Summary of Casebook on Investment Alliances with Japanese Companies

April, 2015 Ministry of Economy, Trade and Industry in Japan

The number of investment alliances formed between foreign and Japanese companies have increased over the last 30 years.

Number of inbound cross-border investment alliances formed in Japan (10-year increments) *

287

1,369

1,729

0

500

1,000

1,500

2,000

1985-1994 1995-2004 2005-2014

x6.0

International comparison of FDI returns rate*

Note: Low rate of ROI in 2010 can be attributed to economic circumstances such as fluctuation of exchange rates and drop in oil price etc., led to declining profitability of companies.

Long-term trends

The number of investment alliances formed between foreign and Japanese companies have increased and its profitability is high compare to investment in other major developed countries.

High profitability of investment alliance with Japanese companies

Sources: *Based on data from RECOF Data "2014 M&A Report”.

Sources： *METI White Paper on International Economy and Trade 2012” (1990-2010), JETRO’s " Global Trade and Investment Report 2014” (2013). Rate of FDI return was calculated by FDI income payments/FDI.

Inward investment to Japan from foreign companies experiences higher levels of profitability compared to investment in other major developed countries.

Num

ber o

f alli

ance

s fo

rmed

Japan 7.5%

5.2%

9.3%

2.7%

7.1%

South Korea

Germany

US 0%

5%

10%

1990 1995 2000 2005 2010 2013

1

Investment alliance merits

Investment alliance merits for foreign companies identified through interviews and case-studies have been categorized into the sales channels, product/service line-up and brand.

Note: The merits gained by investing (foreign) parties counted. (Multiple answers for each cases counted)

53 Investment alliances cases interviewed in this report have generated the following merits for foreign companies.

Investment Alliance Merits

Access to customer base in Japan

48 Large matured market with over 120 million inhabitants and 10th most populous in the world

3 Japanese companies rank among the top 10 companies in the world in terms of the number of internationally filed patents, that ranks among the highest number

Product / service diversification

31

Brand acquisition 28

Comprehension of business customs

26

Acquisition of talent and technology

16

Access to customer base in Asia

15

Operation Improvement 15

7 Japanese-based companies are ranked in the top 100 companies in terms of brand power, that ranks among the highest number in Asia

Acquire different characteristics of business customs in each region of Japan in order to communicate with local companies smoothly

Leading nation in Asia in terms of innovation and has an appropriate environment for that purpose

The largest origin of FDI for Asia, which has over 30% of all investments in the region from 2003 to 2013

The TFP (total factor productivity) of Japanese companies of machinery industry rates 114.1 of that of US companies

Characteristics of Japan

2

Foreign companies acquired various resources such as sales channels and talents through investment alliances with Japanese companies.

Case study on acquisition of sales channel

Case study on acquisition of talent and skill

2013 world-wide market share of semiconductor packaging and testing*

0%

5%

10%

15%

20%

25%

30%

35%

Amkor: 12.0% share (2nd)

JD: 3.2% share (7th)

Data Source: *Gartner market share analysis: Semiconductor packaging and test services, worldwide, April 2014

Name: Lupin Ltd. (India) Business :Research & development and production of branded and generic medicines

Name: Amkor Technology (USA) Business: Outsourced semiconductor assembly and test services

• Amkor Technology (hereafter “Amkor”) considers its expansion in Japanese market by identifying complementary strengths and capabilities with their investment alliance partner and chart a strategy for combined growth.

• Amkor had been approached by a large Japanese electronics Company A to purchase its assembly plant, and in 2010, Amkor was proposed to invest to J-Device (hereafter “JD”), a supplier to Company A.

• Amkor gained JD’s customer base, so its market share of semiconductor packaging and testing reached over 15% globally in 2013. Amkor also acquired JD’s capabilities and experiences especially for automotive area.

• JD’s manufacturing experts were seconded to run Amkor’s factories in the Philippines, as Amkor wished to upgrade the output quality of its factories by utilizing the operational know-how of JD.

