Pachinko's Influence in Japan - Korea - US Relations

Last night I had an early Thanksgiving with my colleague and good friend at Mitsui, Yoichi Asai. Yoichi is cool Japanese dude who just came to the US a few months back. He was "dispatched", as they say in JENGLISH (Japanese English), to the US to fulfill his training duty. Sometimes when I hear such words, I feel that I am part of some secret military force that is covertly sending agents to the US to gather information. In fact, I may not be far off. In the 1980's, it was well regarded that the Japanese trading firms had the best access to global information.

Asai-San and I started the night with a bowl of ramen at our favorite place Halu Ramen. Halu is Japanese for nice day and that it was a nice day. We then decided that we should drink large amounts of Asahi Dry and discuss the internal strategy of Mitsui. After finishing several beers we then decided to go across the street to a German Beer House called Harry's Hofbrau. Harry's is located next to my apartment and it has always touched my curiousity but I had never gone before.

So after we went in we ordered pints of Harry's Authentic German brew. In addition, they had a cafeteria line filled with turkey dinner helpings so I thought it would be culturally polite to show him what a typical T-Giving dinner is. So I ordered a few turkey legs and we gobbled them down.

Before coming to the US, Yoichi sold Pachinko chips with a Japanese subsidiary. So in the middle of our feast, we began to discuss Pachinko as a cultural phenomenom in Japan. Yoichi taught me some very interesting facts including that Pachinko industry is as big as the food industry in Japan, about $230Bn. I thought that was amazing! Also, Pachinko chips were made by two companies, one of them is Freescale which owns 50% of the market and that was one of the most profitable business lines for that unit.

Further and most interestingly, Pachinko Parlors are very much controlled by Koreans, both South and North. In fact, North Korea receives a very large amount of money from Japanese Pachinko houses. They earn so much that it would significantly impact North Korean's wealth if they were to lose this flow of money.

So let's look into strategic moves by the two countries. If Japan puts more pressure to regulate Pachinko, North Korea will retailiate by sending a missle over Japan so Japan will not do this. If North Korea makes any attack at Japan, then Japan will cut off Pachinko Money and North Korea will lose much access to wealth. This to me sounds like the ultimate strategic equilibrium.

But let's see how the US now plays a role. If Freescale decide to cut off production of Pachinko chips or sell the division that results in a decrease in chip supply, this will put supply pressure on the Pachinko machine production. Less Pachinko machines, means less Pachinko players and less money to North Korea. So Freescale, whether or not they know it is playing a very profound part of the equation.

Now let me bring up another very strange fact to this. During the North Korean uproar and threat of power there was one very large business transaction. That transaction was the taking private of Freescale by Blackstone, TPG, and Carlyle who are notorious for chopping up business divisions after buyouts. The transaction was consummated on September 16th and KIM tested his nucleur bomb on October 3rd.

It is in my opinion that KIM was making a direct threat to George Bush, who is a major shareholder in Carlyle. That threat was not please do not attack me; that threat was do not shut off my Pachinko Machines or I will attack you. If I were Freescale, I would have called up KIM and said you let us sell Motorola phones in your country and we won't touch your Pachinko Chips.

It seems to me that no one got this at all.