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News & Updates

FY2017 JETRO Survey on Business Conditions for Japanese Companies in Canada (28th annual survey)

Feb 21, 2018

75.3% of respondents forecast figures in the black – the sixth year in a row for this figure to exceed 70% (the longest period in our records)
NAFTA catches major attention among Trudeau policies

JETRO has conducted a survey on the state of Japanese companies operating in Canada. 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 and non-manufacturers operating in Canada
157 responses received from 188 surveys sent (response rate of 83.5%)
Topics (1) Sales Performance, (2) Future business direction, (3) Procurement and sales destinations, (4) Challenges in management, (5) changing business environment

Summary – Business conditions of Japanese companies in Canada

  • Among respondents, 75.3% forecast positive operating profits, up 3 points from 2016 - remains above 70% for six consecutive years (the longest period in our records, both for Japanese companies in Canada and the U.S.) (p. 4).
  • In Canada, Japanese companies made approximately two thirds (67%) of sales within the country (p. 14). While the Canadian economy in 2017 had been forecasted to grow by 3-4%, with a DI value (indicating year-over-year improvements and deterioration) was 25, up 8.7 points. The Canadian economy is expected to grow 2-3% in 2018, with the DI value reaching 34, as fewer companies expect a drop in their performance (p. 5).
  • Among the respondents, 36.6% increased the number of local employees in the previous year, up 8.4 points from 2016 (28.2%) (p. 6). More than half (50.3%, up 9.5 points from 2016) of the respondents said they intend to expand business in the next year or two, reflecting the strong conditions of the domestic market as well as the positive forecast for the neighboring U.S. market (p. 10).
  • Among Trudeau administration policies, trade (78.4%), tax (70.6%) and diplomacy (62.1%) were the top three items of interest. In trade, NAFTA attracted the most attention (66.0%), as the renegotiation between Canada, the U.S. and Mexico is underway, followed by the FTA between Japan and Canada (35.3%) and the TPP (29.4%). Strong interest in FTAs involving Japan was evident (p. 19).
  • In association with the NAFTA renegotiation, 77.5% were concerned about customs, trade facilitation and rules of origin (p. 20).

Results - 2017 Business Conditions for Japanese Companies in Canada

1. Operating profit: 75.3% of the respondents forecast operating profits, up from 2016 and remains above 70% for six consecutive years (the longest period in our records).

  • In 2017, 75.3% of Japanese companies in Canada expected a profit, up 3 points from the 72.3% in 2016. This continues a streak beginning in 2012 in which the portion of companies expecting to be in the black have surpassed 70% (p. 4). Approximately two-thirds (67.0%) of sales were made within Canada (p. 14). Higher oil prices and steady domestic demand pushed the real GDP growth rate upwards, helping Japanese companies to improve their performance.
  • The DI value (calculated as the percentage of year-over-year improvement and deterioration) was 25, up 8.7 points from 2016. Regarding operational profit in 2017, 47.4% of respondents said it would be better than in 2016, up 6.3 points, while 22.4% said it would drop by 2.4 points. The DI value forecasted for 2018 was 34, up 9 points from 2017, while only 12.8% expected a drop in performance (p. 5).

2. Business development: 50.3% considering business expansion, significant improvement from 2016.

  • Among the respondents, 36.6% had "increased" the number of local employees in the previous year, up 8.4 points from the 28.2% in 2016. Meanwhile, 42.8% plan to increase it in the future. The number of Japanese expatriates remained mostly flat (p. 6).
  • For recruitment, 69.1% utilized recruitment agencies, along with rehiring part-time or fixed-term contracted employees as regular or full-time employees (41%) and internships (34.5%). Those answering that utilizing recruitment agencies was most effective came to 44.4% (p. 7). For human resources development, 61.7%used in-house ability training programs and 54.1% used third parties. Providing in-house ability training programs was most effective according to 42.6% (p. 8).
  • In capital investment, 33.6% spent more than in 2016, while 56.8% said the amount remained flat. The purposes included factory rationalization and/or optimization (36.2%) and IT (AI, IoT) (30.2%) (p. 9).
  • Expansion in the next two years is considered by 50.3%, up 9.5 points. The portion came to 37.5% in manufacturing (up 11.3 points) and 43.6% in non-manufacturing (up 8.5 points). The areas included sales (64.9%) and production (high value-added products) (36.4%) (p. 10).
  • Factors to consider regarding expanding or relocating to new provinces were "size of market" (60.7%) and "proximity to customers" (59.3%), followed by "logistics and transportation" (46.9%) and "labor cost" (42.1%). Proximity to customers was most important in manufacturing (59.2%), while market size mattered most in non-manufacturing (72.5%) (p. 11).

3. Procurement and sales: Over 60% procure and over 80% sell within the NAFTA region

  • Regarding parts and materials, the ratio of procurement from Canada was 34.7% (Japanese companies: 7.9%; Canadian companies: 24.3%; other non-Canadian companies: 2.5%). The ratio of procurement from the NAFTA region as a whole reached 61.4%, with 24.2% from the U.S. and 2.5% from Mexico. In Asia, procurements from Japan, China and other ASEAN countries were 23.9%, 5.8%, and 3.5%, respectively (p. 12).
  • Among sales destinations for products and services, Canada came to 67.0%, the U.S. 14.1% and Mexico 1.3%. Total sales in the NAFTA region reached 82.4% (p. 14).
  • Among the respondents, 40.8% utilized NAFTA for imports from and/or exports to the U.S. and Mexico (p. 16). Among those involved in imports and exports, 66.7% utilized NAFTA, while 47.5% were considering the utilization of TPP for importing from Japan (p. 17).

4. Challenges in management: Labor cost and U.S./Canadian dollar exchange risk continue to be concerns

  • Regarding challenges (factors for increased cost), "increase in labor cost (salaries and bonuses)" became the top item at 63.6%, up 17.2 points from the previous year (46.4%), followed by "U.S./Canadian dollar exchange risk" (62.3%). Among regulations, "environmental regulations" and "visa application for Japanese expats" remained major items from 2016 (p. 18).

5. Interest in Trudeau policies: Trade, particularly NAFTA

  • Among the policies of the Trudeau administration, trade (78.4%), the tax regime (70.6%) and diplomacy (62.1%) were the top three items. In trade, interest in NAFTA (66.0%, 101 respondents) was most significant, followed by the Japan–Canada FTA (35.3%) and the TPP (29.4%), indicating the importance of FTAs involving Japan (p. 19).

6. Impact of NAFTA renegotiation: Revision of rules of origin and currency

  • Among the items impacted by NAFTA renegotiation, "customs, trade facilitation and rules of origin" (77.5%), "currency exchange" (44.2%) and "access to the goods market" (37.7%) ranked at the top. Respondents in transportation equipment (100%) and transportation equipment parts (100%) industries were particularly interested in "customs, trade facilitation and rules of origin." Overall, the rate of Japanese companies in Canada selecting "customs, trade facilitation and rules of origin" was 9.2 points higher than Japanese companies in the U.S. (68.3%) (p. 20).
Note:
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