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Unlocking Japan's Tourism Potential by Leveraging Cultural Appeal and Weakened Yen

Interview - April 16, 2024

The interview encapsulates a dynamic discussion around the strategic positioning of Japanese companies in a rapidly evolving global economy. Emphasizing the need for diversification and adaptation, the conversation explores opportunities across various sectors, from high-tech niche markets to tourism and aviation.

SATORU TAKAHAMA, REPRESENTATIVE DIRECTOR & CEO OF JALUX INC.
SATORU TAKAHAMA | REPRESENTATIVE DIRECTOR & CEO OF JALUX INC.

Right now is a pivotal time for Japanese makers. Policies like the US Inflation Reduction Act are forcing corporations to diversify their supply chains for reliability and to reduce country risks, with nations such as China. Japan is known for its reliability, advanced technology, and a weak JPY, so for the time being Japan has never been a more cost-effective option. This means that Japanese firms have an opportunity to expand their existing global market shares. Do you agree with this sentiment, and in your opinion, what do you believe to be the advantages of Japanese companies in this current macroeconomic environment?

When it comes to the increasing competitiveness of the Asian region including China, it is difficult to see that Japan would be playing a role in terms of becoming the world’s factory or supplier. However, it is a different story when it comes to niche, highly technological areas where quality matters such as condensers, power semiconductors, electronic devices, and high-purity materials. We believe that in those markets Japan can play a leading role and have a high level of competitiveness on a global stage.

 

Japan’s tourism industry is also at a pivotal time, and once again due to the weakened JPY and tax reductions, Japan seems a very attractive destination for international travelers. Many of these tourists take advantage of the financial situation to bring back valuable and unique items from Japan to their home countries. What are your thoughts on this recent trend and what are some of the opportunities for your company to jump on this business chance?

Even before the COVID-19 pandemic hit in 2020 the Japanese government was expecting around 40 million inbound tourists, and even in a post-COVID world, I don’t feel that the weak JPY is the only factor driving inbound tourism. Regardless of the financial situation, there has always been an attraction to Japan from travelers looking for a unique destination. This attraction factor together with the Tokyo 2020 Olympic Games brought greater awareness to the Japanese spirit of omotenashi, a word that represents the Japanese mindset of hospitality centering around care rather than expectation. This is something that has spread around the world and has since become an attractive element of Japan.

Let me give you another example. In France, the idea of judo tourism has started to gain popularity, and thus we have judo practitioners wanting to come to Japan to experience and understand the cultural elements involved with judo. We have French people coming here and they want to understand how to make tatami mats for example; elements that are in the periphery of the actual sport itself.

Japan has always been an attractive destination not only in the West in places like North America and Europe but also in Southeast Asia. There are still so many elements about Japan that pique people’s curiosity; unknown elements that are very unique to Japan and cannot be found anywhere else.

I think another key factor is the idea that most tourists who come to Japan leave having a good impression of their time here. Overall, I don’t think there are many bad or negative impressions of Japan. All of these elements together accelerate the inbound tourism we’re experiencing now.

In terms of how this connects to business opportunities for our company, there are also lots of tourists who have visited Japan on several occasions and are now looking for interesting areas beyond the most popular destinations. One example of this is Australian tourists coming to Japan to ski. Some of those tourists have now come several times and already visited Niseko, one of the most popular skiing destinations, but are now more interested in alpine, cross-country, and backcountry skiing instead. They are venturing beyond the regular Niseko route; to mountains that are more remote such as Mount Asahi-dake which is near Asahikawa. In order to accommodate such tourists, there are flight routes from Australia. With that comes supplementary businesses that come about like resort hotels, restaurants, and accommodation facilities. Our business opportunities there would be to provide food products and beverages to these accommodations. In this way, we can expand our portfolio.

 

One of the biggest trends happening in Japan right now is, of course, the changing demographic situation. Japan is the oldest society in the world with a rapidly declining population. Experts are predicting that the population will drop to under 100 million by 2050, with one in three people over the age of 65. This is causing several issues including a labor crisis and a shrinking domestic market. Having said this, what is your firm doing to ensure business continuity and to what extent do you believe you need to look overseas to ensure long-term success?

