foreign direct investments) no longer require prior notification or approval. In addition, the law eliminated the authorized foreign exchange bank system, whereby foreign exchange transactions all had to go through certain registered banks. All other restrictions on methods of payment -- including netting of settlements -- were also removed, enhancing the ability of foreign and Japanese financial firms to offer a fuller range of services in Japan. This has led to lower foreign exchange transaction costs for non-financial firms as well. Japan is an active partner in the struggle to choke off terrorist financing. In coordination with other OECD members, the GOJ is strengthening due-diligence requirements for financial institutions. A new know-your-customer law was passed in 2002.

4.6.6

Expropriation and Compensation

In the post-war period, the GOJ has not expropriated or nationalized any enterprises, with the exception of the nationalization in 1998 of two large capital-deficient banks and, in 2002, of two small failed regional banks. Expropriation or nationalization of foreign investments is unlikely in the foreseeable future.

4.6.7

Dispute Settlement

There have been no major bilateral investment disputes since 1990, and there are no outstanding expropriation or nationalization cases in Japan. There have been no cases of international binding arbitration of investment disputes between foreign investors and the GOJ since 1952. Japan is a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards. However, it has long been considered an inhospitable forum for international commercial arbitration. The Japan Commercial Arbitration Association, the only organization that arbitrates international trade and investment-related disputes, had only 63 cases submitted to it between 1998 and 2002. Of these, only 37 went to arbitration. There are no legal restrictions on access by foreign investors to Japanese lawyers, and significant reforms in laws governing legal services and the judicial system are increasing the ability of foreign investors to obtain adequate legal advice on doing business in Japan – despite some foot-dragging by the Federation of Japanese Bar Associations (Nichibenren). Japan’s civil courts enforce property and contractual rights, and the courts do not discriminate against foreign investors. However, they are sometimes ill suited for litigation of investment and business disputes. As in many other countries, Japanese courts operate rather slowly. As noted above, the Judicial Reform Promotion Headquarters is enacting a number of changes to speed the conduct of trials. In addition, the courts lack contempt powers to compel a witness to testify or a party to comply with an injunction, and timely temporary restraining orders and preliminary injunctions are very difficult to obtain. While filing fees for large civil cases were reduced in 1992, they are still based on the amount of the claim, rather than a flat fee. Lawyers usually require large up-front payments from their clients before filing a lawsuit, with a modest contingency fee, if any, at the conclusion of litigation. Contingency fees familiar in the U.S. are relatively uncommon. A losing party can delay execution of a judgment merely by appealing, and in appeals to the high courts, additional witnesses and other evidence are sometimes allowed. www.icongrouponline.com

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Courts do have power to encourage mediated settlements, and the courts have a supervised mediation system. Parties can manipulate this system to delay resolution, however, and because judges move frequently, continuity is often lost. As a result, it is very common for companies to settle out of court.

4.6.8

Performance Requirements and Incentives

Japan does not maintain a system of performance requirements. Japan also maintains no formal requirements for local management participation or local control in joint ventures or other forms of direct investment, except in restricted sectors.

4.6.9

Right to Private Ownership and Establishment

Japan legally maintains the right for foreign and domestic private enterprises to establish and own business enterprises and engage in all forms of remunerative activity.

4.6.10

Protection of Intellectual Property Rights

Protection of intellectual property rights is an integral part of every successful U.S. exporter’s basic market strategy in Japan. It is necessary to file applications to register patents and trademarks in Japan to obtain protection, but prior patent filing in the United States can provide certain advantages if applications are filed promptly in Japan. A U.S. patent or trademark attorney can provide informal advice, but it is necessary to hire a Japanese lawyer or patent practitioner (benrishi) registered in Japan to prosecute the patent or trademark application. In conformity with international agreement, Japan maintains a non-formality principle for copyright registration -- i.e., registration is not a pre-condition to the establishment of copyright protection. However, the Agency of Cultural Affairs maintains a registry for such matters as date of first publication, date of creation of program works, and assignment of copyright. U.S. copyrights are recognized in Japan by international treaty. U.S.-produced semiconductor chip design-layouts are protected for ten years under a special law if they are registered with the Japanese “Industrial Property Cooperation Center”-- a Japanese government-backed public corporation. Obtaining and protecting patent and trademark rights in Japan can be time-consuming and costly, although patent fees have recently been reduced considerably. While the process to safeguard such rights might seem prohibitive, lack of protection would permit competitors both in and outside of Japan to copy a product or production process. Even when intellectual property rights have been acquired, pirating of technology and designs can occur in Japan, as in other countries. Each company in a trading or licensing agreement should understand clearly what its rights and obligations are with respect to the intellectual property rights owned or acquired by the other. Such a clear understanding helps to create a good rapport based on mutual trust, thereby ensuring the success of the trading or licensing agreement.

Patents, Trademarks, Utility Models, and Designs Unlike U.S. patent law, patents are granted to the first to file an application for a particular invention, rather than to the first to invent. Although Japan accepts filings in English (to be followed by a Japanese translation), companies should ensure that translations of their applications are perfect, as significant negative ramifications may result from translation errors. Prompt filing in Japan is crucial because printed publication of a description of the invention anywhere in the world, or knowledge or use of the invention in Japan, prior to the filing date of the Japanese application, would preclude the grant of a patent on the application. Also, unlike the United States, where

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examination of patent applications is automatic, an applicant must request examination of his patent application in Japan within three years of filing. As is true in many countries, all patent applications are published 18 months after filing. If, during the examination, the Japanese Patent Office (JPO) finds no impediment to the grant of a patent for a particular invention, it publishes the patent application in the Patent Public Gazette a second time, including any changes that have been made during the examination. Under a recent amendment to the Patent Law, parties may contest the terms of a patent grant immediately after issuance by the Patent Office (for a period of up to six months), rather than prior to registration as had been the previous practice. The patent is granted and valid for 20 years from the date the application is filed. Japan’s Trademark Law protects trademarks and service marks. As is the case with patent applications, a resident agent (usually a lawyer or patent agent) must prosecute the trademark application. And as with the processing of patent applications, Japan’s trademark registration process can be slow. Any company planning on doing business in Japan should file for trademark registration as early as practicable. Japan is subject to the Madrid Protocol (effective March 14, 2000) and trademarks registered at the WIPO Secretariat will be protected among member countries. Japan’s Utility Model Law also allows registration of utility models, a form of minor patent with a 6-year term of protection, retroactive from the date of application since January 1994. A separate design law allows protection of designs, with a 15-year term of protection from the date registration was made.

Unfair Competition and Trade Secrets The only protection available for a trademark in Japan prior to registration is under the Japanese Unfair Competition Prevention Law. Under this law, the owner of the mark must demonstrate that the mark is well known in Japan and that consumers will be confused by the use of an identical or similar mark by the unauthorized user. In 1990, Japan enacted amendments to the law that provided some protection from theft of trade secrets, such as know-how, customer lists, sales manuals, and experimental data. The law, which was amended completely in 1993, also provides for injunctions against wrongful use, acquisition, or disclosure of a trade secret by any person who knew or should have known that the information in question was misappropriated. The judicial process, however, makes the enforcement of rights without loss of trade secrets difficult.

4.7

TRANSPARENCY OF THE REGULATORY SYSTEM

Over-regulation in Japan continues to restrain economic growth, raise the cost of doing business, restricts competition, impedes market entry and exit, and impede investment. It also raises prices and increases the cost of living for Japanese consumers and for foreign businesses operating in Japan. The 1990s have been dubbed Japan’s “Lost Decade”, during which Japan’s growth in gross domestic product (GDP) averaged a mere 1.05%, or less than half the 3.8% average of the preceding decade. This was brought about by Japan’s inability to recover from massive asset deflation that followed the burst of the economic “bubble” (manifested in huge non-performing loans) and an inability to reform political, economic and social systems to adapt to the changing international environment of economic globalization and the Information Technology revolution. Typical of highly regulated economies, the Japanese economy is now suffering from a serious misallocation of resources, a lack of investment and a lack of entrepreneurial innovation. In addition to slowing growth, government over-regulation lies at the heart of many market access and competitive problems faced by U.S. companies in Japan. An essential prerequisite for a vibrant Japanese economy is a regulatory system that is transparent, fair, predictable and accountable. It is important that domestic and foreign firms alike have full access to information and opportunities to participate in the regulatory decision-making process. The Japanese Government has made greater transparency a crosscutting theme of its Three-Year Program for Promoting Regulatory Reform (Cabinet Decision of March 30, 2001). The systemic measures set out in the Three-Year Program could contribute to needed improvements in the transparency and accountability of the Japanese regulatory system. They include: wide and effective use of the Public Comment Procedures for Formulating, Amending and Repealing Regulations; the strict www.icongrouponline.com

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enforcement and promotion of the use of the 1994 Administrative Procedure Law; increased transparency of administrative guidance; full and effective implementation of the Law Concerning the Disclosure of Information Retained by Administrative Agencies; expanded use of the “No Action Letter” system; comprehensive and objective evaluation of the regulatory process; and examination of the need, effects, and costs of new proposed and existing regulations. Building on these measures, the United States in its Regulatory Reform Initiative submissions has recommended that the Japanese Government undertake additional improvements in its regulatory system to support Japan’s reform efforts and to ensure universal access to government information and the policymaking process. In particular, Japan needs to make the Public Comment Procedures more effective, to reduce the use of Administrative Guidance, and to encourage greater public participation in the legislative process. The United States continues to hold bilateral working-level discussions in an effort to encourage the Japanese to promote deregulation, competition policy, and administrative reform measures that could help revive the Japanese economy, increase imports and foreign direct investment into Japan.

