Industrials

Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

It seems that barely a week goes by these days without a titan of Japan Inc. falling on hard times.

Shareholders are gripped by a sense of dread that the great corporate leaders that helped build the world's third-largest economy are losing their grip. The fear is spreading to even the best-run companies. While those emotions are understandable, investors would be wise not to wallow in them.

You can feel the malaise in the deep bows of contrition from Takata Corp. executives this week following the announcement the firm had officially filed for bankruptcy after more than 80 years of trading that culminated in more than a dozen deaths and millions of vehicle recalls.

Lopsided Partnership
Nissan brings in almost twice Renault's annual revenue
Source: Bloomberg

It's the underlying bargaining chip in the ongoing tussle at Toshiba Corp., which is trying to keep the company's semiconductor unit out of foreign hands even as it's pushed to a sale in order to save its flailing 140-year-old business.

And it can be glimpsed in the hostile press dished out to Foxconn Technology Group founder Terry Gou, after he outbid the government for control of Sharp Corp. Nikkei, the unofficial mouthpiece of corporate Japan, described the Taiwanese executive as cocky, imperious and wilful, and likened him to a military warlord.

How the Mighty Have Fallen
Japan's electronics giants are a shadow of their former selves
Source: Bloomberg
Note: Figures denote companies' market capitalization.

Put Sharp next to the five other titans of Japan's once-storied electronics industry -- Hitachi Ltd., Fujitsu Ltd., Panasonic Corp., NEC Corp. and Sony Corp. -- and you get a combined market capitalization of 17 trillion yen ($152 billion). That's about half of what Samsung Electronics Co. alone is worth these days, and just 43 percent of the group's value at the turn of the century.

What's more surprising is the way that the same jitters have spread to the better parts of corporate Japan. Take Nissan Motor Co.: Despite posting a 15 percent jump in earnings, it faced similar angst from shareholders at its annual shareholder meeting Tuesday.

One employee took a day off to attend the gathering, needling his CEO about fears that Nissan's production in Japan is shrinking as the carmaker shifts to North America, China and Europe. It no longer feels like a Japanese company, but a wholly owned subsidiary of major shareholder Renault SA, the employee complained, repeating a long-standing gripe. "When I was a kid, all the taxis and buses were Nissan," another shareholder chimed in. "Now, they are Toyota."

Junior Partner
Though Renault has the upper hand in its alliance with Nissan, the Japanese company tends to provide the majority of Renault's own profits
Source: Company reports, Gadfly calculations
Note: Figures are for contributions to the group net income of Renault SA. Renault s.a.s. is the French manufacturing unit; Renault SA has a 44% stake in Nissan while Renault s.a.s. owns 37.25% of Avtovaz.

At the same time, Nissan's example illustrates why all the doom and gloom may be overdone. The company's stock price nowadays is almost three times the 400 yen level at which it accepted Renault's bailout in 1999. Nissan has provided the majority of Renault's own net income in 11 out of the last 15 years. If Nissan employees and shareholders are resentful about the relationship, it's because of weakness not in corporate Japan, but in corporate France.

Have a look at the country's Topix index and you can see further reason for optimism. For most of the past two decades, the legacy of Japan's 1990s economic crisis has kept things depressed. Returns on common equity averaged 4.4 percent through the 2000s, versus 12.1 percent for the S&P 500 and a remarkable 20 percent for the U.K.'s commodity-heavy FTSE 100.

Rich Pickings
The return on common equity of Japan's Topix index is better than its U.K. or German peers
Source: Bloomberg

There's improvement building, however. Returns are currently running at around 8.5 percent, approaching their best levels in a decade and outstripping both the FTSE 100 and Germany's broad HDAX index, which have traditionally outperformed the Topix. That suggests there's some real momentum behind the improvement in the Japanese economy, even as corporate governance reforms lag.

Japanese shareholders have endured a long night over the past three decades, but things are often darkest just before the dawn. Don't rule out the possibility that this sun could rise again.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Shelly Banjo in Hong Kong at sbanjo@bloomberg.net
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net