One thing I think you need to consider is the fact that this decline in the market as a whole is something that has been impacting the rural areas of Japan in a very severe way. It has created a dangerous and precarious situation. To one extent we can focus on rural development and ensure that rural markets sustain their business, and this approach has been certainly key to our company. This is especially true with logistics, with a particular focus being placed on creating supply routes from rural areas to Tokyo and other metropolitan areas of Japan. If we can create more sales channels and distribution routes from rural areas we could support the marketing and sales potential of these rural areas.  

There are a lot of elements and good quality products being produced in rural areas of Japan that are not yet known to those living in metropolitan areas such as Tokyo. We can help funnel these goods and have them widely recognized and sold in concentrated metropolitan areas as well as export these goods overseas.

This connects with your question regarding the demographics, and something we are considering is the extent to which we’re able to help bolster human resource issues with policies. Up until now, the retirement age, in general, has been 60 but there are some actions about policies changing to enable those beyond that age to continue working if they are physically capable and willing.

Another key point is making more friendly and accessible workplaces as well as recruiting foreign staff. These are elements on a governmental level that are in play to support the shrinking labor force.

When it comes to our company specifically, as a whole we are introducing digitalization and utilizing digital technologies such as AI and automation machinery to reduce the workload and replace manual jobs that can be done by machines. I think that across Japan many companies are taking a similar approach to mitigating the damage that potentially could be caused by this demographic shift. The key to being able to implement these initiatives and ideas however has to come through the development of a flexible and agile management style, one that accelerates responses to meet current trends.

 

How are you able to utilize your position within the Japan Airlines Group to create effective synergies?

The Japan Airlines (JAL) group as a whole is contributing and reinforcing the initiatives involving the rural areas I’ve mentioned as well as strengthening their sales abilities in the centralized areas where there are more consumers. Oftentimes rural areas produce products that are not well known in metropolitan areas, and that is because these rural areas do not have the greatest marketing and sales capacity. This is where we can come in to help them market and sell their products, increasing their capabilities and utilizing the JAL resources that they have to their best potential.

Let’s take Hokkaido as an example, an area known for seafood products. We can utilize a channel that has shellfish delivered fresh the same day via JAL plane’s air cargo to different high-end supermarkets in Tokyo. Of course, this is costly, but thanks to our group we can deliver this raw shellfish that is freshly caught to supermarkets the same day with a JAL seal saying “Freshly delivered from the sky.” Some of these planes have space on them so we are utilizing that space to deliver those products to the consumers. This process is enabling Tokyo consumers to have a better understanding of great products that come from more remote areas such as Hokkaido.

You might be aware of many of the Japanese confectioneries available around the country, and each region has unique and special products. Since these confectioneries, pastries, and Japanese desserts are so unique it is something that we are also exporting overseas. Unfortunately, we haven’t necessarily tapped the European market yet but we have 10 shops centered in North America and also are exporting to various countries in Asia, catering to that market demand for uniquely special Japanese confectioneries.

Our company has four major segments, so the segment I just spoke on was our food and beverage business. Another segment that is tied to our relationship with the JAL group is our aviation and airport business which we are seeing rapid recovery from the devastating effects of the COVID-19 pandemic.

 

Could you tell us more about your airport and aviation business?

With regards to our airport and aviation business, we do believe that we have a number of services that we can export overseas based on utilizing AI technology, with an emphasis on catering these services towards airports of emerging countries such as ASEAN countries. This is where we see the greatest growth potential for the business. The thought is that we can export steadily accumulated know-how and services that we have been able to develop through our business domestically. This is all in the pursuit of satisfying high-level customers and creating new business opportunities for our company.

Our business portfolio includes duty-free and non-duty-free shops that are in not only international airports but also domestic airports. If you go to an airport in Japan you will see our souvenir kiosk shops. It was in October 2023 that we changed the brand name of these airport shops to JAL PLAZA, formerly named BLUE SKY which was used for almost 60 years. In addition to this, duty-free shops are labeled JAL DUTY FREE in Japan and JALUX DUTY FREE overseas. Aside from our domestic business, we are also opening these duty-free shops in overseas airports in Laos and Vietnam.

I think that a key is that we have been able to make use of the high level of expertise that we’ve developed as part of the JAL Group, rolling out our experience in duty-free and other airport-related services. And we are also involved in overseas airport business development; now in Laos, Myanmar, and Mongolia.


