Equities and eBay–Culture Gets in the Way Read the case below and answer the que
ID: 397311 • Letter: E
Question
Equities and eBay–Culture Gets in the Way
Read the case below and answer the questions that follow.
Global Perspective
EQUITIES AND eBAY—CULTURE GETS IN THE WAY
Two trillion dollars! That’s about 200 trillion yen. Either way you count it, it’s a lot of money. American brokerage houses such as Fidelity Investments, Goldman Sachs, and Merrill Lynch rushed new investment products and services to market in Japan to try to capture the huge capital outflow expected from 10-year time deposits, then held in the Japanese postal system. Liberalization of Japan’s capital markets in recent years now gives Japanese consumers more freedom of choice in their investments. Post office time deposits still yield about a 2 percent return in Japan, and bank savings yields have been around 0. Compared to traditional American returns on e-trading investments, that means an electronic flood of money moving out of the post offices and into the stock markets. Right?
However, Japan is not America. There is no American-style risk-taking culture among Japanese investors. The volume of stock trading in Japan is about one-tenth that of the United States. In Japan, only 10 percent of household financial assets are directly invested in stocks and a mere 7 percent in mutual funds. In contrast, about half of U.S. households own stock. Says one analyst, “Most of the population [in Japan] doesn’t know what a mutual fund is.” So will the flood be just a trickle? And what about online stock trading? Internet use in Japan has burgeoned—there are now some 110 million users in Japan. That’s a little greater percentage than in the United States. But the expected deluge into equities has been a dribble. Merrill Lynch and others cut back staff as fast as they built it just a couple of years before.
Making matters worse, for the Japanese, the transition into a more modern and trustworthy securities market has not been a smooth one. At the time, an astounding transaction took place on the Tokyo Stock Exchange (TSE); instead of placing a small order of 1 share for 610,000 yen of J-Com, a trader with Mizuho Securities Co. mistakenly placed a sell order for 610,000 shares for 1 yen. Mizuho ended up losing 40 billion yen ($344 million) due to a simple computer glitch that ultimately led to the resignation of TSE President Takuo Tsurushima. Ouch!
A French firm is trying to break through a similar aversion to both e-trading and equities in France. That is, about 55 million people use the Internet in France, and one-third of that number own stocks. The French have long shied away from stock market investments, seeing them as schemes to enrich insiders while fleecing novices. After the Enron (2001) and Lehman Bros. (2008) debacles in the United States, you could almost hear the chortling in the sidewalk cafés there. But even in France, investment preferences are beginning to change, especially since the real estate market has turned so volatile. At the same time, the liberalization of Europe’s financial services sector is bringing down transaction costs for institutional and retail investors alike.
eBay, the personal online auction site so successful in the United States, is running into comparable difficulties in both Japan and France. For the Japanese, it is embarrassing to sell castoffs to anyone, much less buy them from strangers. Garage sales are unheard of. In France, eBay founder Pierre Omidyar’s country of birth, the firm runs up against French laws that restrict operations to a few government-certified auctioneers.
Based on our knowledge of the differences in these cultural values between the United States and both Japan and France, we should expect a slower diffusion of these high-tech Internet services in the latter two countries. E-trading and e-auctions have both exploded on the American scene. However, compared with those in many other countries, U.S. investors are averse to neither the risk and uncertainties of equity investments nor the impersonal interactions of online transactions.
Sources: Sang Lee, "Japan and the Future of Electronic Trading," Securities Industry News, November 5, 2007; "Japan Equity Mutual Funds See Large Inflows on New Tax-Break Scheme," Reuters, February 14, 2014, online; World Development Indicators, World Bank, 2015
The liberalization of the financial services sector in Europe affected French attitudes to stock market investments such that the French now view them with less suspicion. Which of the following factors best describe this change?
A. Individualism
B. Political Economy
C. Social Influences
D. History
E. Geography
Explanation / Answer
C Social Change:
As because of the internet, global intermingling and influence the customer behavior has changed and the markets in Japan and France have become more open.
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