Ｊａｐａｎ Ａｇａｉｎ

Hiroshi Mikitani

What Japan lacks is not technology, but Global Business Management capability and Business Innovation.

We have to graduate from the moratorium-like system that protects companies’ top management with low capability and no vision, and to push ahead the renewal of the top management.

We need capital mechanism & law system that foster un-aided growth of companies through competition, and increase the efficiency of the industry through corporate restructuring and consolidation.

Sheer cash provision to particular companies and industries will cause moral hazard. Thorough deregulations should be executed for creation and optimization of the

market. We have to improve the efficiency of Japan, and fix the competitive disadvantages

imposed on Japanese companies. (including tax decrease) Japan has to get out of the present Galapagos social environment. For this, joining

TPP is a must. We should set some Key Performance Indicators to increase the competitiveness of

Japan, and create concrete action plans to achieve our target figures.

To Increase the Competitiveness of Japan

1

If we have more excellent top business managers, Japan can change

2

Apple’s stock price Top

Manager and

Stock Price

Japan can change if we can cultivate or invite excellent top business managers

Nissan’s stock price

2010 2005 2000 1995

1997 Steve Jobs becomes the CEO

2010 2005 2000 1995

1999年 Carlos Ghosn becomes the COO (CEO from ‘01)

We need a systems that allows individuals with high earning power to spend their money happily (Attract excellent top managers to Japan, and push up individual consumption)

Excellent top managers can dramatically increase corporate value

Method

3

To achieve these goals, we should set KPI for each of the 5 Factors, and make clear every individual’s responsiblility for each KPI, and carry out the structural reform

* KPI: Key Performance Indicators Indicators that quantitatively define the goal of an organization. By monitoring these numbers, one can manage the progress toward

the goal.

Source of Competitiveness of the Country: 5 Factors

Efficiency of the Country

(Low-cost Country)

Innovation Capability

Operation Capability

Global Expansion & Management

Capability

Brand Power (Excess earning

power)

× × × ×

4

Macro Economic Factors*

* Macro Economic Factors (e.g. exchange rate, interest rate) are also extremely important, but will leave it to the Counsil of Economic and Fiscal Policy (経済財政諮問会議)

To Increase the Competitiveness of the Country

Translate the 5 Factors into KPI, and clearly assign the responsibility to person concerned.

Achieve all the KPI targets within 5 years

5

Example of KPI (1)

Factor KPI Current Value

Target Value

1. Efficiency of the Country

(Low-cost Country)

Government service cost (% of GDP) 23.1% Under 20%

ROI (Return on Investment) of Public Investment (hurdle rate) Over 10%

Corporate tax 38.1% 25%

Electricity cost Decrease by 30%

2. Innovation Capability

Business start-up % 4% 10%

# of Intellectual Property acquired by Japanese companies (include qualitative improvement)

Increase by 30%

3. Operation Capability

GDP per worker 23rd in the

World Top 10 in the World

Working population YoY* -0.6%

YoY +1%

6 * Year over Year

Example of KPI (2)

Factor KPI Current Value

Target Value

4. Global Expansion & Management

Capability

Overseas sales % of Japanese companies 11.7% 15%

English Capability (average TOEFL score) 70 points 80 points

# of students studying abroad (focus on Business Schools and Engineering School)

60,000 (as of 2009)

100,000

5. Brand Power (Excess earning

power)

International Tourism Receipt Ranking in Asia Pacific region

10th 5th

# of foreign companies that moved its HQ / Asia HQ to Japan

10 cases a year

ROA (Return on Asset) of Japan 3% TBD*

7 * To Be Determined

Factor1: Efficiency of the Country (Low-cost Country) KPI

KPI

8

Item Current Value Target Value

Government service cost (% of GDP) 23.1% Under 20%

ROI of Public Investment (hurdle rate) Over 10%

Corporate tax 38.1% 25%

Electricity cost Decrease by 30%

Factor1: Efficiency of the Country (Low-cost Country) Actions to achieve the targets Fundamental and drastic Improvement of the high-cost structure of the Public Sector

Efficiency improvement utilizing IT (e.g. more online proceeding, open up government data to the public)

Reduction of civil servants, revision of the compensation system

Utilization of the Citizen Numbering System (Have to be used both by public / private sectors)

