JETRO releases the results of its survey of Japanese firms’ international operations
Tokyo, Japan, March 13, 2006 -The Japan External Trade Organisation (JETRO) released the results of its latest annual survey of Japanese firms’ international operations. The survey, conducted in November and December 2005, received replies from 796 firms in manufacturing, trade and wholesale/retail, or 31.7% of the 2,508 companies sent questionnaires.
According to the survey results, a majority of respondents (69.8%) are planning to expand their business in China or are considering the country as an investment/trade destination. While this figure was down seven points from last year’s survey, the overall trend for Japanese firms to target China for expansion or as a new investment/trade destination remains.
This is further revealed by comparing the results of the 2004 and 2005 surveys of Japanese firms’ international operations with the results of a special survey JETRO conducted in May 2005 following the April 2005 anti-Japan demonstrations in China. Looking at only the results of the 243 firms that took part in all three surveys, 85.2% had intentions to expand/start business in/with China in the 2004 survey, compared with 75.3% in the latest survey, whereas just 53.5% had such plans in the May 2005 survey.
After the pace of Japan’s export growth to China slowed to 8.9% in 2005, 45.4% of all respondents (in the 2005 survey of Japanese firms’ international operations) expect their export growth rate to be higher in
2006, 39.4% expect the same rate, and 9.0% expect their growth rate to decrease. Just 2.3% of respondents expect continued negative growth in 2006.
Among firms expecting a higher export growth rate to China in 2006, a large majority (85.1%) cited increased sales in China’s domestic market as the driving force behind their expected rate increase. Among firms expecting a slower growth rate, nearly half (49.1%)-mostly firms in the general machinery sector-cited increasing local production, reflecting the growing trend in China for products previously imported to be made locally.
Asked about the impact further revaluations of the Chinese yuan would have on their business, 18.8% of respondents anticipate “negative effects”, 12.4% expect “positive effects”, and 17.7% foresee that “positive/negative effects will compensate each other”.
Firms expecting negative effects from further yuan revaluations were asked to indicate the maximum percentage of revaluation that would allow them to maintain profitability: most responses (42.0%) were between 5% and 15%, and the average for all respondents was 15.8%.
Firms (with production bases in China) expecting negative effects from further yuan revaluations were asked what measure(s) they would adopt to maintain profitability. Most respondents said they would “improve efficiency of local production” (54.6%) and/or “reduce costs” (50.5%). Respondents also said they would “increase local sales in China” (37.1%), pointing to the increasing trend for Japanese manufacturers operating in the country to shift their focus towards the domestic market and away from exports from
their bases in China. Firms also said they would “move operations to a third country” (26.8%).
Nearly two-thirds of respondents (65.6%) have plans to make new/additional investments overseas in the coming three-years, which is almost unchanged from the 2004 survey (64.8%). Firms with such plans were asked to indicate the country/region in which they would start/expand business by specific function, such as sales, production, R&D. The percentage of firms selecting China in the production (of mid to low-end products) and sales categories declined 6.0 points and 3.7 points, respectively, compared to the 2004 survey.
A larger percentage of firms (compared to the 2004 survey), however, selected Thailand as a location for starting/expanding production of mid to low-end products (up 6.2 points) and high-end products (up 10.9 points). In the sales function category, a larger percentage of firms selected India (up 4.7 points) and Vietnam (up 4.1 points). These figures suggest that more respondents are following a “China plus one” strategy of operating in China and another country (mainly in East Asia) to reduce over dependence
on China.
The percentage of respondents planning to expand their operations in Japan within the next three-years increased 3.7 points to 51.0% in the 2005 survey.
For more information, please contact:
Kohei Shiino or Shin Tanimura
International Economic Research Division
Economic Research Department
Phone: +81-3-3582-5177
About Japan External Trade Organisation (JETRO)
JETRO, or the Japan External Trade Organisation, is a government-related organisation that works to promote mutual trade and investment between Japan and the rest of the world. Originally established in 1958 to promote Japanese exports abroad, JETRO’s core focus in the 21st century has shifted toward promoting foreign direct investment into Japan and helping small to medium size Japanese firms maximise their global export potential.
Contact:
Kohei Shiino or Shin Tanimura
International Economic Research Division
Economic Research Department
Phone: +81-3-3582-5177
Category: Business
