Business Forecasting for Coastal Regions:
Post-Tsunami

April 9, 2011
Table of Contents I. Introduction a. A hypothetical business description. b. Introduction to the actual paper and the issues to be covered. II. Background c. Geographical location, including talking about recent events that have occurred and have affected the Japanese market. d. The current situation in Japan, after the natural disasters and how it has affected the business world. III. Japan v United States – Cultural Differences e. Comparative study of the Japanese culture vs the U.S. culture, and its impact on the business world. f. Importance of individuals to understand the cultures, customs and traditions of the region in order to function properly. IV. Strengths and Weaknesses g. Strengths of having a business in this region. h. Possible threats in this region i. Cyber-terror threats and the advancement in technology’s affect on security. V. Reducing the risk j. Ways to reduce the regional risk. k. Possibility of unionization, and labor protection VI. Conclusion VII. Bibliography
Business Forecasting for Coastal Regions: Post-Tsunami I. Introduction
In early March of 2011, thousands of individuals were killed by a 9.0 magnitude earthquake and subsequent tsunami in many coastal regions, but mainly Japan. Coastal regions are unique when it comes to business in the fact that not only do they have many dangers in the way of cyber-terrorism, corporate theft, and local tradition but they also have many environmental dangers that other parts of the world are not in danger of. Despite the dangers of opening a corporation in a coastal region numerous American companies have locations in Japan; some of these corporations are Costco and Wal-Mart. According to an article by CNBC after the natural disasters, neither company lost profits even though they had to close down for a few days (CNBC). So although this horrible act of Mother Nature occurred and caused the loss of many lives, it is still a great market to open a business in.
In order to crack into the Japanese market it is important to know which field of business one would like to get into. Due to the injuries that have occurred due to the natural disasters, perhaps opening an insurance branch would be a beneficial. Aflac is the number one foreign insurer in Japan, and is well known for franchising (CNBC). Aflac specializes in disability insurance as compared to property insurance and thus did not suffer greatly from the Earthquake of March 2011. Following the Earthquake, sales with Aflac actually increased and are still profiting (CNBC). Due to the fact that the company did not suffer greatly from this disaster, it is a good indicator of its resilience after other disasters which may occur in the future, and thus supports the idea that opening an Aflac franchise would be a good idea.
Breaking into a foreign market is never easy, and there will always be risks associated with the beginning. It must be understood that there are differences culturally, legally and geographically. This paper will attempt to uncover those differences as well as introduce the reader to the Japanese market in general. It is pertinent to any entrepreneur to understand the market in which they would like to start a company with and the risks as well. Following will be a discussion comparing the United States to the Japanese culture as well as some of the security risks associated with this region and ways to alleviate those risks. II. Background
Geographical Location:
As is commonly said when thinking of opening a business, “Location, Location, Location,” it is imperative to the success or failure of a business and the most important part. Of course location is not the only factor, there are many more such as current economic conditions as well as history, culture and business laws. Japan is a very unique country in the fact that it is completely surrounded by water, and easily accessible. Approximately 378,000 square kilometers in size, Japan is about the same size Germany comparatively (Asian Info). The Japanese Islands are located to the East of the Asian continent, and since it is about 75% mountains Japan has about 1/10th of the world’s active volcano population (Asian Info). The volcanic activity in this region results in approximately 1000 earthquakes per year (Asian Info).
Having so many active volcanoes on an island, there are many natural hazards such as tsunamis and typhoons. There have been numerous eruptions, tectonic shifting, and tsunamis throughout the Japanese history that it has almost become second nature to rebuild after a devastating natural disaster; it is a part of who they are.
“The popular notion of Japanese life is one of order, where tranquillity is the ideal made into an aesthetic, whether in poetry, gardening, flower arranging, the tea ceremony, or tittuping geishas. Yet Japanese history, a chronicle of disasters both natural and man-made, helps us understand why it is also a culture of defiance. The Japanese know that they live precariously on these steep volcanic islands. Their iconic mountain, Fuji, is a volcano. Mount Asama in central Honshu has been erupting regularly for 1,500 years--the last time in 2009. Vulcanism, an aspect of their uniqueness, is celebrated; their sense of being offshore, apart, at risk--fires, earthquakes, floods, storms, as well as catastrophic bombings--is part of their culture, not as survivors but prevailing and making themselves better (Theroux, P.).”
