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News & Updates

Results of JETRO’s 2017 Survey on Business Conditions of Japanese Companies in Latin America

May 21, 2018

Between October 18 and November 22, the Japan External Trade Organization (JETRO) conducted its survey on the business operations of Japanese firms in seven countries in Latin America: Mexico, Venezuela, Colombia, Peru, Chile, Argentina and Brazil. Below is a summary of the results.

Survey method and period Questionnaire, from October 18 to November 22
Destination of questionnaire 827 Japanese companies in Latin America (417 respondent companies, response rate: 50.4%)
Question items 1. Status of operations, 2. Future business outlook, 3. Administrative issues and countermeasures

Summary points:

Overview :
Recovery of resource prices and increased sales in the local markets has contributed to improved profits for Japanese companies, mainly in major Latin countries such as Chile, Colombia and Peru. As Brazil's economy has been in a recovery trend thanks to the high value of natural resources, Japanese companies in the country are also steadily taking on a more positive outlook. One remarkable difference from the previous year is Argentina’s consideration of strengthening functions such as R&D and logistics. In terms of future business expansion in Mexico, ripple effects from the renegotiation of NAFTA are also appearing for the first time. In Venezuela, some companies have been moving forward to reduce the scale of business or withdraw from the country.
  1. Brazil and Paraguay: The ratio of companies predicting for a deficit dropped in half thanks to increased sales and reduced costs domestically. Some companies have been considering entry in Paraguay as a means of escaping "Brazil cost".
  2. Chile: While operational profits have improved with the increased exports brought by the copper price recovery in natural resources and expansion of domestic demand, price competition within the domestic market has intensified.
  3. Argentina: With the continued improvement of the business environment, opportunities for increasing sales and adding new functions have appeared.
  4. Mexico: Current business is steady. Some companies have taken a cautious attitude toward expanding business because of the uncertainty of NAFTA's renegotiation.

Supplemental :

  • While the ratio of companies answering that they will see an operational profit in 2017 was 62.1% across the region, remaining at the same level as the previous year (61.5%), the ratio of companies in the red decreased by 6.6 points. The diffusion index of this year almost doubled from that of the previous year (from 11.7 to 20.8). (Page 9 in the attached report)
  • In forecasts for operational profit in 2017 compared with two years ago, the answer of "remaining at the same level" increased from 27.9% to 35.0%, and that of "declining" decreased from 30.2% to 22.1%. There are indications that the business performance of Japanese companies has been improving in line with economic recovery in the region. (Page 10 in the attached report)
  • In forecasts for operational profit in 2018 compared with one year ago, the ratio of "improvement" increased by nearly 10 points (52.0%). (Page 17 in the attached report)
  • Concerning the orientation of business development in the near future, companies in Colombia and Peru stood out for their positive responses, with the ratio of those reporting that they will expand business in the next one or two years at 73.3% in Colombia and 73.7% in Peru. With predictions of full-scale economic recovery in the country, the ratio of companies in Brazil expecting to expand business increased by over 10 points, from 42.7% to 53.5%. For Venezuela, the answer of "transferring to a third country/region or withdrawal from current local market" (21.4%) was chosen for the first time since the answer was included in the questionnaire in 2012. (Page 24 in the attached report)
  • Regarding the greatest competition in the same field, companies in Colombia and Peru increasingly tend to cite Chinese companies (with an increase from 16.7% to 20.0% in Colombia, and from 17.45% to 31.6% in Peru). In Colombia, this result seemed to come from the fact that the number of Chinese companies increased from 20 to 70 over the past two years. Page 33 in the attached report)

1. Brazil and Paraguay: Early indications of economic recovery, including a drop in half of companies expecting to be in the red, thanks to increased domestic sales and cost reduction. Some companies have been considering entering Paraguay with the aim of avoiding "Brazil cost".