4.7.1

Capital Markets and Portfolio Investment

Japan maintains no formal restrictions on inward portfolio investment, and in fact foreign capital occupies an increasingly important place in Japanese capital markets. However, corporate practices such as cross-shareholding, while declining, still limit the percentage of shares in individual firms and in the overall market that foreign investors can actually purchase. Informal restrictions on management participation of foreign shareholders limit the attractiveness of Japan’s equity market to foreign investors, although some firms have taken steps to facilitate exercise of shareholder rights by foreign investors, such as permitting electronic proxy voting.

4.7.2

Environment for Mergers and Acquisitions

Stock market-based takeovers of listed firms via tender offer, as widely practiced in the United States and parts of Europe -- both friendly and hostile -- remain rare in Japan. Japan’s aversion to M&A activity is starting to fade, accelerated by the unwinding of extensive corporate cross-shareholding brought about by implementation of improved accounting standards and new government mandates that banks divest cross-held shares above a set level of holdings. Friendly transfer of wholly owned and majority-owned subsidiaries remains a more common form of M&A in Japan. Similarly, there are signs that owner-operated unlisted firms -- which traditionally would only sell out as a last resort before bankruptcy -- are becoming more amenable to acquisition by foreigners. Particularly in the more modern, more service-oriented sectors of the economy, purchase by foreigners is becoming less of a badge of shame than in years past. Still, there remain a number of key factors limiting greater entry into the Japanese market through M&A with unlisted firms -- including tax policy, weak accounting and disclosure practices, Japan’s underdeveloped OTC stock market (which if more developed would reduce the risks involved in M&A), lack of readily available information on firms that might be acquired, and the relative lack of a M&A “infrastructure” in the form of specialists skilled in making matches and structuring M&A deals. Two new exchanges geared towards encouraging start-ups and venture capital investments opened in Tokyo in 1999, but only one remains. The Tokyo Stock Exchange “Mothers” Exchange, with less-stringent listing criteria for emerging companies, has relatively few listed firms and suffers from lack of liquidity.

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Flexibility of Capital Structure Drastic Changes in 2000-2001” issued by the Ministry of Justice on April 16, 2002, the Diet has enacted a number of revisions to the Commercial Code to improve the methods through which companies may obtain financing and services and to provide incentives to managers and employees, including amendments: •

Relaxing the restrictions on the size of units of stocks, including abolishing the ¥50,000 per share minimum issue price and restrictions on the minimum net assets per share at the time of stock splits;

•

Authorizing the issuance of tracking stock;

•

Eliminating the prohibition on the issuance of non-voting common stock, and increasing the limit on the total number of non-voting shares that may be issued from one-third of the total issued shares to one-half of total issued shares;

•

Substantially liberalizing restrictions on issuance of stock options, including abolishing restrictions on the recipients of stock options, maximum number of stock options that may be granted and the permissible exercise period;

•

Permitting classes of shareholders of closely held corporations that have issued more than one class of shares to elect a specified number or percentage of board members;

•

Eliminating the prohibition against transfers of new subscription rights; and

•

Eliminating the requirement for court-supervised inspection procedure for valuation of in-kind capital contributions, allowing as an alternative certifications by professionals such as lawyers, accountants or tax accountants.

Improvements in Corporate Governance In addition, the Diet has enacted a number of revisions to the Commercial Code and the Industrial Revitalization Law to ensure efficient corporate governance, including amendments: •

Providing publicly traded companies the option of adopting U.S.-style corporate governance system instead of complying with the statutory auditor (kansayaku) requirement. This option requires the appointment of executive officers and the establishment of a board committee system in which at least the audit, nomination and compensation committees would be composed of a majority or more of outside directors. The new measure is, however, under the Industrial Revitalization Law, which requires companies to submit their company revitalization plans to METI Minister to obtain Minister’s authorization. MOJ plans to amend the Commercial Code to make the new measure available for companies in general within the next two years; and

•

Permitting companies to use the Internet or other electronic means to provide notices of shareholders’ meetings and other similar communications to shareholders upon individual consent, and permitting shareholders to exercise their voting rights through the use of electronic devices. In addition, companies are permitted to meet their mandatory disclosure requirements for balance sheets (and profit and loss statements) by making the full text available for 5 years in an electronic format.

Cross-Shareholding and M&A Potential foreign investors in Japan frequently point out that extensive cross-shareholding (mochiai) in Japan greatly complicates market-based merger and acquisition transactions, and reduces the potential impact of shareholder-based corporate governance. Corporate governance practices which result in senior management emphasizing internal loyalties over shareholder return can also lead to premature rejection of M&A offers. At the same time, Japanese companies are unwinding cross-shareholdings, which has accelerated in recent years under the pressure of difficult corporate finances and stricter accounting requirements. Similarly, more corporations are hiring outside directors, and placing greater emphasis on shareholder value in their management practices.

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To assist corporations in reducing the unfunded liabilities of corporate pension funds and to accelerate the unwinding of cross-shareholdings, the Japanese government implemented legislation in 2000 that allows corporations to transfer shareholdings to their related corporate pension funds. If the shares are directly transferred, the pension fund is able to properly execute shareholder rights, and sell the shares if it is deemed in the best interests of the pension-holders. However, many firms prefer the alternative of indirect transfer of shares through a trust whereby the sponsoring corporation retains voting rights and effectively influences when the shares can be sold. In 2001 the GOJ created the Banks’ Shareholdings Purchase Corporation to facilitate sale of bank cross-held shares. In another useful innovation, the Diet approved amendments to the Commercial Code permitting creation of a stock swap system, through which one of the parties becomes a wholly-owned subsidiary company and the other a parent company, as well as a stock transfer system to establish a parent company. Legislation to allow foreign firms – and Japanese firms operating internationally – to use similar transactions when conducting M&As based in other markets has been adopted as part of an amendment to the Industrial Revitalization Act. Unfortunately, deferred tax treatment was not part of the package.

Accounting and Disclosure Accounting and disclosure standards are an extremely important element in assessing and improving any nation’s environment for mergers and acquisitions. Before any merger or acquisition can take place, it is critical that the merging or purchasing corporations have the best possible information on which to make business decisions. Implementation of “Big Bang” -associated reforms since 1998 has significantly improved Japan’s accounting standards. A shift to consolidated accounting was made mandatory in FY99 and “effective control standards and influence” standards were introduced in place of conventional holding standards, expanding the range of subsidiary and affiliated companies included for the settlement of account. Consolidated disclosure of contingent liabilities, such as guarantees, began in April 1998. Since FY01 all marketable financial assets held for trading purposes including cross-shareholdings and other long-term securities holdings are recorded at market value in Japan. Also starting in FY00, companies were required to disclose unfunded pension liabilities by valuing pension assets and liabilities at fair value. Fixed asset impairment accounting is scheduled for FY05. This new rule would require firms to record losses if the recoverable value of property, plant or equipment is significantly less than book value. The greater focus on consolidated results and mark-to-market accounting is already having an impact and is encouraging unwinding of cross-held shares. Corporate restructuring is accelerating, and companies are rushing to reduce pension under-funding. Banks have stared disposing of low-yield assets. While the recent improvement in accounting standards and growth in M&A activity have been welcome, they have also exacerbated the shortage of accounting professionals.

Taxation and M&A Preferential tax treatment of initial public offerings remains a problem. Under current regulations, if a company is sold in an M&A transaction before the IPO listing, a 10% capital gains tax rate applies for listed stocks, and a 26% capital gains tax applies for all others. If the founding shareholder of a qualified company “goes public” and then sells shares of the company into the market, a capital gains tax rate of as low as 5% applies (if the sale is within three years of being listed).

