Japan's Golden Week Is Almost Upon Us

Back when I was working for Argonaut Capital in the 90s, Japanese stocks were part of my coverage. It was four or five years into the bear market that followed the 80s boom. The Japanese authorities had noticed that doing almost anything was better than opening the exchange for trade, so they multiplied meaningless holidays and started taking any excuse to close. Or so I remember the manner in which Golden Week became almost an entire week off from the end of April into the first week of May.

I noticed that one of the most powerful seasonal tendencies in the financial markets was for the Nikkei stock index to break shortly before or after Golden Week and decline meaningfully in percentage and time terms. "Sell in May and Go Away" is an adage quoted by stock traders everywhere, but counter to that there is also the market lore of the summer rally, which endures because it works sometimes. But not, it seemed, in Japan, where the very name "Golden Week" seemed a black joke. Leaden Week for financial markets was more like it.

This observation was bankable. In every year of the decade of the 90s, the Nikkei dropped substantially from its pre-Golden Week highs; the biggest drop was 39%, the smallest 9%, the average about 20%.

In 2000 I presented original research on the effect in the late lamented worldlyinvestor.com (hey there Jeremy Pink! Lay off the Dim Sum, will you?) I forecast the same thing to happen that year, and it did: a 20% drop a few weeks after Golden Week, a 30% drop within a few months.

In 2001, the Nikkei peaked in May and plunged.

In 2002, it rose in May but collapsed later that summer.

In 2003,the pattern failed for the first year in fourteen as the index rose 10% in May and kept on trucking.

In 2004, there was a modest 10% loss.

In 2005, there was again no playable decline around Golden Week. However in 2006 there was a rapid loss of 2500 Nikkei points.

Then in 2007, the peak did not arrive until the first week in July, and in 2008 the market rallied in May but began the collapse from which it is still suffering in early June.

One might conclude that the pattern is no longer reliable. Possibly as the effect became more widely known it has been arbitraged away through the action of traders. I always felt things changed since 2000 with the inclusion of a number of key technology shares in the Nikkei that year at very high weightings and the near disappearance of financial sector weightings. Over time the Nikkei has become more like a Nasdaq proxy, and the Nasdaq is having a pretty good year in 2009, all things considered.

I'm positioning for the thing to work again this year, even though at time of writing the Nikkei is only at 8686. That's still 1900 points above its low for the year, at a time that the economy is contracting at rates approaching 10% per annum, world markets may have run out of puff, and there are few redeeming factors in sight.

Chinese Business Naming: Baby Banana Fettewql, etc.

I once met with a company in China. It had a great business plan for its proprietary skin care products for men, terrific sales pitch to go with the products, attractive product design and logo. Altogether pretty credible, until you got to the name. Who told them it was a good idea to pick a Chinese name that transliterates to something that sounds exactly like "Lady Man"?

A lot of regular guys feel mildly conflicted about using any product beside the traditional soap and shaving cream on their skin. Offering them Lady Man brand products is going to queer the deal, probably for good.

The Lady Man men have an elaborate explanation of how they came up with their names, trademarks, and trade dress, all of which is really beside the point. They have made the mistake of being unintentionally ridiculous in a major world language. Of course they are not the first or the biggest to do so. Many of us have heard how General Motors struggled to sell Nova’s in Latin America at a time that it apparently had no Spanish speakers on staff to point out that “no va” is Spanish for “doesn’t go.”

There are hundreds of world languages, and no doubt almost everything is ridiculous to some linguistic community or other. For the brand manager it might be OK if your name is smutty in Sinhalese, hilarious in Hittite, or politically incorrect in Papuan, as long as it is OK in all the majors. On the other hand, if you sell Iran’s market-leading detergent Barf, you don’t worry because your customers do not know or care why Americans think that is so funny.

But back to Lady Man. This is one small particular instance of problematic product/business naming in China, where companies are thinking big, trying to graduate from producing dollar-store fodder and white-label products for foreign brand owners to developing international brands in their own right. They need to know that getting the right name is the first and most important part of this, because you are not a brand unless customers ask for you by name.

Some Chinese companies are going international with their Chinese name, transliterated into foreign script -- for example Huaxin Cement, Hai'er Appliances, and Tsingtao Beer. This follows the example of many Japanese and Korean competitors (e.g. Toyota, Samsung). It takes confidence and a willingness to hear foreigners mispronounce your language. It is working pretty well for Hai'er as they establish their brand worldwide.

Other Chinese companies venture out into the wide world with their Chinese name translated into foreign language -- Snow Lotus Cashmere, White Cat Laundry Detergent. These brand names can seem quaintly "Chinese-y" to foreign ears.

It is common for companies and brands all over the world to bear the name of their founder or animating spirit, and this seldom presents any problems. With the growth of individual enterprise and entrepreneurial culture in China, we can expect to see more labels and brands bearing the name of the real people behind them. Yue Sai-Kan had turned herself into a brand before the personal branding consultants in the U.S. ever thought of such a thing. Han Feng, the Shanghai-based fashion designer, is my favorite example in the fashion industry, one of the businesses I know best.

For fashion and allied businesses such as cosmetics and salon and spa services, the Chinese consumer values foreign experiences and foreign brands far above homespun Chinese, so the smart domestic entrepreneur picks an evocative personal name, place name, or foreign language word. In big city malls, the fashion brand Sao Paulo is side by side with Only, Less, and a Korean competitor that rejoices in the name of Mojo S. Phine NY. But it remains to be seen whether Sao Paulo the Chinese fashion brand can gain a following in Sao Paulo the Brazilian business capital.

How about using the Chinese proprietors' names together with foreign language words? Cindy Luo's label Omnialuo reaches for the classics -- the name of her line is literally "all things Luo" in Latin. Will Omnialuo mean anything to modern consumers in the western world? It just might, if they can learn to say it.

But from there things go downhill in some significant respects.

For purposes of this discussion we are concerned with legitimate business, rather than the products of intellectual property theft, made-in-China copies of foreign products with stolen brands and trademarks that make up 7% of global branded consumer product sales according to one estimate. This is criminal activity, understood as such by all concerned.

But in China and even in China's near-abroad, many Chinese companies sell own-design products under close facsimiles of well-known foreign brand names and trademarks -- there are Prader, Pal Zingeri, Dunhïll, and dozens of others, including countless variations on the name and trademark of Valentino, the leading IP victim according to my research. The foreign brand owners object to this abuse of their IP too, but the purveyors of this stuff go about their little activities unmolested. To the extent that these near-knockoffs make it into mainstream outlets such as Isetan in shopping Meccas like Kuala Lumpur, the IP originators can legitimately complain of real displacement and lost sales.

There are facsimile trademarks that rely for their effect on the font style rather than the actual names. In Guangzhou I saw a Frognie Zila store with the name rendered unmistakably in the font style used by Ermengildo Zegna.

One other case that fascinates me is the "Polo" name. There once was a bright, ambitious chap from the Bronx named Ralph Lifshitz who understood the value of names. He changed his own name to Ralph Lauren and called his fashion lines Polo. Ralph has tried to claim a proprietary right to the name and has even disputed the use by the sport's governing body of a polo player logo in its licensed apparel. But because Polo the sport has been around longer than Polo the brands, there is a little space for others to squeeze into, especially outside the U.S. where Ralph and other litigious parties are less likely to prevail. So in China, "Polo" has become a name applied indiscriminately and in dozens of variations to every kind of luggage and leather goods – “New York Polo”, “Polo Club”, “Polo Golf” -- if you can’t identify fifteen different Chinese Polos at a baggage carousel in any mainland airport, I’ll eat a polo mallet. The original and best Chinese Polo is simply Polo, and the proprietor is a friend of my family. His leather goods are excellent and his business operations in Beijing and Guangzhou are substantial. If his brand name did not bring him into conflict with industry heavyweight Lifshitz, er, Lauren, he would have a sure shot at success in international markets.

If abuse of foreign trademarks is a concern, abuse of foreign language is just a laugh. Visitors to China derive hours of amusement from the weird and wonderful uses to which random foreign letters, words, and texts are put there. In the men’s room in Jinan’s airport is a sign that says “Protect Environment Saving Bumf.” I don’t know what Bumf is, but sure, let’s save it. And while we’re at it let’s also save Chinese brand owners some grief by letting them know that silly confections such as Marisfrolg, Baby Banana Fettewql, and Biemlfdlkk are probably not going to work at the Mall of America.

My father told me, “Don’t try to be clever sonny, just be yourself.” It is good advice, which many in Chinese industry lack the self-confidence to employ despite the good progress of Hai'er and others: Just be yourself. The Japanese are always and everywhere themselves. At some early stage, Toyota decided to be Toyota rather than Forb or Fiak (or Fiaklfdlkk). Shiseido did not try to pass itself off as Channel. Yohji Yamamoto did not change his name to Johhny Valentino. Would it be too much to ask our Chinese friends, in just this one respect perhaps, to look at the Japanese and take a page from their book?

Trade Restrictions? Won't Help You

The administration, the managed-trade segment of the policy establishment, and the labor unions should consider the experience of the auto industry. General Motors, Ford and Chrysler strong-armed Japan’s auto industry to accept voluntary export restraints (VERs) in the mid-80s. The results of the VERs are named Lexus, Acura, and Infiniti. The Japanese motor industry drove up-market and developed an unassailable reputation for superior quality, not only in their luxury marques but across their full lines. Meanwhile the market share of U.S. motor nameplates dropped from 74% in 1985 to barely 60% in 2004 in spite of the VERs. Now it is worse, and one or more of Detroit’s former big three may not survive.

VERs made negligible difference to Detroit's rate of market share erosion. Take a look market share data from 1970 through 2004 (Sources - US Dept. of Commerce, Ward’s Automotive Yearbook, D H Smith):

Beat up trade partners over exchange rates? No!

American trading experience with Japan shows there’s much more to trade balances than just the exchange rate, and beating up trading partners over exchange rates is useless. In 1985, the Japanese yen traded at 250 to the dollar, and Japan ran a $46 billion surplus with America. In spite of billions wasted by the Bank of Japan in costly and ineffectual currency market intervention between 1985 and 2005, the value of the yen more than doubled to 109 per dollar. During the same two decades, Japanese industry suffered barriers against its motorcycles, semiconductors, and steel in the U.S. market, accepted voluntary export restraints on cars, and localized production in America through its investments of over $100 billion. Neither the huge currency appreciation, nor the restraints on trade, nor the transplanting of Japanese industry stateside prevented Japan’s trade surplus with the U.S. from rising to $75 billion by 2004.




(Source: US Dept. of Commerce, DH Smith)

Consider America’s trade deficit with China – it certainly is growing, having quadrupled between 1996 and 2004. Note that this was a period during which the dollar/renminbi exchange rate was stable to within 1.1%. During the exact same period, the Mexican peso declined by about one-third against the dollar. If the exchange rate were the principal factor in relative competitiveness, we might expect Mexico’s export performance in the United States market to be better than China’s. In fact, Mexico did increase its surplus by a factor of three — a strong performance, but not as strong as China’s.