Exporter Li & Fung will buy shares worth US$4.4 million in Tokyo-based counterpart Nichimen, in an alliance that paves the way for Li & Fung's return to the Japan market. The alliance follows a number of failed attempts by Li & Fung over the past few years to break into the Japanese market, which is dominated by several conglomerates. It would allow Li & Fung to scale back exposure to Europe and to the United States, which is on the brink of recession. The cross-shareholding agreement signed yesterday by Li & Fung and Nichimen, one of Japan's largest general trading firms, will see Li & Fung buy four million existing Nichimen shares for US$4.4 million. Nichimen will subscribe to 4.6 million new shares in Li & Fung, or less than 0.2 per cent of the enlarged share capital, at the same consideration. This means the sale price of the new Li & Fung shares would be about HK$7.44 a share, compared with yesterday's closing of HK$7.45. William Fung Kwok-lun, managing director of Li & Fung, said: 'We believe the synergy that results will be mutually rewarding. 'The cross-shareholding is a customary practice in dealing with Japanese customers and an indication of both sides' sincerity and commitment to this alliance.' He added that the cross-shareholding would pave the way for a business partnership to be concluded by the end of the year. The partnership marks a crucial step forward for Li & Fung to plug into Japan in a move away from the US, which generated almost 67 per cent of the group's HK$24.99 billion turnover last year, and Europe, which generated 26 per cent. A Li & Fung spokesman said Nichimen and Li & Fung would complement each other by utilising their sourcing networks. Nichimen has an annual turnover of US$19.5 billion. It exports and imports textile goods, lumber, metals, machinery, fuel, chemicals and food through 16 offices around Japan and its overseas network. Li & Fung's core products include apparel, shoes and toys, sourced from low-cost regions such as southeast and northern Asia. 'Nichimen may introduce its customers to Li & Fung and the other way round, which forms part of a definitive agreement under discussions,' the spokesman said. Merrill Lynch analyst David Cui described the tie-up as good news. 'Li & Fung tried to break into the Japan market for years, but with limited success. 'It may have a better chance of succeeding now, with the help of a local partner,' he said. 'The alliance will boost the turnover of Li & Fung, but the profit margin potentially from the Nichimen business may not be as good as Li & Fung's existing business,' he added.