Monday, Jul 24, 2017
Industry & Trade | Asia-Pacific | Japan

Fuyo General Lease

‘For a company, diversification is the engine for growth’


3 weeks ago

Mr.Yasunori Tsujita, President & CEO of Fuyo General Lease
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Mr.Yasunori Tsujita

President & CEO of Fuyo General Lease

With 12 major subsidiaries, Fuyo General Lease (FGL) is a diversified Japanese company involved in the leasing of office, IT and industrial equipment, as well as the real estate and financial services sectors. President and CEO, Yasunori Tsujita, sits down with The Worldfolio to discuss his views on the success of Abenomics, the real estate business in Japan, renewable energy, and FGL’s expansion plans in the US

With 12 major subsidiaries, Fuyo General Lease (FGL) is a diversified Japanese company involved in the leasing of office, IT and industrial equipment, as well as the real estate and financial services sectors. President and CEO, Yasunori Tsujita, sits down with The Worldfolio to discuss his views on the success of Abenomics, the real estate business in Japan, renewable energy, and FGL’s expansion plans in the US

Japan is growing at a 2.2% growth rate, which is way above the prediction. This indicates one important thing – Abenomics is working. However, in order to achieve sustainable growth for the future, there are still some structural reforms that the government will need to push forward. How important will these structural reforms be in terms of increasing Japan’s competitiveness?

Starting from a more general overview; prior to the Abe administration, the government and ministers used to alter every single year, and there was a common joke that they never lasted long enough for us to see their faces. Since Prime Minister Abe assumed power and enacted Abenomics, he has been able to maintain his party for quite a long time compared to previous administrations. In fact, it was the first time for a Prime Minister to present this kind of growth strategy, and he has been travelling around the world to communicate and educate his policies. In Japan, we have not experienced that before.

My personal opinion is that the biggest achievement of Abenomics is that it is presenting a vision for the future, which has affected CEOs to also plan for more long-term achievements and goals. It has also had an effect on the globalization of our country and on companies, and I believe that is one of the main reasons why our economy has been revitalized. However, I do feel that the fiscal and monetary policies have been rather slow in their enactment. Recently, Mr. Abe has also presented a new strategy concerning how to change the mindset of working; changing the work life and how to nurture children, which I believe will make a big difference, although it will take time to implement this new mindset.

Regarding the mid-term vision, with the 2020 Tokyo Olympics and the growth in South-East Asia, there will be increasing demands for Japan to present sustainable infrastructure solutions, and there will be a need in the future for these kinds of policies that can connect the dots.

This morning, I was visiting Tokyo Engineering University, to see their president, Mr. Mishima. Tokyo Engineering University is a very prestigious university here in Japan; comparable to MIT in the US. Japan is second to the US in the world to receive the Nobel Prize, and Mr. Ozumi, who is one of the awardees, went to this university. Mr. Mishima and I were discussing general studies and its development in Japan and how to create business through it, which is something we are supporting. I am very optimistic about the Japanese economy being revitalized even more through these efforts in the future.

 

It seems as if investors are not grasping to a full extent that Japan is involved in many projects around the world at the moment; investing in Japan means investing in the development of South East Asia; it means investing in the development of Latin America and even Africa; it means investing in the Tokyo 2020 Olympics and everything that comes with it. As a company that is involved in almost all of these developments through the companies you are working with, what are your expectations for Japan’s growth from here to 2020 and in terms of Japan taking international leadership?

Considering the characteristics of the Japanese citizen, we have never demonstrated explicit leadership. However, Prime Minister Abe has claimed that even though the US may not be participating in the TPP, Japan can represent the leadership in Asia. In terms of that, I do believe Japan is becoming more assertive internationally and I believe this is a development that will increase gradually.

 

The leasing business in Japan has been quite stagnant domestically due to the demographic challenges, whereas internationally, the business continues to grow. Fuyo Lease has managed to keep growing domestically despite these challenges, and found ways to add value for investors. Could you outline your perspective on the leasing business in Japan? What are your objectives, and where is this sector going?

