Alex. Brown looks to history, focus for edge in Japan


TOKYO -- Almost 200 years after Alex. Brown began launching overseas clipper ships out of Chesapeake Bay, the firm finally has landed in Japan.

An office has been established in one of Tokyo's classiest new buildings with a rare, sweeping view of the city, and -- rarer still -- surplus space. Two employees have been sent from the United States, one of whom worked more than a decade for Mitsui, a major Japanese trading company. Two others have been hired locally, including one to peddle U.S. securities. Japanese-Englishcomputers are all hooked up.

Just putting that together requires an extraordinary commitment, given Tokyo's exorbitant start-up costs. The toughest task, though, lies ahead -- breaking into a notoriously difficult market at what many believe to be an inauspicious time.

Alex. Brown's edge? Atsushi Abe, the principal in charge of the office, says the company's long history gives it credibility; its emphasis on three key areas (technology, medical technology, and media and communications) provides a unique "focus."

Taken together, these can be used to establish cross-country relationships.

Both qualifications lose some of their luster in the harsh light of Japan's competitive environment. The areas of "focus" collectively make up the vast, fuzzy heart of Japan's economy. They are being scrutinized by not only every financial deal-maker, but also the numerous crucial Japanese trading companies that are constantly on the international prowl for opportunities.

Additionally, unlike in the United States where Alex. Brown can claim senior status, at least one other foreign firm operating here, Barings Securities, is more than a generation older, having been founded in 1762, and trading companies like Mitsui, Mr. Abe's former employer, have roots dating to the 1600s.

Bringing all that history more into the present, doing business in Japan today typically requires person to person, beer to beer, institution to institution contacts. For these, Alex. Brown's birth date isn't 1800, as noted on its freshly printed bi-lingual business cards. It is June -- when the Tokyo office opened.

The long lag in arrival has resulted in the Baltimore-based investment bank opening its first Asian outlet in Tokyo just as many similar firms, including the most sophisticated divisions of Japanese financial institutions, are relocating their emphasis, if not their entire operations, to New York, London and elsewhere in Asia.

The primary cause of the shift is the difficulty in using Tokyo as a center for transactions. These impediments constrain almost every non-Japanese firm.

For instance, a core business for Alex. Brown, perhaps the core business, is its underwriting of small start-up companies on the over-the-counter market. But in Japan, foreign firms are essentially barred from the market.

What can they do? Japanese companies "are very focused on the buzzword of multi-media," Mr. Abe said. 'We're talking to companies about opportunities they can pursue."

So far, Alex. Brown has been involved in two deals of this type, participating earlier this year in the acquisition of a $75 million equity stake in Nextel Communications Inc., a New Jersey-based wireless communications company, by Nippon Telegraph & Telephone, the large, government-controlled Japanese telecommunications monopoly, as well as the earlier sale of a stake in the Oracle Systems Corp. to Nippon Steel, a company that has launched numerous efforts to diversify with largely poor results.

The business of selling American companies in whole or part to Japanese buyers has been one of the few open to American bankers and lawyers clustered in Tokyo. After numerous deals during the 1980s, it has slowed, mainly because so many of the deals, encompassing everything from real estate to tires to apparel, were disasters for all but the sellers.

Mr. Abe believes, however, interest remains on both sides. Venture capital is almost nonexistent in Japan, and there are few small firms that could be classified as "emerging growth" as understood in the United States, he added.

"Companies here are looking into new areas," Mr. Abe said. "They would like to have access to ideas, and emerging companies in the U.S. need capital and access to Japan's markets."

Conversely U.S. firms may begin purchasing stakes in Japanese companies, he added. That business has been close to nonexistent. In the past weeks, it became the subject of trade negotiations between the United States and Japan with initial discussions, according to participants, centering on the preference of Japanese companies to merge only as the result of ongoing business relationships and not because of the purchase of shares by another company.

The negotiations underscore one of the most difficult questions in the Japanese economy -- what causes change. In the United States, substantial segments of the economy were re-arranged through the moves of financial firms including Alex. Brown, either through mergers or through providing new investment.

Yet in Japan, the obstructions to developing new media operations, for example, aren't technical or financial. They are bureaucratic. Laying a fiber optic line for cable television, for instance, requires a bewildering and costly array of permits from numerous government agencies. Other rules restrain electronic commerce, banning, for instance, even the purchase of an airline ticket without face-to-face dealing.

Notwithstanding all the difficulties this presents for an investment bank, a direct competitor to Alex. Brown said the current pessimism about Japan may, in fact, make it a good place for a firm to arrive today. Rents are lower than a few years ago, the economy may be on the way up rather than the way down, and other potential competitors have fled.

Mr. Abe said he sees Alex. Brown developing new forms of partnerships and relationships between companies. These won't be outright purchases, but something that won't shift management but will create ties. Deals are already in the works, Mr. Abe added, though neither they, nor the form they might take, can be disclosed.

"Ask about six or 10 months from now," Mr. Abe said. So far, he added, "we haven't seen any hitches."

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