Struggle against nature is common in this mountainous region, and has helped to form the Japanese culture of today. These disasters haven’t only affected their culture, but it has also impacted their economical position in the world. If one were to introduce a business into the market which is mindful of possible property damage, and has something to offer that would benefit the community in a time of need their success would be imminent.
Current financial situation: post-tsunami
After the devastating earthquake and tsunami, Japan’s economy is in trouble. As mentioned previously, Japan must import their energy from other countries since they have very few sources of energy on the island. The destruction of the nuclear power plant will have tremendous affects on the Japanese energy consumption. In addition to this, Japan has the worse debt of any country in the world. As can be seen in figure 1 below, Japan’s debt to GDP ratio is 225%. JAPAN 225%GREECE 132%U.S. 93%FRANCE 84%GERMANY 75%INDIA 72%BRAZIL 66%SOUTH KOREA 32%CHINA 19%SAUDI ARABIA 13%(Helman, C.) |
“Japan is the world's top creditor; with net foreign assets worth a healthy 2.4 times its current account receipts (Helman, C.).” Due to the high debt that Japan has, in order to rebuild it may need to rely on the private sector for monetary rebuilding, and the United States needs to help Japan by reattaching the yen to gold (Forbes, S.). Japan is a very resilient country, and if the Japanese people would unleash their entrepreneurial energy, they could potentially recover quite quickly from this disaster (Forbes,S.).
In the Japan Infrastructure Report Q2 2011, Japan placed last place out of 8 developed countries in the report, when it came to financial ratings (Project Finance Ratings). According to the report, “Japan offers many benefits to a potential investor, including a sophisticated legal and regulatory environment befitting a developed state, a history of currency volatility is highlighted as a major risk” (Project Finance Ratings). This leads to an even stronger reason why the United States could help regulate the Japanese Yen by attaching it to gold value like the American Dollar. III. Japan v. The United States – Cultural Differences
A major obstacle that faces Americans trying to open a business in the Japanese market would have to be the difference in cultures. Simple geography binds Japan to the United States with the Pacific Ring of Fire; “Ninety percent of all earthquakes take place along this deadly ring” (Kaku, M.). Although the United States shares this geographic anomaly with Japan, there is very little else which Japan has in common with America. At times of crisis such as the earthquake and tsunami of March 2011, the Japanese people remain quiet and respectful. They wait in lines for hours without complaint, and they look out for their neighbors. It is part of the culture based upon the Shinto-Buddhist tradition. In the United States on the other hand, at times of crisis such as the blackout of 1977 and Hurricane Katrina in New Orleans in 2005, Americans digress to chaos of looting and mayhem (Kaku, M.).
The homogenous unity among the Japanese people can be attributed to the fact that during the Tokugawa era Japan experienced 300 years of isolation. The United States on the other hand is comprised of immigrants from all over the world. Americans tend to be in the mindset of every man for himself, while Japan is more community-based (Kaku, M.). This strong sense of community in Japan helps dramatically when it comes to recovering after disastrous events; however it also slows down new developments and creativity (Kaku, M.). Apart from behavior during a disaster, both countries also respond differently in the wake of earthquakes. Following the devastating Great Kanto Earthquake of 1923, Japan began paying special attention to earthquake drills and requiring them often to make sure people are ready and prepared. In the U.S. it is uncommon to have an earthquake drill in school, let alone the workplace (Kaku, M.).
Since Japan is unable to create much of their own energy due to being an island nation, some may see this as a disadvantage or a weakness of the Japanese people; however, through their trials and tribulations they have become stronger and more conscientious in society. This lack of resources has ingrained in its citizens a great sense of energy-consciousness and they do their part for the environment through recycling and energy conservation (Kaku, M.). The Japanese are also very reverent of their history and take very precise documentation of events. It was due to this attention to detail that the United States was able to date a great earthquake off the Washington coastline. Japan had documented a great tsunami in January of 1700; it was by this historical documentation that the United States was able to infer that the great 9.0 earthquake along the Cascadia Fault line occurred on this date (Kaku, M.).