The duty-free shops in Laos


Domestically, we take care of airport delivery services, the logistic businesses that are at airports, and sending luggage and goods from/to the airport. This is something we are doing as our subsidiary company called JAL ABC, Inc.

To be honest, post-COVID-19 we have seen significant recovery, and even with the airline companies, we are seeing higher levels of demand for engine repair. You might know that during COVID-19 many of the Japanese companies did not lay off their staffs, a stark difference to some other countries. That has been affecting a lot of airplane services, and companies that require engine overhaul, maintenance, and repair all suffer greatly due to a lack of manpower in the course of recovery. However, since Japanese companies did not lay off staff, a lot of companies now rely on Japanese manpower. Also, globally there is a deficiency in the supply of engine parts and components for airplanes. To find a way to overcome this deficit in procurement, what is needed is the shortening of turnaround time for maintenance, overhaul, and repair services. It is now coming down to speed. We’ve developed a unique system to shorten the turnaround time for maintenance, overhaul, and repair. We believe that continual improvement in this regard such as developing systems is prominent to strengthen our company’s performance moving forward.

Second-hand parts have also seen a booming surge in recent times. There is a huge demand for second-hand parts. To get a solid hand into the second-hand engine parts and components market we are exploring options in buying used engines. These are engines of airplanes that are at the end of their life cycle so then we buy these used engines and begin to separate them into components and parts that can then be sold in the second-hand market. Even there, however, there is competition, so now we are seeing the leasing of engines while they are still in flight. You lease the engines beforehand while they’re still usable, and then at the end of their life cycle, you already have it.

I would now like to talk more about how we’ve been able to lessen the risk that we experience as a result of our focus on the aviation domain, which was hugely impacted during the COVID-19 pandemic. We tried to focus our energy on non-aviation domain in order to carve out new sales channels.

 

Can you go into more detail about these non-aviation sales channels you are exploring?

In an effort to diversify our portfolio and diversify our sales channels, we are looking at food and beverages as one key sector. Up until 2020 we had focused on food and beverages but that had been centered around an airport setting, so we looked at how to move beyond the airports. We’ve been looking to market Japan’s food and its culture such as quality  Japanese desserts and restaurants to the world. For example, from Kyushu, there is a specially seasoned spicy cod roe (mentaiko). Together with Kyushu-based Yamaya Communications, Inc., we’ve successfully launched restaurants in Thailand that serve tempura and spicy cod roe. Another unique restaurant that we’ve successfully exported to Thailand is a sushi delivery service called Gin no Sara.

Apart from food and beverages we also have our retail business. As we are a JAL group,  we have developed an e-commerce business targeting the JAL Mileage Bank members which is now a total of 30 million. We’ve started an online shopping mall called JAL Mall, and this includes the development and sales of JAL's original goods. All of these projects are major efforts our company is taking to lessen the risk of any impact that might come to the aviation and airport businesses directly. It is an effort to expand our businesses so that our sales and revenue are not fully reliant on whether planes can fly or not, something that became a necessity throughout the global pandemic.

We started up a three-year plan starting in the fiscal year 2023 so therefore we are already well underway in that plan. Now that we are entering the second year we can confidently tell you that we’ve done much better than we initially foresaw. The recovery of Japan post-COVID has been much better and performed much higher than we had expected. One of the factors to this was our expansion outside of traditional aviation businesses during the pandemic. Add to that the fact that the recovery of the aviation industry was much faster than expected and what you see as results are pleasing and impressive financial numbers. It was fortunate that the timing lined up and we were able to achieve such success. As a result, we believe that this year we will see the greatest financial growth in our company’s history, and moving to the fiscal year  2024 are expecting even greater results. We are even expecting to overshoot the objectives of  FY2024 that we set in our three-year mid-term plan.

When it comes to meeting the third year of the mid-term plan which is the fiscal year 2025, what is required is to conduct solid asset replacement. What I mean by that is that up until now we’ve been able to see these kinds of numbers because it is an extension of the existing businesses and existing assets that we already had. The record performances are just an extension of being able to maximize the assets of our existing businesses, but moving forward and meeting new objectives we’ve got to reassess the assets that we do have and replace them with new assets.

