Japanese Firms Look to Expand Overseas. Is the Sky Falling?

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I was reading last week that Panasonic, the big Japanese consumer electronics company based in Osaka, had reportedly stopped production at one of its plants and scraped plans to expand production facilities in one of its other plants. Instead, its focus is in continuing to shift production overseas, mainly in China, and is slated to complete its third facility there by 2012. Main reasons relate to the record strong yen and ongoing effects of the devastating March 11 earthquake.

Consequently, earlier this week, I was looking up Internet news and trends related to Japan and highlighted seven unique cases in the past three months alone, where Japanese digital agencies, technology firms, and/or e-commerce players had announced plans to expand overseas, beyond the borders of Japan. I included each of these headlines with their dates below:

1. Rakuten Buys German Ecommerce site Tradoria (July 28)
2. CyberAgent Ventures Opens Taiwan Office (July 29)
3. CyberAgent Invests In Korean Social Messaging Service Kakao (August 31)
4. Softbank Invests 100 Million Dollars in Singapore's InMobi mobile ad network (September 15)
5. DeNa Buys Out Vietnamese Subsidiary of Punch Entertainment (October 1)
6. CyberAgent Opens Overseas Smartphone Marketing Division in U.S. (October 3)
7. DeNA To Purchase Atakama Labs, Stretches Its Hands To South America (October 4)

Rakuten, the biggest e-commerce player in Japan and hugely profitable, certainly has enough cash on hand to make aggressive bids to support its expansion overseas, in this case, Germany, the biggest European market.

CyberAgent seems to be making more of an Asian play looking at Taiwan and Korea as high growth markets mainly in the social and smartphone arena. CyberAgent also looking to the U.S. in seeing big potential as more ad spend shifts to mobile.

Softbank striking a deal with InMobi, a global mobile advertising network with a massive footprint in Asia, supports CEO, Masayoshi Son's strategy to become in his words "the No.1 Internet Company in Asia". Finally, DeNA making strong moves in the social gaming space looks to Vietnam and South America for its expansion.

So what we're seeing here is this clear and concerted move by many Japanese companies of all colours looking outbound to grow. The countries listed above are mainly emerging markets that show high growth potential, and are equipped with a digital infrastructure that is either well developed or plans to be very quickly. Japan is still the No. 3 economy in the world and 2nd largest advertising marketing behind the U.S., but growth here is "stagnant" in the words of some, seeing flat to low single digit grow. And nowhere in the vicinity with the BRICS or N11's, where all eyes are focused. Also, when it comes to age demographics, most of these markets are way more skewed to youth than Japan, where currently 29 percent of the population is 65+ and is experiencing a population decline. Finally relaxed tax laws, government subsidies, currency exchange benefits as well as other financial and regulatory differences make it at times more advantageous to expand into these markets, and basically more difficult to operate in Japan.

But is all lost in Japan? Is the sky falling? Certainly not. While it appears that all are fleeing it doesn't mean domestic Japan does not have a future. I think it just means that Japan has a different future. It is indeed a very saturated market, but there is room for growth, particularly in the growing digital space. Here are some of the more positive sound bites we see on the ground:

• 3rd highest worldwide broadband penetration rate, making it prime for VOD
• Online ad spend grew 9.6 percent in 2010 and double digital slated by end of this year
• Mobile ad spend grew over 16 percent this year, with social largely contributing to this
• E-commerce market is around $91 billion and in the top 4 globally
• Social networks have a 44.2 percent reach with 22 percent accessing from mobile devices

It's very encouraging to finally see Japanese organisations get more aggressive and start to look outbound for growth. Traditionally, a closed market and very isolated, is starting to adapt and become much more active on the global stage. And digital – social, mobile, e-commerce, are the channels paving the way to make this happen.

I am optimistic about domestic Japan's future in the digital space. The more active Japanese companies are in going outbound, the most sophisticated they should become, thereby, allowing for that sophistication to be reapplied in an easier and more direct way back into the country. To me this is clearly a win-win.