All of these things are very important when pondering breaking into the Japanese market, because it is essential to “fit in” in order to be accepted. Unlike most countries, “Japan is one family, one language, one set of rules, believing in the greatness of its destiny and overcoming any obstacle to achieve it” (Theroux, P.). Do not like there calm, quiet, peaceful behavior full you into thinking the Japanese are weak, they are much stronger than anyone knows; however they are at risk. Japan has a quickly aging population, and very low procreation which is leading to a lower population. Labor costs are extremely high which is leading to outsourcing traditional Japanese electronics to China to help cut costs (Theroux, P.). IV. Strengths and Weaknesses
Strengths and opportunities of opening a Business in Japan
According to a SWOT analysis compiled by the Japan Oil & Gas Report Q2 2011 there are many strengths when it comes to the economic value of operating a business in Japan. The strengths are as follows: * Japan is one of the world’s largest economies, with a population of 127 million. As such, Japan has a large, wealthy, and sophisticated domestic market. * Japan has well developed and high-tech manufacturing and services sectors, with strong advantages in key areas such as electronics and heavy engineering (SWOT Analysis).
These strengths would benefit anyone wanting to enter the market especially if it were opening an insurance company such as the franchise of Aflac that was mentioned previously. With such high demand on companies creating heavy engineering and electronics there is bound to be workplace injuries which would create demand for personal injury insurance. There are also many economic opportunities for companies breaking into the Japanese market: * Japan stands to benefit from rising demand from emerging markets – especially China and India – which can compensate for its own weak demand. * The DPJ’s social policies could eventually set the scene for a rise in private consumption and birth rates, although this could be years away. Future governments could conceivably introduce economic reforms needed to raise Japan’s long-term potential growth rate (SWOT Analysis).
So by opening a business in the Japanese market, there is potential to expand into the Chinese and Indian markets as well. Also, due to the dropping birth rates and struggling economy, there may be economic reforms as stated previously which may reduce requirements, or at least make things easier for entrepreneurs to break into the market (SWOT Analysis).
Threats and Weaknesses
Of course to every strength there is a weakness, and to every opportunity there is a threat. It would be naïve of anyone trying to break into a foreign market to think that there would be no risks. According to the Japan Oil & Gas Report Q2 2011 some of the weaknesses associated with the Japanese market would be: * The economy is hampered by excessive regulations, state interventionism and a desire to protect politically influential special interest groups, all of which increase business costs. * Japan’s population is shrinking, and it has one of the highest proportion of citizens over aged over 65 among the developed economies, placing a large funding burden on the pension system (SWOT Analysis).
These weaknesses are very unique to Japan, and could be turned around with the right target market. Creating a business which is targeted towards the elderly would be fantastic in a community with the highest number of individuals over the age of 65. Regulations and rules are not necessarily a bad thing, but tend to be really time consuming. In addition to the weaknesses are threats. Threats will occur in any market, and it is imperative to protect oneself from as many threats as possible. Some of the threats outlined in the report are as follows: * Japan will remain dependent on exports as a driver of growth, and this means that its prosperity is dependent on demand from the US and increasingly China. * Japan must act quickly to reduce its fiscal deficit and national debt burden, the latter of which is already in the region of 200% of GDP. Debt servicing costs now constitute 25% of the annual budget (SWOT Analysis).
There are many threats that are specific to this region as well not outlined here. Japan of course has environmental threats that are unique it its island location on the Ring of Fire. In addition to that, there are also cyber-threats. Due to close vicinity to North Korea, this is extremely threatening and it is imperative to have as much knowledge as possible to protect oneself against cyber-threats.
