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Bucking Long Odds Some American Companies Are Carving A Niche In Japan’s Service Sector

Sun., Jan. 25, 1998

James Simkins began his career in Japan managing a hole in the ground.

An executive for the American-owned Westin Hotel Co., he arrived in Tokyo five years ago just as construction was beginning on the hotel he was sent here to run.

Critics said it would never amount to anything more than a money pit. Japan’s economy was slowing, money was getting tighter by the minute. And Japan, as everybody knows, is not a friendly place for foreign businesses.

Or is it?

Though efforts by American manufacturers to break into the Japanese market still often end in disappointment, U.S. service companies - ranging from hotels and airlines to banks and ad agencies - have found Japan to be a land of opportunity.

“The potential for success here is massive,” said Simkins, whose Westin Tokyo hotel has an occupancy rate of more than 90 percent.

By turning potential into real profits, U.S. service companies are making a significant mark on the status of U.S.-Japan trade, and forcing their Japanese competitors into a game of catch up.

Take the example of Citibank.

Though not yet a household name, Citibank has attracted customers by being the first to offer automated teller machines open around the clock, and providing a 24-hour telephone banking service. Big Japanese banks are now beginning to offer similar services.

“They could have done this 10 years ago. There’s nothing regulatory or legal that prohibits it,” said Robert Berardy, head of marketing and planning at Citibank in Tokyo.

Japanese service firms tend to be vulnerable because - unlike Japanese manufacturers - they haven’t been exposed to international competition and do little business outside of Japan.

“Basically they’ve led a sheltered life,” said Andrew Shipley, an economist at Schroder Securities Japan Ltd. “The services sector in Japan is wide open territory for inroads by foreign firms that are more competitive, leaner and meaner.”

On the Tokyo Stock Exchange, U.S. brokerage houses have already moved to the top.

Merrill Lynch and Morgan Stanley were the top two stock brokers in Japan in November, accounting for a bigger share of stock trading than any of the Japanese giants that had long dominated the industry.

In the quarter just ended, the U.S. current account, the broadest measure of trade, sank 11.4 percent further into the red to $42.2 billion, largely because of America’s deficit in merchandise trade with Japan.

But in services trade the United States had a surplus that grew by 2 percent to $21.9 billion.

The largest part comes from tourism - when foreign travelers rent a hotel room or buy dinner in the United States it is counted as an export - but much of it comes from the overseas operations of companies like Citicorp, Starbucks Coffee or Westin.

With the reform of Japan’s financial system, experts say, the trend should continue.

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