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To: sunny who wrote (172)	5/20/1999 4:11:00 AM
From: Edwin S. Fujinaka	Respond to of 6020

Perhaps this old article may present a little insight into Son's thinking. How do you like his advice to Sony<G>? Tuesday, February 9, 1999 Intellectual Capital Plays Key Role In 'New Capitalism' Age TOKYO (Nikkei)--The nature of capitalism is changing dramatically in today's increasingly global, computerized business environment. As a "New Capitalism" emerges, success is determined by how efficiently capital is used and how intensively knowledge is put to work. The Nihon Keizai Shimbun talked to managers in Japan and abroad about what separates winners from losers. Late last year, Sony Corp. (6758) President Nobuyuki Idei complained to Softbank Corp. (9984) President Masayoshi Son that his firm's share price had fallen from a peak of over 13,000 yen last July to around 8,000 yen. Son offered a simple solution: change the company name to "Sony.com," relocate the headquarters to the U.S. West Coast and the share price will leap. Idei had a different idea, as it turns out. Last July, he got an estimate of invisible assets that don't appear on Sony's balance sheet, such as brand strength and intellectual property. By Sony's traditional accounting methods, the corporation's net assets per share came to just over 4,400 yen as of year-end. But if the invisible assets are figured in, the company's per-share value exceeds even its peak share price. New Capitalism takes into account intellectual capital such as ideas and customer base. In contrast, viewing land, equipment and labor as the three main growth factors is a traditional idea of economics that "has been around since the days of Adam Smith," says Yutaka Kozai, chairman of the Japan Center for Economic Research (JCER). Now he says there is a new factor: intellectual wealth. Major U.S. venture capital firm Kleiner Perkins Caufield & Byers has formed a group of 175 U.S. firms -- mostly dealing in information or communications -- in which it invests. It calls the group "Keiretsu." Its members increase their own value by exchanging not merchandise but such intangibles as information, knowledge and human resources. All the members maintain "ultra-light" balance sheets, with minimal physical assets like sales revenues, land or facilities. But their share prices are extraordinarily high -- the combined market value of the 39 Internet-related firms alone comes to 22 trillion yen in a vivid demonstration of their capital strength. Last year, for example, both America Online Inc.'s buyout of Netscape Communications Corp. and AtHome Corp.'s takeover of Excite Inc. were bigger even than Ford Motor Co.'s 6.14 billion-dollar purchase of Swedish truckmaker Volvo's automotive division. And those were just reorganizations within the "Keiretsu" group. This represents a change in the very nature of capitalism that can't be explained away as just a speculative bubble in U.S. high-tech shares. This kind of "intellectual capitalism" is being bolstered by a rapid rise in stock investment that management philosopher Peter Drucker calls "The Unseen Revolution." During 1998, total funds under management at U.S. investment trusts came to exceed total bank savings. The inflated amount of money invested at risk has turned "intellectual capital" into cash. Entrepreneurs use stock options and warrants to lure talented personnel and acquire promising companies, thereby getting themselves onto a growth cycle. Of course, established companies are affected, too. According to Silicon Valley theorist Regis McKenna, assets have begun to function as liabilities. He says one reason giant corporations like AT&T Corp. or Hitachi Ltd. (6501) are having such a hard time is because they own such large factories and massive amounts of equipment that "it weighs them down when it's time to catch the next plane." One solution is to lighten up the balance sheet by disposing of unprofitable investments and buying back outstanding shares. Over the last 10 years, International Business Machines Corp. has kept its share price high by disposing of unprofitable businesses and buying back and retiring 40% of its outstanding shares. Last month Microsoft Corp. became the first company in history to record a market value exceeding 400 billion dollars. While the software giant's total assets are only 10% those of General Motors Corp., in terms of market capitalization it is the equivalent of seven GMs. From the start, Microsoft has never taken out a long-term bank loan. Rather than invest in factories or buildings, the firm has always poured its money into talented people and technology. A new kind of company, armed with intellectual capital and an "ultra-light" balance sheet, seems set to overturn the order created by the old-line industrial powers, like a featherweight boxer knocking out a heavyweight with a single punch. (The Nihon Keizai Shimbun Monday morning edition) HOME SEARCH HELP CONTACT US Copyright 1999 Nihon Keizai Shimbun, Inc., all rights reserved. If you are having technical difficulties please contact the Webmaster