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2014 JETRO Global Trade and Investment Report - On making Japan a base for international business circulation -

Aug 07, 2014

- Key points -
  1. World trade and investment on its way to recovery. Moderate resurgence of world economy.
  2. Japanese trade marks deficits for three consecutive years
  3. Japanese outward FDI reaches record high
  4. Realization of FTAAP through the promotion of TPP and RCEP
  5. Asian consumer markets becoming solid both in scale and quality
  6. Strategic development of promising overseas markets
  7. New developments among Japanese companies seen in reorganization of their overseas bases
  8. Foreign-affiliated companies regard Japan’s expensive business costs as problematic. Signs of improvement can also be seen.
  9. Nationwide effort necessary to increase inward FDI into Japan
  10. Challenges Japanese corporations face in making Japan hub of international business circulation


-Outline-
1. World trade and investment on its way to recovery. Moderate resurgence of world economy.
  • World trade (commercial goods export) slightly rose by 1.6% from the previous year to the history record of $18.3 trillion driven by China, developed countries such as EU and US although it was depressed by Japan and emerging and developing countries like Russia. By commercial goods, trade volume of IC and mobile phone were increased, on the other hand natural resources such as a crude oil were decreased. Global FDI flows increased for the first time in two years to $1.45 trillion, up by 9.1% from the previous year, with 61.0% occupied by emerging and developing countries.
  • The global economy has been recovering moderately. The economies of developed countries are on the path of recovery, while those of emerging and developing countries are growing slowly. The current framework of emerging and developing countries leading the global economy will remain in the future, with their contribution accounting for approximately 70%.


2. Japanese trade marks deficit for three consecutive years
  • Japan’s trade in 2013 declined in both exports and imports, resulting in a deficit for three consecutive years. A significant decrease was seen in transport equipment and electric equipment, compared to those of 2008 before the global financial crisis. Meanwhile, general machinery was in good shape.
  • The current account surplus is continuing to decline to $31.7 billion in 2013, influenced by the increased trade deficit. However, the deficit in trade in services decreased. The trade balance in transportation and travel improved, and there was an increase in trade surplus for royalties and license fees.


3. Japanese outward FDI reaches record high
  • Outward FDI of Japan broke its record for the first time in five years, reaching $135 billion with an increase of 10.4%. While the investment toward ASEAN marked a record high of $23.6 billion, those toward China decreased by 32.5% to $9.1 billion.
  • Amount of return on outward FDI in 2013 totaled $68.2 billion. By region, investment returns from Asia was the largest, followed by North America, then Europe. An increase in rate of returns on outward FDI centering on Asia must be achieved.
  • Rate of return on investments toward Japan has greatly increased, compared to those toward other countries. With the recovery of the Japanese economy, the Japanese market has become attractive for foreign companies.


4. Realization of FTAAP through the promotion of TPP and RCEP
  • Negotiations for five mega-FTAs, the TPP, RCEP, TTIP, Japan-EU and China-Japan-South Korea FTA, are currently progressing. The Japanese government’s Growth Strategy sets a target of raising the FTA coverage ratio to 70% (18.2% as of year 2013). If the FTAs (including Mega-FTAs) currently under negotiation become in force, Japan will increase its coverage to 84.2%.
  • International Investment Agreements, including FTA investment chapters, are in force between Japan and 28 other countries and regions. Those agreements currently occupy 29.1% of Japan’s outward FDI stock.
  • Procedures for applying for a certificate of origin or satisfying rules of origin are a burden on Japanese companies using FTAs. Efforts to expand the utilization of self-certification system of approved exporters and fine-tuned public relations activities tailored to SMEs need to be continued.


5. Asian※ consumer markets becoming solid both in scale and quality
  • Household consumption expenditures in Asia are 1.5 times those of Japan as of 2012. The market scale in Asia is continuing to expand due to the growth of population and an increase in income levels.
  • Consumption in Asia is changing in quality as well as quantity. Expenditure is growing more sophisticated. The demand is shifting from basic goods into durable consumer goods and further on to services.
  • Some capital cities of major ASEAN countries mark a per capita GDP of over $10,000.
    ※In this section, Asia represents three economies: China, India and ASEAN.


