New battles old in corporate Japan
By Jitendra Joshi
TOKYO (AFP): A battle is taking shape for the soul of corporate Japan as bold new upstarts confront the traditional bastions of the old economy, analysts say.
Nothing illustrated the divide as much as events last week, when a consortium led by Internet investor Softbank Corp., the king of the upstarts, won the right to take control of the failed Nippon Credit Bank Ltd. (NCB).
The sprawling bank collapsed in December 1998, a victim of lending hubris in the heady days of the late 1980s when Japan had the world at its feet.
A decade on, the country is the sick man at the global economic table and the United States sits proud at its head with an economy bursting with vigor.
That rude health has been brought about in large part by technological changes, highlighted by the growth of the Internet, which are only now finding their echo in Japan.
"Japanese industries, led by the banking sector, are facing a historic milestone," says Yasuo Goto, an economist at Mitsubishi Research Institute.
"Fences separating industries have been removed. And other industries are pouring into the banking sector, which will play a major role in the information-led society.
"That move has already started worldwide, and Japan cannot stay behind."
Softbank, led by its seriously wealthy president Masayoshi Son, is in the vanguard of change with investments in more than 300 mostly Internet-related companies worldwide.
Now it has the banking arm it has been seeking to advance its electronic-commerce ambitions in Japan.
"With Softbank taking over NCB, what you have is potentially a new kid on the block: a bank which doesn't carry around too much in the form of historical baggage," said Russell Jones, chief economist at Lehman Brothers.
"It's true that Japan has to restructure. That's absolutely, 100 percent true. It's also true that the financial sector, the banks, have had very close links with old, or smokestack Japan.
"That's not a good thing from the point of view of change," he said.
"The traditional banking sector will have to move away from its old relationships. If it's managed correctly, it could be a big catalyst."
"But that's a big if," Jones added, with Softbank lacking direct management experience as its expands "in all directions."
"But you can't deny the dynamic of this new entity, which has the right ideas about the direction in which Japan has to go. Things needed to be shaken up."
Change is coming, agrees Commerz Securities (Japan) chief economist Ron Bevacqua, "but let's not get too far ahead of ourselves."
"It's definitely an old-new split, but it's not a matter of historic inevitability that the Internet will do to Japan what it did to the United States," he said.
"Because the vested interests are so much stronger, and Japan is more like the United States of the 1980s, with its factories and steel mills, than the United States in 1990."
Resistance to change from the Ministry of Finance (MOF), a bastion of support for older industries which provide crucial backing to the ruling Liberal Democratic Party, must not be discounted, Bevacqua added.
"It's shaping up to be a very interesting battle: Son versus MOF."
Last week's proposal by the ministry to tax online purchases of music and software, in contrast with the duty-free Internet haven in the United States, showed the old guard fighting back, Bevacqua said.
And reports of the demise of "Old Japan" may be exaggerated.
"It's a very nice notion, a nice way of being bullish about things. But from a macroeconomic perspective, you have to question which side will outbalance which," said James Malcolm, chief economist at JP Morgan.
"Of course the New Japan will be outperforming the Old Japan, but the Old Japan is still far bigger."