Japan's appetite for investment in emerging markets proves to be strong across all major sectors

Much like the energy joint venture for nuclear power investment in emerging markets profiled on PolyMac in the previous post, the Japanese auto and steel industries also seem very bullish on unloading some of their cash hoards into riskier long-term, but very high yield, investments the US would be keen to watch closely.

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Japan’s appetite for emerging markets soars

By Michiyo Nakamoto and Lindsay Whipp

Published: July 18 2010 23:31 | Last updated: July 18 2010 23:31

Japanese companies are showing a growing passion for emerging markets as highlighted by Toyota and Nissan announcing on Friday that they plan to invest a combined $1.2bn in Latin America.

Those moves follow in the footsteps of Sumitomo, the large Japanese trading company, which said this month it would take a 30 per cent stake in Brazil’s Mineração Usiminas, an iron ore mining subsidiary of steelmaker Usinas Siderúrgicas de Minas Gerais, for $1.9bn.

The value of mergers and acquisitions by Japanese companies in emerging markets has this year exceeded the $7.9bn total for 2009, rising to $8.58bn, according to Dealogic.

It is not just the so-called Bric countries, Brazil, India and China that are attracting investment.

Japanese companies are seeking markets in ever more exotic lands as an ageing population and changing consumer behaviour continue to cloud growth prospects at home.

Chile, Peru and Turkey are among countries that have enjoyed Japanese investment.

Shiseido becomes the first Japanese cosmetics group to enter the Balkan countries of Albania, Kosovo and Macedonia when it starts selling its products there from mid-July. Japan’s cosmetics leader has launched an effort to globalise its operations and seeks to raise its overseas sales from 38 per cent of total in the year to March 2009 to more than 50 per cent by 2017.

This year, Shiseido entered the Mongolian market. While Mongolia’s population is 2.7m, about one-fifth that of Tokyo alone, the market for prestige cosmetics has nearly doubled in the six years since 2003, Shiseido said. Yasuhiko Harada, Shiseido’s corporate senior executive officer, said: “It takes a very long time to develop brand recognition so we have to start as early as possible.”

Mr Harada added that the first stage of the market entry process was not necessarily an expensive step since it usually involved a distribution deal with a local company.

Once the market develops, Shiseido will then move to the next step of setting up its own 100 per cent-owned subsidiary, which is a bigger commitment but can bring greater rewards.

In Russia, after Shiseido set up its own subsidiary that covers Moscow and St Petersburg, sales doubled, Mr Harada said.

Makers of consumer products and companies tapping natural resources are not the only Japanese companies targeting markets beyond the Brics.

NKSJ, Japan’s second-largest non-life insurance group by premiums, is splashing out about Y28bn ($323m) to acquire Fiba Sigorta Anonim Sirketi, a Turkish insurer, in the Japanese group’s largest acquisition to date.

Meanwhile, NTT is acquiring Dimension Data, an IT services company based in South Africa with a London listing and global operations, for $3.2bn

“It’s fair to say Japanese companies are not shy about investing in diverse geographies if the opportunity is right,” said Steven Thomas, co-head of mergers and acquisitions at UBS in Tokyo.

The trend could accelerate if corporate Japan agrees with a study group set up by the ministry of economy, trade and industry that is encouraging the private sector to step up activities in developing countries, including among low-income earners.

Those consumers “are attracting attention as a promising market” worth an estimated Y5,000bn, or about the size of Japan’s gross domestic product, the study group said in a report.

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