  • The operating loss forecast in 2017 by Japanese companies in Brazil was down by almost half from 40.6% to 23.2%. (Page 9 in the attached report)
  • This result is partly thanks to the fact that the country was able to break free from a recession in 2017 and that domestic demand is recovering.
  • There was a shift in the diffusion index (used to gauge business sentiment) from negative in the previous year to positive (from -11.5 to 23.3)
  • Behind the recovery of the operating profit forecast for 2017, the ratio of companies reporting "increased sales in the local market" significantly increased from 43.8% to 75.6%. Focusing efforts on reducing costs in management such as for labor administration, utility and fuel also contributed to the improvement. (Page 11 in the attached report)
  • On the other hand, since high business costs, collectively referred to as "Brazil cost," seem to still have an impact on management of Japanese companies, the ratios of "complex procedures for customs clearance" (78.8%), " increased labor costs" (66.7%) and "labor disputes/lawsuits" (65.7%) each remained at the same high level as the results of the previous year. In the meantime, the ratio of companies citing "currency volatility" decreased by a large extent from 76% to 50.5% due to stabilization of exchange rates. (Page 51 in the attached report)
  • 12.1% of Japanese companies in Brazil are considering include to Paraguay in their operation. (Page 76 in the attached report)

2. Chile: While operational profits have improved owing to the increase in exports brought by the price recovery in natural resources and expansion of domestic demand, price competition within the domestic market has intensified.

  • With the background of the price recovery in natural resources since the second end of 2016, the operating profit forecast in 2017 increased from 62.2% to 75.7%. (Page 9 in the attached report)
  • The diffusion index in 2017 approximately quadrupled from the previous survey (up to 46 from 10.8), which revealed that corporate management is in good condition. (Page 10 in the attached report)
  • Driven by the recovery of resource prices, "increased sales through expanded exports" received the highest ratio of responses in Central and South America as the reason for improvement in operating profit forecast for 2017. (Page 11 in the attached report)
  • In addition to that, a trend in strengthening functions for producing general-purpose products (up to 23.5% from 11.8%) and high value-added products (up to 17.6% from 5.9%) has been seen. Japanese companies are considering expanding such production functions within the next one or two years expecting the expansion of domestic demand and exports. (Page 28 in the attached report)
  • Meanwhile, price competition has intensified due to import products increasing through expansion of domestic demand. To the question of problems faced in terms of sales or management, the ratio of companies responding with “emergence of competitors (competition in cost)” rose (up to 56.8% from 45.9%), becoming the highest response for Latin America. (Page 35 in the attached report)

3. Argentina: As the business environment continues to improve, opportunities for increasing sales and creating new business models have come to Japanese companies.

  • The recovery of Argentina’s macro economy led to expansion of domestic demand and its diffusion index for 2017 was almost seven times higher (from 4.3 to 31.7) than that of the previous year. (Page 10 in the attached report)
  • Among reasons given for predicting an improved operating profit, the ratio of companies pointing out "increased sales in the local market" reached 94.1%. In addition to that, the ratio of those citing "effects of government policies" (11.8%) was the highest in Latin America as companies take into account the Macri Administration's business-friendly policy. (Page 11 in the attached report)
  • Concerning functions to be expanded in the next one or two years, "R&D" (12.0%) and "regional headquarters function" (16.0%) which did not receive responses in the previous year, while the ratio for "logistics function" increased from 15.4% to 24.0%, indicating respondents are using Argentina in various manners. (Page 28 in the attached report)

4. Mexico: Current business is stable. Some companies are taking a cautious stance toward expanding business due to the uncertainty surrounding NAFTA's renegotiation.

  • Since Mexico's diffusion index for 2018 was the highest (51.4) across the region, numerous companies see current business as staying relatively solid. (Page 17 in the attached report)
  • However, regarding future business expansion in the next one or two years, the ratio of companies answering that they would expand decreased approximately 12 points from the previous year’s survey (down to 66.1% from 78.9%), and the ratio of those reporting that they would remain at the same level increased approximately 10 points from 20.4% to 29.9%. These results reflect a careful stance toward expanding new business due to the uncertainty surrounding NAFTA's renegotiation. (Page 24 in the attached report)
  • In this year’s survey, we asked Japanese companies in Mexico about the impact of NAFTA's renegotiation. Their most common concerns were regarding "tariffs, trade facilitation and rules of origin" (74.6%). There were many individual comments expressing concern over the modification of the rules of origin in particular. (Page 68 in the attached report)

Americas Division, JETRO
Mr. Kojiro Takeshita or Mr. Daisuke Shiga
Tel: 03-3582-4690