Results of JETRO’s FY2015 Survey on the International Operations of Japanese Firms

From November 2015 through January 2016, the Japan External Trade Organization (JETRO) conducted a survey of Japanese firms using JETRO’s services to gauge their interest in business overseas. The survey received valid replies from 3,005 firms (a 30.4% response rate), of which 2,367 were small and medium-sized enterprises (SMEs). It covers topics including trade-related efforts, overseas and domestic business development policies, business in China, the utilization of free trade agreements (FTAs), management localization in overseas offices and the use of overseas personnel and so on.

Below is a summary of the results.

1. Motivation to expand exports highest in five years
Regarding the exports policies over the next three years or so, companies planning to expand exports increased to 74.2%, the highest it has been in the past five years, from 66.2% a year earlier. When adding those intending to launch exports (10.7%), the percentage of companies expressing high motivation to expand exports reaches 84.9%. Among the reasons for this positive stance, increased overseas demand ranked first at 73.8%.

2. Intention to expand business overseas still high but reaching point of saturation. Majority of companies intend to expand domestic business for two consecutive years.
In terms of plans for overseas business development for the next three years or so, the percentage of companies intending to expand decreased from 56.7% in the previous year to 53.3%, although the number still represents a majority. In domestic business development, a majority of companies, or 52%, plan on expansion for two years in a row, with the previous year marking 53.1%. Among the reasons given for expansion, growing domestic demand was most commonly cited at 55.5%, followed by high profitability in the domestic market at 27.1%.

3. Motivation to expand business grows in US, Vietnam, Western Europe and India
Among investment destinations cited by companies intending to expand business overseas, China and Thailand continue to rank first and second place, although the rate of responses for the two countries decreased respectively to 53.7% from 56.5% the year before and to 41.7% from 44.0%. Meanwhile, the year-to-year rate increased in such countries and regions as the US (3rd place at 33.7%, from 31.3%), Vietnam (4th place at 32.4%, from 28.7%), Western Europe (7th place at 20.6%, from 18.1%) and India (8th place at 20.1%, from 16.1%).

Looking at Asia, the ratio of firms selecting ASEAN-6 countries as an investment destination reached 73.2%, exceeding that of China (53.7%) for four consecutive years. Among ASEAN-6 countries, Thailand, Indonesia (5th place at 31.8%, from 34.4%) and Singapore (10th place at 16.1%, from 19.3%) saw a decrease. On the other hand, the respective rates of Malaysia (11th place at 15.5%, from 14.8%) and the Philippines (14th place at 11.3%, from 10.8%) increased, similar to that of Vietnam.

4. Sluggish growth in exports to China mainly due to decreased demand in China, although demand for consumer products steadily growing
Among reasons for a slow increase in exports to China, reduced demand in China ranked first at 41.1%. The number is particularly high in certain sectors including general machinery (53.4%), iron and steel/non-ferrous metals/metal products (53.3%) and cars/car parts/other transportation machinery (53.3%). Meanwhile, the percentage of respondents who have not experienced a decrease in exports to China reached 27.2%, and was especially high in the consumer products sector in such areas as medical products and cosmetics (54.1%) and food and beverages (38.6%).

5. TPP being also considered for utilization in trade between third countries such as the US and Vietnam in addition to trade between Japan and other TPP participants
Many companies are considering the possibility of utilizing the Trans-Pacific Partnership Agreement (TPP) for trade between Japan and those TPP participant countries which have no current FTAs with Japan (the US, Canada and New Zealand), with 275 companies considering its use for exports to the US, 101 to Canada and 58 to New Zealand. Meanwhile, of 395 valid responses collected from companies considering the utilization of the TPP for trade among the 11 participants excluding Japan, the most highly expected combination was export from Vietnam to the US at 82 responses, followed by export from Malaysia to the US at 26. There is currently no FTA in force between the US and Vietnam, nor between the US and Malaysia.

6. Nearly half of companies sense need for management localization in overseas offices
Regarding localization of management in overseas offices (e.g., the delegation of authority and recruitment of local personnel), 48.4% of companies with overseas offices reported that they need to bolster efforts. Among approaches indicated by companies already developing management localization, recruitment of work-ready local personnel (54.7%) and enhancement of training and cultivating local human resources (51.1%) were commonly cited.

7. Approximately 40% of companies employ foreign personnel
Of problems for overseas business, difficulty in finding human resources for overseas operations ranked first at 52.8%, a large increase from the 41.2% reported in the previous survey for FY 2013. The percentage of respondents with foreign employees was 44.4%. Among advantages of employing foreign personnel reported by companies having employed or considering hiring foreign staff members, expansion of sales channels marked 46%, a rise from 40.9% in the previous year. Meanwhile, problems in employing foreign personnel commonly pointed out by all respondents include difficulties in “sharing organizational vision” (20.1%) and “communication with Japanese staff members” (19%).

8. Over 70% of large firms have CSR policies
Among respondents, 34.7% have a policy regarding corporate social responsibility (CSR). Adding companies considering preparing CSR policies (28.4%), the number increases to 63.1%. Of large companies, 73.4% have already developed such policies. Among respondents either possessing or considering adopting CSR policies, the most commonly cited topics covered by, or under consideration for, these CSR policies are “ensuring appropriate working practices and safety and health of employees” at 71.9%, followed by “approaches to environmental conservation and protection” (68.4%) and “considerations to and participation in local communities” (62%).