Cool Japan Fund Flops

This news should come as no suprise to anyone: Cool Japan is a flop. The much-aligned attempt to spread Japanese culture to the world has not worked out as well as anticipated, despite the large amount of government funds backing it, Nikkei Asian Review reports.

The Cool Japan Fund, a public-private entity, has been the centerpiece of this initiative. The Japanese government’s fiscal 2017 budget gave the Cool Japan Fund 45.9 billion yen in funding, up 22% from the fiscal year 2016. This is more than 80% of the Cool Japan Fund’s nearly 70 billion yen in capital. This government money is given to the Cool Japan Fund via the Finance Ministry’s fiscal investment and loan program.

Four years after its launch, its taxpayer-funded projects are failing to meet expectations, proving the critics right in their view that the Cool Japan project is out of touch with what the international market really wants. The Cool Japan Fund has agreed to invest about 50 billion yen, spread out over 24 projects. Internal documents and other evidence show that at least ten of the 18 investments decided on at least a year ago have failed reach their goals.

One such flop project is the “Isetan The Japan” department store launched in Kuala Lumpur, Malaysia. It’s a collaboration with Isetan Mitsukoshi Holdings and offers a view of the “real Japan”, selling a curated collection of traditional utensils, apparel, and food.  The Cool Japan Fund provided one billion yen in funding, nearly half the cost, towards remodeling the original space to create “Isetan The Japan”, which opened in October 2016. It is less successful than hoped. During the April – June quarter, more than triple the expected operating loss was reported. But why is it a flop? One reason is a lack of customers, as Nikkei Asian Review reported was the case when they visited this September. A college student who visited the store said that he likes Japanese clothing, but found it too expensive to buy. Also, a trading house employee said that the way the store markets its products has an arrogant feel to it.

But why does this store even exist? It’s a case of backscratching. Before becoming Cool Japan Fund’s CEO, Nobuyuki Ota was an executive at the department store chain Matsuya. He had a friendly relationship with Hiroshi Ohnishi, president of Isetan Mitsukoshi Holdings. Shortly after the Cool Japan Fund’s creation, Ota approached Ohnishi about working together. The friendship between the two men sealed the deal over everything else. This friendship met its end this past April. Ohnishi is no longer president of Isetan Mitsukoshi Holdings. Ota acknowledged the struggles of “Isetan The Japan” and told The Nikkei (the parent of Nikkei Asian Review) that the attempts are being made to improve the store’s numbers.

Another case of backstratching is the project to launch Japanese tea cafes in the US. The Cool Japan Fund spent 250 million yen in April 2015 to acquire a nearly 50% stake in the venture, partnering with a group of Nagasaki-based businesses. This investment came about due to an outside director who has ties to Nagasaki and is an old friend of a central figure in the the group that wanted to launch the cafes. “We turned it down once amid doubts about their planning and management capabilities,” a former fund employee said. However, the project was later revived. Outside directors have a duty to make objective decisions about investments, which was not the case here. The outside director at the center of this project dodged inquiries from The Nikkei about his involvement in the deal.

The US cafe business opened its first location in the summer of 2016. But like the former fund employee warned, planning and management capabilities were an issue in the end. The cafe lacked the necessary license to let customers eat and drink inside, resulting in it becoming a take out business. Plans to open a second location have stalled. The project is also is having rent issues. The relationship between the Cool Japan Fund and the Nagasaki group has broken down, with the latter filing for arbitration in September to break up the joint investment.

There is also WakuWaku Japan, a project with broadcaster Sky Perfect JSAT. It’s a cable channel which broadcasts Japanese programs overseas. The Cool Japan Fund invested 4.4 billion yen, while Sky Perfect JSAT invested 6.6 billion yen. Multiple sources have called WakuWaku Japan a pet project of Cool Japan Fund Chairman Kazunobu Iijima, an outside director at the broadcaster’s parent company, Sky Perfect JSAT Holdings.

WakuWaku Japan has also flopped, failing at its goal of reviving interest in Japanese television programming overseas. The channel can currently be seen in eight markets. Viewership is lackluster, with the channel reporting net losses totaling nearly 4 billion yen over the last two fiscal years, leading to the possibility of write-downs. Despite this lack of success, WakuWaku Japan put forth an ambitious plans to expand into 22 markets by the fiscal year 2020, rather than focusing on already existing markets where there are likely to see growth.

Contrary to the examples above, the Cool Japan Fund maintains that its decision making process is fair and neutral. They say that they give executives with conflicts of interest no say in final decisions on investments that could benefit them. However, there are no such safeguards for the rest of the process. The Cool Japan Fund lacks the sophisticated strategy and disciplined approach to promote Japanese culture abroad. What they are doing now is simply squandering the money of Japan’s taxpayers.

As has been suggested multipe times by multiple people, Cool Japan should take notes from South Korea’s Hallyu, which has been successful at spreading Korean culture overseas. Hallyu is government funded and is the catalyst behind the creation of the Cool Japan initiative. South Korea’s television programming exports exceeded Japan’s by more than 30% in 2015. Product placement in Korean dramas has boosted Asian sales of South Korean goods ranging from cosmetics to home appliances.