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Bankruptcy Laws

An insolvent company in Japan can face liquidation under the Bankruptcy Act or take one of four roads to reorganization: the Civil Rehabilitation Law (Minji Saisei Ho), the Corporate Reorganization Law (Kaisha Kosei Ho), corporate reorganization under the Commercial Code (Kaisha Seiri) or an out-of-court creditor agreement. In April 2000, Japan overhauled its bankruptcy law governing small and medium size firm bankruptcies by enacting the Civil Rehabilitation Law, which focuses on corporate restructuring in contrast to liquidation. The new law provides improved protection of debtor assets prior to the start of restructuring procedures, eases requirements for beginning restructuring procedures, simplifies and rationalizes procedures for the examination and determination of liabilities and improves procedures for approval of rehabilitation plans. Japan’s Corporate Reorganization Law, generally used by large companies, was similarly revised in April 2003. Amendments made corporate reorganization for large companies more cost-efficient, speedy, flexible and available at an earlier stage. By removing many institutional barriers to the restructuring process, the new bankruptcy regime has already accelerated the corporate restructuring process in Japan. In the 1990s, most corporate bankruptcies in Japan were dealt with by out-of-court creditor agreements because court procedures were lengthy and costly. Also the fact that bankruptcy trustees had limited powers to oversee restructuring meant that most judicial bankruptcies ended in liquidation, often at distress prices. In 2001, a group of Japanese bankruptcy experts published a set of private rehabilitation guidelines, modeled after the UK-based INSOL guidelines, for out of court corporate rehabilitation in Japan. Out of court workouts in Japan tend to save time and expense, although they sometimes also lack transparency and fairness. In practice, because 100 percent creditor consensus is required for out-of-court workouts and the court can sanction a reorganization plan with only a majority of creditors’ approval, the last stage of an out-of-court workout is often a request for a judicial seal of approval.

4.7.4

Credit Markets

Domestic and foreign investors have free access to a variety of credit instruments at market rates. In general, foreign companies in Japan have not experienced significant difficulties in obtaining funding. Most foreign firms obtain short-term credit by borrowing from Japanese commercial banks or one of the many (close to one hundred) foreign banks operating in Japan. Medium-term loans are available from commercial banks, as well as from trust banks and life insurance companies. Large foreign firms have tended to use foreign sources for long-term financial needs, although increasingly sophisticated derivatives products are becoming available to assist in hedging foreign investors’ perceived risk.

4.7.5

Political Violence

In general, political violence is rare in Japan, and acts of political violence involving American business interests are virtually unknown.

4.7.6

Corruption

The penal code of Japan covers crimes of official corruption. An individual convicted under these statutes is subject, depending on the nature of the crime, to penal servitude ranging from one month to fifteen years, and possible fines up to three million yen or mandatory confiscation of the monetary equivalent of the bribe.

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While corruption usually involves the exchange of moneys, the methods by which business is conducted in Japan can often lead to what some foreign Japan-watchers have described as “institutionalized corruption.” For example, the web of close relationships between Japanese companies, politicians, government organizations, and universities has been said to foster an inwardly-cooperative business climate that is conducive to the awarding of contracts, positions, etc. within a tight circle of local players. Bid-rigging activities continue. Bid rigging harms both the competitive process and Japanese taxpayers, and undermines respect for competition principles and for the Antimonopoly Act. Most damaging is government official support and assistance in bid-rigging conspiracies. The Bid-Rigging Prevention Act came into effect on January 6, 2003. That Act authorizes the Japan Fair Trade Commission (JFTC) to demand central and local government commissioning agencies to take corrective measures to prevent continued complicity of officials in bid-rigging activities, and to report such measures to the JFTC. The Act also contains provisions concerning disciplinary action against officials who have participated in bid rigging and compensation for overcharges when the officials caused damage to the government due to willful or grave negligence. Amakudari is the practice whereby senior government officials retire into top positions in Japanese companies, usually in industries that they once regulated. These officials then function as in-house consultants on regulatory matters and as lobbyists to their former ministries and agencies. Amakudari individuals are particularly common in the financial, construction, transportation, and pharmaceutical industries -- which, not coincidentally, are traditionally heavily regulated industries. Foreign companies usually do not enjoy such pipelines into the bureaucracy, and thus are somewhat disadvantaged in their ability to understand and deal with laws, regulations, and informal ministry guidance. This disadvantage has been ameliorated somewhat in recent years by the introduction of more transparent administrative procedures. While there have been some high profile exposures of officials having either given or accepted bribes, the Japanese government has not had an aggressive record of criminal prosecution. Those prosecuted have generally received suspended sentences. In some cases, the government is in the dilemma of deciding how to handle past activities such as “wining and dining” which were commonplace at the time, but which are now more explicitly banned. The recent revelation of several corruption scandals may reflect an evolution towards stricter ethical standards. Following reform in 1993, numerous shareholder civil suits have been filed. Japanese law also provides for company directors to be found personally liable for the amount of the bribe, and some judgments have been rendered against company directors. This change may significantly impact the payment of bribes, as individuals are held personally liable without the shield of the company to protect them, although there is currently discussion within the ruling political party of new rules to make it harder to file shareholder derivative lawsuits. Japan has also ratified the OECD Anti-Bribery Convention, which bans the bribing of government officials in countries outside Japan. The OECD has identified some deficiencies in Japan’s implementing legislation, which the Government of Japan has taken steps to rectify. In June 2001, Japan made amendments to the Unfair Competition Prevention Law (UCPL) which closed the important loophole for foreign subsidiaries and extended the definition of “foreign official” to include executives of parastatal enterprises. In May 2004, Japan further amended the UCPL to extend national jurisdiction to cover the crime of bribery.

4.7.7

Bilateral Investment Agreements

The 1952 U.S.-Japan Treaty of Friendship, Commerce, and Navigation gives national treatment and most favored nation treatment to most U.S. investments in Japan.

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OPIC and Other Investment Insurance Programs

OPIC insurance and finance programs are not available in Japan. Japan has been a member of the Multilateral Investment Guarantee Agency (MIGA) since it was established in 1988. Japan’s capital subscription to the organization is the second largest among member countries, after the United States.

4.7.9

Labor

The Japanese labor market today suffers from demographic, macro-economic, and structural pressures, which are beginning to change traditional Japanese employment practices. The regulatory philosophy that has formed Japan’s post-war labor laws is also changing. Foreign investors seeking to hire highly qualified workers in Japan will welcome most of these changes. Japanese employment practices have been said to rest on “three pillars:” lifetime employment, seniority-based wages, and enterprise unions. In fact, these three aspects of the Japanese labor market have always applied only to the larger firms, and today all three are undergoing transformation. Demographic pressures – fewer young workers and a rapidly aging labor force – as well as the need for structural changes in the Japanese economy are forcing most firms to abandon both lifetime employment guarantees and seniority-based wages in favor of merit-based pay scales and limited-term contracts. Investors should be aware of Japan’s high wage structure. Occupational wage differentials are much smaller than in most countries. Relatively high statutory welfare contributions are also required for basic government pensions, health and accident insurance, and unemployment insurance. Most companies also incur other employee welfare costs for family and/or transportation allowances, company-provided pension schemes, and such in-kind payments as housing for some employees. Off-setting these high wage costs, of course, is the fact that the Japanese work force is highly educated, disciplined, loyal to their employer, and motivated to assure the economic well-being of the company. Japanese workers have traditionally been classified as being either “regular” or “other” employees and this system is, to a considerable degree, still in place today. Regular employees are usually recruited directly from schools or universities and given an employment contract with no fixed duration. Other employees are given fixed duration employment contracts, which generally cannot exceed one year but may be renewed several times over. Still other employees include part-timers, interns, and “dispatched workers” -–as workers from temporary work agencies are called in Japan. Until very recently, only a few occupations could be handled by dispatched worker agencies but this is one area where Japanese labor law has in fact been deregulated, thus the number and types of dispatched workers have increased geometrically over the past several years. The regulation of private, fee-charging employment agencies – including executive search firms – has also recently been liberalized. Although a fairly time-consuming and bureaucratic licensing procedure is still required, private employment agencies can now serve virtually the entire range of occupations. On-line, Internet based, job seeking and placement services are, however, still in their infancy in Japan – constrained at least partly by a Ministry of Labor requirement that every employment agency must personally interview each of its clients.

4.7.10

Free Trade Zone Options

Japan no longer has any free-trade zones or free ports. Customs authorities, however, do allow the bonding of some warehousing and processing facilities in certain areas adjacent to ports on a case-by-case basis. The GOJ established a law in 1992 entitled the “Law on Extraordinary Measures for the Facilitation of Imports and Foreign Direct

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Investment in Japan”. Under the law, the GOJ helps increase access to the Japanese market for foreign goods and capital at government-designated “foreign access zones” near harbors and airports.

4.7.11

Major Foreign Direct Investments by Foreign Companies

Financial and Insurance Services •

Merrill Lynch – acquired Yamaichi securities

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GE Capital – acquired Toho Insurance

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Manulife (Canadian) – acquired Daihyaku Insurance

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Ripplewood – acquired Long Term Credit Bank

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AIG – acquired Chiyoda Life Insurance

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Prudential – acquired Kyoei Life Insurance

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City Financial, Japan – acquired assets of Marufuku (a consumer loan company)

Information Technology •

C and W (British/US interest) acquired IDC

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MCI World Com – Greenfield investment

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Level 3 – Greenfield investment

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Time Warner/Media One – TITUS

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Global One (Sprint JV with European firms) –greenfield investment

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Cisco Systems –capital participation in Soft Bank

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Microchip Technology – acquired assets of Fujitsu

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Intel – capital participation in Nikon

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Advanced Analogic Technology – established its Japanese subsidiary

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RCS – established its branch office in Tokyo

Distribution, Retail, Hotel, and Real Estate •

Toys-R-US

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Costco

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Sports Authority

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GAP

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Disney stores

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Nike

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Amazon.com

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Starbucks

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Ripplewood – acquired Phoenix SEAGAIA Resort

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Wal-Mart (Business tie-up with Seiyu Supermarket)

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CB Richard Ellis – acquired equities of New City Corporation (a real estate company)

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Colony Capital – acquired the Fukuoka Dome, Seahawk Hotel, and Hawkstown Mall.

