Which was Revealed: The cheapest cars to run.

Some interesting points there were Volkswagen was included in several sectors like medium car, people mover and sports class. The reason why was those VW cars have impressive mileage per gas ratio.

So, I looked up the source of the information and it was NRMA.
In this web page, I could find cost information for every car that’s being sold in Australia.

This is what I found. From NRMA data, I made a table which shows several cars and their Total Ownership Cost for 5year including opportunity cost(financial cost coming from purchase price difference) based on KIA as base cost.

Some interesting things here are;
1) Depreciation is the largest part of total ownership cost(TOC).  So, it’s good to buy cheaper car, which is obvious. In this sense, it’s good to go for a second hand car as I already did it.

2) Gas consumption ratio per kilometer is really matter. Based on the table above, TOC per week for Volkswagen Tiguan is same with that of Nissan Dualis, which is the car I’m running now. Tiguan is $5k more expensive than Dualis, but real cost per week is same. Why did I buy Dualis? I didn’t know the fact that I found today.

3) Honda CR-V has great reputation. So, it was my possible next car. But, I changed my mind due to high TOC, which is $5,152 expensive than Dualis  in terms of Final Cost / 5year.

4) X3 is kind of dream car to me and its energy efficiency is amazing. It’s fuel cost per week is only $27. But, due to the amazingly high purchase price, its weekly TOC is $270. The price of the car wins over energy efficiency, so the amazing energy efficiency is just perfect excuse for the rich who says “I bought it because its fuel consumption is only $27 per week”.

5) Consider the opportunity cost, which is the cost we lose when we spent more money for expensive car expecting better gas efficiency, cause the money we spent more at purchasing could have made interest if it had stayed in a bank account. For example, if I buy X3 rather than Dualis, I might think that the difference of purchasing price is $31,175, but TOC in 5year is $17,901, which good much better than $31,175. However, when considering opportunity cost, the difference of TOC in 5year increase to $25,695, meaning there is no reason to spend more money pursuing better gas efficiency if the purchasing price is too high.

Summing up,

It’s good to know the concept of TOC and opportunity cost so as to consume wisely and choose a car economically. Check real cost of your car at NRMA.

Yesterday was the 6th day in a row to ride bike in the morning.

Recently, I was feeling easy to tired and having gas in my stomach, hard to focus long enough when studying, etc. So, I was asking to my self that even though I’m just studying 4 subjects in a week that’s 12 hours and doing nothing, why I can’t exercise daily and feel bad.

I was hard to breed and felt some pain in my heart in first 2 days of riding, but I was OK after that. From 4th or 5th day, gas in my stomach disappear and I became easy to get up at the same time in the morning and very easy to get sleep and more.

Exercising everyday means hugh to 40s. I was doing regular exercise on and off in the past. Whenever I was exercising I could feel I’m getting better. But, it is so dramatic in this time.

Love to riding.

one is author of the best seller Getting Things Done, the other is the author of the best seller Be Excellent at Anything

- Be healthy(fitness, sleep, nutrition, and rest), cultivate positive thinking, and communicate it with others.

- Human being is not a machine, so need to be rhythmic. Focus on work and rest, not just to be sitting all day.

- Do important thing first in the morning.

- Dump idea out of head and externalise it. (the way of Get Thing Done(GTD))

- We are creatures of habit

- Break down big tasks and focus on smaller “next action”, which is manageable.

- Regularly review task list.

- Concentrate and finish one thing at a time

- Handle the distraction like e-mail, message, etc.

- Leader should be the chief energy officer

Summarised from HBR 2011.05

Go to the full story

The Mountain from TSO Photography on Vimeo.

World index, which represent global capital market, increased quite a lot, commodity index(CRB) as well.

The most dramatic increase was commodity index(CRB index). But, it was followed by strong AU$ relative to Korean Won. A big increase of CRB index make me scary in an expectation of following increase of AU$.

Even though commodity index increased a lot already, considering being late of commodity index relative to the world index, I might keep enjoying the rising of commodity a little more to go.

Here comes the latest strategic asset allocation model for the age under 40. Main investment target is Korea and Brazil and expected return of this model is 9.67% and volatility is 26.35%. Frankly, I’m following this model personally.

Another model is so called balance model, which might be suitable for around age 50. The expected return is 7.83% and volatility is 17.11%.

I believe the life cycle theory of investment is quite reliable to pursuit. That means the risk of the investment model should applied to according to the age. The aggressive model that I suggested is, I believe, suitable for anyone who is under 40. The reason is that until the age 40 investor still have on average 15 more years to work, meaning he/she can handle relatively higher volatility than the older.

Many countries and some organizations actually do a filtering with various purpose and certain extend.

For example, china is known to filter the internet for their political purpose, which is to hide any information that is opposing to the government. In this case, as a foreigner it’s hard to say though, political purpose means that the purpose is only for a certain group of people, not for all of citizen.

As a grown up human, we have ability to know what is good and what is bad among the information out of the internet. A government not need to make a decision on behalf of grown up citizen.
I saw many students talking about pornography. But, if a government found the website which is dealing with porn (it’s really easy to find these one by googling), the authority can raid on the website host and track the owner of the site. In this way, the porn site owner may be caught by policemen and be punished. This is the right way to block the inappropriate content creator on the internet.
Blocking the all the website which is possibly having an politically opposing contents or sexually inappropriate content might block innocent homepage. Moreover, in many cases back in the history, government did a bad thing and used media to cover it up. Censorship on the internet may easily be used for that purpose by any government.
For these reason, we have to be critical about filtering the web contents by any certain authority.

Abstract

Information and communication technology (ICT) in developing countries is suggested as an effective way to improve the population’s life and well-being. In particular, ICT applications on the education system might change the future of the underdeveloped world fundamentally through the connections to ‘the flat world’(Friedman 2005). However, there are some challenges which  the developing world faces when they adopt ICT in the education sector. These challenges are limitations on cost, internet access, trained staff and adequate policy. This report focuses on these hurdles and their corresponding solutions and includes practical examples from all around the world. Some criticism and considerations are also presented.

1. Introduction

People in this modern society are becoming more and more familiar with Information and Communication Technology (ICT). ICT refers to ‘the technology that enables communication and the electronic capture, processing, and transmission of Information’ (Parliamentary Office of Science and Technology 2006).  Some scholars (Oliveira 1989) argue that ICT is a formidable tool for developing countries to leap up to the economic level of developed nations. This leapfrogging might be accomplished by skipping a few steps that developed countries have gone through, so that developing countries close the economic gap more easily.

Technology enhanced education is generally perceived as a way to relieve poverty, social division and improve living standards due to the fact that technologies can deliver educational programs at a lower cost than traditional education systems. This technology-supported education system is cost-efficient, which is especially meaningful in countries with poor infrastructure (Oliveira 1989).

However, compared with developed countries, the use of ICT in education programs in developing nations is relatively limited, because underdeveloped countries face shortages of financial resources, limited internet access, a lack of trained teachers and the lack of proper policies (Gulati 2008; Kozma 1999; Oliveira 1989; Parliamentary Office of Science and Technology 2006).

This paper explains the concept of ‘the digital divide’ and focuses on the main challenges and solutions for implementing ICT in the education sector in underdeveloped world. The examples, which show how the solutions viably work in the real world, correspondingly examine each challenge they face. Some criticism and considerations for implementing ICT development follows.

2. The Digital Divide

Osterwalder(n.d.) introduces a useful framwork which divides ICT related capacity into three parts, those being infrastructure, sectoral applications and use of applications. The first part refers to the ability to provide and  maintain infrastructure, such as internet access at an affordable cost. Sectors to which ICT can be applied are those such as  education, health, business, governance, society and environment. The capacity related to these sectors is the creation and maintenance of useful content and applications. Use of application is linked to the capacity of the users to utilize those applications. Basically, all of these capacities are strongly related to human capacity because every ability explained in this framwork can be done by a human.

According to Osterwalder(n.d.), ICT is perceived as a prerequisite for development. However, when it comes to comparing the developing world with the developed world, there is also a huge gap in the usage of ICT between these two groups. This gap is referred to as ‘the Digital Divide’ (Parliamentary Office of Science and Technology 2006) and can be seen within a country and between countries. The ICT environment surrounding education in developed countries is relatively abundant. According to the research done by the Second Information Technology in Education Study(SITES), which is the project of the International Association for the Evaluation of Educational Achievement(IEA), the number of PCs in schools are increasing and access to the internet is easy in developed countries. Moreover, ICT is actively adapted in schooling to the extent that ICT changes pedagogical practice innovatively (Kozma 1999). In contrast, in underdeveloped countries, ICT infrastructure is weak and the internet access is limited. Supply of PC in school is much less than needed and trained person who can resolve computer literacy is also in serious shortage (Gulati 2008; Kozma 1999; Oliveira 1989).

The digital divide is mainly related to such factors as appropriate products, cost, education, literacy, human resources, and government regulations. To tackle the digital divide, carefully selected technology can be used. Open source software, which is basically free because its source code is open to the public, might be a good choice for the countries under financial pressure. Governments have a significant role in reducing the digital divide. They can cut the tax imposed on ICT related imports or liberalize the market for PCs, telecommunication and the internet business. These actions will result in a lower price of ICT related products and an increase in affordability. Industries also have a role in closing this division. Normally, industry works for profit, but corporations have a social responsibility to spend their resources on unprofitable but highly required areas and some of them are actively involved in addressing the digital divide (Parliamentary Office of Science and Technology 2006).

3. Challenges and Solutions to Implementing ICT in Developing Countries

Many researchers agree with the idea that ICT’s role is to be a reliable tool to improve the quality of life and this reduces the economic gap between developed and developing countries. Applying ICT to schooling is an urgent task for developing countries to implement (Parliamentary Office of Science and Technology 2006). However, there are challenges that the developing world is facing and these make the ‘Digital Divide’ continue not only between countries but also within countries (Parliamentary Office of Science and Technology 2006). The hurdles are mainly divided into four categories; a lack of financial resources, poor access to the internet, limited trained teachers, and lack of policy (Gulati 2008; Kozma 1999; Oliveira 1989; Parliamentary Office of Science and Technology 2006; Ruth & Shi 2001).

3.1. Financial issues

The first issue, which almost all developing countries face, is how to deal with the scarcity of financial resources (Oliveira 1989). Resources in the developing world are always scarce so that they have to be spent mostly on basic supplies such as food, housing and roads. In a sense, investing in ICT for schooling might be regarded as a long term issue which means adopting ICT in the education system is relatively not an urgent issue considering the serious poverty in many African countries. This results in a vicious circle between scarcity of funds and underdevelopedness. When it comes to the controversy of priority of investment between basic services and ICT, both might be linked in the case of education  (Parliamentary Office of Science and Technology 2006). One piece of good news about cost is the cost of hardware is decreasing rapidly. The price of PCs and peripherals is reduced to half of the original price every two years. Because of this, the salary of the IT professionals who can teach the new technology is the biggest burden on education budgets and it is followed by software related costs (Oliveira 1989).

Many world organizations such as the United Nations and other independent groups are working on projects to deal with the financial scarcity of developing countries. For example, the One Laptop Per Child(OLPC) Project at the Massachusetts Institute of Technology is working to deliver an affordable PC to  every child in the developing nations at low cost. This project is working together with corporates such as Google and Newscorp. They developed US$199 laptops and governments buy them to issue them to children who could not afford them, who are being educated in the public system (Parliamentary Office of Science and Technology 2006).

3.2. Limited internet access

Access to the internet is highly limited in remote areas, and relatively poor infrastructure in developing nations such as  supply of electricity makes this worse (Gulati 2008). Low infrastructure is the fundamental problem for developing countries to deal with and it might take a long time and huge funding to improve. Low literacy rates also hinder locals in remote areas from accessing information through the internet and due to the dominance of English on the internet, non-English speaking local people are isolated from the benefits of using internet (Parliamentary Office of Science and Technology 2006).

To address these limitations, correspondence courses can be applied (Ruth & Shi 2001).  Typical correspondence courses mainly use the printed study materials and exchange assignments between students and tutors through the postal service, so that the students living in poor countries do not need the internet service or computers, which is relatively expensive for them. Distance learning through broadcasting on TV might be another alternative for developing countries with limited intrnet access (Ruth & Shi 2001).

Kosma(1999) presents global scale movement, called World Links for Development (WorLD Program), which is lanched by the World Bank Institute aiming to link secondary school students and teachers for improving education. This program provides total support including interconnection, training, partnership, policy advice and evaluation. Uganda is the first country to apply  this program and it has spread to 26 countries resulting in better responses from both students and teachers. Teachers in this program used more email, bulletin boards and the internet in school than others who do not belong to WorLD program.

3.3. Lack of trained staff

Another challenge of developing nations to adopt ICT in education systems is a lack of trained teachers (Gulati 2008; Kozma 1999). When it comes to practically applying ICT, which is new to traditional teachers, many may not know how to deal with it and sometimes they are reluctant to accept new technologies in their classrooms. Thus, tutors who can train these teachers about new technology and IT professionals who can technically install and maintain the system are needed.

To address this issue, distance learning might be a useful alternative which is relatively affordable and does not require hiring of human resources in remote countries. However, due to the limited access to the internet, distance learning can   only be based on text books and possiblly satellite TV programs. This is not the case for the distance learning programs of many developed countries. For example, China adapted distance learning to cover its broad territory by slowly leveling up the applied technology from the TV-based to the internet-based depending on the region’s level of infrastructure development. This step-by-step approach was successful.

3.4. Lack of policy

Gulati (2008) argues that inappropriate policy and funding decisions may hinder equal educational development in some developing countries. He also asserts that elitism is the most common driver for improper policy. For example, India focuses mostly on the higher education system so the poor do not have enough opportunities to get adequate education even though there is certain technology-enhanced education such as satellite TV learning programs (Gulati 2008). Pressure from industry might be another source of improper policy (Oliveira 1989). Industry lobbyists distort the policy of ICT and education for the purpose of their favour.

The governments in developing nations need to liberalize markets and cut taxes on the ICT industries. For the reasonable and affordable pricing, market liberalization should be accomplished. Cutting taxes also help in increasing affordability resulting in  spreading ICT accessibility(Parliamentary Office of Science and Technology 2006). When it comes to policy advice, Gulati(2008) especially focuses on investing in infrastructure. These actions will help boost sustainable technology enhanced schooling.

4. Considerations

Although some argue that applying ICT will improve the quality of life in the developing world, critics question whether basic services such as clean water or libraries should be prioritized (Parliamentary Office of Science and Technology 2006). A delegate from an African country argued in a world meetng of the United Nations that clean water and schools are more important than ICT adoption such as OLPC program which cost US$199 per child constrasting the cost for buiding library, hosting 400 children, which is only US$2 per child.

Oliveira(1989) argues that given limited resources in developing nations, investment on ICT should consider cost and effectiveness so that policy makers can properly select the most effective parts out of many areas such as building library, improving teacher’s quality and adopting distance learning. The government  of developing nations also have to decide to what extent they will invest in ICT, because in some countries it requires only simple technology due to the low level infrastructure.  This means that developing countries should focus more on strategy than on products.

5. Conclusion

The role of ICT in developing countries is significant and critical for their rapid economic success which might lead to closing the gap between the developed and developing world. When implementing the ICT in the education sector, there are considerable challenges such as cost, internet access, training and policy issue. But, each issue has its own ways of addressing which is effective practice around world. However, all these changes for development through applying ICT to the education sector must consider the environment each country faces, because the situation of each nation is totally different from each other. It might be different from region to region within the country and it changes as time goes by.

References

Friedman, T. 2005, The World is Flat, Farrar, Straus and Giroux, New York.

Gulati, S. 2008, ‘Technology-enhanced learning in developing nations: A review’, International Review of Research in Open and Distance Learning, vol. 9, no.1, viewed 8 April 2010, http://www.distanceandaccesstoeducation.org/contents/IRRODL-Gulati.pdf.

Kozma, R. 1999, ‘ICT and educational reform in developing and developed countries’, Center for technology on learning: SRI International, CA, viewed 19 March 2010, http://web2.udg.es/tiec/orals/c17.pdf.

Oliveira, J. 1989, ‘Computer education in developing countries: Facing hard choices’, Education & Computing, vol.9, no. 2, pp. 301-311.

Osterwalder, A. n.d., ‘ICT in developing countries’, HEC, University of Lausanne.

Parliamentary Office of Science and Technology 2006, ‘ICT in developing countries’, Postnote, no.261, viewed 13 April 2010, http://www.parliament.uk/paliamentary_offices/post/pubs2006.cfm.

Ruth, S. & Shi, M. 2001, ‘Distance learning in developing countries: Is anyone measuring cost-benefits?’,  TechKnowLogia,  May/June, pp. 35-38.

The mass production of private cars allows cities to extend to rural area. Suburbanisation is accelerated by motorisation (Martin, 2007:5). As a result, a long distance from their living area to workplace drives people to use a car frequently for commuting, and excessive car use speeds up urban sprawl. This phenomenon is referred to as ‘motorised urban sprawl’ and it is a prime factor of various social and ecological problems. Firstly, social polarisation, which is inequality between the rich and the poor, is one of the major concerns of society. According to Martin (2007:10), the cost to buy a car will be an obstacle for the poor group, and it can separate them from the rich group who possesses private cars. As a consequence, the disadvantaged would live in grim condition, such as unhealthy, highly dense and heavy traffic city area (Martin, 2007:11)  Moreover, the downgrade of public transportation due to this ascendency of the car can be also a cause of inequality (Bullard and Johnson, citied in Martin, 2007:10). The handicapped and the aged also suffer disadvantage as it requires high skills to drive in the crowded inner city (Martin, 2007:10). Secondly, health issues are considerable. Research has found that sprawling communities, which highly depend on car use, bring lack of physical activities, resulting in obesity, diabetes and heart disease. The respiratory disease caused by bad air quality and injuries and fatalities by car accidents are also caused by the higher car reliance (The Ontario College of Family Physicians, 2005). Not only physical health, but also mental health is also threatened by isolation, which comes from long drive time alone, and road rage, which is from driving on congested roads. Finally, a number of environmental problems have emerged due to motorised urbanisation. Global warming is a significant environmental issue caused by high emissions of carbon dioxide from automobiles and lavish energy consumption of roomy houses on the urban fringes (Gonzalez, 2005). Motorisation also leads to farmland decline, natural resource degradation, especially forest and open space, and higher noise level (Martin, 2007:10). Above all, farmland decline would create a lack of food and increasing in-migration of workers to the city, so it could result in other social problems which are social fragmentation and segregation (Friedmann, cited in Martin, 2007:15).

To address these problems related to urbanisation, business groups, which are the WBCSD (World Business Council for Sustainable Development) and the ICC (International Chamber of Commerce), advocate ‘ecological modernisation’, being defined as the economic growth with environmental preservation, is necessary and it can be accomplished by technological innovation (Gonzalez, 2005). According to Gonzalez (2005), the main idea of the WBCDS, which is to solve the issues being faced, is reduction of greenhouse gas emissions via energy efficiency, sequestration of carbon dioxide and development of alternative energy resources through technological innovation without reduction of energy consumption. The ICC insists that development of technology to supply alternative or clean energy resources, such as clean coal, safer and advanced nuclear reactors, synthetic gasoline and diesel oil and carbon free alternative fuels, is the only way to decrease greenhouse gases which are vital reasons for global warming (Gonzalez, 2005). Research does show that increasing energy efficiency could reduce considerable quantity of greenhouse gas emissions and energy use (McKinsey & Company, citied in Cheeseman, 2009). Although there are solutions which depend on technology, they cannot adequately address the social and ecological problems resulting from motorised urban sprawl. Gonzalez (2005) criticised that business groups’ idea is ‘weak’ and ‘narrow’. They just shift the complications from one site to another without removal (Dryzek, citied in Gonzalez, 2005). Furthermore, both the WBCSD and the ICC consist of international business groups which have vested interests. Therefore, they do not want to abandon their profits from motorised urban sprawl, for example the chance to sell automobiles to developing countries (Conybeare, cited in Gonzalez, 2005). In addition, their approaches are only to focus on environmental issues, not consider social and health problems from immoderate car use. To solve the social and ecological problems, Gonzalez (2005) urges removing urbanisation by reform of land management in an intensive way. The communities should be designed compactly enabling people to walk, ride bicycles and use transit- friendly mass transportation, and mixed-used space, which means residences, offices and amenities in one area. This could be an answer to the problems (The Ontario College of Family Physicians, 2005). Martin (2007) recommends strong regulation against car use and an effective public transport system.
In conclusion, motorised urban sprawl, which is caused by excessive car use, creates many problems from obesity to climate change. The solutions, which entirely depend on development of technology including investment to high energy efficiency technology, providing alternative and clean energy resources, are suggested by business groups and these could partly solve greenhouse gas emissions. However, these methods cannot be the appropriate answer to solve the social and environmental issues, because they neglect the primary reason which is motorised urban sprawl. Urban sprawl may be an inevitable feature in modern society, so governments should focus on sensitive land use to overcome this problem.

References:
Cheeseman, G. 2009 ‘Energy Efficiency Could Cut Emissions In Half’, viewed 20 August 2009, < http://www.care2.com/causes/global-warming/blog/energy-efficiency-helps-the-environment-and-economy/>.

Gonzalez, G. A. 2005 ‘Urban Sprawl, Global Warming and The Limits of Ecological Modernization’, Environmental Politics, 14:3, pp. 34-362.

Martin, G. 2007 ‘Motorization, Social Ecology and China’, Area, Vol. 39:1, pp. 66-73.

Ontario College of Family Physicians 2005, THE HEALTH IMPACTS OF URBAN SPRAWL INFORMATION SERIES VOLUME THREE OBESITY, viewed 20 August 2009, <http://www.ocfp.on.ca/local/files/Urban%20Sprawl/UrbanSprawl-Obesity.pdf> .

Long Term Credit Bank is the first bank that changed traditional way of banking business, which is focusing relationship, into market oriented business style. And the bank was first one that was owned by foreigners. And also, LTCB is a new trial of the escape from lost decade of Japanese financial trouble.

If LTCB restructuring had failed, Japanese financial restructuring might have been delayed much longer. Watching LTCB’s success, international investors started to believe in the possibility of success in Japanese financial market. Japanese financial authorities could decide to take the money from abroad, based on the success of LTCB.

Most of all, LTCB was the first mover of restructuring banking business as market oriented. And through the process of reform the bank affected other banks to follow its business style. In other words, LTCB was a catalyst of financial reform in Japan financial system. Or at least, the bank was flagship for international investors. And the bank was test bed too.

Main issues and problems of LTCB case.

Huge size of bad loans, which could not write off just only based on their profitability was big problem for LTCB and Japan’s financial market too. Because Japanese financial tradition was relationship focused. And Ministry of Finance in Japan wanted to keep that loans until the economy recover by itself and bad loans disappear automatically without any pain.

During 1980s, there was a so called asset price bubble. The equity and real estate prices skyrocketed. But, when 1990s come, the bubble burst. The Nikkei index fell from its high of 38,917 in December 1989 to 14,309 in August 1992. (Reszat, 2003) The land price of Japan started to tumble from 1991 for 11 years in a row. (Choi, HeeGap, 2003),

None performing loans (NPLs) was becoming bigger and bigger along with the economic recession. Collateral in the form of equity or real estate also lost their value. It worsened the NPLs problem.

By December 1991, bad debts of LTCB reached to ￥2.4trillion. There was no improvement of bad debts problem until late 1990s, in spite of internal reform trials.

What all banks did during 1990s was cover-up of bad debts in various ways. These are rolling over bad debts, indirect lending through small institutions such as credit unions, removing of bad debts to subsidiary’s balance sheet, removal of problematic papers, and using derivatives devised by a foreign bank.

LTCB used subsidiaries to hide bad balance sheet. Even the bank created subsidiaries of subsidiaries, so more firmly hide bad debts’ existence. This could be possible due to the loose accounting standard of Japan’s authority.

In the case of EIE, LTCB stop supporting EIE publicly, but LTCB supported Tokyo Kyowa Credit Union, Tokyo Kyowa Credit Union supported EIE. In other words, LTCB supported EIE in disguise.

Bad loan by loose definition of Japanese government was one of hiding. Financial authority did not face the true, thus effort to resolve the problem was weak.

By December 1994, LTCB’s bad and potentially risky loans reached to ￥3.4trillion or a fifth of all its loans. By 1995, LTCB’s real bad loans rose above ￥2trillion.

Close relationship with dying franchise was one of main problems in Japan’s banks. If LTCB cut off the relationship and clear off the bad loan, it would disturb total financial system and made child company default. It could impact Japanese economy in bad direction.

Authority’s inability to reform and discretionary attitude was serious problem in Japan’s financial hard time. Conservative bureaucrats just waited for economic recover to come, letting LTCB, including other banks, do not reform financial system and deals with bad debts.
Ministry of Finance and LDP was saying that the downturn in stock price and land price were just temporary and would turn up soon. There is tendency for government and financial companies to have strong optimism about economy. It seems true in anytime, anywhere.
When there was inspection by the authority, inspectors even did not want to peek a basement, where young bankers hiding critical document boxes.

Conservative Japanese culture delayed financial reform too much. For one thing, there is ‘wa’ in Japan. It is the meaning of harmony among society. So, nobody wants to say ‘no’ directly, and nobody likes revolutionary reform.

Resolution process of LTCB.

Internal reform trial in the form of new business strategy, focusing on investment banking, failed due to the traditionalist’s rejection in 1985.

In November 1996, Ryutaro Hasimoto, the Japanese prime minister, released a document entitled ‘Structural Reform of the Japanese Financial Market; toward the Revival of the Tokyo Market by the year 2001’. It was the start of Japanese version of financial ‘Big Bang’. It was the plan for deregulation reform of financial market in Tokyo.

The President of LTCB, Onogi, tried reform by alliance with Swiss Bank Corporation (SBC; now it is called UBS). The CEO of SBC was a friend of Onogi, when he was a young banker in London.

The alliance plan included setting up 3 joint ventures of investment banking, asset management, and private banking. By these joint ventures, LTCB could have reformed into new business style to earn net income. And there was a plan of $2billion fund raising to increase capital base and cross-shareholding of 3 percent in each other.

In 1997, Asian financial crisis came. One of the Japan’s largest banks, Hokkaido Takushoku, collapsed as first collapse in sixty year of Japan’s history. It was followed by Sanyo Securities, a second tier broker and Yamaichi Securities, the fourth largest broker in Japan. That was really bad time for alliance.

Alliance trial with SBC was ended in vain in 1997, mainly due to the conservative Japanese bureaucrats, who liked more Japanese style resolution.

Japanese authority wanted merger between Japanese banks, so tried to make LTCB merge with Sumitomo Trust and Banking. But it ended in vain either. Sumitomo Trust requested for more public fund to pour in LTCB, but financial authority could not accept it.

The Japanese authority decided to nationalize LTCB and tried to find new buyer. It was the time in the middle of Asian crisis. Russia defaulted on its debt in 1998 and there was a rumor that Long Term Capital Management was on the verge of collapse.

Ripplewood, a vulture fund from the New York, started negotiation with financial authority to invest in LTCB, using consortium of western financial institutions such as AIG, Citigroup, GE Capital, Mellon and Paine Webber. In the negotiation, Ripplewood got a ‘put’ option, which is right to return newly founded bad debts to the authority and a public fund injection too

LTCB renamed as Shinsei Bank, it means new life, under management of western senior manager and board members. The Bank started treating banking as a business, not a public service. Shinsei Bank stated operation in 2000. The new bank changed its IT system totally with very low cost relative to other Japan’s banks and in a surprisingly short time horizon.
The president of new bank, Masamoto Yashiro, set up retail banking, in a way that had never been in old LTCB. Four new themes were accepted for retail business. These were Empowerment, A Unique Identity, Accessibility, and Fun.

They started make a profit in corporate banking division, by the coordination of product professionals and relationship managers, cleaning off old bad debts, changing to adequate collaterals, selling corporate bonds.

Step by step, Shinsei bank recovered from bad debts and made net profits.

Cultural issue & Efficiency in restructuring

Maintaining consensus and harmony is the key cultural factor in Japan society, which made revolutionary restructuring difficult in Japanese bank. And nobody wanted to say ‘no’ directly. They preferred evolution to revolution.

Even when it is M&A between companies of same country, there are huge differences and conflicts between two companies, so it takes a few years to become one company in a cultural sense. If it is the case of western people and Japanese, it is quite natural that there must be big conflicts.

In the Japanese culture, ‘wa’ is important tradition. It means harmony in society. It can be an obstacle to reform process or all kinds of changes in corporation.

There is ‘nemawashi’ in Japan’s culture too. This means that Japanese should create consensus before implementing. It delays implementation process. Thus, it could weaken the competitiveness of corporation. In speedy business environment of 21C, fast implementation is crucial for a success. So, Shinsei bank used top-down approach. At first, this approach invoked resistance from middle class managers. As time passed, each side could understand each other more than before.

Traditional payment system in Japan was based on only age. It was not efficient for a foreigner’s eye. And there was conflict of payment level between foreigners and old LTCB employees. To solve this problem, the new management team developed two different payment systems, which were applied to foreigners and old LTCB members respectively.

In Japanese financial company’s culture, women had only clerical job. New foreign managers gave her a chance to be a manager based on her ability.

A retailer Sogo asked Shinsei for a debt forgiveness of $980mllion. So the bank tried to use ‘put’ option for the government to take the bad debt. Traditionally, Japanese trust words more than written contract. And the authority did not expect that the put option actually exercised. The Japan’s bureaucrats were furious about Onogi and western investors, so were Collins and Flowers. They did not understand each other. But, by the contract, Shinsei had the right to use ‘put’ option legally.

Tension between ‘relationship banking & market oriented approach’

In Japan, there was a unique concept, called ‘keiretsu’. It is kind of ‘family’ or ‘tribes’ that linked each other with cross-shareholding and mutual support. The relationship between the companies within same kereitsu is really tight so the value of relationship is more important than temporary profits. It was possible to maintain that concept through the rapid growth era, until bubble burst in early 1990.

When LTCB tried to decrease old bad debts announcing suspend of support to risky and hopeless companies, financial authority intervened to keep supporting for the stability of financial system and economy. The authority’s conservative status had had an anti-effect for financial reform in Japan.

If LTCB decreased bad debts by cutting support, the loss from the bad debts might transfer to other banks and government. It could affect whole financial system.

In 2001, Shinsei started radically change their lending policy and notice it to all clients. Instantly, some clients complained to politicians about Shinsei’s lending policy, and politicians talked to bureaucrats about it.

The Financial Service Agency (FSA) ordered Shinsei to support ‘category two’ companies, which were categorized by Japan’s authority as healthy but treated as ‘Zombie’ by Wall Street investor’s view.

Japan’s bureaucrats insisted Japanese way of solution that would not breaking ‘wa’.

Restructuring LTCB and move toward market oriented financial system

In Japan, corporate governance was balanced between the banks, their clients, and the Ministry of Finance. After Ripplewood buy the share of LTCB, Wall Street investors strongly argued their rights on the banks business, operation, and earning. It was cutting the old tradition of Japan’s financial system, the cross-shareholding.

At first, this changes made Japanese bureaucrat upset. Through the negotiation and many talks, the mood was changed inch by inch.

Main clients of the bank acted like a family of the bank, Shinsei treated them on the base of profitability. It also provoked argument between Yashiro and financial bureaucrat. At last, FSA changed their status toward reform.

In old LTCB, the man who was charged of lending business had a decision right whether to lend or not, but after Shinsei reopen business, employees of lending division follow the guideline about suitability of lending. The guideline was made mainly base one market principle.

Contribution of the restructuring within the LTCB to the move toward market oriented financial system in Japan.

Through many cases, such as Sogo shock in 2000, First Credit, consumer credit group, in 2002, and the Daiei, supermarket chain, debate. Shinsei got a little cooperation from the rest of the system.

For Wall Street investors, LTCB case was one of the best deals ever. “In 2000, the consortium spent $1.2bn to buy the bank.” After successful initial public offering, the investors sold a third of their shares for $2.4bn, and remaining stake has a value of $10bn. (Tett, Gillian and Peter Smith, 2004)

The other Wall Street private equity investors are really wanted to follow similar success saga. But, for the Japanese government’s eye, the deal was viewed as kind of losing a game. Japanese government spent about $36bn of taxpayers’ money to clean up the bank’s balance sheet. And it take over ￥1,100bn of bad loans, provided ￥850bn of reserves, and injected ￥240bn to improve capital base. So, Japanese authority will never mistake same thing again. It can be a bad news for potential investors from Wall Street.

The effect of Wall Street investors investing in Asian financial company, Shinsei and other many similar cases, left western style efficient way of business which is market oriented in Asian financial market. That might be good experience for Japan but adequacy of the huge benefit of the Hedge Fund remained controversial.

Similar cases happened in other developing counties, such as Korea. Some cases are going on right now. The authority should deal with the case wisely.

References

Choi, HeeGap (2003), ‘The lesson from Japanese bubble economy’, in Issue Paper May 24th, 2003, Samsung Economic Research Institute.

Reszat, Beate (2003) Japan’s Financial Market : The Lost Decade, HWWA discussion paper 231, June 2003

Tett ,Gillian (2004) ‘Saving the Sun’, London : Random House Business Books

Tett, Gillian and Peter Smith (2004) ‘Shinsei investors clean-up’, Financial Times 15 March