News & Updates
FY2018 JETRO Survey on Business Conditions for Japanese Companies in Canada (29th annual survey)
Mar 18, 2019
74.8% of Respondents Expected Positive Operating Profits – the Seventh Year in a Row for This Figure to Exceed 70% (the longest period in our records)
Nearly Half of Respondents Are Considering Using CPTPP for Imports from Japan
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 November 9, 2018 to December 7, 2018|
|Scope||Japanese manufacturers and non-manufacturers operating in Canada
143 responses received from 180 surveys sent (response rate of 79.4%)
Summary – 2018 Business Conditions for Japanese Companies in Canada
- Corporate performance
For seven years in a row now, over 70 percent (74.8%) of respondents expected positive operating profits, making for the longest such streak in survey history as with the Survey on Business Conditions for Japanese Companies in the US. The diffusion index (DI) value, an indicator of business confidence, for 2018 was down 8.2 points from 2017 at 16.8, but the 2019 outlook rose up to 27.3, and more companies are expecting to see an improvement in their performance.
- Business direction going forward
Of respondents, 33.8% said they had “increased” their number of local employees in the last 12 months, while nearly half (46.2%) said they were planning to expand in the next year or two.
- Supply chains (raw material procurement and sales destination)
Over 60% of companies procured their raw materials from within the NAFTA region, and over 80% of sales were made to customers in NAFTA. Slightly under 20% of materials were procured from Japan, while sales to customers in Japan stood at a little over 10%. In terms of imports from Japan, around half (45.0%) of companies said they were considering using the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).”
- Challenges in management
In management challenges (factors in increased costs), “recruiting workers” (59.2%) and “labor costs” (54.9%) were the top items cited.
- Countermeasures to the changing business environment
As in the previous survey, interest in Trudeau administration policies remained focused on three items: “trade” (72.8%), “tax regime” (65.4%), and “diplomacy” (58.1%). In trade, interest in the “United States-Mexico-Canada Agreement (USMCA)” (64.9%), “additional custom duties” (55.7%), and “CPTPP” (38.1%) were all cited.
Results – 2018 Business Conditions for Japanese Companies in the U.S.
(1) Operating profit forecast: 74.8% of respondents expected a profit in 2018, marking the seventh year in a row of over 70% and the longest streak in survey history.
- In 2018, 74.8% of the Japanese companies in Canada expected an operating profit. Although this figure was 0.5 points lower than in 2017 (75.3%), it remained over 70% for seven consecutive years since 2012 (p. 4).
- The DI value (the difference between the rates of increased and decreased business sentiment), an indicator of business confidence, stood at 16.8, down 8.2 points from 2017. Of those surveyed, 41.3% said their operating profit in 2018 would be better than in 2017, showing a drop of 6.1 points, while 24.5% (up 2.1 points) said they expected a decrease in operating profit. In addition, the DI value indicating the business confidence outlook for 2019 was 27.3, reflecting a 10.5-point improvement over the 2018 value. Meanwhile, only 14.7% of companies said they expected their operating profit to decrease (p. 5).
(2) Business direction going forward: Nearly half of respondents (46.2%) plan for business expansion
- Regarding future business plans, 46.2% of companies said they were planning on business expansion in the next year or two, down 4.1 points from 2017 survey. By industry, 49.3% of manufacturers said they planned to expand, up 0.5 points from last survey (48.8%), while only 43.1% of non-manufacturers said they were looking to expand, down 9.0 points (52.1%). The main reasons for plans to expand business were “sales increase in local markets” (74.2%) and “high growth potential” (43.9%). In terms of areas for expansion, 65.2% of respondents said “sales function,” while 31.8% said “production (high-value-added products)” and 24.2% said “production (general-purpose products)” (p. 6).
- In capital investment, 38.3% of respondents spent more in 2018 than in 2017, while 55.4% said there was no change in their spending. The purposes included “maintenance and/or repair of existing facilities” (50.8%), as well as “strengthening productivity and/or sales function” (25.4%) and “application of ICT such as AI and IoT” (21.4%) (p.7-8).
- Regarding the status of ICT use, 84.9% of respondents said they had “introduced smartphones or tablets” in their operations, while 55.8% said they had “integrated mobile devices (cell phones or smart phones) into business applications” and 51.4% said they were using “cloud services,” indicating high rates of adoption in these areas. Among manufacturers, companies in the transportation equipment and parts industry (motor vehicles and motorcycles) were making active use of ICT, while among non-manufacturers it was wholesale and retail (including trading companies) and sales companies using ICT the most. Meanwhile, “IoT/M2M solutions” were used by 19.0% of sales companies, while 37.5% of companies dealing in transportation equipment and parts (motor vehicles and motorcycles) were using “VR (virtual reality)/AR (augmented reality)” (p. 9).
