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Biggest Manufacturing Bankruptcy in Japanese History a Reason for Greater Concern?

In Japan, the largest manufacturing bankruptcy in the nation's history was declared this week as Elpida Memory Inc. found its liabilities in the neighborhood of $5 billion far too great to overcome without restructuring. While bankruptcies in Japan have been very rare, this slow-growing trend certainly warrants attention from anyone doing business with a Japanese-based company.

The computer memory chip manufacturer, once a big part of a booming exporting industry dominated by Japan, has had trouble keeping up with foreign counterparts. The bulk of that competition, driven by lower costs, comes from outfits in South Korea, primarily Samsung. Also harming Elpida and its in-country contemporaries is that its chips are used for computers and laptops, not necessarily the increasingly popular devices such as smart phones, tablets/eReaders and similar products. But, as discussed at length in the feature "Falling Sun" in the March issue of Business Credit, straight competition and changing consumer demand are far from the only factors plaguing Japanese businesses.

The overvalued yen, which has become a bit of a magnet as investors leave the unstable euro, has made it harder for Japanese-based exporters to compete financially and threatens Japan's long-held trade strength. NACM Economist Chris Kuehl, PhD said its part of why he's deeply worried about Japan from a business, credit and economic standpoint.

"It's a little confusing. The yen has become so strong, too strong, and there's no real reason for it," Kuehl said. "They're looking at a near collapse of their export market. For the first time in 30 years, they're looking at a trade deficit."

As such, Japan—never known as a country where corporate bankruptcies were very likely—could be seeing its fortunes change...and not for the better.

"Japan has a more complicated system of bankruptcy, and people have always thought about it as a place that is totally safe [from a credit perspective]. You need to rethink that," Kuehl warns. "There's a very cozy relationship between banks and businesses but, if for some reason banks think you don't have much of a future, problems will occur immediately. They look perfectly fine until backing vanishes, and then they're gone immediately."

Kuehl will lead the last day of programming at FCIB's International Credit Executives (I.C.E.) Conference in Chicago, May 2-4. You can also catch him in person at NACM's Credit Congress, June 10-13, in Grapevine, TX.

Brian Shappell, NACM staff writer