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News & Updates

FY2017 JETRO Survey on Business Conditions for Japanese Companies in the U.S. (36th annual survey)

Feb 21, 2018

Over 70% of respondents forecast figures in the black for six consecutive years (the longest period in our records)
Changes in production strategies under the Trump administration
Tax and NAFTA catch major attention among policies

JETRO has conducted a survey on the state of Japanese manufacturers (producers and sellers) operating in the U.S. The results are summarized below, with corresponding page numbers from the attachment included.

Method and dates Distribution of a questionnaire from October 3, 2017 to November 15, 2017
Scope Japanese manufacturers operating in the U.S.
793 responses received from 1,200 surveys sent (response rate of 66.1%)
Topics (1) Sales performance, (2) Future business direction, (3) Procurement and sales destination, (4)Challenges in management, (5) Changing business environment

Summary – Business Conditions for Japanese Companies in the U.S.

Impact of Trump administration
The number of the respondents with plans to expand in Mexico in terms of manufacturing for products aimed at the U.S. market dropped from the previous year 68 (57.1%) to 29 (25.0%) (p. 17). Other than that, no significant changes were found in the performance and business activities of the respondents, indicating calm on the part of local managers.
Sales performance and forecast
74.4% of the respondents forecast profits, bringing the figure to over 70% for six consecutive years (the longest period in our records) (p. 4). Even though the DI value of 7.9 was down 9.6 points from 2016, the forecast for 2018 indicates significant improvement at 35.6. Many respondents expected business improvement (p. 5).
41% had increased local employees in the previous year; bring the figure to over 40% for the past six years (p. 7). With the favorable business environment in the U.S., 57.1%, up from 2016, were considering expansion within two years (p. 13).
Among challenges in the management (factors related to increase in costs), the top item was "recruitment of workers" (70.6%), up 7.1 points from 2016, followed by "increase in labor cost" (68.7%), indicating HR-related concerns (p. 24).
Areas of interest in Trump administration policies
More than 80% said they were interested in the tax regime (p. 27). In association with the NAFTA renegotiation, "customs, trade facilitation and rules of origin", "access to the goods market", and "labor and environment" were the major areas of concerns (p. 29).

Results - 2017 Business Conditions for Japanese Companies in the U.S.

1. Operating profit: 74.4% of the respondents forecast operating profits, over 70% for six consecutive years (the longest period in our records).

  • In 2017, 74.4% of Japanese companies in the U.S. expected profits, slightly down from 2016 (77.5%), yet the figure remains positive. The rate has remained over 70% for six consecutive years since 2012. The rates were higher in steel (87.1%) and business oriented machinery (85.2%), while transportation equipment parts (motor vehicles/motorcycles) was down (82.5→70.4%) from the previous year. The rate in the South decreased to 61.5%, down 5.9 points from the previous year (75.6%) (p. 4).
  • The DI value (calculated as the percentage of year-over-year improvement and deterioration) was 7.9, down 9.6 points from 2016. Among respondents, 37.8% said operational profit in 2017 would improve than 2016, down 3.4 points from 2016, while 29.9% said it would drop, up 6.2 points. Nearly half (46.2%) of the respondents expect improvement in 2018, with the projected DI value at 35.6. points. (p. 5). While the rate of profitable companies in transportation equipment/parts was high at 70%, all DI values dropped (p. 6).
  • The portion of companies increasing the number of local employees in the previous year came to 41%. This marks the six consecutive years in which the figure surpassed over 40%. Meanwhile, 44.6% plans to increase it in the future. The number of Japanese expatriates remained mostly flat (p. 7).
  • For recruitment, 83.1% utilized recruitment agencies, along with rehiring part-time or fixed-term contracted employees as regular or full-time employees (45.8%). Nearly half (48.2%) of the companies with 100 or more employees accepted interns. Recruitment agencies was reported as the most effective by 55.4% (p. 9). For human resource development, more than half used "in-house ability training programs" (55.2%) and "in-house trainer/trainee systems" (52.6%) (p. 10).
  • In capital investment, 40.6% spent more than in 2016, and 49.4% said the figure was flat. The main purposes were rationalization and/or optimization of plants (54.3%) and expansion of the plants (21.2%). In addition, "strengthening technology and/or R&D" (18.8%) and "increasing efficiency through investment in "information-related (AI, IoT)" (17.9%) were also included (p. 11).
  • Those considering expansion in the next two years came to 57.1%, up 3.7 points from 2016. The main areas of expansion included sales function (62.5%) and production (high value-added products) (49.9%). The rates were particularly high in food/agricultural products (75.8%) and business oriented machinery (74.1%)(p. 13).
  • Factors to consider regarding expanding or relocating to new areas were "proximity to customers" (70.1%), followed by "labor cost" (65.9%) and "logistics and transportation" (52.2%) (p. 14).

