TOKYO -- The public-private fund at the center of Japan's initiative to promote cultural exports is struggling four years after its launch, with many taxpayer-funded projects failing to deliver the promised results.
The "Isetan The Japan" department store launched in collaboration with Isetan Mitsukoshi Holdings in the Malaysian capital of Kuala Lumpur offers a curated collection of traditional utensils, apparel and even food under the banner of "real Japan." But customers were few and far between one day in late September. A 21-year-old student said he likes Japanese clothing but found it too expensive to buy.
The Cool Japan Fund provided 1 billion yen ($8.76 million) in funding -- nearly half the cost -- toward remodeling the store into its current incarnation, which opened in October 2016. But it has proved less successful than hoped, reporting more than triple the expected operating loss in the April-June quarter.
One trading house employee stationed there says he senses arrogance in the way the store is marketing its products.
Cool Japan Fund CEO Nobuyuki Ota, previously an executive at department store operator Matsuya, had a friendly relationship with Hiroshi Ohnishi, president of Isetan Mitsukoshi until this past April. Ota approached Ohnishi about an investment shortly after the fund was created in the fall of 2013. When talks between the two sides made little headway, the friendship at the top helped to see the deal through.
But Ohnishi is no longer at the department store operator's helm. Ota acknowledged the Malaysian store's struggles and told The Nikkei that the fund is working to turn it around.
The four-year-old Cool Japan Fund is the centerpiece of the government's "Cool Japan" strategy to promote cultural exports such as anime and food. The fiscal 2017 budget earmarked 45.9 billion yen in funding for the program, up 22% from fiscal 2016. The government provided more than 80% of the public-private Cool Japan Fund's nearly 70 billion yen in capital via the Finance Ministry's fiscal investment and loan program.
South Korea is a step ahead in its national efforts to spread its culture overseas. The country's exports of broadcast content exceeded Japan's by more than 30% in 2015. Product placement in dramas has boosted Asian sales of such South Korean goods as cosmetics and home appliances, creating a virtuous cycle.
The cornerstone of Japan's catch-up plan, the Cool Japan Fund, has not gotten the hoped-for results. The fund has agreed to invest around 50 billion yen in a total of 24 projects. But internal documents and other evidence show that 10, if not more, of the 18 investments decided on at least a year ago have failed to meet earnings, store opening or other targets. Among the underperformers are projects with personal ties to the fund's leadership.
It's who you know
Multiple sources attested that the Cool Japan Fund was so intent on getting quick results that it routinely took on executives' pet projects.
The fund spent 250 million yen in April 2015 for a nearly 50% stake in a venture to operate U.S. cafes specializing in Japanese tea, partnering with a consortium of Nagasaki businesses including a purveyor of kasutera sponge cakes.
The investment came at the behest of an outside director who has ties to Nagasaki and is an old friend of a central figure in the consortium. "We turned it down once amid doubts about their planning and management capabilities," a former fund employee said. But the plan was later revived.
External directors have a duty to make objective decisions about investments. The director in question dodged inquiries from The Nikkei about involvement in the deal.
The U.S. cafe business opened its first location in the summer of 2016. But it lacked the necessary license to let customers eat and drink inside, forcing it to stick to take-out service. Plans to open a second store have stalled, and the venture is having rent issues. Trust between the Cool Japan Fund and the Nagasaki consortium has broken down, with the latter filing for arbitration in September to break up the joint investment.
The fund also teamed with broadcaster Sky Perfect JSAT on Wakuwaku Japan, a channel broadcasting Japanese programs overseas, investing 4.4 billion yen. Sky Perfect contributed 6.6 billion yen. Multiple sources called this a pet project of Cool Japan Fund Chairman Kazunobu Iijima, an outside director at the broadcaster's parent, Sky Perfect JSAT Holdings.
The venture has fallen short of its goal of giving exports of Japanese programming a shot in the arm. Wakuwaku set out ambitious plans to expand into 22 markets by fiscal 2020, rather than focusing on areas likely to see demand grow. Viewership is lackluster in the eight markets it already operates in. The channel has reported net losses totaling nearly 4 billion yen over the last two fiscal years, raising the specter of possible write-downs.
The Cool Japan Fund maintains that its decision-making is fair and neutral, and it gives executives with conflicts of interest no say in final decisions on relevant investments. But no such safeguards exist for the rest of the process. Without a more sophisticated strategy and a more disciplined approach, a fund meant to promote Japanese culture will end up simply squandering Japanese taxpayers' money.