Summary of Casebook on Investment Alliances with Japanese Companies. April, 2015 Ministry of Economy, Trade and Industry in Japan

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1 Summary of Casebook on Investment Alliances with Japanese Companies April, 2015 Ministry of Economy, Trade and Industry in Japan

2 The number of investment alliances formed between foreign and Japanese companies have increased and its profitability is high compare to investment in other major developed countries. Long-term trends The number of investment alliances formed between foreign and Japanese companies have increased over the last 30 years. Number of inbound cross-border investment alliances formed in Japan (10-year increments) * Number of alliances formed 2,000 1,500 1, ,729 1,369 x Sources: *Based on data from RECOF Data "2014 M&A Report. High profitability of investment alliance with Japanese companies Inward investment to Japan from foreign companies experiences higher levels of profitability compared to investment in other major developed countries. International comparison of FDI returns rate * 10% Japan 7.5% 9.3% 7.1% Germany 5.2% 5% South Korea 2.7% US 0% Note: Low rate of ROI in 2010 can be attributed to economic circumstances such as fluctuation of exchange rates and drop in oil price etc., led to declining profitability of companies. 1 Sources: *METI White Paper on International Economy and Trade 2012 ( ), JETRO s " Global Trade and Investment Report 2014 (2013). Rate of FDI return was calculated by FDI income payments/fdi.

3 Investment alliance merits for foreign companies identified through interviews and case-studies have been categorized into the sales channels, product/service line-up and brand. Investment alliance merits 53 Investment alliances cases interviewed in this report have generated the following merits for foreign companies. Investment Alliance Merits Characteristics of Japan Access to customer base in Japan 48 Large matured market with over 120 million inhabitants and 10th most populous in the world Product / service diversification Brand acquisition Japanese companies rank among the top 10 companies in the world in terms of the number of internationally filed patents, that ranks among the highest number 7 Japanese-based companies are ranked in the top 100 companies in terms of brand power, that ranks among the highest number in Asia Comprehension of business customs 26 Acquire different characteristics of business customs in each region of Japan in order to communicate with local companies smoothly Acquisition of talent and technology 16 Leading nation in Asia in terms of innovation and has an appropriate environment for that purpose Access to customer base in Asia 15 The largest origin of FDI for Asia, which has over 30% of all investments in the region from 2003 to 2013 Operation Improvement 15 The TFP (total factor productivity) of Japanese companies of machinery industry rates of that of US companies Note: The merits gained by investing (foreign) parties counted. (Multiple answers for each cases counted) 2

4 Foreign companies acquired various resources such as sales channels and talents through investment alliances with Japanese companies. Case study on acquisition of sales channel Name: Lupin Ltd. (India) Business :Research & development and production of branded and generic medicines Lupin Ltd (hereafter Lupin ) identified Japan as one of the key potential growth markets that it would seek to enter given the fact that Japan was the 2nd largest pharmaceutical market in the world. Lupin made a partner contract for manufacturing and joint R&D with Kyowa in After further cultivated mutual trust by joint R&D, Lupin proposed the investment matters. The technological expertise of Lupin and Kyowa has been merged, and R&D and manufacturing processes are conducted in both India and Japan at Kyowa's facilities to optimize resource allocation. Lupin was able to become better aware of Japan s style of business communication and achieved double digit CAGR of 11% in the last 5 years. Lupin-Kyowa alliance is now one of the most profitable generics businesses in Japan. Case study on acquisition of talent and skill Name: Amkor Technology (USA) Business: Outsourced semiconductor assembly and test services Kyowa s sales growth ( ) Data Source: *Lupin s financial results 3 Amkor Technology (hereafter Amkor ) considers its expansion in Japanese market by identifying complementary strengths and capabilities with their investment alliance partner and chart a strategy for combined growth. Amkor had been approached by a large Japanese electronics Company A to purchase its assembly plant, and in 2010, Amkor was proposed to invest to J-Device (hereafter JD ), a supplier to Company A. Amkor gained JD s customer base, so its market share of semiconductor packaging and testing reached over 15% globally in Amkor also acquired JD s capabilities and experiences especially for automotive area. JD s manufacturing experts were seconded to run Amkor s factories in the Philippines, as Amkor wished to upgrade the output quality of its factories by utilizing the operational knowhow of JD. 35% 30% 25% 20% 15% 10% 2013 world-wide market share of semiconductor packaging and testing* 5% 0% Amkor: 12.0% share (2nd) JD: 3.2% share (7th) Data Source: *Gartner market share analysis: Semiconductor packaging and test services, worldwide, April 2014

5 Foreign companies acquired various resources such as technology and brand through investment alliances with Japanese companies. Case study on acquisition of technology Name: Kilang Rantai (Malaysia) Business: Manufacturing of motorcycle chains RK EXCEL, a Japanese motorcycle chains manufacturer, its business consisted of chain and rims but RK EXCEL wanted to sell its chain business. RK EXCEL was then split into two separate entities; with half the company forming RK Japan co. ltd., taking over the chain business. Kilang Rantai (hereafter Kilang ) acquired 90% of RK Japan s stock in this investment alliance. Kilang acquired RK EXCEL s motorcycle chain technology and is now performing R&D in Japan Kilang acquired RK EXCEL s sales channels in Japan, which contributed to sales growth in Japan by 20%. Gained RK EXCEL s brand recognition, which is renowned around the world. Also, RK EXCEL s standard motorcycle chains products, other than Japan s latest models, can be exported to other countries as competitive products. Case study on acquisition of brand Name: Compass Group PLC (UK) Business: Food service and support services Kilang s motocycle chain Compass Group PLC (hereafter Compass ), is one of the largest companies offers contract catering and facilities management services. Compass favors an investment alliance to rapidly expand its global business. Also, investment alliances enables Compass to diversify and enter new business segments. Japan has a sizable foodservice market, which is ranked as one of the top ten markets worldwide. As the market is fragmented in Japan, Compass has been utilizing investment alliances formed with more than 10 companies in the past 10 years. Compass acquired new business opportunities through existing connections of Chiyoda and Polestar, in particular from group companies of Chiyoda s parent company. Compass acquired Polestar s brand name, which was an established brand of restaurant located in center of Tokyo. Eurest Japan A group companies of Compass in Japan, acquired by investment alliances (through ) Eishoku MDX Compass Group (Japan) Compass Kyushu Marunouchi Polestar Chiyoda Kyushoku Service MFS Sun Food Sun Food Tokai Fuyo Nihon Kyushoku Serivce 4

6 Contact address on investment alliance This Casebook General information Ministry of Economy, Trade and Industry JETRO IBSC (International Business Support Center) Tokyo Yokohama Nagoya Osaka Kobe Fukuoka Foreign chamber of commerce in Japan American Chamber of Commerce in Japan Tokyo Osaka Nagoya European Business Council in Japan The main article of Casebook on Investment Alliances with Japanese Companies includes the contents such as: The advantages of investing in Japan Details of merits and success factors of investment alliances 45 success cases of foreign companies investment alliances To see the casebook, please visit METI s website: