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IIST e-Magazine (For the Japanese version of this article)

Local Firms Fight Back | Junichi Oikawa, Reporter Press Division Iwate Nippo Co., Ltd. [Date of Issue: 31/August/2012 No.0210-0855]

Date of Issue: 31/August/2012

Local Firms Fight Back

Junichi Oikawa
Reporter
Press Division
Iwate Nippo Co., Ltd.


Almost a year and a half after the Great East Japan Earthquake, affected companies in Iwate Prefecture are moving step by step toward recovery. As of October last year, Iwate Nippo has been publishing a weekly feature entitled ‘Local Firms Fight Back,’ featuring interviews with local entrepreneurs about their decisions and recovery prospects. As at the end of August this year, we have run 41 such features. Battling to overcome a range of difficulties, business leaders like these underpin the recovery process.


Marine products processor Marusa Saga Shoten Co., Ltd., in Kuji City suffered around 600 million yen’s worth of damage, with its cutting-edge factory, completed just back in 2007, reduced to nothing more than a steel frame. Company president Masayoshi Saga (67) insists that he never even thought of giving up. “This company and the coast go together. We need to use as many people as we can, buy up all the fish we can, and support the coast,” he says.

“Constant dripping wears away even stone.”
“Uncertainty drives tomorrow. Uncertainty is strength.”
“Hardship now, pleasure later.’
“Even a slow step is still a step.”

As part of the interview process, I have asked business leaders to write down what they think on colored paper. I have been struck by the large number of entrepreneurs who have clearly expressed from the very beginning their determination to rebuild.

Around 2,000 Iwate firms sustained damage, and it was feared that many of these would go bankrupt. However, according to the major private credit reporting agency Tokyo Shoko Research, Ltd., there were only 56 bankruptcies in Iwate in FY2011, representing aggregate debt of 12.177 billion yen, and both the number of bankruptcies and the amount of debt were in fact the lowest of the last decade.

There was initially concern about a possible rise in bankruptcies particularly along the coast where the tsunami wreaked such severe damage. However, the granting of a grace period for dishonored bills, the suspension of bankruptcy procedures, financial support through various lending systems, and a moratorium on loan payments under the SME Finance Facilitation Act have gone a long way toward preventing this.

Of the above measures, SME Group Subsidies, whereby central and prefectural governments shoulder 75 percent of the recovery cost, have been particularly effective, and companies have rushed to sign up. In Iwate Prefecture, around 57 billion yen has been earmarked for 48 groups (729 businesses) from the first four rounds of applications.

The formation of groups for subsidy application purposes among companies that were rivals before the disaster is in some cases creating new business models. In the town of Yamada, for example, five companies from industries such as marine product processing and food processing which had their subsidy application approved have launched Gotokumaru Suisan, a marine products company whose name abbreviates the Japanese for “support Yamada like the tripod under a hibachi brazier.”

The new company was set up in April, beginning Internet sales of products in which the various group members have traditionally been strong, such as ika tokkuri (dried squid formed in the shape of sake bottles) and scallop gratin. They have also pooled their client data. In July, direct sales began from a single-storey building of about 120 square meters in Yamada’s Chuo Ward. The outlet also sells fresh fish and shellfish products such as scallops, and is extremely popular. The new company is aiming at annual sales of 60 million yen.

Gotokumaru Suisan direct sales outlet, opened by five firms in Yamada Town in July. Its scallops and other fresh fish and shellfish products have proved very popular. (Chuo Ward, Yamada)

Gotokumaru Suisan direct sales outlet, opened by five firms in Yamada Town in July. Its scallops and other fresh fish and shellfish products have proved very popular. (Chuo Ward, Yamada)

The new direct sales outlet is located in what was formerly the center of town. In the vicinity remain the foundations of many buildings destroyed by the tsunami, with the scars from the disaster still vivid. A new business starting up in the midst of all that destruction has given life and courage to the town. Mutsumi Kawaishi (48), chairman and CEO of the new company as well as chairman of Kawaishi Suisan, is enthusiastic about the merits of putting five heads together instead of just one, and looks forward to their efforts providing PR for Yamada as well.

