A weekly roundup of news & information from Terrie Lloyd. (http://www.terrie.com)

General Edition Sunday, February 20, 2011, Issue No. 602

INDEX

• What’s new
• News
• Candidate roundup/Vacancies
• Upcoming events
• Corrections/Feedback
• News credits and subscription information

Back in Terrie’s Take 581 we discussed the fact that office rents in Tokyo are dropping and now is probably the best time to consider a move. In fact we decided to eat some of our own dog food, and in January we moved our office to a new location in Roppongi. This week’s take is a discussion of what happened, and what we learned about massively reducing costs by moving both our office and our IT.

Back in 2007 a real estate fund bought the Minami-Aoyama building we had been tenanted in for the previous 10 years. We’d had a great relationship with the previous owners, Odakyu, but obviously they knew nothing about the real estate business and were eventually forced to sell off all their real estate assets to the REIT. The new owners wasted no time in jacking up the rent substantially. It wasn’t a pleasant experience, and it started with a very heavy-looking fellow coming over and telling us flat out that he was going to double our rent, or else.

Keeping in mind that this was 2007, we eventually agreed to a gradual increase leading to a 50% rent rise over three years. Of course the events of 2008 meant that we got stuck in a "meat grinder" with the rent increasing each year, even as our business suffered falls in revenue and profits. Hoping that the long relationship meant something, we went back to the landlord in March of last year, and asked them to finally reduce the rent, especially given the fact that other locations in the area were going for 30% less and were in newer buildings. The response we got was that it wouldn’t be possible, and that as a fund it would be preferable to have an empty building rather than suffer reduced income on the P&L. This may seem counterintuitive, but appears typical of how REITs think.

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TSo, we started looking for other buildings. What we learned is that there are PLENTY of them available at competitive prices. Whereas we were paying JPY19,000/tsubo (3.3 sq m.) per month for a 30-year old building in a good address but 15 minutes walk from Omote Sando station in Tokyo, we quickly found 10-year old and newer buildings just 5-8 minutes from the station could be had for JPY13,000-JPY14,000/tsubo. Not only that but most landlords are also willing to give at least 6 months free rent. Now this doesn’t mean completely free, because the monthly payments for a leased space also include a management fee of 20%-30%, called "kanri-hi". However, with some judicious negotiation, even the kanri-hi can be dispensed with, although typically at the expense of an increased rental deposit.

So on a 2-year lease with 25% of the period rent-free, our effective rent dropped to about half of what we were paying in the old building. That’s a good start. But there is more.

In moving, there are three major costs to consider before looking at the cost savings at the other end: 1. Refurbishment of the building 2. Fit-out of the new premises and the actual move 3. IT costs

On the refurbishment side of things, we decided to challenge the old landlord’s practice of having the premises refurbished by its own in-house construction company, and we got outside quotes. Yes, the contract with the landlord did indeed say that we would let them refurbish, but it didn’t say that we had to accept their pricing. Thus, armed with two alternative quotes, the company had no option but to drop their price.

On the fit-out of the new building, we were lucky enough to find a company that not only does fit-outs but also premises search. They were very proactive and found us the office we wound up taking, even though we saw dozens from other real estate agents. Because that company has both business units involved, they were able to bring their prices down substantially. If any readers are interested in having the contact details for this company, please feel free to contact us at terrie.lloyd@japaninc.com. Anyway, we got two floors (130 tsubo) fitted with low-cost walls, doors, and waiting areas for the equivalent of 3 months rent. It’s a good feeling to be in a nice clean space again and be saving money, and it’s great for staff morale.

On the IT costs side of things, the two big ticket items in most office moves are the server room and maintaining the servers. As many readers will surely know, servers are not only very noisy, they also need to be kept cool, and the best solution is to keep them in a sealed, air conditioned room. This ties up real estate and necessitates the use of an expensive add-on air conditioning system that requires "special" ducts and cabling — giving your landlord’s construction company an excuse to extract another JPY3MM-JPY5MM out of you. Of course, this all has to be removed at the end of the tenancy, which is another million yen or so.

We decided to dispose almost all our servers, keeping just two units out of a dozen or so, and put everything else "up in the cloud". A local Tokyo data center, Advantage24 got our front-end applications and development servers. However, for the back office, the biggest concern was email, and in choosing a cloud provider of email — we needed a service that is reliable, fast, compatible, and of course cheap.

Originally, we were going to choose Google’s Gmail service, which several related companies are using without hassle. However, we discovered that Microsoft has a service called Exchange Online and decided that with the investment already made in training and data, that we should stick with Exchange and Outlook. We then migrated about 80 email accounts and all our data to the servers in Redmond 3 weeks before our move, and upon moving to the new office, email was available complete with all data and settings just a few minutes after the Internet was connected to the premises. BTW, we used KVH’s well-priced service to connect us to our fixed-line telecommunications — much cheaper than NTT.

