News & Updates

2020 JETRO Survey on Business Conditions of Japanese Companies Operating Overseas(Asia and Oceania)

Mar 09, 2021

Business confidence worsened due to the COVID-19 pandemic. Changes in the trading environments had a wide-ranging impact.

Major Results of the Survey

1. Business confidence fell to the lowest level due to the COVID-19 pandemic, while deterioration in China was mild

This is the first time that DI was negative in every country and region since the start of this survey. DI,^* a statistical measure that shows business confidence, was △40.7, hitting a record low. There has been a negative impact from a change in the trading environments due to the U.S.-China conflict that surfaced in 2019. This situation worsened by a loss of markets both inside and outside of each country/region caused by the COVID-19 infection.
The business confidence of Japanese companies operating in China worsened by 23.4 points. Although it has worsened, deterioration level from the previous year was 19.6 points, which was milder within the region. Moreover, even the ratio of companies maintaining profitability fell in all countries and regions, over 60% of all companies remained profitable in China, making there suffering the smallest fall.

*Abbreviation of Diffusion Index, which is obtained by subtracting the percentage of companies which respond that operating profit is down from the percentage of companies which respond that operating profit is up.

2. Normalization form Covid-19 precedes in China, where 70 % expect in the first half of 2021.

When asked about when business will get back to normal, 80% of all companies responded that it would be by the end of 2021. While in China, 67.2% of the companies said that it would be before the end of the first half of 2021. Of these, 43.9% of the companies expected that it would be during 2020, showing a dramatic recovery in the countries and regions surveyed.

3. Negative impact of changes in the trading environments lingers: Significant deterioration in Hong Kong while positive impacts seen in Vietnam, India, and Bangladesh.

The negative impact of the trading environments lingers mainly in northeast Asia with considerable deterioration. In Hong Kong, in particular, 46.3% of the companies had the negative impact because of a remarkable deterioration affected by the U.S – China conflicts. In addition, in Australia, the negative impact was over 30%. The increase was almost double the figure in the previous year. The factor behind this is considered to be souring trade relations between China and Australia.
On the other hand, in Vietnam, Bangladesh and India, the positive impact of changes in the trading environments exceeded 10%, marking a significant year-on-year increase. In Vietnam, the figure rose 8.2 points year-on-year to 15.3%. In Bangladesh, it rose 2.9 points to 13.8%, and in India, it rose 6.6 points to 10.5%.
In Vietnam and Bangradesh, many respondents said the shift of production to their countries caused by the U.S.-China trade frictions had a positive impact. In India, in addition to the production shift, many respondents pointed out the positive impact of increasing the purchase of Japanese products due to a decline in the imports of Chinese products to India against the backdrop of souring relations between China and India.

About the survey

Survey Method Quetionnaire (Online distribution an collection)
Survey Period: August 24 to September 25, 2020
Surveyed Countries/regions: 14,399 Japanese-affiliated companies operating in a total of 20 countries/regions in northeast Asia (5), southeast Asia (9), southwest Asia (4), and Oceania (2).
Valid responses: 5,976 companies (41.5%).

Overview of the Survey

1-1. Business confidence fell to the lowest level due to the COVID-19 pandemic, while deterioration in China was mild (slide 1-[6])

DI,^* a statistical measure that shows business confidence, was △40.7, hitting a record low. This is the first time that DI was negative in every country and region since the start of this survey. There has been a negative impact from a change in the trading environments due to the U.S.-China conflict that surfaced in 2019. This situation worsened by a loss of markets both inside and outside of each country/region caused by the COVID-19 infection.
Although the business confidence of Japanese companies operating in China worsened by 23.4 points, the level of worsening, which is down 19.6 points from the previous year, is milder within the region. This is because the COVID-19 infection was successfully controlled despite some negative impacts, and economic activities resumed at an early stage. The ratio of companies maintaining profitability fell in all countries and regions. However, in China, 63.5% of all companies (down five points from the previous year) remained profitable. The decline was the smallest among the countries and regions surveyed.
Meanwhile, in Indonesia, where the infection is still spreading, the number of companies that recorded profits was △65.9 points, the worst in the region. This was followed by Thailand (△57.4 points), Philippines (△51.2 points), and India (△50.3 points), all under △50 points. About 90% of the companies in Indonesia, Thailand and India attributed the decline to a fall in sales in the local market, and 60% of the companies in Philippines attributed it to a decline in sales due to a slowdown in exports.

