In 1950, Japan’s pioneering trade insurance system was created as part of an economic trade arm of the government. And for more than half a century, the trade insurance scheme has been a critical tool in supporting Japan’s commercial policy and bolstering Japanese business overseas. However, as the global trade structure changed, so too did the role of its trade insurance and the need for specialization, which is why NEXI was separated from Japan’s Ministry of Economy, Trade and Industry in 2001. Today, NEXI insures companies of all sizes that wish to work in the international market, and is a major supporter of the government’s plans for Japan to develop more overseas infrastructure. Here, Kohei Okada, managing executive officer and board member, explains NEXI’s role in an increasingly global Japan and shares his thoughts on international developments, including China’s Belt and Road Initiative and increasing U.S. protectionism
Japan now has one of the oldest populations in the world. How is this affecting your work at NEXI?
Japanese people are not having enough children to support the population, meaning the population of Japan is going to decrease over the years. If today’s rate of decrease continues, in 3,000 years there would be no Japanese people left. That means there are increasingly fewer people to produce and consume. So, as the Japanese domestic market shrinks, companies have to shift and look outward. Up until now, because Japan had a substantial population, the Japanese only had to look within to keep the economy afloat. But now, our task is to help people who want to focus their attention outside of Japan. There are various facets to Abenomics, and one of them is to create a Japan that can profit overseas. As a trade insurance company, that means we can help tiny companies who have never done work outside of Japan to break through that barrier, and have that insurance in place so they can have that peace of mind. If a company in Japan were to start doing business with a foreign entity, the best case scenario for them is that the foreign entity pays upfront. However, that’s not always the case, and usually they will sell the goods and get paid afterward. NEXI insurance guarantees that these people will run less risk in doing so. Breaking out into a foreign market can be challenging because the company may not be well informed about the company they are dealing with; they cannot gauge the management status of these companies, and whether they’re legitimate or doing well financially. So NEXI can insure this process and give more companies the ability to go overseas with less risk.
What’s an example of how you’ve helped Japanese businesses go overseas?
There are many successful overseas projects, but let’s take the example of Freeport, which is one of our largest programs to date. In 2014, we decided to provide insurance for investment and loan programs for the Freeport LNG (Liquid Natural Gas) Project in Texas, which has been supported by General Electric and Osaka Gas. It’s a largescale project that brings benefits to both Japan and the United States. It brings more LNG to Japan while creating exports, profits and employment opportunities for the American partners.
Last November, NEXI signed an MOU with the U.S. government’s development finance institution, OPIC, to work together to tackle development challenges and implement projects in emerging markets. What does that agreement entail?
What it means is that if the U.S. and Japan want to invest in a third-party country, they can clearly define and establish the roles and activities of both partners. At the same time, it also means the countries will work together to protect each other’s interests. When the government of Jordan, Japan and the U.S. were in negotiations, there was a case when the Jordanian government came back and said that we had to do something that was extremely difficult. In that case, if Japan were to push back or renegotiate alone, it wouldn’t necessarily end well. But by working with the U.S. and pushing back together, we were able to renegotiate and come to reasonable terms.
Promoting exports of Japan’s high-quality infrastructure to meet expanding global needs, while also facilitating the global trade network, is a major government priority. What are the benefits and challenges that come with this?
Japan can support the development of countries around the world by implementing high-quality infrastructure. But that high quality also comes with higher costs, so if you were going to use Japanese products for everything, it could be cost prohibitive in some markets. So it’s constantly an issue, but Japanese companies can work alongside companies from China, Korea or India.
Which markets are the best targets for these infrastructure projects?
Both developed nations and emerging nations. Within the developed nations like Europe and the U.S., infrastructure remains important because it is getting old and needs to be upgraded. Emerging nations such as those in South East Asia have seen population booms and large shifts to urban areas, so their cities need serious infrastructure improvements such as subway systems and better road networks. While there are many opportunities in emerging markets, they are also competitive as China and Korea are also putting their focus there.
What gives Japanese infrastructure projects a competitive edge on those from other countries like China, South Korea or even the U.S.?