6. Strategic development of promising overseas markets
  • Export of agricultural, forestry and fishery products marked a record high of \550.5 billion in 2013, a 22.4% increase from the previous year. Overseas subsidiaries in the Japanese service industry (non-manufacturing) have been increasing by approximately 92% since 2003, showing that Japanese companies are rapidly expanding overseas.
  • Medical equipment markets are projected to grow centering in emerging countries such as China. It is expected that export competitiveness of the industry will be enhanced as the manufacturing companies play an active role in export.
  • Japan lags behind other countries in making inroads into Africa. While Africa has great potential for expansion, support systems must be strengthened for Japanese companies to obtain sufficient information and avoid risks.


7. New developments among Japanese companies seen in reorganization of their overseas bases
  • Reorganization of overseas bases by Japanese companies is being undertaken. Partly due to the rise in employment costs, Japanese companies are increasingly transferring their bases and functions to ASEAN countries out of China. Moreover, there has recently been a trend of Japanese companies in Thailand advancing into neighboring countries, called “Thai Plus One.”
  • 13.7% of Japanese companies, registered for JETRO’s individual assistance service for launching businesses in emerging countries, hope to enter countries other than those of East Asia or ASEAN. More SMEs hope to set up business in Latin America or Southwest Asia.
  • There are signs of a movement, called “Made by Japanese”, to export products to a third country from overseas bases. In South Africa, the number of Japanese-manufactured automobiles imported from Japan’s overseas bases such as India is as twice as big of that of from Japan.


8. Foreign-affiliated companies regard Japan’s expensive business costs as problematic. Signs of improvement can be seen.
  • The benefits of FDI into Japan are its large-scale economy, sophisticated infrastructure and human resources. However, foreign-affiliated companies negatively evaluate expensive business costs including tax rates.
  • Comparing business costs, property costs in other cities in Asia can be higher than those of Tokyo. The differences in employment cost for some occupations have been significantly reduced.
  • There are many foreign-affiliated companies that have a large share in markets for Japan’s domestic consumer goods. Foreign-affiliated companies are the top sellers in beverages, contact lenses and accessories.


9. Nationwide effort necessary to increase inward FDI into Japan
  • Presidents and prime ministers of major countries engage in promotion of their own countries. Since competition to attract foreign companies is becoming intensified, it is essential that the whole country participate in this initiative. European countries and the US are expanding these efforts to local government levels.
  • JETRO has supported over 10,000 projects for investment into Japan since 2003, among which 1,136 companies have successfully established their bases in Japan. We are especially reaching out to industries of environment, health, tourism and retail or R&D bases.
  • The number of foreign travelers visiting Japan reached a record high of over 10 million in 2013, which had a positive impact on the Japanese economy. In order to acquire even more tourists from abroad, utilization of local industrial facilities and factories is expected, under a campaign referred to as “industrial tourism”.


10. Challenges Japanese corporations face in making Japan hub of international business circulation
  • A shift from “measures on intellectual property”, those centered around the problems of counterfeiting, piracy, and patent rights, to “strategies on intellectual property”, those including protection of trade secrets, must be undertaken.
  • Business innovation through the promotion of “brain circulation” between Japan and Silicon Valley must be created by Japanese companies. Support for small and medium-sized venture companies to expand overseas is also necessary.
  • It is best that a "diversity in business" be established with urgency, where foreign students and those with diverse backgrounds and abilities can perform at their full potential to create innovation.


Making Japan a base for international business circulation

In order to achieve the government's Growth Strategy and for the Japanese economy to keep growing, it is necessary that Japan be a base for international business circulation both outbound, such as exports or outward direct investment, and inbound, such as tourism or inward direct investment. At the same time, the established circulation must be maintained.

Long-term united efforts must be made by the whole country for Japan to expand international business , including SMEs and rural areas.

Japan must create a well-functioning cycle of international business where excellent human resources and technology gathered from abroad by offering attractive investments into Japan creates innovation, which will then encourage Japanese companies to develop business overseas.

It is necessary for Japan to develop the business environment through economic partnerships such as the TPP or RCEP. Also Japanese society and companies must be reborn as a base for international business circulation by means of new intellectual property strategies including protection of trade secrets, highly skilled Japanese professionals brought in through brain circulation, and diversity of business encouraging active performance by foreign students.

JETRO’s initiatives must be promoted to a new phase in line with revised Growth Strategy built on analysis of our past achievements.

For more information, please contact:

Mr. Yoneyama, Mr. Suzuki, Ms. Ago
International Economic Research Division
Tel: 03-3582-5177