Cost Reduction of Medical Welfare service including Reform of its system Revision of the inappropriate fee system (e.g. dispensing fee system)

Introduction of IT to the Medical sector(e.g. online sales of drugs, cloud sharing of treatment information)

Aggressive hiring of foreigners

Fundamental Improvement of the high-cost structure that is imposed on Companies based in Japan Strategic tax reform

Reduction of corporate tax

Incentives for the use of capital (e.g. continue the special measures of 10% capital-gain tax)

Cost reduction of the infrastructure costs (introduction of market mechanism)

9

10

Efficiency of Government Service Japan should aim for the best-class efficiency among the developed countries

Source： UN “National Accounts Main Aggregates Database” (http://unstats.un.org/unsd/snaama/introduction.asp), OECD Statistics (http://stats.oecd.org/index.aspx? )

Government Service Cost as % of GDP (2010)

Target 20%

21.2%

UK

25.3%

US

20.3%

South Korea

20.3%

Japan

23.1%

Germany

General Government Gross Domestic Fixed Capital Formation

Government Final Consumption Expenditure

11

Corporate Tax Corporate tax rate in Japan should target the lowest level among the developed countries

Source： Ministry of Finance (As of April 2012) * In the US, there will be additional State / City tax. For New York city for example, the total corporate tax rate is 45.67%

Effective Corporate Tax Rate

Target 25%

2.533.3%

US*

35.0%

Japan (Tokyo)

38.1%

35.6

25.0%

Singapore

17.0%

UK

24.0%

South Korea

24.2%

China

25.0%

Germany (average)

29.5%

France

(Seoul) (Federal)

Special tax for disaster relief

【Ref】 Tax Issue of Global Company

• Google avoids tax using the tax heaven in Bermuda. Expert estimates its tax rate to be 2.4%.

• Amazon avoids tax outside of the US by booking its overseas revenue to its US HQ

12

Energy Cost Japan’s energy cost is high compared to other developed nations

Source： Cabinet Office’s research on 2010

Utility Cost (Indexed; Japan = 100)

Target Decrease by 30%

117

667564100

Japan UK US France Germany

78725756

100

Japan UK US France Germany

Electricity

City gas

13

Factor２: Innovation Capability KPI

14

KPI Item Current Value Target Value

Business start-up % * 4% 10%

# of Intellectual Property acquired by Japanese companies (include qualitative improvement) Increase by 30%

* Business Discontinue % = # of company shut down in the year / Total # of companies last year

Factor２: Innovation Capability Actions to achieve the targets

15

Improvements of Business Innovation and Technology Innovation

Creation of Environment that fosters Business Innovation Creation of new market through deregulation

Separation of electrical power production and distribution / retailing Allowing Treatment partially covered by the insurance Fostering the ecology / reusable energy industry (e.g. tax benefits)

Establishment of eco-system that fosters start-ups Support measures for venture investment (e.g. tax benefits) Revision of the present Act of the control of moneylending business (volume,

interest rate)

Creation of Environment that fosters Technology Innovation Support measures for R&D activities (e.g. tax benefits) Intellectual Property strategy (e.g. IP acquisition supports for companies,

promotion of mutual recognition) Acceleration of inviting foreign experts

16

Technological Capability, not utilized well

Source： WEF “Global Competitiveness Report 2012-13”

Innovation Ranking by World Economic Forum (2012)

1 2 3 4 5 6 7

10

16

Switzerland Finland Israel Sweden Japan US Germany

UK

South Korea

Japan’s technology level is world top class

Japan needs to cultivate the business innovation capability that turns the good technology into good business

Japan’s high technological capability is not reflected in Japan’s industry competitiveness

Example of Japan’s Industry Competitiveness CE* Manufacturer Market cap Ranking (USD Bn)

4

8

15

16

19

22

23

162

527

Sony

Panasonic

Toshiba

Dell

HP

Fujitsu

Nokia

Samsung

Apple

* Consumer Electronics Source： Datamonitor (As of March 20th, 2012)

Sum of Japan’s top 4 is 72, which is less than half of Samsung

17

Metabolism (Renewal) in Japan, Low Japan is not good at creating new businesses, thus both the start-up % and discontinue % are low

Target 10%

Japan

Japan

US

US

UK

UK

Business Start-up %

Business Discontinue % (Year)

