Japan and China Deemed Most Attractive Asian Investment Locations - According to International Executives

Oct 21, 2008

city.jpg

Ernst & Young carried out a survey on Japan’s attractiveness in 2008 upon the request of JETRO and the Ministry of Economy, Trade and Industry. The survey result is based on interviews with senior executives of US, European and Asian companies. The report addresses the following key issues:

The position and perceptions of Japan and its strengths and weaknesses, future investment intentions in the Asia region, the sources that investors use when gathering information about Japan and expectations of IPAs.

The executive summary is as follows:

Japan looks good, but China gets more investment


Japan and China are jointly perceived as the most attractive countries in Asia for foreign direct investment. Each gets a 27% rating.
However, there is a big gap between perceptions and the reality of Japan’s attractiveness: Japan ranks 5th in Asia for actual inward
Foreign Direct Investment (FDI) projects. At a global level, China is number one, whilst Japan is in 20th place 20 - behind the
Czech Republic.


Japan’s strengths: quality, infrastructure and stability


Japan clearly stands head and shoulders above its Asian competitors on criteria of quality and connectivity criteria: the country is
deemed the most attractive for the quality of telecommunications, transport and logistics infrastructure
(32% and 33% of citation rate respectively).

On research and development (R&D) availability and quality, investors confirm Japan’s image for quality - 39% of them mention it
as the most attractive country on this criterion.

On risk related factors, Japan also has a large lead over its Asian competitors. Overall, 32% of investors cite Japan as the most
attractive country for political stability. Japan is also ranked as the most attractive location for labor skills, achieving a citation rate of
27%, ahead of China.

A stand-alone market, not a gateway to Asia


Despite its strong quality and infrastructure advantages, Japan is seen as a market in itself (69% of investors) rather than a gateway
to the Asian wider market (21% of perceptions).


Japan’s biggest weakness: costs


However, whilst Japan enjoys a clear advantage over its Asian competitors on quality, connectivity and risk criteria, it loses out on
costs. It is not Japan, but China which is number one on costs. 45% of prospective investors questioned said China was the most
attractive country for labor costs and 52% the most attractive for manufacturing activities.

Asia’s future looks bright


There are a number of high-value, knowledge-based investment opportunities planned by foreign investors in Asia (24% of these
investment projects are in Research and Development (R&D) and headquarter HQ activities). Japan is among the top three destination
countries considered for direct investments in Asia (but scores only 18%, behind China with 57%). Location intentions are mainly
driven by costs and market opportunities (47% and 46% respectively).

There is a high level of confidence in the future development of Asia’s attractiveness: 71% of respondents believe the attractiveness
of Asia will improve in the next three years.

Japan still has room to be more attractive


Many investors want action to make Japan more attractive. Overall, 45% of investors are expecting measures to reduce taxation and
38% hope for a reduction in labor costs. Furthermore, 40% of investors wish for the effective measures to reduce language barriers.


Click here to view the full report