Japan Woes Hurt US Subsidiary

RECRUIT SCANDAL

WHEN Recruit USA swings open the doors of its new $100 million data communications facility on the New Jersey shore of the Hudson River on July 14, don't expect a public relations extravaganza. Only Recruit employees have been invited to attend the low-key affair, without the assortment of business leaders, politicians, and reporters that usually attends dedication ceremonies. Recruit USA is still reeling from the avalanche of bad publicity that has swamped its parent firm, Recruit Ltd. of Japan, the company at the center of the biggest bribery and influence-peddling scandal in postwar Japan. None of the large Japanese financial firms that Recruit had hoped to bring to the new facility have yet agreed to move, fearful of the public relations backlash that a contract with Recruit might provoke. As a result, the 15-story building remains almost empty, an unexpected victim of the scandal's fallout.

The data-communications facility, known as Recruit Newport Computer Center, is part of a huge shoreline redevelopment project organized by the Lefrak Organization, one of New York's largest real estate firms. After signing a long-term lease, Recruit USA refurbished an old warehouse into one of the most modern data centers in the United States. With backup electrical and air conditioning systems, protection against water-main breaks, sophisticated building security, and connections to fiber-optic and satellite systems, experts say the facility provides an ideal environment for data communications. Throw in a post card-like view of the Manhattan skyline, and cheaper New Jersey rents, and the center seemed certain - before the scandal - to attract the expanding computer departments of big financial firms.

Recruit's troubles have been a blessing for Telehouse International Corporation, Recruit's only competitor in the data center real estate market. A joint venture led by Kokusai Denshin Denwa (KDD), Normura Research Institute, and Kajima Corporation, Telehouse opened a $35 million facility in May on New York's Staten Island with features quite similar to those of the Recruit Center. Telehouse has signed seven clients, and plans to begin work on a second facility later this year.

``The scandal has helped us by making Recruit less competitive,'' says a Telehouse executive, who spoke on the condition his name not be used.

Adversity is a new experience for Recruit USA, which has grown rapidly since opening its first office in Los Angeles in 1985. The company's initial business was built on job-placement services, providing a link between the 13,000 Japanese students studying in the United States and Japanese corporations. But since 1987 Recruit's plans have centered on computer services. The company's computer time-sharing business, which is run out of a facility on Staten Island, has been a big hit among banks and securities firms eager for backup systems to guard against emergencies.

EARLY in 1988 Recruit USA decided to construct the Newport computer center. The idea was to create data center ``condominiums,' in which companies could operate their own computer departments in a state-of-the-art facility for cheaper rents, avoiding the huge investments that would be required to construct such a facility on their own. The idea did not originate with Recruit, since KDD launched its Telehouse project several months before. But Recruit was convinced of the project's viability, and built its Newport Center three times the size of the Telehouse facility. Experts praised the concept of sharing space at the data center, which was new to the United States, saying it was only a matter of time before it caught on among American firms.

Both Recruit and Telehouse expected that large Japanese banks and securities firms would provide a strong client base, enabling them to withstand the lead time necessary to sell the idea to American firms. The failure to attract Japanese clients has been a big blow to Recruit.

``If we had no Japanese clients our president would be climbing the walls,'' said the Telehouse executive.

Recruit officials acknowledge that the scandal has hurt.

``Because of the scandal we missed the first wave of companies taking advantage of the concept,'' says Kevin Lonnie, a Recruit USA vice-president. ``They went to Telehouse.''

But Mr. Lonnie and other Recruit executives insist the impact will be short term, since the demand for bigger, cheaper, and better data-communications facilities in the New York area remains strong. Telehouse officials agree, saying Recruit's business should pick up after the scandal clouds clear. Recruit's goals for the Newport Center remain very modest. Koshi Okimoto, who directs Recruit USA's marketing, expects that only 15 percent of the center's 455,000 square feet will be occupied by next spring.

In the meantime, real estate experts estimate that Recruit is paying at least $7 million a year in rent on the Newport facility.

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