2. Procurement, production and sales: Stronger focus on local production and local consumption

  • Regarding materials and parts, the ratio of procurement from the U.S. was an average of 59.3% (Japanese companies: 18.8%; local companies: 38.6%; other non-U.S. companies: 1.9%), up 2.1 points from 2016. Procurement from Japan (25.3%) came second to the U.S. Local U.S. companies (131 respondents) and Japanese companies in the U.S. (67 respondents) were considered most for future increase of procurement (p. 15). Among the companies that did not manufacturer in the U.S., the procurement ratio from U.S. and Japanese companies were 21.2% and 53.2%, respectively (p. 16).
  • Of products for the U.S. market, an average of 76.3% were made in the U.S., up 6.3 points from 2016, while 12.4% were made in Japan, down 5.0 points. Further, 156 respondents were considering an increase of local production for the U.S. market, while only 29 respondents were considering producing more in Mexico for the U.S. market, less than half compared to 2016 (p. 17).
  • Among the respondents with manufacturing functions, an average of 80.9% of the products were sold in the U. S.; the NAFTA region, including Mexico and Canada, 89.4%; and 4.0% in Japan. Among respondents, 154 were considering expansion of sales in the U.S. and 80 in Mexico. More companies than in 2016 plans to remain the same. Companies in food/agricultural products and chemical/petroleum products had a tendency to consider expansion of sales functions in the U.S. (p. 18). The companies with only sales functions in the U.S. sold an average of 77.6% of their products in the U.S., 88.2% in the NAFTA region and 4.9% in Japan (p. 19).

3. FTA: Over 30% utilized NAFTA

  • Among the respondents, 32.9% utilized NAFTA for exports or imports (p. 20). Among those involved in imports or exports, roughly 50% utilized NAFTA for exports to Mexico and Canada, while over 60% did so for imports (p. 21).

4. Increased costs, stagnant sales: Recruitment, labor cost and price competition continue to be challenges

  • "Recruitment of workers" (70.6%) became the top factor for increased costs, up 7.1 points from 2016, followed by "increase in labor costs" (68.7%). Concerns over visas for Japanese expatriates (33.1%) doubled from 2016 (15.4%). Many respondents mentioned difficulty in retaining workers due to the lower unemployment rate and significant wage increases in the recovering economy (p. 24).
  • "Severity in price competition" (77.5%) and "popular products from competitors" (57.1%) continued to be the major factors hindering the increase of sales (p. 26).

5. Interest in Trump policies: Over 70% chose tax, trade and diplomacy

  • Among the policies of the Trump administration, the tax regime (80.6%), trade (76.5%) and diplomacy (72.0%) were the top three items. Interest in the tax regime was up 29.6 points from 2016 (51.0%), as many expected improved profit after the tax cut. However, companies remained conservative about additional investment. In trade and diplomacy, more than half were interested in NAFTA (55.2%) and policies involving Japan (57.5%) (p. 27).

6. NAFTA renegotiation: Significant interest in revision of rules of origin

  • Among the items impacted by NAFTA renegotiation, "customs, trade facilitation and rules of origin" (68.3%), "access to the goods market" (34.9%) and "labor/environment" (32.8%) ranked high. Among companies in transportation equipment and parts (railway vehicles/vessels/aircraft/transportation vehicles) 100% were interested in "customs, trade facilitation and rules of origin." Interest in "access to goods market" was significant in rubber products (57.1%) and textiles (53.8%). "Labor/environment" was also important in the textile industry (61.5%) (p. 29).
The percentages in the report are rounded to the first decimal, and therefore may not add up to100.
The rate are calculated based on the number of responses to the corresponding question.

Shiro Akiyama, Takashi Nakamizo, and Ritsuko Iinuma
Americas Division, Overseas Department, JETRO
Tel: +81-3-3582-5545 Fax: +81-3-3587-2485