After the Lehman shock, a lot of financial institutions were struggling due to the vigorous regulations. This included the banks as well, and the realm of what the banks were allowed to do was very restricted, and due to this, they could not grow their profits. In 2004, we were listed in the stock market, and that was the year where we broke from being a subsidiary of the Mizuho bank and became fully responsible for the realm of operations we engaged in. The reason why the major leasing corporations have been successful in recent years is because they have been able to operate their businesses outside the scope of the laws of the banks.

Regarding our objectives, I would like to mention three points. First of all, in terms of our real estate business; the contract volume doubled year on year for the last two years. Since banks are not legally allowed to own real estate, we have the full ownership and responsibility of the real estate, and I believe that is one of the highlights of our company and its profitability. In terms of the asset side of Japanese companies, they have a lot of ownership of real estate, and since companies in Japan are now requested by the corporate governance and stewardship codes to increase the ROE, not only having the real estate business but also being able to add value to shareholders is responsive. That is one of the reasons why we have been able to get a high number of clients.

The second point is the energy business. The reduction of CO2 and the carbon footprint is discussed on a global level, and is very important for the growth of the Japanese economy as well. Considering the disaster in 2011 with the Fukushima nuclear meltdown, Japanese people are very diligent with the environmental matter and therefore it is important to find ways to produce clean energy and develop eco-friendly products. In terms of our company, we are involved in the solar energy production, but I would also like to highlight the energy saving business we do. Within the energy sector, we choose the best mix between oil, gas and electricity and engage in how to utilize it as an eco-friendly corporate activity. We have a very amicable relationship with the consulting firms dealing in this area. When we partner with the consultancy firms for a project such as establishing a factory for instance, we have to think about how to establish the facility in the most cost-efficient way and how it can be operated in the most efficient way, so our role is to identify what kind of machine is needed to reach this efficiency and how to lease it. There is a lot of money involved in these kinds of operations. I would love to share what company we are currently collaborating with as it is a very big name, but unfortunately it is confidential.

The third point is the medical and nursing market. In Japan, this is a market that will grow tremendously within the upcoming years due to the demographics, and it is a market that normally does not acquire equipment; it is shared within the market. In that sense, leasing or renting the equipment works very well with that concept. I want to emphasize that the three business points I have mentioned are all areas that the banks cannot touch.

 

Abenomics has brought about a change in mindset in terms of the way of doing business and being entrepreneurial, especially for small- and medium-sized companies that are now aiming to go big, which, in the 21st century, is not about buying/investing and losing their liquidity. They are trying to stay liquid in order to respond quicker to changes. How is FGL having a more flexible approach in order to cater to the new needs of Japanese companies?

Indeed; looking at foreign companies such as Uber and Airbnb that have tried to set up business in Japan, they have not been doing very well. There is still a perception abroad about the Japanese rigidness, and I personally agree with that image. That is why companies need to start thinking more about whether their equipment should be acquired or leased. Also, another change is that the consumers are becoming younger, and there has been a diversification of values. For instance, when I was young and people got their driver’s license, they would directly go and acquire a car. Now, however, many young people would not buy a car just because they have their license. They would go to a specific destination by plane and rent a car there on the spot, so the consumer’s values have changed dramatically over the recent years.

As a president, when I enter a discussion or do a speech, I always use the sentence, “for a company, diversification is the engine for growth”. As a president of the company, I do not believe it is the president’s role to push his or her opinion onto the employees, but rather valuing the diversifications of thoughts and ideologies. As well, our clients are

becoming younger and more entrepreneurial, which is why I believe it is even more important to value the ideas and opinions of the employees to a larger extent. In terms of the difficulties in changing the mindset of the Japanese people, I am not very pessimistic – I am quite optimistic, in fact.