Our subsequent experience with Exchange Online is that since the front end software resides on the PC, even though web connections maybe a little congested/slow at certain times of the day, you don’t really notice it. This is the one big difference from Gmail. Google really needs a widely supported offline-capable front-end to Gmail.

The outstanding thing with the Exchange Online service is the pricing. You can get full email, 25GB of storage per user, automatic backups, and spam filtering for just JPY522 per person per month. With prices like this, it’s really compelling for almost any small to medium-sized company, even if you’re not moving.

For our case, a cost comparison for the move implications on IT and Exchange Online looks like this:

CONVENTIONAL: * Server room fit-out, including air conditioner — JPY4MM => JPY1.3MM/year (3 years amortization) * Server upgrades, firewall, and software every 3 years — JPY1.5MM => JPY500K/year * 2 tsubo of rented space — JPY360K/year * Server administration, backups, repair work, etc. — JPY3.6MM/year (about 50% of the engineer’s time)

Total => JPY5.76MM per year approx.

ACTUAL: Microsoft solution for 80 people, with 3 days/month engineer remote support => JPY1.4MM/year, which is a 75% cost reduction as well as requiring no upfront investment and little or no high-skilled people to support the system.

Our conclusion is that deflation is not just happening in the rental market. With the changes in cloud computing and thanks to Google’s challenging Microsoft in the price/performance category and now Microsoft’s very viable response, the winners are small companies like our’s who can get high-quality solutions at greatly reduced prices.

…The information janitors/

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+++ SHORT TAKES

Some readers have asked why we are running these health products messages. Just more ads? Well, no. Actually, we use these products ourselves, to stay competitive working and playing in Tokyo and know them to be effective. It’s our way of sharing insider tips with our readers. Of course if you quote our reference number at iHerb.com, then we’d be happy about that as well…

1. Black Cherry — for gout relief

Gout is an extremely painful inflammation of the bone joints, particularly in the big toes, hands, wrists, and other similar areas. It is caused by high levels of uric acid in the blood which have crystallized and found their way into the joints. Also known in days gone by as the "rich man’s" disease, it appears to be aggravated by diet, as well as through genetic predisposition. Once you have gout, it’s hard to get rid of, and options to treat it are not so great, led by NSAIDS and steroids. One natural remedy that offers many sufferers relief is Black Cherry Fruit concentrate, which acts as an anti inflammatory. Good stuff if you suffer from gout.

http://bit.ly/gC3Ut7

2. Romantic dinner for two at 148 Hiroo

This week’s MMC prize is a romantic dinner for two at the wonderful Asian-Australian Fusion restaurant 148 Hiroo, courtesy of 148 Hiroo.

Our congratulations to Francesco Libassi for winning a one night stay for two, including breakfast, at the Mercure Hotel Ginza Tokyo, courtesy of the Mercure Hotel Ginza Tokyo.

Becoming a Metropolis Member is as simple as going to the website and signing up for the weekly newsletter. No other obligations. http://blogs.metropolis.co.jp/club/

* Many more prizes scheduled in coming weeks. * No charge to enter. * Simply receive the MMC newsletter to stay in the draw.

• Cold weather causes electricity output spike
• EV trucks a fresh ministry project
• Whaling hunt cut short, activists win?
• Surprising tax ruling by Supreme Court
• India-Japan trade deal big for generic drugs

Cold weather causes electricity output spike

Just how cold was in it January? Well frigid enough that power usage for households was up 3% for the year, to 83.84bn kw/hrs. Just in case you were wondering, data from the nation’s 10 power utilities also shows a recovery in industrial power usage — a good indicator of how factories are doing. Apparently the top 7 industries increased power consumption by 5.7% over last year, to 22.81bn kw/hrs. (Source: TT commentary from e.nikkei.com, Feb 18, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20110218D18SS087.htm

EV trucks a fresh ministry project

The Transport Ministry is financing to the tune of JPY1bn a project to develop commercially viable small and mid-sized electric trucks. The project is said to include Mitsubishi Fuso, Isuzu, Hino and UD Trucks (formerly Nissan Diesel). The Nikkei says that trucks and buses account for 7% of Japan’s CO2 emissions and is one reason for the project, however, the more likely reason is that Japan wants to make sure it stays ahead of the game as short-haul trucking firms start to realize that mass produced EVs are much more economical to run. (Source: TT commentary from e.nikkei.com, Feb 18, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20110217D17JFA09.htm

Whaling hunt cut short, activists win?

