Dispatches from the Potomac#10 | A Second Boom in Japanese Investment in US Business

Happy New Year. I will continue to report on the notable issues and trends from Washington, D.C., the capital of the US, an important market for the Marubeni Group.

This article was originally written in December for publication in the January 2015 edition of the Marubeni Group Magazine, M-SPIRIT.

Washington D.C. Office General Manager, Marubeni America Corporation    Takashi Imamura

This time, I would like to squarely refute the often-heard assertion that “Japanese business presence in the US is declining.” It is certainly true that in areas like electronics and mobile phones Japanese companies have lost share in the US market to businesses from other Asian countries, like Korea and China. From a macro perspective as well, 20 years ago in 1994, Japan supplied 18% of the imports to the US, second only to Canada. Recently, the share has been about 6%, dropping Japan to fourth place, while China has jumped into the top position with a 19% share. Nevertheless, in the automotive market, which symbolizes the US, Japanese companies have continued to hold a major share; and, Japanese financial institutions have been able to keep the damage of the financial crisis to a minimum, and are making a comeback in the US financial markets. The shosha (general trading companies), including Marubeni, are continuing to actively invest in the US, and to generate large revenues. In any case, from my perspective within the US, something seems wrong with the assertion that “Japanese business presence in the US is declining.”

Record High Investment in the US by Japan

There are also statistics to support my doubts. Direct investment from Japan to the US has increased significantly in recent years. According to the Department of Commerce, in 2013 direct investment from Japan to the US was USD 44.9 billion, making Japan the country investing the largest amount for the first time since 1992. The investment from both Korea and China, the countries usually mentioned when claiming that Japanese business presence is declining, is much less, with Korean investment at 15% that of Japan, and Chinese investment at only 3%. Moreover, the difference is even greater when comparing the most recent direct investment balances. To compare the “presence” of international companies in the US, the criteria should include the number of jobs created, and the scale of the added-value. It goes without saying that the amount of direct investment is a better indicator of this than import share or the share of certain products or industries. Looking at the direct investment, Japanese presence actually has been increasing recently.

However, this fact is not well understood by the market or the media in the US or Japan. Behind this is a fixed indifference toward Japanese business, which has been mired in the “20 lost years” of long-term stagnation of the Japanese economy. So the increase in direct investment from Japan is still not impressive enough to generate interest. Another factor is the influence of the previous investment boom by Japanese business in the US that occurred from 1988 to 1990 during the “bubble economy” in Japan, which preceded the “20 lost years.” During that period, direct investment from Japan reached about USD 18.0 billion annually, but later, there were many cases of large losses and many investors withdrew. Investment itself experienced a long slump, which continued into the mid-2000s. This drastic stalling was not unforeseen by the market or the media. In fact, in the middle of the boom, there was great surprise when iconic US companies became acquisition targets of Japanese business for the first time. There was a growing perception of “decline of the US, and rising of Japan” on both sides, leading to feelings of insecurity in the US and overconfidence in Japan. Those who were caught up in this overreaction seem to want to forget the past, becoming indifferent to the Japanese economy and businesses, resulting in the lack of response to the recent large increases in investment.

The Pragmatic Perspective: Japanese Companies Showing Strength in the US

In reality, a second Japanese investment boom in the US has occurred that overwhelms the investment of the bubble period in both scale and quality. The major cross-border M&A transactions involving US companies in 2013 include the top-ranked USD 21.6 billion acquisition of the US telecommunications company Sprint by SoftBank, and the number five-ranked acquisition of the grain giant Gavilon by Marubeni for USD 2.7 billion. In 2014 as well, Suntory acquired the US liquor company Beam for USD 16.0 billion, a deal that is expected to be one of the largest of the year. It is the first time for Japanese companies to be involved in two of the top five deals of the year, and also for Marubeni to be listed in the top ranks.

Furthermore, this second US investment boom is also the result of a transition in the US strategy of restructured Japanese companies. An important feature is the hidden strength that is beyond comparison to that of the transient boom of the bubble period. The Japanese companies that are now actively investing in the US have survived the harsh business environment of the “20 lost years” of the Japan economy by implementing thorough management reforms, and building a foundation of profitable subsidiaries in the highly competitive US market. These are the companies that are boldly moving forward with new investment. The recent increase in the amount of Japanese investment in the US is also an indication of the growing number of this kind of successful Japanese business.

The Japanese economy continues to struggle to escape from its long-term stagnation; but, the number of Japanese companies actively deploying in the US is steadily growing, including the Marubeni Group, creating a second investment boom in the US, the world’s most competitive market. I believe that we can take this at face value, as a sign of the revival of the Japanese economy in the near future.