198

Manufacturing (Tie-Ups) •

Renault-Nissan

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Ford-Mazda

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GM-Suzuki

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Daimler-Chrysler

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GE - acquired Kawasaki LNP (Kawasaki Steel’s chemical manufacturing subsidiary)

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Dow Chemical – acquired Leich Hold (Dai Nippon Chemical’s subsidiary)

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IBM- acquired Display Technology (Toshiba’s CD/LSD manufacturing subsidiary)

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Solectron – acquired NEC’s PC manufacturing business department)

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Micron Technology –acquired KMT Semiconductor (Kobe Steel’s semiconductor manufacturing subsidiary)

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Micron Technology – acquired assets of Dominion Semiconductor (Toshiba’s subsidiary)

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Carlyle Japan Holdings Three – acquired Kito Corporation (a manufacturer of industrial machinery)

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Kodak Japan Digital Product Development – acquired Chinon Industries (a manufacturer of digital cameras)

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Merck & Co. – acquired Banyu Pharmaceutical Co.

4.8 4.8.1

TRADE AND PROJECT FINANCING The Banking System

While financial system deregulation and international competitive pressure has drastically changed the face of Japanese banking (the consolidation of 19 major banks into 4 super banks), the connection between corporate finance and banking institutions and non-financial corporations remains much tighter in Japan than in the United States; and extends far beyond simple lender/borrower relationships. Much corporate banking business is rooted in either “keiretsu” or regional relationships, and Japanese banks are frequently shareholders in companies that conduct banking business with them, although there are signs of changes. Japanese companies are traditionally highly leveraged in comparison with their U.S. counterparts, as such banks take an active role in maintaining the financial health of their clients. This unique relationship between a company and its bank has been long-standing; until recently, a Japanese company rarely changed its primary lender, although it would occasionally “shop around” for better credit arrangements. Even when credit is loose, companies sometimes borrow in excess of their need in order to maintain good relations with their bank and to ensure that funds will be available in leaner years. Banks are often large shareholders in publicly traded corporations, have close relationships with both local governments and national regulatory agencies, and often

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play a coordinating role among their clients. The collapse of the asset price “bubble” and the consequent worsening of bank balance sheets since the early 1990s, as well as corporate borrowing outside of traditional channels, has increasingly caused borrowers to tap international capital markets, and placed traditional banking systems under considerable strain. However, it remains safe to say that the Japanese commercial bank system is much more relationship oriented than the transaction-based U.S. system. While large corporations with suitable credit ratings (especially export-oriented firms) can rely on corporate bond issues rather than banks for financing, bank lending continues to be the primary financing method for small and medium sized companies. However, after the “bubble” economy of the late 1980s and early 1990s, Japanese banks have had a harder time maintaining strong capital positions, and consequently have become more restrictive, leading to a credit crunch. In November 1996, the Japanese government embarked on a “Big Bang” financial reform initiative and has taken a number of helpful measures since then. While the actual long-term market impact of this liberalization still remains to be seen, the psychological impact in raising awareness of the potential effects of deregulation is now apparent. Japanese banks offer regular and time deposits and checking accounts for businesses. Checks are negotiable instruments that are in effect payable to the bearer (rather than to the order of the payee, as in the United States). This limits the usefulness of checks, and in fact, most payments are made by electronic bank transfer (which costs a few hundred yen on average), or by sending cash through the postal system. The banks (and now investment/securities firms) continue to wage an uphill battle against the postal savings system for consumer deposits, a fight that has become more difficult recently due to the perceived superior safety of the postal deposit system. The postal system enjoys regulatory permission to pay higher rates than commercial banks (and is in turn an important source of working capital for the government). Personal checking accounts are almost unknown in Japan. Most individuals use electronic bank transfers to settle accounts. Cash settlement is also very common and the Post Office has a mechanism for payment by “cash envelope” which is widely used in direct marketing and other applications. Many Japanese banks now operate 24hour cash machines (as do some credit card companies). Bank and other credit cards are easy to obtain and are widely accepted. The credit card market reached about 30 trillion yen at the end of 2000. Some bank credit cards offer revolving credit, but in most cases balances are paid in full monthly via automatic debiting from bank accounts. The relationship among trading company, end user and exporter is an important feature of the financing environment in Japan. The Japanese general trading company (sogo shosha) is an integrated, comprehensive organization that embraces a range of functions including marketing and distribution, financing and shipping and the gathering of commercial information. It performs functions that in the United States would be carried out by import/export companies, freight forwarders, banks, law firms, accounting firms and business consultants. Thus, U.S. firms dealing with trading companies should familiarize themselves with the financing capabilities of such firms.

4.8.2

Foreign Exchange Control Risks

Foreign exchange regulations have almost no impact on normal business transactions. One deregulatory action likely to lower foreign exchange transaction costs is the revision of Japan’s Foreign Exchange Law, which went into force in April 1998, and enabled a broad variety of institutions to conduct foreign exchange transactions. Prior to that action, only “authorized foreign exchange banks” could undertake such transactions, a system that dated back to Japan’s opening to the West in the late 19th century.

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Financing Exports

While some large U.S. companies in Japan enjoy strong relationships with the larger Japanese “city banks,” most medium and small-sized U.S. firms have stated that it is difficult to secure the specific type of trade financing services needed for importing and distribution. In Japan, credit evaluation is heavily asset-based, and real estate is still favored as collateral despite the collapse of “bubble” era valuations. Moreover, a firm’s ability to borrow may also be based on its personal relationships and rapport with bank officials rather than on typical U.S. standards of credit-worthiness. Some smaller firms report that they have been forced to secure needed financing from offshore sources. For U.S. companies with operations in Japan, teaming up with Japanese partners in a joint venture has been effective as a way to receive better treatment from Japanese banks. While most American banks operating in Japan do engage in lending to subsidiaries of U.S. companies (especially their home market clients), many of them focus on higher value-added lines of business than conventional credit products. When a Japanese bank extends credit to a foreign-owned company in Japan, it generally evaluates the financial status of both the borrower and its parent company. Even in cases where the Japanese subsidiary is financially strong, the parent company is often requested to guarantee the obligation (although a “Letter of Awareness” may be accepted in lieu of a guarantee).

4.8.4

Types of Available Export Financing and Insurance

There are a number of methods used to settle payment in Japan: cash in advance, letter of credit used in conjunction with a documentary draft (time or sight), promissory note, documentary collection or draft, open account and consignment sales. As with U.S. domestic transactions, a major factor in determining the method of payment is the degree of trust in the buyer’s ability and willingness to pay. Because of the protection it offers to the American exporter and the Japanese importer, an irrevocable letter of credit (L/C) payable at sight is commonly used for settlement of international transactions. As large Japanese general trading companies often serve as intermediaries to small and medium-sized companies, L/Cs are often issued in their name rather than in the name of the end user of the product. With the trading company taking on the risk of the transaction, the U.S. firm is protected from the possible bankruptcy of the smaller company. Another payment option is the use of documentary collection or open account with international credit insurance that, unlike the letter of credit, allows the importer’s line of credit to remain open. At the same time, this option protects the exporter if the buyer goes bankrupt or cannot pay. International credit insurance can be obtained from the Export-Import Bank of the United States or private insurers. A payment method widely used in Japan but sometimes unfamiliar to U.S. companies is the promissory note (yakusoku tegata). Promissory notes are IOUs with a promise to pay at a later date, typically 90 to 120 days. Banks will often provide short-term financing through discounting and rollover of notes. Factoring and other forms of receivables financing (whether with or without recourse) are not common in Japan, and more conservative businesspeople find such arrangements a violation of the “relationship” between buyer and seller. It should be noted that, domestically, it is not uncommon for the buyer to request, and be granted an extension of the term of tegata if there are cash flow problems. The Government of Japan’s programs to promote imports and foreign investment in Japan include tax incentives, loan guarantees, low-cost loans to Japanese and foreign investors for import infrastructure through the Development Bank of Japan and other loan programs. Underscoring the Government’s emphasis on import promotion, both METI

