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Tuesday, Nov. 27, 2012

EDITORIAL

Shoring up domestic business

Semiannual settlement of accounts of listed companies covering the April-September period shows that the slowdown of the world economy, the strong yen and the deterioration of relations between Japan and China due to the dispute over the Senkaku Islands have negatively affected their business performances.

It is believed that the total net profit of these companies declined about 30 percent from the same period in 2011.

An increasing number of enterprises that heavily rely on exports to China expect that they will suffer losses or a big declines in profit in the business year ending March 31, 2013. This underlines the need for companies that are expanding their business overseas to prepare for risks from a change in the political situation, language barriers, local people's sentiments and local security situations.

Other factors that contributed to difficult performances by listed companies included a large deficit experienced by power companies, which are paying more to import fuel for thermal power plants that have been brought online to substitute for shuttered nuclear power plants, as well as miserable performances by electronic makers that played second fiddle to rival foreign companies. In the half-year period, Panasonic suffered a consolidated loss of ¥685.1 billion and Sharp a consolidated loss of ¥387.5 billion — both record figures.

Enterprises that expanded their activities abroad have also been hurt by such factors as the sluggish economy in Europe due to the sovereign debt crisis over there and long-lasting floods in Thailand.

Furthermore, due to the diplomatic crisis between Japan and China Japanese carmakers have felt the effect of boycotts by Chinese consumers. Sales in China in October by Toyota and Nissan fell more than 40 percent, and those by Honda more than 50 percent from October 2011. If the freeze in Japan-China relations continues much longer, there is the possibility that Japanese carmakers will lose ground in China to foreign rivals.

It is hoped that Japanese enterprises will get a head start in hopeful markets of emerging economies and develop products attractive to the swelling middle-class in those economies. By taking advantage of the strong yen, an increasing number of Japanese companies are buying overseas businesses. But it is important to work out careful strategies regarding the kinds of companies and technologies they should acquire.

If domestic demand from reconstruction projects in the areas hit by the 3/11 disasters loses steam, corporate business results may decline further. Companies should scour the domestic market for new business opportunities. If they succeed in developing new products and services that attract consumers, it will help pull the Japanese economy out of its long-term state of deflation.

Since companies oriented toward the domestic market cannot count on strong government fiscal measures to shore up the economy, they must strive all the more to convince consumers to loosen their purse strings .



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