Please describe SBI’s evolution since its formation, and how the strategy has changed before and after the first dot.com bubble, the intervening years and current expectations for successful investing?
In 1999, with the transition of SOFTBANK CORP. into a pure holding company, Softbank Finance Corporation (currently SBI Holdings, Inc.) was established. At the time, SOFTBANK CORP. was the leader of the Internet in Japan, and having developed their Internet business through investments and relationships with various U.S. based leading Internet companies of the time, I developed an instinctive feeling about the enormity and inherent destructive power of the Internet.
Looking back, when we raised approximately $1.9 billion to invest solely into the Japanese Internet-based companies, the timing was such that it was shortly before the bursting of the Internet bubble in the U.S. When the U.S. dot-com bubble burst, it had a major adverse effect on the Japanese market. However, I was still convinced that the Internet market would expand significantly in the near future in Japan, owing to its 4-5 year lag as compared to the U.S. Internet technology and services. It was our dedicated focus and concentration that eventually led us to our success in our Internet investments.
Also, appreciating the Internet’s remarkable affinity with the financial business, I was certain that through the integration of the Internet and finance, we would be positioned to offer new financial products and services that would radically alter the ensconced Japanese financial services industry.
It was also very timely that Japan was undergoing its own financial deregulation, which would enhance the possibilities for success of the newly forming online securities industry. Therefore, understanding the magnitude of the situation, I proceeded to form a joint venture company with E*TRADE Financial Corporation of the U.S., on a 60/40 basis. This company eventually became Japan’s largest and most successful online brokerage firm, with over 2 million customer accounts.
In the early development phase of the SBI Group, a "financial ecosystem" was established, primarily through the formation of joint ventures with prominent U.S. companies involved in the Internet and finance business, including E*TRADE and Morningstar, Inc. With this foundation, we eventually established ourselves as an "Internet financial conglomerate", through the addition of Internet banking and Internet nonlife insurance businesses.
We have no doubt that our future growth opportunities lie in the overseas emerging market countries. To fully leverage the high growth potential of these markets, we are transitioning ourselves to become the "World’s SBI", by exporting our financial service businesses to these countries and by investing heavily in Asian emerging countries.
2) How similar is your programme developed for Japan to other regions?
First, let me explain our Japanese business strategy.
Since our establishment, the SBI Group’s financial ecosystem has been supported by two major strategies, in order to maximize the utilization of the Internet.
The first is the "adherence to the customer-centric principle". The Internet revolution has enabled consumers and investors to obtain adequate information without having to put forth much effort or spend much time and money, and to make purchases or investments based on that information. Consequently, they have become more knowledgeable and intelligent in their decision making, and this process will eventually lead to a "customer-centric marketplace". Within such an environment, we will not be able to survive unless we are able to continuously provide the most affordable and attractive products to our customers and investors.
The second is the "leveraging of mutual synergies of the businesses". From the beginning, I envisioned building an Internet financial conglomerate that offers a variety of financial services, and gave much thought and deliberation to the kind of organization that would provide the best and strongest organizational structure for the company. One of the most enlightening ideas that came into my mind was the concept of a business ecosystem.
In the age of the Internet, I concluded that it would become more difficult for a standalone company to thrive, or even to survive. Instead, it became clear to me that a group company business ecosystem that provides an absolute competitive advantage, with various synergistic effects among and between group companies, must be pursued and developed.
Since then, we have introduced the Pentagon Management business strategy for the financial services business, to thoroughly pursue synergistic effects within the SBI Group. Today, our financial ecosystem consists of five core businesses, namely securities, banking, nonlife insurance, life insurance (in preparation for re-entry), and settlement services. Focusing on each core business, we will place affiliated companies and businesses that possess core business support functions, to fully pursue synergistic effects between each core business.
For the overseas development of our financial services business, we will leverage our network of prominent local companies that was established through joint funds, to transfer the SBI Group’s financial services business. By doing so, we will be able to provide the same financial ecosystem that was established in Japan to the various overseas countries in which we are partnered. We have already started this process in China, Russia, Vietnam, Indonesia, Sri Lanka, and Cambodia.
3) Why and how do you choose which markets to enter? Is there a localisation strategy (and for which markets)?
Our localization strategy carefully considers the development stage of the country that is chosen, as each country’s economic development condition is of the utmost importance. This owes to the SBI Group’s definitive overseas development goal of transplanting our financial ecosystem that was developed in Japan, which provides for the provision of financial products and services via the Internet. However, in the emerging market countries that we have targeted, the necessary infrastructure such as the law and the Internet still must be further developed.
So, we are initially focusing on investing our capital into banks, that are likely to become the cornerstone of the growth of the financial sector of those countries. Reflecting on Japan of the 1960s and 1970s, during its strongest period of economic growth, the largest market capitalization was held by the financial institutions, until the bursting of the bubble in the 1980s. This is a pattern that will be repeated in the emerging high economic growth countries. For instance, in China, among the top ten market capitalization companies, 7 are financial institutions, including banks, life insurance companies, and so forth. I had anticipated this pattern some time ago, and so we have concentrated our investments in the financial institutions of the Asian emerging market countries. It is our stated goal to export our online business to these financial institutions, as the Internet will no doubt become more readily available to the people of these emerging market countries.
For example, in Cambodia we have stakes in a bank and a securities company, and both currently serve the traditional financial services. We established Phnom Penh Commercial Bank Ltd in Cambodia together with our partner in Korea, Hyundai Swiss Group. SBI Phnom Penh Securities in Cambodia is the first Japanese financial institution to receive approval for a full license for the securities business in Cambodia. Following the opening of the Cambodia Stock Exchange, which is currently in the preparation stage, SBI Phnom Penh Securities plans to begin operating its securities business, including underwriting and stock brokerage services. Thus, we are well placed in their market through our penetration into the frontier days of the Cambodian finance industry.
4) What is the expectations for the markets, and what would qualify as success?
In 2011, owing to the sovereign debt problems in the U.S. and the Euro-zone countries, the global market economies exhibited uncertainties about their future prospects. I believe that this was the result of a shift in the global power balance from the west to the east, rather than a temporary fluctuation of the developed countries’ economic development.
There is no doubt that the 21st century is the "Asian Century". In contrast to the developed countries of the west, the emerging Asian countries such as China will boost their global prominence in terms of economic scale and future growth potential. Considering global demographics by country and region, China has a population of 1.3 billion and India 1.2 billion, with Asia as a whole accounting for approximately 50% of the total world population. According to the IMF, taking the nominal GDPs of the ASEAN+6 countries as representative of the Asian economies, their combined GDP is forecast to reach about $24.4 trillion in 2015, surpassing NAFTA and the EU to become the world’s largest regional economy.
In order to take full advantage of this macro trend, the SBI Group will fully lever its know-how and experience accumulated through its operations in Japan, and the established global network with prominent local partners through the asset management business. We will work to export our financial ecosystem to become a truly global corporation, with its axis in the emerging market countries and a particular focus on Asia.