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and JETRO have established import divisions. In addition, Japan has a program to develop 22 Foreign Access Zones to offer enhanced import infrastructure facilities and eligibility for preferential tax treatment and low-cost loans. Four major public financing corporations, the Japan Bank for International Cooperation, the Development Bank of Japan, the Japan Finance Corporation for Small Business and the National Life Finance Corporation, now make lowinterest loans to encourage imports to and investment in Japan. In addition, the services of the Japan Regional Development Corporation, a government-affiliated institution that develops business parks and provides long-term loans at low interest rates, are available to foreign companies. The Japan Bank for International Cooperation’s import credit program for manufactured goods aims to provide support for the import of manufactured goods from developed countries to Japan. Five-year secured or guaranteed loans up to 70 percent loan-to-value and credit lines at preferential interest rates are available to importers, distributors and retailers incorporated in Japan who plan to increase their imports of manufactured goods excluding food products 10 percent or more over the previous year. Direct 70 percent loan-to-value long-term loans are also available to foreign exporters for the purchase of manufactured goods which will be exported to Japan under deferred-payment terms, as well as to foreign manufacturers and intermediary financial institutions for investment in production facilities and equipment to be used to produce goods for the Japanese market. The Development Bank of Japan (DBJ) offers loans designed to increase imports into Japan. These loans are available to Japanese companies with at least 33 percent foreign capital or registered branches in Japan of nonJapanese companies for 40 to 50 percent of project costs for the expansion of business operations in Japan. The Japan Finance Corporation for Small Business and National Life Finance Corporation has expanded their program to facilitate import sales. The program aims to provide support to small-scale retailers, wholesalers and importers in Japan for investments to increase imports to Japan. A program between U.S. Eximbank and the Export-Import Insurance Division of METI (EID/METI) provides for cofinancing insurance for U.S. exports to developing countries. EID/METI will also be providing advance payment insurance for U.S. exports to Japan. For additional details on these and other cooperative financing programs, U.S. companies should contact U.S. Eximbank. No insurance for U.S. exporters is available from the Japanese Government.

4.8.5

Availability of Project Financing

As mentioned above, OPIC insurance and finance programs are not available in Japan. Japan has been a member of the Multilateral Investment Guarantee Agency (MIGA) since it was established in 1988. In addition to the investment loan programs from Japanese Government-affiliated lenders described above, prefectures and municipalities offer various incentives, including construction, land acquisition and labor hiring subsidies, special depreciation of business assets, tax deferments for replacement of specific assets, exemption from special land-owning taxes assessed by municipalities and prefectural and municipal real estate acquisition, enterprise and municipal property tax reductions. In addition, most prefectures offer loan programs to encourage companies to establish local operations. Japan’s venture capital specialist funds are only half the size of those in the United States. Traditionally the top Japanese venture capital companies have acted more like quasi-banks than venture capital firms. Also, Financial Services Agency guidance to brokers to set tough standards for companies seeking to go public results in even the best companies taking up to a decade to get a listing on the over-the-counter stock market -- less than 1000 over-thecounter stocks are listed on the 8-year-old JASDAQ, Japan’s electronic OTC market.

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Project Financing Options

In line with the Cabinet Decision in March 1995, the Export-Import Bank of Japan (JEXIM) and the Overseas Economic Cooperation Fund (OECF) merged on October 1, 1999, creating a new institution, the Japan Bank for International Cooperation (JBIC). JBIC is a governmental institution that deals with external economic policy issues such as encouraging exports, securing access to energy resources, promoting direct overseas investments and improving Japan’s external imbalances through financial assistance to the trade and investment activities of Japanese companies. The financial facilities offered by JBIC include export loans, import loans, overseas investment loans and untied loans. JBIC also provides loan guarantees to private financial institutions, short-term loans designed to finance the external transactions of the governments of developing nations (bridge loans), and equity participation in the overseas projects of Japanese companies. JBIC’s international financial operations focus on projects in developing countries where local financial institutions cannot provide financing on their own. As JBIC’s mandate is the support of internationalization for Japanese companies, its loans can be distinguished from Overseas Economic Cooperation operations, which targets the economic development of developing countries.

Overseas Investment Loans and Overseas Project Loans These loans are typically granted via JBIC and extended to Japanese corporations for overseas investment activities and overseas projects. Overseas investment loans can also be made to overseas joint ventures involving Japanese capital and to foreign governments for capital investments or loans to joint ventures involving Japanese capital.

Un-Tied Loans Extended to foreign governments, foreign governmental institutions, foreign financial institutions (including multilateral development banks), foreign corporations, and so forth for high-priority projects and economic restructuring programs in developing countries. These loans are not tied to the procurement of goods and services from Japan but are restricted to the specific purposes designated for each loan. These loans are managed by JBIC.

4.8.7

Banks with Correspondent Banking Arrangements

Besides the more than 20 U.S. banks with branches in Japan, many U.S. banks have correspondent relationships with Japanese banks, which themselves have many branches and subsidiaries in the United States.

Commercial Banks Resona Bank 2-1 Bingomachi 2-chome, Chuo-ku Osaka 540-8610, Japan Phone: +81/6/6271/1221 Fax: +81/6/6268/1337 www.resona-hd.co.jp Bank of Tokyo-Mitsubishi 2-7-1 Marunouchi, Chiyoda-ku, Tokyo 100-8388 Phone: +81/3/3240-1111

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Fax: +81/3/3240-4764 www.btm.co.jp Development Bank of Japan 1-9-1 Ohtemachi, Chiyoda-ku, Tokyo 100-0004 Phone: +81/3/3244-1770 Fax: +81/3/3245-1938 www.dbj.co.jp Japan Bank for International Cooperation 1-4-1 Ohtemachi, Chiyoda-ku, Tokyo 100-8144 Phone: +81/3/5218-3579 Fax: +81/3/5218-3968 www.jbic.co.jp Mizuho Corporate Bank 1-3-3 Marunouchi, Chiyoda-ku, Tokyo 100-8210 Phone: +81/3/3214/1111 www.mizuhocbk.co.jp Sumitomo Mitsui Banking Corporation 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Phone: +81/3/5512-3411 Fax: +81/3/5512-4429 www.smbc.co.jp United Financial of Japan (UFJ) 3-5-6 Fushimi-machi, Chuo-ku, Osaka 541-8530 Phone: +81/6/6206-8111 Fax: +81/6/6229-9305 www.ufjbank.co.jp

Multilateral Development Bank Offices Asian Development Bank Second floor, Yamoto Seimei Building 1-1-7 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100-0011, Japan Tel: No. +81/3/-3504-3160 Fax: +81/3/3504-3165 E-mail: [email protected] www.adb.org

4.9

TRAVEL RISKS

An understanding of Japanese business and social practices is useful in establishing and maintaining successful business relationships in Japan. Indifference to local business practices may indicate a lack of commitment on the part of the exporter, and may lead to misunderstandings and bad feelings, which could result in the loss of business opportunities. One should not assume that because meetings and correspondence are carried out in English that Western social and business norms apply. Japanese society is complex, structured, hierarchical and group-oriented with strong emphasis on maintaining harmony and avoiding direct confrontation. Japanese religious practice tends to be socially oriented and selective www.icongrouponline.com

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rather than a matter of deep personal commitment; ethics tend to be situational. In building relationships (which often precede a first-time sale or an agreement) one should emphasize trust, confidence, loyalty and commitment for the long term. Group decision-making is important in Japan and has been generally described as a bottom up exercise rather than top down. Family businesses founded since WWII and smaller second-tier firms are exceptions to this rule. However, even in the large family firms, where decisions are made at the top, the process is usually managed so that company members have a sense of participation. This type of group decision-making tends to be slower. Recognizing that it takes a longer time to cultivate business relationships in Japan than in the United States, American business executives should not expect to make a deal in just a few days. Consistent follow-up is vital. Likewise, American business people should recognize the importance of working with the staff level of their Japanese counterparts and not exclusively with the executive level. Gift giving is expected on many business occasions in Japan. Regional U.S. gifts or company-logo gifts are appropriate. Quality is important, but the gift does not have to be expensive. The packaging of the gift is as important as the gift itself and should be done professionally. In Japan, sets of four are considered unlucky (the number four is pronounced the same as the word for death). Gifts that can be shared among a group are appropriate. Business travelers to Japan should make sure to bring a large supply of business cards (with their title) when they come to Japan; printing bilingual cards is a nice touch. Business cards are exchanged to formalize the introduction process and establish the status of the parties relative to each other. Japanese bow when greeting each other but will expect to shake hands with foreign executives. A slight bow in acknowledgment of a Japanese bow is appreciated. Japanese executives deal on a last name basis in business relationships, and initial business and social contacts are characterized by politeness and formality. Business travelers visiting a Japanese firm for the first time should be accompanied by an interpreter. Many Japanese executives and decision-makers do not speak English, although many of them can greet visitors in English and read English product literature relevant to their business or industry expertise. Generally speaking, Japanese are weaker at hearing and speaking English, and more adept at reading and writing. Thus the Japanese side in a business meeting generally expects a visitor to bring an interpreter if they are serious about doing business. Although the cost for hiring an interpreter is high ($400 to $900 per day depending on class), bringing along an interpreter shows that a visiting firm is serious about seeking to market their products/services in Japan. The first visit to a Japanese firm generally serves as a courtesy call to introduce American executives and their company, and also allows the U.S. side to begin to evaluate a target company and its executives as potential business partners. A request to meet only with English speaking staff can mean missing the opportunity to become acquainted with higher-ranking executives. A written contract, even if less detailed than a contract between two U.S. companies, is essential to meet legal, tax, customs and accounting requirements. Contractual commitments are perceived as representing long-term relationships so the terms and conditions, for example whether to grant exclusive rights, should be considered carefully. U.S. business travelers to Japan seeking appointments with U.S. Embassy Tokyo officials should contact the Commercial Section in advance. The Commercial Section can be reached by fax at 81/3/3589-4235, or email at [email protected].