(Year)

Source：The SME Agency • Business Start up % = # of company started in the year / Total # of companies last year • Business Discontinue % = # of company shut down in the year / Total # of companies last year

Factor３: Operation Capability KPI

18

KPI Item Current Value Target Value

GDP per worker 23rd in the World Top 10 in the World

Working population YoY -0.6%

YoY +1%

Factor３: Operation Capability Actions to achieve the targets

Securing workforce under population decline Empowering women (e.g. more childcare, promotion of teleworking) Empowering foreigners (e.g. easing the procedure for foreigners to work

/ live in Japan)

19

Improvement of Labor Productivity Shift from middle-age courtesy to vitalization of the young

Job security for the young

Adoption of White Collar Exemption Making it flexible to move HR (e.g. easing of dismissal regulation)

Leveraging ＩＴ (e.g. tax benefits for IT investment) Awareness raising for productivity improvement

Rewarding companies that drastically improved the productivity (Deming Prize)

20

GDP per worker Japan’s GDP per worker is ranked 23rd in the world, which is very low among the developed nations

GDP per worker (USD; 2011)

43,276

44,567

45,158

47,884

51,303

52,948

55,092

56,749

65,798

68,156

-35%

Germany

Japan

South Korea

UK

Sweden

Taiwan

Belgium

Ireland

Hong Kong

US

Source： International Labour Organization（ILO）

1

25

23

21

10

5

4

3

2

Target Top 10

16

21

Working Population Working population in Japan is decreasing, which is the huge concern for Japan’s competitiveness

Historical change of Working population in Japan

Source： Ministry of Internal Affairs and Communications

Target +1%

Working Population

(Mn)

YoY

66.5

67.0

67.5

66.0

0.0

2011 2010 2005 2000

65.9

68.0

-0.6% -0.3% -0.4% -0.3%

-0.9%

-0.2% -0.2% -0.1%

0.3% 0.2% 0.1%

-0.4%

22

Factor４: Global Expansion & Management Capability KPI

KPI Item Current Value Target Value

Overseas sales % of Japanese companies 11.7% 15%

English Capability (average TOEFL score) 70 points 80 points

# of students studying abroad (focus on Business Schools and Engineering School)

60,000 (as of 2009)

100,000

Factor４: Global Expansion & Management Capability Actions to achieve the targets (1/2)

Joining ＴＰＰ Accelerating the introduction of IFRS Increasing the quality of Top Business Managers and Human Resource

Establishing a system that attract top talents from around the world Revision of the excessive progressive tax

To accelerate the introduction of stock-based compensation (e.g. introduction of classified stock)

Educational reform to cultivate world-class business people Enhancement of English education (adopt TOEFL for university / civil-servant exams)

Enhancement of IT education (including basic programming in the curriculum)

Cultivation of strategic thinking (establishing high-quality business schools in Japan)

Stimulate going to schools overseas (mainly for business schools and engineering schools) Incentive system to promote studying abroad (e.g. revision of the tax deduction law for

donation by individual)

23

Factor４: Global Expansion & Management Capability Actions to achieve the targets (2/2)

Creation of an environment which fosters companies’ global expansion capability, by the elimination of Galapagos regulation Terrestrial Digital Media Broadcasting (so called “Chi-degi”)

Medical

Communication network（Next Generation Network）

Radio wave

Securing the opened capital market, that brings market mechanism into corporate management Banning the extreme anti-takeover measures

Resolving the cross ownership of stock

24

25

Overseas Sales % of Japanese Companies Overseas sales % of Japanese companies peaked in 2007, and decreased since then

Overseas sales % of Japanese companies

Source： Ministry of Economy Trade and Industry, Ministry of Finance

Target 15%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

11.7%

5%

13.0% 15%

20%

10% Non-Manufacturing

Total

0%

Manufacturing

26

Needs of Educational Reform and Stimulation of Overseas Study

We need to create the education system that cultivates world-class business people, and also to promote going to business schools abroad

Evaluation of Japan’s education system by World Economy Forum (2012)

In Japan’s education system, the quality of education related to industry competitiveness is relatively low

Source： WEF “Global Competitiveness Report 2012-13”

