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November 30, 2000

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From selling life insurance to leasing planes, Japan's Orix diversifies by its own rules

By Tim Healy and Murakami Mutsuko / Tokyo

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ON THE SURFACE, WAKINO Shinta is a typical Japanese salaryman: dark suit, pressed white shirt, level voice and a shock of closely cropped, neatly-combed hair. But in fact he is different. In a nation not known for its flexibility, Wakino works for a unique financial services company. He is a salesman for Orix Corp., and in a typical week he can offer the very same corporate customer a wide range of products: securitized property, life insurance, arrange for the pick-up and processing of industrial waste, lease of a Boeing jet and the chance to snap up Orix's commercial paper as a lucrative haven for excess cash.

Orix is angling to take advantage of a new world in Japan, one in which financial services markets that have traditionally been carved into hundreds of neat pieces are thrown open. For now, the promise of liberalization is greater than the reality. But Orix is pushing the envelope in a very un-Japanese fashion. It is selling insurance direct to customers, for instance, rather than using the typical approach of having sales ladies going door to door or setting up costly sales networks. In discarding the old and embracing new opportunities and business methods, Orix may be pointing the way for a new generation of companies.

Japanese financial services deregulation - dubbed the "Big Bang" after a similar British liberalization in the 1980s - began officially in 1998 and is scheduled to be completed in 2002. The resulting competition from both domestic and international financial services companies is supposed to usher in a new era of efficient and world-class banks, insurers and securities dealers. Credit for Orix's aggressiveness goes to Miyauchi Yoshihiko, 63, the company's president and chief executive officer. Miyauchi likes to talk of things like shareholders' rights and customer satisfaction, concepts that normally concern Western managers much more than Japanese ones. He is a maverick in other ways, too. For one thing, he eschews long-term corporate strategy and discounts the importance of "vision."

"The financial system keeps changing so quickly - in every country, in every market," he says. "When a new [government] is introduced, the financial system can be completely altered in a year. My policy is not to rigidly define our business for the future. We should only try to make the best of our business and adapt to a changing system."

Perhaps such a view comes from living a life where everything has seemed to work out well in the end. Miyauchi was born to a well-to-do family in the lumber business in Kobe. He grew up in a liberal, westernized environment and earned his MBA from the University of Washington in Seattle in 1960. Upon returning to Japan, he landed a job with the stable, respected Nichimen trading company. At age 28, the company sent him to San Francisco to learn the leasing business, and shortly afterwards it and a consortium of banks and trading companies established Orient Leasing Co. with Miyauchi as one of 13 founders. It became independent in 1970. Miyauchi was named president in 1980, and the company changed its name to Orix in 1989.

The name change coincided with an image makeover. Orix bought the down-and-out Kobe baseball team and named it the Orix Blue Wave. The team soon became a symbol of the company: youthful, aggressive, self-reliant, successful. In 1996, the Blue Wave won the Japan Series behind a stable of unorthodox players and a legendary manager, Ohgi Akira, who encouraged individualism.

Miyauchi, meanwhile, was also swinging for the fences. In 1989, perhaps a bit before its time, Orix launched a commodities fund. Recent deregulation removes the minimum size of such funds, allowing the company to sell smaller units to individual investors, which may help to make the start-up successful. In 1993, the company began issuing commercial paper, a departure from the bank loans that traditionally funded Japanese companies. Last year, Orix obtained nearly half of its funding needs through direct sources like buyers of commercial paper. The portion was less than one-fifth two years earlier. Also in 1998 it bought the trust banking unit of bankrupt Yamaichi and went into the banking business. "We have come this way by always choosing new areas, gaining inspiration and creating new [marketing] devices," says Miyauchi proudly. "Thus we have learned to survive in the market economy."

In the fiscal year to March 1999, Orix did a little better than just survive. Consolidated revenues increased 17% to nearly $5 billion and net profit rose 8% to $214 million. At the same time, the company was forced to set aside reserves that resulted in a $30.6 million loss in non-Japan operations. Loan-loss provisions for its Asian subsidiaries were to blame. Miyauchi told a Japanese daily recently that he thought the economy had bottomed out a year ago and he wasn't expecting such big additional bad-loan provisions this year.

The broad-based approach to providing financial services has its critics. Tod Wood, an analyst with ING Baring in Japan, says Orix is becoming a mile wide and an inch deep. "It needs to focus more on growth sectors and take a larger stance on business it thinks have potential," he says. "Everything [Orix is] doing - except leasing - is very small, no matter how successful or how much potential. The company needs to take a more strategic view of where it can make money."

Wood is especially wary of a big competitor for Orix, GE Capital, which earlier this year bought the most desirable bits of Japan Leasing for $6.5 billion. He believes GE has the resources to buy leasing assets in Japan and lock up the market. Miyauchi says he isn't worried because he intends to continue diversifying Orix so it isn't a head-to-head competitor with the U.S. giant. To that end, the company's growth has lately been in its insurance business, and in its increasingly diversified range of businesses. Four years ago, leasing accounted for more than half the company's revenues. In the year just ended, leasing was barely one-third. Last year, life insurance premiums and related investments surged 56% to almost $1.7 billion.

Dean Perry of West LB Securities Pacific in Tokyo thinks Orix is plenty strong financially to continue making strategic acquisitions and remain competitive. In fact, even as GE was buying the domestic operations of Japan Leasing, Orix paid $228 million for three additional units of the same company: one in Singapore and two in Hong Kong. "[Orix] profits will continue growing on the accumulation of small acquisitions," Perry says. He predicts the stock price will double within five years.

Given the upheaval that is already convulsing the financial services market in Japan and promises to worsen in the next few years, that is a bold forecast. Orix will have to remain nimble. In recent weeks, U.S. discount broker Charles Schwab and a joint venture between Sumitomo and the American investment bank Donaldson, Lufkin & Jenrette announced plans to begin offering stock trades online in Japan. Orix Securities beat them by three months. Japan Matsui Securities early this year slashed brokerage commissions in anticipation of deregulation of charges in October. Orix had earlier announced plans to halve its commissions. As banks in Japan and around the region scramble to provide online banking services, Orix Trust & Banking said in March it will soon offer a range of banking transactions through e-mail, telephone, fax and automated teller machines. It will have no branches. Japan has been criticized for pursuing a Big Bang that sometimes seems more like a whimper. In fact, reforms are changing the face of Japan's finance industry. And when the smoke finally clears, don't look for Orix: It will probably have moved on to something else.

This edition's table of contents | Asiaweek home



U.S. secretary of state says China should be 'tolerant'

Philippine government denies Estrada's claim to presidency

Faith, madness, magic mix at sacred Hindu festival

Land mine explosion kills 11 Sri Lankan soldiers

Japan claims StarLink found in U.S. corn sample

Thai party announces first coalition partner


COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state


COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness

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