4.9.1

Travel Advisory and Visas

There are no State Department travel advisories for Japan. Japan is noted for its low crime and safe streets. A valid U.S. passport is necessary to enter and travel in Japan, and by Japanese law, non-residents are required to carry their

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passports at all times. A visa is not required for short-term business visits (up to 90 days). It is not required to have a round trip ticket, although it is recommended. A work or investor visa may take up to two months to obtain. Immunization and health certificates are not required. Foreigners remaining in Japan longer than 90 days must obtain an Alien Registration Card, available free of charge from the municipal office of the city or ward of residence in Japan. Upon arrival, going through both immigration and customs checks are essentially a formality for U.S. business travelers as long as passport and air ticket are in order. Passengers should exchange some U.S. dollars for yen before leaving the airport.

4.9.2

Work Week

Monday through Friday 9:00 a.m. to 5:00 p.m. Flex work hours have become popular at large companies.

4.9.3

Infrastructure for Conducting Business

Japan’s business infrastructure is on a par with the U.S. All business traveler services are available. For additional information on traveling to Japan, contact the Japan National Tourist Organization (JNTO) in New York at Phone: 212-757-5640, Fax 212-307-6754, or visit the Web site: http://www.jnto.go.jp/.

4.9.4

Entering Temporary Imports

There is no restriction for temporary entry of laptop computers and software for personal use. Regarding materials for exhibits, Japan is a member of the International Convention to Facilitate the Importation of Commercial Samples and Advertising Materials under the ATA Carnet System. Use of a Carnet allows goods such as commercial and exhibition samples, professional equipment, musical instruments and television cameras to be carried or sent temporarily into a foreign country without paying duties or posting bonds. These goods cannot be sold. A Carnet should be arranged for in advance by contacting a local office of the United States Council for International Business (http://www.uscib.org) located at 1212 Avenue of the Americans, New York, New York 10036-1689, telephone (212) 703-5078, fax (212) 944-0012.

4.9.5

Country Data

•

Population (*): 127,619,000 (October 2003 est.)

•

Population Growth Rate: 0.14% (2003 est.)

•

Religions: Buddhism and Shinto (Christianity: 0.8 percent of population)

•

Government: Constitutional Monarchy/ Parliamentary Democracy System

•

Language: Japanese; English is the primary second language

•

Work Week (*): Monday through Friday 9:00 a.m. to 5:00 p.m.; average weekly hours worked as of April 2004 is 41.9 hours in 2003.

Sources: GOJ Statistics Bureau, CIA World Factbook

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KEY CONTACTS U.S. Embassy Trade Personnel

Commercial Service Tokyo Samuel Kidder, Minister-Counselor for Commercial Affairs U.S. Embassy, Tokyo 1-10-5 Akasaka, Minato-ku, Tokyo 107-8420 Phone: +81/3/3224-5060 Fax: +81/3/3589-4235 URL: http://www.buyusa.gov/japan/en (U.S. Address: Unit 45004, Box 204, APO AP 96337-5004) Patrick Santillo, Counselor for Commercial Affairs Elizabeth Battaglia, Attaché, Administration Joel Fischl, Attaché, Consumer Goods, Services John Fleming, Attaché, Information Technology Stephen Jacques, Attaché, Major Projects, Environment Steven Knode, Attaché, Information Technology Alain Letort, Attaché, Transport, Machinery & Safety Mark Wildman, Attaché, Compliance Dale Wright, Attaché, Medical Equipment, Healthcare American Business Information Center (ABIC) Phone: +81/3/3224-5075 Fax: +81/3/3589-4235 Commercial Service Osaka Alan Long, Principal Commercial Consul American Consulate General Osaka-Kobe 2-11-5 Nishitenma, Kita-ku, Osaka 530-8543 Phone: +81/6/6315-5957 Fax: +81/6/6315-5963 (U.S. Address: Unit 45004, Box 239, APO AP 96337-5004) Commercial Service Nagoya Stephen Anderson, Principal Commercial Consul American Consulate Nagoya 3-10-33 Nishiki, Naka-ku, Nagoya 460-0003 Phone: +81/52/203-4277 Fax: +81/52/201-4612 (U.S. Address: Unit 45004, Box 280, APO AP 96337-5004)

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Commercial Service Sapporo Alec Wilczynski, Consul General Marrie Y. Schaefer, Consul General (from Sep. 2004) Elise J. Fox, Econ/Commercial Officer American Consulate General Sapporo Nishi 28, Kita 1, Chuo-ku, Sapporo 064-0821 Phone: +81/11/641-1115 Fax: +81/11/643-1283 (U.S. Address: Unit 45004, Box 276, APO AP 96337-5004) Commercial Service Fukuoka Blair Labarge, Consul Woo C. Lee, Principal Officer American Consulate Fukuoka 2-5-26 Ohori, Chuo-ku, Fukuoka 810-0052 Phone: +81/92/751-9331 Fax: +81/92/725-3772 (U.S. Address: Unit 45004, Box 242, APO AP 96337-5004) Naha Consulate Thomas G. Reich, Consul General American Consulate General Naha No. 2564 Nishihara, Urasoe City, Okinawa 901-2101 Phone: +81/98/876-4211 F ax: +81/98/876-4243 (U.S. Address: PSC 556, Box 840, FPO AP 96372-0840) Foreign Agricultural Service Suzanne K. Hale, Minister-Counselor for Agricultural Affairs (until 8/9/2004) Daniel Berman, Minister-Counselor for Agricultural Affairs (from 8/19/2004) Clay Hamilton, Senior Agricultural Attaché Richard Battaglia, Agricultural Attaché Rachel Hogetts, Agricultural Attaché U.S. Embassy, Tokyo 1-10-5, Akasaka, Minato-ku, Tokyo 107-8420 Phone: +81/3/3224/5105 Fax: +81/3/3589-0793 URL: http://www.fas.usda.gov/ (U.S. Address: Unit 45004, Box 226, APO AP 96337-5004) Agricultural Trade Office (Tokyo) Mark A. Dries, Director Kevin Sage-El, Deputy Director Toshin Tameike Bldg., 8F 1-1-14, Akasaka, Minato-ku, Tokyo 107-0052 Phone: +81/3/3505-6050 or +81/3/3224/5115 Fax: +81/3/3582-6429 URL: http://www.atojapan.org (U.S. Address: Unit 45004, Box 241, APO AP 96337-5004)

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Agricultural Trade Office (Osaka) Emiko Purdy, Director American Consulate General Osaka-Kobe 2-11-5 Nishitenma, Kita-ku, Osaka 530-8543 Phone: +81/6/6315-5904 Fax: +81/6/6315-5906 URL: http://www.atojapan.org (U.S. Address: Unit 45004, Box 239, APO AP 96337-5004) State Department Economic Section James P. Zumwalt, Minister-Counselor for Economic Affairs U.S. Embassy, Tokyo 1-10-5 Akasaka, Minato-ku, Tokyo 107-8420 Phone: +81/3/3224-5022 Fax: +81/3/3224-5010 (U.S. Address: Unit 45004, Box 203, APO AP 96337-5004) Energy Department Nicole Nelson-Jean, Energy Attaché U.S. Embassy, Tokyo 1-10-5 Akasaka, Minato-ku, Tokyo 107-8420 Phone: +81/3/3224-5444 Fax: +81/3/3224-5769 (U.S. Address: Unit 45004, Box 219, APO AP 96337-5004) Treasury Department Richard Johnston, Financial Attaché U.S. Embassy, Tokyo 1-10-5 Akasaka, Minato-ku, Tokyo 107-8420 Phone: +81/3/3224-5486 Fax: +81/3/3224-5490 (U.S. Address: Unit 45004, Box 216, APO AP 96337-5004)

4.10.2

Contacts in Washington D.C.

U.S. Department of Commerce Rhonda Newman Keenum, Director General of the U.S. Commercial Service Nicole Melcher, Director Office of Japan (OJ) International Trade Administration Room 2320, 14th Street and Constitution Avenue, N.W., Washington, DC 20230 OJ Phone: 202-482-1820 Fax: 202-482-0469 For further contact information on the U.S. Department of Commerce and U.S. based multipliers relevant for Japan, please contact the OJ.