- Asked about employment, 33.8% of respondents said they had “increased” their number of local employees in the last 12 months, which was 2.8 points lower than in the last survey (36.6%), while 40.9% of companies said they planned to “increase” this number going forward. Meanwhile, the survey showed that the figures for Japanese expats were unchanged for the most part (p. 10).
(3) Supply chains (procurement, sales): Over 60% of procurement made in NAFTA region, and over 80% of sales made to customers in NAFTA
- The procurement rate of materials and parts from within Canada stood at 36.1% (Japanese companies in Canada: 9.1%; Canadian companies: 25.8%; other foreign affiliated companies in Canada: 1.2%), showing a rise of 1.4 points from the 2017 survey. The procurement rate in the NAFTA region including the US (28.0%) and Mexico (2.0%) was 66.1%. With regard to procurement from Asia, Japan accounted for 18% of procurement, followed by China at 5.9% and the ASEAN region at 3.6% (p. 11).
- Of products and services, 67.1% were sold to the domestic market in Canada, while 15.3% were sold to the U.S. and 0.3% went to Mexico. In total, 82.7% of sales went to the NAFTA region including Canada (p. 12).
- Among all companies surveyed, 41.6% (47 companies) used NAFTA for imports from/exports to the US or Mexico (p. 13). Of these, 52.8% of all importers and exporters used NAFTA. In addition, nearly half (45.0%) of companies said they were considering using the CPTPP for imports from Japan (p. 14).
(4) Factors for increased cost: “Recruiting workers,” “labor costs (salaries and bonuses)” are main issues
- With regard to management challenges (increased costs), “recruiting workers” was a top factor at 59.2%, up 9.5 points from the previous survey (49.7%). Although “wages (salaries and bonuses)” was down 8.7 points at 54.9% (vs. 63.6% last time), it remained among the top factors. In addition, 20% of companies cited related regulations as an issue, and among these respondents, “environmental regulations” (56.7%) and “labor management” (30.0%) remained major contributing factors (p. 15).
(5) Effects of USMCA: Most companies see “no impact”; auto industry concerns include “review of product-specific rules of origin (PSR),” “the requirement to purchase 70% North American steel and aluminum”
- Asked about the United States-Mexico-Canada Agreement (USMCA), a treaty replacing NAFTA, nearly half (48.9%) of respondents said it will have “no impact,” while 32.8% said they are “not sure” and 10.9% replied that “the positive and negative impacts will be about the same.” While just 4.4% said they see “negative impacts,” this was the response from 13.0% of companies in the transportation equipment and parts industry (motor vehicles and motorcycles). The types of negative impacts anticipated by companies in that industry are: “review of product-specific rules of origin” (19.0%), “the requirement to purchase 70% North American steel and aluminum” (19.0%), and “exclusion from section 232 measures of the Trade Expansion Act with respect to passenger vehicles and light trucks and automotive parts if the US imposes such measures” (15.0%). (p. 16).
- Asked about measures for coping with USMCA, 56.0% of respondents said they plan to make no change while 20.6% said they are “not sure,” meaning that a majority of companies have yet to decide on any measures to be taken. Among those considering specific measures, “raising of sale prices” (17.7%) was the most common answer, followed by “change of procurement sources” (7.1%) and “adjustment of production volumes and employment (working hours)” (3.5%). In the transportation equipment and parts industry (motor vehicles and motorcycles), “not sure” was the most prevalent answer at 39.1%, followed by “make no changes” at 26.1%. Regarding specific measures, 17.3% of respondents answered “raising of sale prices,” while 13.0% said “change of procurement sources” and another 8.7% said “adjustment of production volumes and employment (working hours)” (p. 17).
(6) Interest in Trudeau Administration policies: Overwhelmingly in “trade,” with a focus on “USMCA” and “additional customs duties”
- As in the 2017 survey, interest in the Trudeau Administration’s policies remained focused on “trade” (72.8%), the “tax regime” (65.4%), and “diplomacy” (58.1%). In trade, interest in the USMCA was the most significant at 64.9% (63 companies). This was followed by interest in “additional customs duties” (55.7%) and the CPTPP (38.1%). In “diplomacy,” interest in relations with the US and with Japan were cited respectively by 87.3% and 60.8% of respondents (p. 18).
(7) Industries with market growth potential: Most companies said ICT
- When companies were asked about industries with growth potential for the next two to three years, information and communication technology (ICT) was the most popular answer, followed by the environment and healthcare. Compared to the last survey done in 2016, ICT saw a dramatic 30-point increase, while robotics/mechatronics was up 4.6 points and food/agricultural products rose 4.2 points. Meanwhile, the environment, healthcare, and health all fell in the ranking (5.1 points, 3.5 points, 6.8 points, respectively) (p. 19).
- 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.
Takashi Nakamizo, Mao Noguchi, and Mari Fujii
Americas Division, Overseas Department, JETRO
Tel: +81-3-3582-5545 Fax: +81-3-3587-2485