Japanese slump offers chance for sharp Kiwis

By VAUGHAN YARWOOD

For New Zealand companies contemplating the ailing Japanese economy, the words of singer John Cooper Clarke are worth recalling: "Even a recession didn't put him out of pocket; back in the Depression he made a profit."

Clarke was referring to the notorious Chicago gangster Al Capone, but the notion also holds good for legitimate business. Given the right attitude, even the bad times are good.

Although Japan has fallen on hard times, it remains by a clear margin the world's second-largest economy and the main creditor nation. Even its sluggish 1.7 per cent growth last year translates to an extra $US75 billion in economic activity, or about one and a half times the GDP of New Zealand.

Japan is of fundamental importance to this country.

Last year it was the fastest growing of New Zealand's top three export markets, outstripping growth in both Australia and the United States. It was also four times the size of the fourth-ranking Britain.

Exports to Japan last year were up by 32 per cent to $4 billion which, allowing for depreciation, equates to an increase in real terms of 9 per cent.

A star performer was kiwifruit, thanks to the runaway success of a new variety, Kiwi Gold.

There was good news for tourism also. To June, 161,000 Japanese visited, up 10 per cent on the previous year, though future prospects have been dented by travel safety concerns.

Japan also remains New Zealand's most important market for education services - one-third of all foreigners studying here are Japanese.

Nevertheless, the figures give no reason for complacency.

Most of last year's trade increase was due to a cyclical rise of 54 per cent in aluminium which contributed $760 million to export receipts, and in forest products.

The sobering reality is that New Zealand's share of Japanese imports has fallen from 0.9 per cent in 1988 to just 0.6 per cent.

In other words, New Zealand companies are surrendering ground in Japan.

Perhaps it is a case of misreading the signals. Japan's economy may be entering a period of negligible growth, but its population growth has also flattened out, meaning that spending power will be largely protected.

Furthermore, the declining power of the big Japanese corporates and the emergence of new distributors translates into easier market access.

And with Japanese companies under pressure, they are more open to new proposals.

New Zealander Terrie Lloyd, president of Japan-based web content company LINC Media, is upbeat about the business opportunities in Japan, saying "in every recession I've been in, I've always been able to find a value-added way of competing".

He cites economist Ravi Batra, who noted that in a recession people return to the essentials such as health, education and the repair of consumer durables.

Mr Lloyd's advice is to look for a way of gaining advantage over competitors.

In the case of New Zealand, that could mean building on lower costs, new technology, political stability, reliable infrastructure and legal system, safety, time zone benefits or an educated, English-speaking workforce.

Among the Japanese trends identified by Asian Demographics executive director Clint Laurent are those thrown up by a declining workforce.

To sustain its economy, Japan increasingly will need to rely on guest workers or increased productivity.

Opportunities therefore exist for the provision of office productivity tools and services and for the outsourcing of work to low-cost New Zealand.

Nick Nicolaou, chief executive of HSBC Japan, forecasts negative growth over the next year and rising unemployment, and says that, given the nature of the problem, a quick solution is unlikely.

One promising sign is that inventory levels are beginning to fall, meaning that industrial production may begin to recover.

The likely exodus of manufacturing operations to China over the next few years should also create opportunities for foreign companies by forcing restructuring in Japan.

Lloyd, a veteran survivor of recession-hit Japan, agrees the present downturn could be prolonged, and may even get worse before it bottoms out.

His advice: "Be ready to take advantage of it."

Email Vaughan Yarwood.