Some companies have left behind the coast to renew themselves inland. Akabu Shuzo Co, (president of Hidemine Furudate)a sake brewery from Otsuchi village which saw its distillery washed away by the tsunami, borrowed a distillery in Morioka City and resumed production of its most popular product, a refined sake called “Hama-musume”, in December last year. In late July this year, the company succeeded in shipping its 15,994th bottle, the same number as the population of Otsuchi Village before the disaster.

The company was founded back in 1896. Before the disaster, it operated with eight staff, but the tsunami swept away all the cellars and products so carefully cherished across the generations. Company president Furudate (47) also lost his house, and for a while he almost gave up on sake brewing. He recalls that during the days after the disaster, he forgot how to laugh. He wasn’t thinking about brewing so much as what on earth he was going to do with the rest of his life.

However, with encouragement from locals and customers—“Hang in there! We’ll buy from you again!” “We’re waiting for you to open again!”—he decided to rebuild. Swallowing the bitter decision to leave the village with a promise to return, he shifted to Morioka and began liqueur production again in August last year using one of the factories the Morioka City has made available free of charge to affected companies.

While producing liqueur, he scoured the city looking for a brewer that would lend him a distillery. Sakuragao Shuzo in Morioka came to his aid, and the company now has “Hama-musume” production back up and running. Furudate says that he has simply forged ahead in the blind belief that his wishes would be granted. Determined to continue working toward new goals, he now has his sights set on producing sake again back in his hometown.

Entrepreneurs do, however, face many hurdles in getting their businesses back on their feet. Material and personnel costs have skyrocketed, and in some cases, businesses have been hit with unexpected cost rises after their subsidy applications have been cleared.

One company president in his 50s who lost his factory and office in the tsunami but who aims to use an SME Group Subsidy to build a new factory confesses that he has been struck with a number of unforeseen costs and is struggling to secure the necessary funds. There was no power or other utilities at the site he secured on high ground, and expenditures since the planning stage have mounted to more than 10 million yen. The administration has been slow to decide on land use plans, and in the meantime, material costs and the cost of employing craftspeople have soared. He estimates that he will have to stump up at least an extra 20 million yen in total, and admits to a touch of panic about the situation.

The consumption tax levied on SME Group Subsidies is also putting a major strain on affected companies. Marusa Saga president Saga is grateful for the subsidy, recognizing that a rebuild would have been impossible otherwise, but observes wryly that when it’s hard enough for the company to come up with the required 25 percent of the rebuild cost, having to pay consumption tax really hurts.

He would also like to see an extension of the SME Finance Facilitation Act, which will expire at the end of March next year. “It’s difficult enough that financial institutions have become so strict in their lending conditions compared to before the disaster. Affected companies that are struggling to access funds are really going to find it tough to remain in operation.”

The Iwate Industrial Promotion Center in Morioka City has been buying up pre-existing debt from before the disaster as a means of addressing the double loan problem. As at the end of July this year, the Center had cleared the buy-up of 13 debts worth around 3.6 billion yen, and aims to purchase more than a dozen more over the next couple of months. With purchase decisions to date taking an average of 65 days, procedures obviously need to be expedited. The main causes of delay have been coordination with financial institutions and creditors, as well as waiting on subsidy approval. With financial institutions bringing more cases to the Center, procedures are expected to speed up.

Local firms have a major role to play in the prefecture’s recovery. Haruhisa Oyama, Director of the Morioka Branch of the Bank of Japan, notes that economic prospects are quite bright thanks to recovery demand over the next five years or so, but suggests that the focus must shift beyond the recovery to address new industry creation. “Measures on that front are what will shape Tohoku’s future.”

Business leaders on the coast feel a responsibility to rebuild not just their own companies but also the whole local community. A range of measures need to be instituted to boost their motivation. The effects of the various support systems will emerge in the coming months, and it will be incumbent on both the central and prefectural governments to provide timely support and ensure the flexible operation of these systems.

(original article : Japanese)

(For the Japanese version of this article)


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