Cyber-Threats
As of 1972 computers communicated through a total of 25 separate sites, most of them being university or military, today however, the number of sites which computers are able to communicate through is nearly 100 million (Hensgen, 2003, p. 53). Technology has come a long way in the past 40 years, and with the ever changing technology there is unfortunately also a shift in crime. Before this digital era, there was terrorism which was defined by the United States State Department as “violence against noncombatants for the purpose of influencing public opinion” (Prichard, 2004, p. 279). Now, with these electronic advances, there is the concept of cyber-terrorism, and it causes much fear among high functioning societies that rely on digital equipment such as computers to function. Cyber-terrorism consists of “politically motivated attacks in cyberspace. These attacks are intended to cause grave harm, such as loss of life or severe economic damage. Often the term ‘weapons of mass disruption’ is used in describing these potential computer-based threats” (Prichard, 2004, p.).
In a survey performed by the FBI and the Computer Security Institute, it was found that cyber-attacks on average cause a loss of about $2 million (Hensgen, 2003, p. 54). If a terroristic organization were to target the financial institutions of a country, it could severely debilitate the country if not completely destroy its economy. Cyber-terrorism, if used in conjunction with terrorism could wreak even more havoc among nations. Between 1996 and 2001 The State Department reported nearly 2000 terrorist attacks worldwide. Over 300 individuals were killed as a result of terrorist attacks during this time, of course shortly thereafter in 2001 was the attack on the World Trade Centers which ended over 3,000 lives, and caused billions of dollars worth of damage (Lewis, 2003, p. 35). Now imagine how much worse it could have been if done in conjunction with a cyber attack which debilitated the emergency response in the New York City area, or if the Airport flight systems were infiltrated to cause planes to land on runways before they were supposed to? The resulting deaths would have been exponentially worse than they were. In order to protect oneself against these cyber-crimes it is essential to establish a very strong network security. Monitoring of all computer networks is essential to make sure that there is no breach of the network. An IT specialist is essential in any company which stores data on a network, or uses computers for any of their day to day business. V. Reducing the Risk
To all these threats there are many ways to reduce the risks associated with them. As mentioned before having an IT specialist monitor all networks, and make sure there is protection on the network will protect against cyber-crimes. By participating in the earthquake drills, and knowing the closest location to go to in case of tsunami protection against nature is the best it can be. To protect a company against the rules and regulations, it is imperative to first know the rules.
“Japan has a number of laws pertaining to labor and the protection of workers. These include: the Labor Standards Law which sets forth the minimum standards on working conditions; the Industrial Safety and Health Law which sets forth the minimum standards on working conditions regarding health and safety; and the Minimum Wage Law. These laws apply in principle to all enterprises in Japan, regardless of whether the employer is Japanese or foreign, or the company is a foreign or Japanese-registered corporation. They also apply to foreign workers in Japan provided that the foreign workers meet the definition of workers under these laws” (JETRO). It is required that employees get paid at least once per month, and not be paid any less than minimum wage which tends to differ from city to city. For example, in Tokyo minimum wage is 821 yen per hour (JETRO). For companies that employ more than 10 employees, it is required that the company submits work rules to the Labor Standards Inspection Office. The rules must include break times, start and finish times, payment methods, and information pertaining to termination of employment (JETRO). All of these things ensure that a company is treating its employees fair, and by abiding them all the company is reducing the risk of not meeting regulations. Another important part of the Japanese workforce is the presence of unions in the workplace. Although over the past few years membership in Japanese unions has been decreasing, the larger the company the higher likelihood of a union; approximately half of all companies with more than 1,000 employees are unionized while only 14% of companies with less than 1,000 employees are unionized (JETCO). VI. Conclusion
Despite the high debt that Japan is in, and the susceptibility to natural disasters, Japan is still seen as a beneficial market to be in. Japan has numerous strengths and opportunities when it comes to opening businesses in the market. With all the risks associated with the market, there are also ways to reduce those risks and create a corporation that could be very profitable. By opening a business in Japan, other markets would also open up to the corporation such as India and China which are both key traders with Japan. Japan can be seen as a gateway to many other countries. By dissecting the business forecast in the coastal country of Japan, it has become apparent that the positives of opening a business in this location would outweigh the negatives with proper preparation.

VII. Bibliography
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Theroux, P. (2011). Nightmare and Defiance. Newsweek (Pacific Edition), 157(14), 3. Retrieved from EBSCOhost.