 

In terms of the nursing and medical sector, one of the main problems is that the equipment –X rays, dialysis, ultrasounds etc. – is very expensive. The leasing business will help to make this technology affordable and available to people. How do you believe that FGL with its expertise will be able to contribute to reshaping this sector and make the newest technology available to people?

CTs, MRIs and X-rays are all very expensive types of equipment, however, the longevity is very good. For instance, the university hospitals have access to cutting-edge machines, and have the availability to stay up-to-date with the newest technology at all times, and in terms of that, we believe there is a possibility to create a “second-hand” market where we can take the equipment that is being frequently replaced, and utilize it in less populated regions of Japan that do not have the access to the newest technology. We believe this may be the solution to compressing the price range for those expensive machines and is something we are exploring.

 

Today, it seems as if any developed country is in a race of developing green energy and turning it into efficient energy. Investing in green energy such as solar panels, is investing not only in the environment but also in the development of technology. Japan is a country that has been synonymous with cutting-edge technology for a long time, and FGL is investing in the development and efficiency of this green energy. Do you see this as a venture that could be born in Japan, and bring profits and jobs to Japan, but also that can unlock this sector globally for FGL and the companies you are working with?

Many companies, especially within the manufacturing sector, have been promoting energy saving technology in Japan, and recently, there have been many electricity and gas companies facilitating this movement. Thinking about it, it is detrimental for those companies considering that recommending energy-saving technology results in less profitability for them. However, as we have come to this era of environmental focus, a lot of these companies have been putting in efforts to facilitate this movement. Combining the suppliers of electricity and gas with the manufacturers producing the machines and products, and adding a company like us providing the finance, results in three protagonists coming together to facilitate energy saving, and this can be applied not only in Japan but also be brought into countries that emits a lot of CO2. With Mr. Abe sharing those values internationally, I believe we can really make a difference, and there has been an increasing demand for those technologies internationally.

Prior to this era, the electricity companies were mainly focusing on cost-efficiency and how to produce more energy with cheaper ingredients, but now, they are facilitating the energy saving and introducing this to foreign countries. This movement is definitely an important shift from the prior situation.

 

In your mid-term management plan, there is a strong commitment to strengthening your presence in the US – not only through financing and leasing services to Japanese companies, but also to finding partnerships and establishing your brand. What is your strategy for growth internationally, and more specifically in the US?

Considering the fact that the US economy is very deep in core, I am expecting a lot from the it. Specifically looking into the financial market in the US, there are a lot of investors who are willing to take risks, and I believe that is one of the major differences from the Japanese market. As a person dealing with the financial sector, I really admire that mindset. In Japanese markets, there are not many investors who acquire equities, whereas in the US, it is the exact opposite. I would like for Japan to establish a similar culture.

One of the options that FGL is looking into is acquiring one of the leasing companies in the US. Currently we are partnering with a US leasing company and striving to acquire leasing assets of Japanese corporations, however as I know there will be a limit as to how far we can go in that area, we are also looking into the opportunity of acquiring leasing assets of non-Japanese local corporations.

 

Compared to the US stocks and equities, Japanese equivalents are at least 10% cheaper; almost 20% cheaper when compared with the Eurozone. The corporate governance codes have been put in place to lower the cross-sharing between the big companies, and the stewardship and GPIF strategies are all aiming to bring about a scenario where the Japanese market is more attractive to international investors. American investors are willing to take risks, but they need to see volume so that they can expect high growth. Do you believe that this is the best timing for the two markets to get closer to each other?

In terms of foreign investors that invest in our company, we do not want shareholders that are only looking for short-term profits, but with the new stewardship code that has been enacted, it has become possible to maintain long-term relations with the stakeholders and maximize the value for both sides. For FGL, if there are stakeholders that are willing to seek for longer relationships, we are indeed very happy and receptive. As well for us to invest in the US market, we have the same ideology and we look for partners sharing that mindset.


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