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Japanese Trade Associations/Chambers of Commerce

Japan Business Federation (Nippon Keidanren) Hiroshi Kadota, Director International Economic Affairs Bureau 1-9-4 Otemachi, Chiyoda-ku, Tokyo 100-8188 Phone: +81/3/5204-1758 Fax: +81/3/5255-6232 URL: http://www.keidanren.or.jp Japan Association of Corporate Executives (KEIZAI DOYUKAI) Tohru Anjo, Managing Director Yoshio Okabe, Managing Director Nihon Kogyo Club Bldg. Annex 5F 1-4-6 Marunouchi, Chiyoda-ku, Tokyo 100-0005 Phone: +81/3/3284-0220 Fax: +81/3/3212-3774 URL: http://www.doyukai.or.jp Japan Foreign Trade Council, Inc. Kiyoshi Sasaki, General Manager International Affairs and Research Group World Trade Center Bldg. 6F 2-4-1 Hamamatsu-cho, Minato-ku, Tokyo 105-6106 Phone: +81/3/3435-5950 Fax: +81/3/3435-5979 URL: http://www.jftc.or.jp/english/home_e.htm Japan-U.S. Business Council Yasuo Horibe, Executive Director Otemachi Bldg., Room 439 1-6-1 Otemachi, Chiyoda-ku, Tokyo 100-0004 Phone: +81/3/3216-5823 Fax: +81/3/3284-1576 Japan Chamber of Commerce and Industry Kiyoshi Yamada, General Manager International Division Tosho Bldg. 3-2-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005 Phone: +81/3/3283-7601 Fax: +81/3/3216-6497 URL: http://www.jcci.or.jp/home-e.html Tokyo Chamber of Commerce and Industry Kiyoshi Yamada, General Manager International Division Tosho Bldg. 3-2-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005 Phone: +81/3/3283-7601 Fax: +81/3/3216-6497 URL: http://www.tokyo-cci.or.jp/english/index.html

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Osaka Chamber of Commerce and Industry Kenji Nishida, General Manager, International Affairs Division 2-8 Honmachi-bashi, Chuo-ku, Osaka 540-0029 Phone: +81/6/6944-6400 Fax: +81/6/6944-6293 URL: http://www.osaka.cci.or.jp/e/ Kansai Economic Federation (Kankeiren) Teruo Aoyagi, General Manager International Affairs Group Nakanoshima Center Bldg. 30F 6-2-27, Nakanoshima, Kita-ku, Osaka 530-6691 Phone: +81/6/6441-0104 Fax: +81/6/6441-0443 URL: http://www.kankeiren.or.jp Kansai Association of Corporate Executives (KANSAI KEIZAI DOYUKAI) Shuichi Kaneko, Manager Nakanoshima Center Bldg. 28F 6-2-27, Nakanoshima, Kita-ku, Osaka 530-6691 Phone: +81/6/6441-1031 Fax: +81/6/6441-1030 URL: http://www.kansaidoyukai.or.jp/ Nagoya Chamber of Commerce and Industry (NCCI) Minoru Aota, General Manager, International Division 2-10-19 Sakae, Naka-ku, Nagoya 460-8422 Phone: +81/52/223-5729 Fax: +81/52/232-5751 URL: http://www.nagoya-cci.or.jp/eng/ The American Chamber of Commerce in Japan (ACCJ) Masonic 39 Mori Bldg. 10F 2-4-5 Azabudai, Minato-ku, Tokyo 106-0041 Phone: +81/3/3433-5381 Fax: +81/3/3433-8454 URL: http://www.accj.or.jp The American Chamber of Commerce in Japan (ACCJ) Kansai Chapter OCCI Bldg. 5F 2-8 Honmachibashi, Chuo-ku, Osaka 540-0029 Phone: +81/6/6944-5991 Fax: +81/6/6944-5992 URL: http://www.accj.or.jp The American Chamber of Commerce in Japan (ACCJ) Chubu Chapter Marunouchi Fukao Bldg. 5F 2-11-24, Marunouchi, Naka-ku, Nagoya 460-0002 Phone: +81-52-229-1525 Fax: +81-52-222-8272 URL: http://www.accj.or.jp

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211

Agricultural Trade Associations

All Nippon Kashi Association JB Bldg. 7F 6-9-5 Shimbashi, Minato-ku, Tokyo 105-0004 Phone: +81/3/3431-3115 Fax: +81/3/3432-1660 Japan Chain Stores Association Toranomon NN Bldg., 11F. 1-21-17 Toranomon, Minato-ku, Tokyo 105-0001 Phone: +81/3/5251-4600 Fax: +81/3/5251-4601 URL: http://www.jcsa.gr.jp/index_1.htm Japan Convenience Foods Industry Association Kimura Bldg. 3F 5-5-5 Asakusabashi, Taito-ku, Tokyo 111-0053 Phone: +81/3/3865-0811 Fax: +81/3/3865-0815 E-mail: [email protected] URL: http://www.instantramen.or.jp Japan Dairy Industry Association Nyugyo Kaikan 4F 1-14-19 Kudan Kita, Chiyoda-ku, Tokyo 102-0073 Phone: +81/3/3261-9161 Fax: +81/3/3261-9175 Japan Dehydrated Vegetable Association 1-9-12 Irifune, Chuo-ku, Tokyo 104-0042 Phone: +81/3/5117-2661 Fax: +81/3/3552-2820 Japan Food Service Association 1-29-6, Hamamatsucho, Minato-ku, Tokyo 105-0013 Phone: +81/3/5403-1060 Fax: +81/3/5403-1070 E-mail: [email protected] Japan Frozen Food Association Katsuraya Dai 2 Bldg. 6F 10-6 Nihonbashi Kobunacho, Chuo-ku, Tokyo 103-0024 Phone: +81/3/3667-6671 Fax: +81/3/3669-2117 E-mail: [email protected] URL: http://www.reishokukyo.or.jp/ Japan Health Food & Nutrition Food Association 2-7-27 Ichigaya Sadohara-cho, Shinjuku-ku, Tokyo 162-0842 Phone: +81/3/3268-3131 Fax: +81/3/3268-3135

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E-mail: [email protected] URL: http://www.jhnfa.org/ Japan Self-Service Association, Inc. Sakurai Bldg. 6F 3-19-8 Uchikanda, Chiyoda-ku, Tokyo 101-0047 Phone: +81/3/3255/4825 Fax: +81/3255-4826 E-mail: [email protected] URL: http://www.jssa.or.jp Japan Restaurant Association Kyodo Bldg., 11-7 Nihonbashi Kabuto-cho, Chuo-ku, Tokyo 103-0026 Phone: +81/3/5651-5601 Fax: +81/3/5651-5602 E-mail: [email protected] URL: http://www.joy.ne.jp/restaurant/ Japan Wines And Spirits Importers Association Daiichi Tentoku Bldg. 1-13-5 Toranomon, Minato-ku, Tokyo 105-0001 Phone: +81/3/3503-6505/6506 Fax: +81/3/3503-6504

4.10.5

Japanese Government Agencies

Ministry of Economy, Trade and Industry (METI) Midori Tani, Director, Trade & Investment Facilitation Division 1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901 Phone: +81/3/3501-1662 Fax: +81/3/3501-2082 URL: http://www.meti.go.jp/english/index.html Japan External Trade Organization (JETRO) Nobuyuki Koyama, Director Import Promotion Dept. 2-2-5 Toranomon, Minato-ku, Tokyo 105-8466 Phone: +81/3/3582-5562 Fax: +81/3/5572-7044 URL: http://www.jetro.go.jp JETRO Invest Japan Business Support Center Kazuaki Yuoka, Chief Administrator Akasaka Twin Tower, 2-17-22 Akasaka, Minato-ku, Tokyo 107-0052 Phone: +81/3/5562-3131 Fax: +81/3/5562-3100 URL: http://www.jetro.go.jp/ip/e/bsc/index.html Manufactured Imports Promotion Organization (MIPRO) Yoshinori Suzuki, President World Import Mart 6F

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3-1-3 Higashi-Ikebukuro, Toshima-ku, Tokyo 170-8630 Phone: +81/3/3988-2791 Fax: +81/3/3988-1629 URL: http://www.mipro.or.jp/eng/top-e.html For further contact information of Japanese government agencies and quasi-governmental organizations, please contact Commercial Service Japan offices.

