Japan looks for a place at China's dinner table
2011/01/01
In a Shanghai suburb, a joint venture between Shikishima Baking Co., known in Japan for its Pasco brand bread, and Wei Chuan Foods Corp. is putting up a large 30,000-square-meter bakery.
It represents a major investment for the Nagoya-based firm. Previously, when moving into new markets like Indonesia, Shikishima has limited itself initially to one production line. The Shanghai operation will have five.
The potential of the project is huge. Japan's domestic bread production dropped 8 percent in a decade to 1.17 million tons in 2009. China baked about 3 million tons of bread that year.
No dominant national brand has yet emerged and per capita bread consumption is relatively low, offering plenty of room for expansion.
"Just as demand for bread increased in Japan as lifestyles changed during its postwar high growth, China has room for further growth," said Kaneyoshi Morita, Shikishima's senior managing director.
But like a growing number of Japanese food and drink companies licking their lips at China's huge and booming market, Shikishima is finding that getting a seat at the Chinese banquet requires more than a hopeful heart and a new production line. Local know-how is vital.
For one thing, many Chinese do not toast their bread and have no means to do so.
China's breakneck and relatively recent development has meant that, just as many Chinese bought cellphones before buying landlines, consumers adopted microwave ovens in large numbers, without ever owning toaster ovens.
For Shikishima that represents a challenge, because its Japanese sliced breads are made with toasting in mind.
The company is one of a knot of Japanese firms that are drawing on the local knowledge and contacts of the Japanese trading house Itochu Corp. and its Chinese partner Ting Hsin International Group, a major Chinese food company, in trying to penetrate a potentially rewarding but profoundly unfamiliar marketplace.
While Ting Hsin, the parent company of Shikishima's partner in the Shanghai venture, advises Japanese businesses on local differences, Itochu and Japanese businesses provide advice on product development and quality control to Chinese partners.
"Trouble can occur even with a reliable partner. Having a mediator like Itochu has significance," said a senior official of a Japanese company. "It's an insurance of sorts."
Itochu signed a comprehensive business deal with the Ting Hsin group in 2002 and, in 2009, bought a 20-percent stake in the group for 70 billion yen ($850 million).
The partnership has allowed Itochu to hitch its wagon to one of the big players in the Chinese food business. Ting Hsin has about 140 member companies, including China's largest instant noodle maker, Master Kong.
Ting Hsin Chairman Wei Ing-chou, who was born in Taiwan but moved to China in the 1980s, built close ties with Itochu executives following negotiations to make Ting Hsin a partner in the FamilyMart convenience chain in 2000. Wei, one of four famous brothers, describes Itochu as their "fifth brother."
With annual sales of 500 billion yen, the Tianjin-based group boasts nationwide distribution networks and connections with regional retailers. It also has a growing string of Japanese partners, courtesy of Itochu.
In 2004, Asahi Breweries Ltd. formed a soft drink joint venture with Ting Hsin, sending staff to train Chinese workers in quality control and other fields. Ting Hsin, for its part, invested aggressively in the production and marketing of the joint venture's tea and mineral water brands.
The partnership took another step in November, with Asahi acquiring a 43-billion-yen stake in Ting Hsin's holding company. It has also signed a deal with Itochu to cooperate in China.
Asahi's China operations, including beer sales, generated a profit of 8 billion yen, close to 20 percent of Asahi's group net profits of 47.6 billion yen in fiscal 2009.
Itochu has also served as a go-between for FamilyMart Co., Kagome Co. and Nippon Flour Mills Co. in forming partnerships with Ting Hsin group companies.
"We hope to facilitate ties with Ting Hsin for several companies each year, to help Japanese business get into China," said Yoshihisa Aoki, Itochu's senior managing executive officer who heads the food sector.
Itochu's food division expects a net profit of 40 billion yen for fiscal 2015, up 40 percent from fiscal 2009, and expects most of that increase to come from the Chinese market.
Inquiries from Japanese businesses interested in building ties with Ting Hsin have continued to pour in even after the political row over the disputed Senkaku Islands, according to Itochu representatives.
(This story was written by Takeshi Kamiya and Yasuhiro Honda.)
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