1-2. Intention of business expansion in the next one to two years hit a new record low (slide 2-[1])

When asked about the direction of business expansion in the next one to two years, the rate of companies which responded that they would expand started to decline in many countries and regions from the 2019 survey. In the 2020 survey, the rate fell in all countries and regions, hitting new record lows. This trend shows the impact of changes in trading environments such as the U.S.-China conflict, and that a decline in needs due to the COVID-19 pandemic have had a negative impact on the companies’ motivation to expand their business.
On the other hand, even under such a harsh environment, in India and Pakistan, more than half of the companies are still motivated to expand business (50.9% for India and 53.5% for Pakistan). In India, 84.2% of the companies that responded they would expand said they wanted to expand sales in the local market, while in Pakistan, 73.9% of the companies that responded they would expand attributed to high growth potential.

2-1. 70% of Japanese affiliated companies in China expect to recover from the negative impact of the pandemic in the first half of 2021, earlier than other countires/regions (slide 3-[1])2-1．

2-2. COVID-19 accelerated the digital shift of companies (slide 3-[4])

In response to the pandemic, 52.2% of the companies reviewed or will review their business model.
Specifically, 53.8% of the companies have increased working from home or remote working, 24.6% hold virtual exhibitions and online business meetings, and 23.8% use digital marketing and AI. The trend shows that companies are accelerating their digital shift.

3-1. Negative impact of changes in the trading environments lingers: Significant deterioration in Hong Kong and Australia (slide 7-[1])

The negative impact of the trading environments caused by the U.S.-China conflict that surfaced in 2019 was 23.1%, a deterioration of 3.4 points from 19.7% in the previous year. Hong Kong, in particular, recorded a 9.0 point deterioration year on year. Nearly half (46.3%) of the companies said there was a negative impact. Many of the respondents attributed this situation to a decline in exports to the United States from their Chinese customers due to the U.S.-China trade conflict and a shift of production from China to other countries/regions, such as ASEAN, which led to a decline in sales.
In addition, in Australia, the negative impact was 31.7%, an increase of 14.2 points from 17.5% in the previous year. The increase was almost double the figure in the previous year. The factor behind this is considered to be souring trade relations between China and Australia. The responses point to the impact of China’s import curbs on coal and beef from Australia.

3-2. In Vietnam and other countries, changes in the trading environments had a positive impact on business performance (year-on-year increase) (slide 7-[1])

In Vietnam, Bangladesh and India, the positive impact of changes in the trading environment exceeded 10%, marking a significant year-on-year increase. In Vietnam, the figure rose 8.2 points year-on-year to 15.3%. In Bangladesh, it rose 2.9 points to 13.8%, and in India, it rose 6.6 points to 10.5%.
For Vietnam and Bangladesh, many respondents said the shift of production to their countries caused by the U.S.-China trade frictions had a positive impact. In India, many respondents pointed out the positive impact of the shift of production from China to India, and the positive impact of increasing the purchase of Japanese products due to a decline in the imports of Chinese products to India against the backdrop of souring relations between China and India. In Vietnam, some pointed out the positive impact of the European Union-Vietnam Free Trade Agreement (EVFTA) which came into effect in August 2020.

Other trends shown in the survey result

Surge of “Decreased orders from clients” and “Sluggishness in major sales markets” in the management matters（Slide 4-(1)）
75％ of total companies utilize FTA/EPA. Shortage of practical knowledge is the challenge. (Slide 6-(6)）
Around 500 companies already collaborate or plan to do with local start-ups. About 1,300 companies have interest in the collaboration. (Slide 8-(2)）
E-commerce sales has already been introduced, or is planned in over 70% of the companies in travel and regtail sectors（Slide　8-(6)）
Rise of demand for digital talents（Slide 8-(12)）

2020 JETRO Survey on Business Conditions of Japanese Companies Operating Overseas(Asia and Oceania)(2.0MB)

: Japan External Trade Organization (JETRO)
Overseas Research Department
Asia and Oceania Division (Pic: Yamashiro, Miki) （Tel：03-3582-5179）
China and North Asia Division (Pic: Tomoda, Mukaino)（Tel：03-3582-5181）