• Lupin Ltd (hereafter “Lupin”) identified Japan as one of the key potential growth markets that it would seek to enter given the fact that Japan was the 2nd largest pharmaceutical market in the world.

• Lupin made a partner contract for manufacturing and joint R&D with Kyowa in 2005. After further cultivated mutual trust by joint R&D, Lupin proposed the investment matters.

• The technological expertise of Lupin and Kyowa has been merged, and R&D and manufacturing processes are conducted in both India and Japan at Kyowa's facilities to optimize resource allocation.

• Lupin was able to become better aware of Japan’s style of business communication and achieved double digit CAGR of 11% in the last 5 years. Lupin-Kyowa alliance is now one of the most profitable generics businesses in Japan.

Kyowa’s sales growth (2008-2014)

Data Source: *Lupin’s financial results

3

4

Case study on acquisition of technology

Case study on acquisition of brand

Kilang’s motocycle chain

Foreign companies acquired various resources such as technology and brand through investment alliances with Japanese companies.

• Compass Group PLC (hereafter “Compass”), is one of the largest companies offers contract catering and facilities management services. Compass favors an investment alliance to rapidly expand its global business. Also, investment alliances enables Compass to diversify and enter new business segments.

• Japan has a sizable foodservice market, which is ranked as one of the top ten markets worldwide. As the market is fragmented in Japan, Compass has been utilizing investment alliances formed with more than 10 companies in the past 10 years.

• Compass acquired new business opportunities through existing connections of Chiyoda and Polestar, in particular from group companies of Chiyoda’s parent company.

• Compass acquired Polestar’s brand name, which was an established brand of restaurant located in center of Tokyo.

• RK EXCEL, a Japanese motorcycle chains manufacturer, its business consisted of chain and rims but RK EXCEL wanted to sell its chain business. RK EXCEL was then split into two separate entities; with half the company forming “RK Japan co. ltd.”, taking over the chain business. Kilang Rantai (hereafter “Kilang”) acquired 90% of RK Japan’s stock in this investment alliance.

• Kilang acquired RK EXCEL’s motorcycle chain technology and is now performing R&D in Japan

• Kilang acquired RK EXCEL’s sales channels in Japan, which contributed to sales growth in Japan by 20%.

• Gained RK EXCEL’s brand recognition, which is renowned around the world. Also, RK EXCEL’s standard motorcycle chains products, other than Japan’s latest models, can be exported to other countries as competitive products.

Name: Kilang Rantai (Malaysia) Business: Manufacturing of motorcycle chains

Name: Compass Group PLC (UK) Business: Food service and support services

Compass Group (Japan)

Eurest Japan

Eishoku M

DX

Com

pass Kyushu

Marunouchi P

olestar

Chiyoda K

yushoku Service

MFS

Sun Food

Fuyo

Nihon K

yushoku Serivce

Sun Food Tokai

2002-2003 2011-2012

A group companies of Compass in Japan, acquired by investment alliances (through 2002-2012)

JETRO IBSC (International Business Support Center)

Tokyo +81-3-3582-4684 Yokohama +81-45-222-8911 Nagoya +81-52-589-6211 Osaka +81-6-4705-8660 Kobe +81-78-252-7505 Fukuoka +81-92-741-5718 invest-japan@jetrogo.jp

American Chamber of Commerce in Japan

Tokyo +81-3-3433-5381 info@accj.or.jp

Osaka +81-6-6345-9880 kansai@accj.or.jp

Nagoya +81-52-229-1525 chubu@accj.or.jp

European Business Council in Japan +81-3-3263-6222 ebc@gol.com

General information

Foreign chamber of

commerce in Japan

Contact address on investment alliance

The main article of “Casebook on Investment Alliances with Japanese Companies” includes the contents such as: The advantages of investing in Japan Details of merits and success factors of investment alliances 45 success cases of foreign companies’ investment alliances To see the casebook, please visit METI’s website: http://www.meti.go.jp/english/policy/external_economy/investment/casebook.html

Ministry of Economy, Trade and Industry +81-3-3501-1662

This Casebook