4.10.6

Market Research Firms

A.T. Kearney K.K. ARK Mori Bldg. East 32F 1-12-32 Akasaka, Minato-ku, Tokyo 107-6032 Phone: +81/3/5561-9155 Fax: +81/3/5561-9190 URL: http://www.atkearney.com Boston Consulting Group K.K. New Otani Garden Court 4-1 Kioi-cho, Chiyoda-ku, Tokyo 102-0094 Phone: +81/3/5211-0300 Fax: +81/3/5211-0333 URL: http://www.bcg.co.jp ABeam Consulting Ltd. Yurakucho Bldg. 1-10-1 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Phone: +81/3/5521-5555 Fax: +81/3/5521-5563 URL: http://www.abeam.com Fuji Chimera Research Institute, Inc. F.K Bldg. 2-5 Nihonbashi Kodenma-cho, Chuo-ku, Tokyo 103-0001 Phone: +81/3/3664-5815 Fax: +81/3/3661-5134 URL: http://www.fcr.co.jp/en/index.html Japan Research Institute, Ltd. 16 Ichibancho, Chiyoda-ku, Tokyo 102-0082 Phone: +81/3/3288-4700 Fax: +81/3/3288-4750 URL: http://www.jri.co.jp/english Nikkei Research Inc. Park Side 1 Bldg. 2-2-7 Kanda Tsukasa-cho, Chiyoda-ku, Tokyo 101-0048 Phone: +81/3/5296-5103 Fax: +81/3/5296-5107 URL: http://www.nikkeiresearch.com

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UFJ Institute Ltd. Shimbashi Sanwa Toyo Bldg. 1-11-7 Shimbashi, Minato-ku, Tokyo 105-8631 Phone: +81/3/3572-9030 Fax: +81/3/3572-6230 URL: http://www.ufji.co.jp/eng/index.html Yano Research Institute Ltd. Nakanosakaue Center Bldg. 2-46-2, Honcho, Nakano-ku, Tokyo 164-8620 Phone: +81/3/5371-6907 Fax: +81/3/5371-6965 URL: http://www.yanoresearch.com

4.10.7

U.S. Federal Government

TPCC Trade Information Center in Washington Phone: 1-800-USA-TRADE Fax: 202-482-4473 E-mail: [email protected] URL: http://www.trade.gov/td/tic/ U.S. Department of State Office of Commercial and Business Affairs Phone: 202-647-1625 Fax: 202-647-3953 E-mail: [email protected] URL: http://www.state.gov/business/ U.S. Department of Commerce MAC Country Desk Officer (for market access and regulatory problems only) Nicole Melcher, Director Office of Japan (OJ) International Trade Administration Room 2320, 14th Street and Constitution Avenue, N.W., Washington, DC 20230 Phone: 202-482-1820 Fax: 202-482-0469 URL: http://www.mac.doc.gov/japan U.S. Department of Agriculture Foreign Agricultural Service Phone: 202-690-3421 Fax: 202-690-4374 E-mail: [email protected] URL: http://www.fas.usda.gov Overseas Private Investment Corporation 1100 New York Avenue, N.W. Washington, D.C. 20527 Phone: 202-336-8799 Fax: 202-408-9859 E-mail: [email protected] URL: http://www.opic.gov

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5 5.1

DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS DISCLAIMERS & SAFE HARBOR

Summary Disclaimer. This publication ("Report") does not constitute legal, valuation, tax, or financial consulting advice. Nor is it a statement on the performance, management capability or future potential (good or bad) of the company(ies), industry(ies), product(s), region(s), city(ies) or country(ies) discussed. It is offered as an information service to clients, associates, and academicians. Those interested in specific guidance for legal, strategic, and/or financial or accounting matters should seek competent professional assistance from their own advisors. Information was furnished to Icon Group International, Inc. ("Icon Group"), and its subsidiaries, by its internal researchers and/or extracted from public filings, or sources available within the public domain, including other information providers (e.g. EDGAR filings, national organizations and international organizations). Icon Group does not promise or warrant that we will obtain information from any particular independent source. Published regularly by Icon Group, this and similar reports provide analysis on cities, countries, industries, and/or foreign and domestic companies which may or may not be publicly traded. Icon Group reports are used by various companies and persons including consulting firms, investment officers, pension fund managers, registered representatives, and other financial service professionals. Any commentary, observations or discussion by Icon Group about a country, city, region, industry or company does not constitute a recommendation to buy or sell company shares or make investment decisions. Further, the financial condition or outlook for each industry, city, country, or company may change after the date of the publication, and Icon Group does not warrant, promise or represent that it will provide report users with notice of that change, nor will Icon Group promise updates on the information presented. Safe Harbor for Forward-Looking Statements. Icon Group reports, including the present report, make numerous forward-looking statements which should be treated as such. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995, and similar local laws. Forward-looking statements involve known and unknown risks and uncertainties, which may cause a company's, city's, country's or industry's actual results or outlook in future periods to differ materially from those forecasted. These risks and uncertainties include, among other things, product price volatility, exchange rate volatility, regulation volatility, product demand volatility, data inaccuracies, computer- or software-generated calculation inaccuracies, market competition, changes in management style, changes in corporate strategy, and risks inherent in international and corporate operations. Forward-looking statements can be identified in statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate,'' "estimate," "expect,'' "project,'' "intend,'' "plan,'' "feel", "think", "hear," "guess," "forecast," "believe," and other words and terms of similar meaning in connection with any discussion of future operating, economic or financial performance. This equally applies to all statements relating to an industry, city, country, region, economic variable, or company financial situation. Icon Group recommends that the reader follow the advice of Nancy M. Smith, Director of SEC's Office of Investor Education and Assistance, who has been quoted to say, "Never, ever, make an investment based solely on what you read in an online newsletter or Internet bulletin board, especially if the investment involves a small, thinly-traded company that isn't well known … Assume that the information about these companies is not trustworthy unless you can prove otherwise through your own independent research." Similar recommendations apply to decisions relating to industry studies, product category studies, corporate strategies discussions and country evaluations. In the case of Icon Group reports, many factors can affect the actual outcome of the period discussed, including exchange rate volatility, changes in accounting standards, the lack of oversight or comparability in accounting standards, changes in economic conditions, changes in competition, changes in the global economy, changes in source data quality, changes in reported data quality, changes in methodology and similar factors. Information Accuracy. Although the statements in this report are derived from or based upon various information sources and/or econometric models that Icon Group believes to be reliable, we do not guarantee their accuracy, reliability, quality, and any such information, or resulting analyses, may be incomplete, rounded, inaccurate or condensed. All estimates included in this report are subject to change without notice. This report is for informational purposes only and is not intended as a recommendation to invest in a city, country, industry or product area, or an offer or solicitation with respect to the purchase or sale of a security, stock, or financial instrument. This report does not take into account the investment

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objectives, financial situation or particular needs of any particular person or legal entity. With respect to any specific company, city, country, region, or industry that might be discussed in this report, investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the information in this report. Investing in either U.S. or non-U.S. securities or markets entails inherent risks. In addition, exchange rate movements may have an effect on the reliability of the estimates provided in this report. Icon Group is not a registered Investment Adviser or a Broker/Dealer.

5.2

ICON GROUP INTERNATIONAL, INC. USER AGREEMENT PROVISIONS

Ownership. User agrees that Icon Group International, Inc. ("Icon Group") and its subsidiaries retain all rights, title and interests, including copyright and other proprietary rights, in this report and all material, including but not limited to text, images, and other multimedia data, provided or made available as part of this report ("Report"). Restrictions on Use. User agrees that it will not copy nor license, sell, transfer, make available or otherwise distribute the Report to any entity or person, except that User may (a) make available to its employees electronic copies of Report, (b) allow its employees to store, manipulate, and reformat Report, and (c) allow its employees to make paper copies of Report, provided that such electronic and paper copies are used solely internally and are not distributed to any third parties. In all cases the User agrees to fully inform and distribute to other internal users all discussions covering the methodology of this Report and the disclaimers and caveats associated with this Report. User shall use its best efforts to stop any unauthorized copying or distribution immediately after such unauthorized use becomes known. The provisions of this paragraph are for the benefit of Icon Group and its information resellers, each of which shall have the right to enforce its rights hereunder directly and on its own behalf. No Warranty. The Report is provided on an "AS IS" basis. ICON GROUP DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, RELATING TO THIS AGREEMENT, PERFORMANCE UNDER THIS AGREEMENT, THE REPORT. Icon Group makes no warranties regarding the completeness, accuracy or availability of the Report. Limitation of Liability. In no event shall Icon Group, its employees or its agent, resellers and distributors be liable to User or any other person or entity for any direct, indirect, special, exemplary, punitive, or consequential damages, including lost profits, based on breach of warranty, contract, negligence, strict liability or otherwise, arising from the use of the report or under this Agreement or any performance under this Agreement, whether or not they or it had any knowledge, actual or constructive, that such damages might be incurred. Indemnification. User shall indemnify and hold harmless Icon Group and its resellers, distributors and information providers against any claim, damages, loss, liability or expense arising out of User's use of the Report in any way contrary to this Agreement. © Icon Group International, Inc., 2007. All rights reserved. Any unauthorized use, duplication or disclosure is prohibited by law and will result in prosecution. Text, graphics, and HTML or other computer code are protected by U.S. and International Copyright Laws, and may not be copied, reprinted, published, translated, hosted, or otherwise distributed by any means without explicit permission. Permission is granted to quote small portions of this report with proper attribution. Media quotations with source attributions are encouraged. Reporters requesting additional information or editorial comments should contact Icon Group via email at [email protected]. Sources: This report was prepared from a variety of sources including excerpts from documents and official reports or databases published by the World Bank, the U.S. Department of Commerce, the U.S. State Department, various national agencies, the International Monetary Fund, the Central Intelligence Agency, and Icon Group International, Inc.

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Disclaimers, Warrantees, and User Agreement Provisions

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