Higher education and training Total

Secondary education enrollment

Tertiary education enrollment

Quality of educational system

Quality of math and science education

Quality of management schools

Internet access in schools

Availability of research and training services

Extent of staff training

21

22

36

43

27

80

43

12

5

Indicator Ranking (/144)

Country 2005－

2006 2007 2008 2009 2010

China 76 78 76 76 77

Hong Kong 80 80 80 81 81

South Korea 72 77 78 81 81

Japan 65 65 66 67 70

■In the past, TOEFL score was about the same between Japan and South Korea, but since Kim Young-sam started its Globalization Policy, the gap widened. Now South Korea ties with Hong Kong, where English is the official language. ■Since 1997, South Korea made English education mandatory from 3rd grade. In 2008 it started setting all-English classrooms, and also sending teachers abroad.

Average TOEFL Score of Asian Countries

■Number of students studying in the US South Korea is three times of Japan

No. of Students in US University (2011-2012） No. of students in US

university (Ref) No. of students in

domestic university South Korea 72,295 (2.18%) 3,320,000 (100%)

Japan 19,966 (0.69%) 2,890,000 (100%)

Gap of English Education against South Korea

Target 80 points

Source： South Korean Embassy

27

28

Students Studying Abroad Number of Japanese students studying abroad has been steadily decreasing since 2004

Number of Japanese students studying abroad

Source： Ministry of Education Culture Sports Science and Technology

Target 100,000

82,945

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2000 2002 2004 2006 2008 2010

59,923

29

30

Factor5: Brand Power (Excess earning power) KPI

KPI

Item Current Value Target Value

International Tourism receipt ranking in Asia Pacific region 10th 5th

Number of foreign companies that moved its HQ / Asia HQ to Japan

10 cases a year

ROA of Japan 3% TBD

Factor5: Brand Power (Excess earning power) Actions to achieve the targets Assignment of a Chief Marketing Officer (CMO) of the government.

Planning and Execution of a systematic approach Promotion of tradition and culture (e.g. publication of Japanese food and

traditional art) Promotion of mass amusement

Global expansion of domestic entertainment contents (revision of copyright law that propels online delivery of contents)

Elimination of limitation of foreign players in professional sports Exposure of Japanese people to globally featured events (e.g. Nobel Prize) Establishment of contents and services that attract foreign money

Increase entertainment attractiveness of big cities (e.g. Casino, easing of the Entertainment Business Act)

Medical tourism Making the Haneda Airport a hub

Pushing the attraction of HQ or Asia HQ of foreign companies (establish an organization like UK Trade & Investment)

31

32

International Tourism Receipt Japan’s tourism receipt is very poor. We need to increase our attractiveness and promote Japan to the world

Target 5th

10,966

11,044

12,304

17,518

17,990

18,259

26,256

27,686

31,443

48,464China

Australia

Hong Kong

Thailand

Malaysia

Singapore

India

South Korea

Taiwan

Japan

International Tourism Receipt of countries in the Asia Pacific region (USD Mn)

Source： UNWTO “Tourism Highlights 2012 Edition”

1

10

9

8

6

5

4

3

2

7

Case Study of Successful Japan Branding – Mongolia

14% South Korea

Russia 28% US 35%

Japan 37%

Source：Ministry of Foreign Affairs

Which county should Mongolia build relationship with going forward?

Image of Japan (top 3 answers)

Brand of Japan is well received in Mongolia because our ODA is frequently featured in News and many Mongolian Sumo wrestlers play in Japan

1. High Economy / Technology

2. Rich in Culture

3. Beautiful Nature

75.9%

27.2%

20.4%

Why do you think Japan is the country supporting Mongolia the most? (top 3 answers)

1. Often hear it in news

2. I can feel the support

3. The amount of support is huge

35.6%

32.4%

16.6%

・・・

Who is your favorite Japanese person (top 5 answers)

1. Kaiou (Sumo wrestler)

2. Takano-Hana (Sumo wrestler)

3. (Unspecified Sumo wrestler)

4. Prime Minister Koizumi

5. Takami-Sakari (Sumo wrestler)

91 votes

65 votes

34 votes

33 votes

26 votes

33

34

Average ROA

Average ROA in Japan is low compared to US and Europe

ROA of Japan, US, and Europe

Source： Cabinet Office

Target TBD

Europe

US

Japan

(Year)