Results of JETRO’s FY2017 Survey on the International Operations of Japanese Firms

Mar 07, 2018

From November 2017 through January 2018, the Japan External Trade Organization (JETRO) conducted a survey of Japanese firms that use JETRO's services to gauge their interest in business overseas. The survey received valid replies from 3,195 firms out of 9,981 (a 32% response rate), of which 2,591 were small and medium-sized enterprises (SMEs). It covers topics including trade and overseas investment activities, the business environment of foreign countries, utilization of free trade agreements (FTAs), the utilization of foreign personnel, utilization of digital technologies and so on.

Regarding export policies over the next three years or so, the percentage of firms "planning to further expand exports" has slightly decreased to 67.8%. While remaining at a high level, this is the second consecutive year it has decreased, indicating it is in a lull. An increasing number of firms, in particular SMEs, are maintaining their current status, affected by factors such as a lack of human resources necessary for business expansion.
Regarding overseas business (direct investment) expansion policies over the next three years or so, the ratio of firms "planning to expand overseas business," while remaining over half, has slightly decreased to 57.1% from 61.4% the previous year. Increasing wages and production costs as well as labor shortages overseas have been indicated as reasons for this decline.
On the other hand, regarding domestic business expansion policies over the next three years or so, the percentage of firms "planning to expand domestic business" increased to 61.4%. This is the first time the ratio has passed 60% since FY2011, the earliest year for which comparative data is available. In domestic business, motivation for expansion increased in most industries, with the function most highly cited being "sales", at 83.6%, followed by "new product development" (48.6%) and "high value-added production" (48.5%).

Among firms answering that they "currently have an overseas base and are planning to expand," the ratio choosing Vietnam as the target country or region for their overseas business expansion increased for the third consecutive year (37.5%, compared to 34.1% in the previous year), coming in second place. China continues to be the top answer (49.4%, compared to 52.3% in the previous year). The countries of ASEAN-6 as a whole (69.2%) exceeded China for the sixth consecutive year. Within ASEAN-6, a significant increase in motivation to expand business was seen in Vietnam in non-manufacturing along with the Philippines in manufacturing. Meanwhile, the percentage for both Thailand and Indonesia is decreasing. The percentage of manufacturers intending to expand business in the US has decreased. The figure continues to decline for Mexico.

The ratio of firms considering either expanding existing business (trade, outsourcing, technical alliance, direct investment) or developing new business in China over the next three years or so remained about the same level as the previous year at 48.3% this year, while 32% answered　"still undecided". Looking at the results by company scale, the percentage of large-scale firms considering expanding existing business or developing new business in China increased for the second consecutive year to 62.5%. Regarding reasons for expanding or maintaining business in China, the percentage of firms answering with "market size and growth potential" remained the largest at 72.9%, followed by "changes in needs associated with improved income" (31.4%) and "business established and on track" (25.2%).

Regarding the attractiveness of doing business, "market size/growth potential" took first place in all 11 countries subject to the survey. In Vietnam, where the motivation for business expansion is increasing, the attractiveness of "market size/growth potential" and "clustering of customer firms" rose. Regarding obstacles in doing business, the rate of obstacles being indicated for China has declined in all items since the last survey (FY2015). "Brexit-related risk" is regarded as the biggest problem in the UK and Europe, but it is rarely recognized as a problem in other areas. Meanwhile, the "policies of the new US administration" are recognized as the biggest issue with a response rate of more than 50% in the United States, Mexico and Russia, and exceeding 20% in the United Arab Emirates, Canada, Korea, the Middle East and Latin America.

Of all the respondent firms, 48.7% answered that digital technologies will have a big impact on their business in the medium to long term (about five to 10 years). Among technologies subject to the survey, the largest number of firms chose electronic commerce (EC, 32.1%) as the most influential technology, followed by the Internet of Things (IoT, 20.3%), robots (14.6%), artificial intelligence (AI, 13.9%), 3D printers (5.1%), FinTech (4.8%) and big data (4.6%). When analyzing the answers by company size, IoT was most commonly selected by large firms, as was EC by SMEs. While different advantages for utilization were recognized for each technology, obstacles related to utilization were overwhelmingly concentrated on a "shortage of human resources" and "costs related to introduction and operation" for all technologies. Regarding the utilization of the digital technologies in overseas business, the percentage of companies choosing "EC" was the largest (17.8% in total, combining "utilizing" and "considering utilization"), followed by "IoT" (5.7%) and "robots" (4.5%). China was the most popular target country for utilization of digital technologies for overseas operations, regardless of the type of technology.

Of the firms exporting to Japan's FTA partners, 44.9% are using FTAs. This remains about the same level as the previous year at 45.1%. If limited to large-scale firms, the percentage increases to 63.5%, rising 6.4 points compared to the previous year. Looking at individual agreements, the percentage of firms answering that they were considering using the Japan-EU Economic Partnership Agreement (EPA), the negotiation of which was finalized in December 2017, was over half, at 52.1%. Among firms utilizing FTAs, 49.1% said that they were aware of the self-certification of origin system adopted within the Japan-EU EPA.

The percentage of firms currently hiring foreign employees (45.4%) remained about the same level as the previous year (46%). Among firms with foreign employees, the percentage of firms answering that they are working as "general office staff" was the largest (50.3%), followed by "general plant staff" (40%) and "engineers" (24.1%). Asked for which job categories there is expected to be an increased need for foreign employees in the medium to long term (about five to 10 years), within the executive tier, the percentage of firms answering with "management-level employee in administrative work" was the largest (29.4%), followed by "researcher in research and development" (18.8%), "management-level employee in engineering" (16.4%) and "board director, including outside director" (9.6%).