We have a very simple balance sheet with cash on one side and account receivables on the other side along with inventory. That’s it. Usually, when you look at the balance sheet of a Japanese trading company, especially of a Japanese general trading company, and look at the side of the assets there is a lot of investment there. Honestly, foreign investors find Japanese general trading companies difficult to understand since their balance sheets are extremely complicated. Last year we saw Warren Buffet making investments in Japanese trading companies and he said that they make great investments. We are not a traditional general trading company, rather we are a specialized trading company focused on aviation and airport, and up until recently we’ve had a huge reliance on the aviation and airport business. Moving forward however to continue to grow and build we need to create new assets. As a trading company it is often said that we are all about the people, the greatest asset of a trading company is their staff. In that sense, our greatest asset is our employees, so we are now focusing on the extent we’re able to develop the most wonderful environment for our staff to increase their morale, inspire them, and increase their motivation. With that in mind, we are also looking to improve our human resource policy as well as our work environment.

 

What approach has your company taken to promote sustainability and SDGs?

Another core element of our business is sustainability and innovation. There is an emphasis on improving administrative elements and business management through utilizing digitization initiatives.

The environment is very important to our core management strategy, so to this end, for example, we’ve partnered with a chemical manufacturing company called KANEKA CORPORATION to roll out biodegradable plastics and to develop products; one example is that we have replaced the shopping bag at our airport shops and food trays of JAL’s in-flight meals into the biodegradable plastic products.


Some of the biodegradable products offered by JALUX


Moreover, we are expanding various eco-friendly business ventures, which include rolling out Maruyama Ultra Fine Bubble generators in partnership with Maruyama Mfg. Co., Inc. and unique Aqua Patch road repair material in partnership with MAEDA Corporation. As a trading company, we have elected to partner with these different companies that have such wonderful technology and seek business expansion and marketing opportunities. With the MUFB generator, we were able to help the manufacturer apply it beyond their imagination, for example, to kitchen sinks in sushi restaurant chains, as well as washing toilets and motor vehicles since the technology has great washing and water-saving abilities.

In this way, we can work in a wide range of fields and therefore create new synergies and values while also bolstering our know-how and expertise. Doing so in my opinion contributes to the realization of the sustainable growth of our business and society. It isn’t easy to do it, but we can, and I believe that this is the key to moving forward right now. We do think that if we do see an opportunity to apply our know-how to a new area that has great growth potential then we would like to actively pursue that and invest. It is not completely impossible that we would begin to expand our business segments, especially when it comes to overseas business growth.

 

What role do partnerships or collaborations play in your business model and are you currently looking for any new partnerships in overseas markets?

When it comes to overseas growth other countries all have different cultural and legal frameworks. We believe that rather than doing business independently, the better approach would be to work with local partners to create synergies and mutual benefits. We are always actively looking for business opportunities in that simple way. The outlook we are taking is a very positive one. At the end of the day, all of these partnerships are about timing and if the conditions for both firms match at that moment in time.

In conclusion, we are looking to aviation airports, and food and beverage for our future growth. This will come about by leveraging our expertise and accumulated know-how in these areas. Emphasizing sustainability, human resources, and innovation as part of our core management strategy we are looking to continue to make business investments to build and drive our growth.

We import fresh marine products from Norway on the JAL flights, trade engine parts, manufacture and sell bento boxes, export Japanese confectioneries, and even real estate; these are all things we are exploring. Thus far our approach to these diversified businesses has been to enter the market and operate in a likewise manner, so if it is real estate we are working along the same levels as other real estate players, and likewise with bento boxes. We believe that if we want to grow in the future we need to once again look at our diverse portfolio and see what asset needs to be replaced, basically looking for where we need to select and concentrate our energy to reach the next level. 

I think at the end of the day when it comes to defining what exactly JALUX is, I would say that we are a specialized trading firm with a solid retail function, positioning close to the customers in the supply chain stream, which is our strength. We are a trading company with strength in “to function” to say it simply. Within that function, we just so happen to have those serendipitous business segments I explained today, but in a sense, we aren’t just limited to those areas. Whatever it is, if it is close to retail function then we would put our hands in it.


For more details, explore their website at https://www.jalux.com/

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