After Fisheries Minister announced that Japan was cutting short the season’s whaling hunt because of harassment by the Sea Shepherd organization, officials were careful to announce the following day that they would continue the hunt again next year. To reinforce that line, the Foreign Ministry called in Australia’s Ambassador to make its displeasure of the fact that Sea Shepherd is still allowed to use Australian ports, known. ***Ed: While the bluster may save some face, it appears that the government has decided that the ill-will and cost of the whale hunt is no longer worth it. Greenpeace Japan (not to be confused with Sea Shepherd) speculated that the whaling program may be ended, as possibly indicated by government changes of personnel in various related governing bodies. That would be good.** (Source: TT commentary from theaustralian.com.au, Feb 18, 2011)

http://bit.ly/h2w66H

Surprising tax ruling by Supreme Court

Although one may imagine that the Tax Office never loses a case, the Supreme Court has just handed down a very surprising ruling that will have big implications in international tax collection by Japan. The court said that the son of money lender Takefuji, Toshiki Takei, was wrongly billed JPY133bn for gift and penalty taxes on a JPY160bn gift of shares made by his parents while he was living in Hong Kong and was resident there. The Japanese Tax Office says that he lived in Hong Kong purely to evade tax, but the Supreme Court said that nonetheless since the shares were in an off-shore company and he did live most of the time in Hong Kong, it was illegal to levy Japanese taxes on Takei. ***Ed: Interestingly, after being hit by the Supreme Court in the opposite direction several years ago for refunds on exorbitant interest rates, which caused Takefuji to seek bankruptcy protection, the company is now claiming refunds on taxes paid on the amounts that are having to be refunded.** (Source: TT commentary from ft.com, Feb 19, 2011)

http://bit.ly/i6wgxq

India-Japan trade deal big for generic drugs

The Comprehensive Economic Partnership Agreement (CEPA) signed between Japan and India this last week looks like it could open the spigot for low-cost Indian generic drugs to flood the Japanese pharmaceuticals market. The current 4%-10% duty will drop to zero, and import and standards compliance procedures will be significantly eased as well. Japan’s generics market is said to be worth around JPY600bn and is rising. ***Ed: Of course this could only happen after Daiichi Sankyo, Japan’s third largest drug company, had fully digested Ranbaxy, India’s largest pharma firm and a leading producer of generics. Tough for the little guys, though.** (Source: TT commentary from thehindu.com, Feb 16, 2011)

http://www.thehindu.com/business/Industry/article1462359.ece

NOTE: Broken links
Many online news sources remove their articles after just a few days of posting them, thus breaking our links — we apologize for the inconvenience.

BiOS, a Division of the LINC Media group, is actively marketing the following positions for customers setting up or expanding in Japan, as well as other employers of bilinguals.

HIGHLIGHTED POSITION(S)

We are currently looking for a senior infrastructure engineer to work on-site at our busy international client in Daimon, Tokyo area. This is a great opportunity for those who have more than 5 years of overall IT infrastructure support (desktop support, server/network management). The candidate will take a lead in various support plans and projects, therefore, high motivation, complete tasks on time and take a leadership role required. Business level Japanese and English is required.

Remuneration is JPY6m – JPY7.5m depending on your experience and skill level.

POSITIONS VACANT

• Network Architect, Market Data, JPY10m – JPY18m
• Helpdesk Engineer, Medical, JPY3.5m – JPY4.8m
• Datacenter Engineer, ibank, JPY3.5m – JPY4.5m
• User Support Engineer, Global IT, JPY3.5m – JPY4.5m
• Sales Staff, Embedded Antenna co, JPY7m – JPY9m

Interested individuals may e-mail resumes to:
stuart.gibson@biosjp.com

** BiOS Job Mail

Every 2 weeks BiOS sends out a regular communication to its job seeking candidates, called BiOS Job Mail. Every edition carries a list of BiOS’s current and most up-to-date vacancies, with each entry featuring a short job description and a direct link to the main entry on the BiOS home page. Regardless of whether you are unemployed and searching, thinking about a career change, or just curious to know if there is something out there that might suit you better, the BiOS Job Mail newsletter is an easy and convenient way for you to stay informed. If you would like to register for the BiOS Job Mail, or to find out more, please email stuart.gibson@biosjp.com.

Interested individuals may e-mail resumes to:
stuart.gibson@biosjp.com

No announcements this week. This weekend’s Entrepreneur Seminar was very well attended, though. Over 23 people looking to start or grow their companies came to the session. The next seminar will be scheduled some time in April.

In this section we run comments and corrections submitted by readers. We encourage you to spot our mistakes and amplify our points. Click here.

*** No corrections/comments this week

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