Softbank is tainted by Saudi Arabia’s notorious image


The disappearance of Saudi Arabian journalist in Turkey, amid strong indications that he may have been murdered, has created a crisis for one of Japan’s richest and most successful businessmen.

Masayoshi Son, the founder of Softbank, is trusted with looking after the vast fortune of the Saudi Arabian government.

CNN reports that Saudi Arabia has pumped $45 billion into the SoftBank Vision Fund, which in turn has invested billions of dollars into tech startups around the world.

For example, last year Softbank invested $4.4 billion in WeWork, which has provided many co-working spaces in cities around the world, including China and Japan.

Murder investigation

However, the image of Saudi Arabia has been severely tarnished by the disappearance of the journalist Jamal Khashoggi, who writes a column for the Washington Post, which is often critical of the Saudi authorities.

“What we’re talking about here is a reporter who was allegedly murdered and dismembered in an embassy so this cannot be allowed to stand – it’s so egregious,” the independent technology analyst Stephanie Hare told the BBC.

She said that Saudi Arabia put a further 45 billion into Softbank’s Vision Fund last week. “The Saudis know that oil is not going to be a cash cow for ever so they are investing in tech and buying companies through Softbank,” explained Ms Hare. “But everyone know about the poor record Saudi Arabia has on human rights.”

There is no official statement on the situation on Softbank’s website but the big question is whether the partnership with Saudi Arabia has become too toxic to continue.

Davos in the desert

One way to judge how foreign companies view the situation is to watch if they attend a big investment conference in Saudi Arabia next week, dubbed by the media as Davos In the Desert.

CNN reports that the Japanese company Nikkei has withdrawn as a media partner for the event.

JP Morgan CEO Jamie Dimon and the heads of America’s top investment firms Blackrock and Blackstone are among the leading figures who have decided to stay away. But there has been no announcement from Softbank yet.

Political element

One of the goals of Softbank and other Japanese companies which do business internationally is to steer clear of politics as far as possible.

That is also why the Japanese government rarely initiates sanctions, with the notable exception of its tough stand on North Korea.

However, in this instance it will be difficult for Japan and Softbank to ignore the international outcry over Mr Khashoggi’s disappearance and the major implications for all those organisations which do business with the Saudi government.

Mr Trump has pushed Japan down an unwelcome road

Donald Trump has forced Japan into making a huge concession in terms of its trade relationship with the United States, according to the Financial Times.

The newspaper says that Japan has agreed to hold bilateral talks with America on trade. That’s significant – because up to now Japan has had a policy of negotiating as part of an international multilateral group.

In many ways, a bilateral – country-to-country – negotiation makes Japan’s position weaker.

So why has the Japanese Prime Minister Shinzo Abe, a supporter of multilateral negotiations, capitulated on this point?

Too big to battle

America is Japan’s largest trade partner. It is a crucial market for Japanese companies like Sony (owner of Colombia), Toyota and Softbank.

Japanese people have strong affection for American brands like Starbucks, McDonalds and Disneyland. So for Japan, talking to America directly makes sense, rather than as part of a group which includes other countries with different relationships with the United States.

Trump’s preference

Donald Trump much prefers bilateral deals and negotiations. It’s been his preference since he worked in business before he became president. It is clear that it makes it easier for him to press his American First agenda if the talks are bilateral rather than multilateral.

The Financial Times says the goal for Mr Trump’s is to “remake the world’s trading system”. The paper implies that countries which have “buckled under pressure” to the United States – like Japan – are likely to escape sanctions on their imports into the US.

Alan Beattie, the FT’s reporter, wrote: “Tokyo therefore finds itself pushed down the bilateral route.”

What is bilateral?

Japan has a much valued free trade deal with the European Union.

It’s often referred to as a bilateral arrangement although that is a slightly strange term to use about a deal with the European Union, which is a trading block made up of 28 members.

Negotiating with it, or them, is not easy – as Britain has learned from its extremely complex Brexit process to leave the EU.

China factor

Japan’s trade deal with the US comes in the context of a huge and escalating trade war between the US and China. Japan has already been caught in the crossfire, suffering heavy tariffs on its iron and steel exports to the US, with negative implications for its automotive industry.

Alan Beattie says Japan wants to “usher Washington down a more collaborative road” which I think neatly sums its up Japan’s diplomatic approach.

Why would it wish to fight with its ally over trade if there’s a chance of a better arrangement which suits both countries?

Unlike Japan, which is a fundamentally very pragmatic country, China appears to be in no such mood for collaboration or compromise.

The ideology which drives the Chinese government is inherently hostile to that of Donald Trump’s America First agenda. And Mr Trump’s advisors are taking a tough approach to China which is causing trouble to both sides.

Japan’s goal is to keep as friendly as possible in terms of business and diplomacy with both America and China. That’s an enormous challenge given Mr Trump’s disruptive approach, the rapid economic growth of China and the ideological divide between the nations. It leaves no simple choices for Japan’s hard-pressed diplomats.