It ultimately depends where the product is going to be. Developed nations like the U.S., European nations and oil-rich countries have the money and they want the best products. What that means is that Japan can take products that are created here and sell them as they are in those markets. NEXI supports the British high-speed rail network, which is still in the planning stages, but is a 1 trillion yen ($8.9 billion) project. In the U.S. they are talking about creating a high-speed railroad in Texas or a high-speed connection between Washington and Baltimore; of course, if those plans continue, they will be something Japan will want to take part in. One of the difficulties and challenges we face now is that in the past, executives of Japanese railway companies have just had to think domestically, but now they have to shift their mentality to an overseas business, which can be difficult. Japan created the high-speed rail concept 54 years ago. China now has its own high-speed railway, and while it doesn’t compete in quality, it matches what Japan had a few decades ago. For emerging markets, that’s enough – if it’s cheap, then they will sacrifice quality. So when it comes to cost, it’s very difficult for Japan to beat China. Ultimately, that means that in order to cut costs, we may have to make models without the latest technologies or focus on producing parts outside of Japan. That said, Japanese railroad manufacturers themselves are not willing to produce their systems overseas for now. And another one of the things you have to do for emerging markets is educate both the drivers and operators, but that’s not something that Japanese companies have expertise in. In terms of education, the European railway manufacturers actually have a longer history of going in and training people. Although ultimately, each project in country is going to be very distinct, Japan has to step up and try harder in those countries.
How does China’s Belt and Road Initiative tie into this?
When it comes to the Belt and Road Initiative, each project is very different. We could be working alongside the Chinese government or businesses or bidding on the same projects. That means Japan’s relationship with China is both competitive and cooperative. So by that logic, we won’t try to counter One Belt One Road. But we deeply value concepts such as transparency, environmental protection, and human rights, as well as financial feasibility. Some projects have been carried out in countries that were unable to pay back their loans, and that becomes very complicated. But if it’s a good project, then we will certainly be able to work with China.
How should Japan work to address these culture corporate shifts to create win-win opportunities with emerging countries?
That’s something that the Japanese government as well as the various companies within the industry are supporting. There’s a group called Association for Overseas Technical Scholarship (AOTS), which is funded by the Japanese government and brings people from overseas to promote technical cooperation through training and bringing people from different cultures to Japan. That’s an example of a good initiative. From top to bottom, Japanese companies need to become more internationalized; employees and management should get more work experience overseas, learn foreign languages and have more exposure to colleagues from around the world. Another point is instead of just having the government of Japan work with the governments of other countries, we must have more internationally minded companies working together with other countries like the U.S. or China, or the companies within them. Since Japan has built up a relationship with the European Union and the U.S. in trade and investment, what the government needs to do is to ensure these trade and investment ties are protected. If this kind of relationship is maintained and fulfilled, then Japanese infrastructure and investment overseas will grow and lead to overall global growth. On the other hand, if it doesn’t go as well as anticipated, it could lead to a deterioration of Japan in terms of worldwide growth. As a result, I believe these government entities need the knowledge, courage and the skills to overcome international political challenges.
What leading companies are partnering with NEXI on ways to grow overseas?
Basically, every company that you can think of. If you look at the trading sector, there are big multinationals like Mitsubishi; and in terms of finance, there are the big banks. However, recently we’ve started to see that smaller banks are also becoming clients. It used to be that the large trading houses accounted for the majority of our clients, but that has shifted to the megabanks, and the reason for that is because NEXI not only insures exports, but also loans. These are banks that are doing a lot of business overseas and need insurance. If you look at the sales volume, of course it changes year to year, but overall trading houses and banks account for the majority of the business.
Do you have a final message for an American and international audience?
It is very important to protect the trade environment so that we can have free and high-quality trade; it leads to increased global growth. So, although this might be something that the U.S. may not want to hear, we want to keep this trade growing, and we think that the government and private sectors have to come together to protect trade from those who may want to destroy it. People in America have preached the importance of liberal trade in the past, and I believe most Americans still believe in it. Sometimes we are puzzled by the unexpected movements of the government.