News & Updates
Results of JETRO's 2020 Survey on Business Conditions of Japanese Companies in Europe
Mar 01, 2021
Serious impact on business performance from novel coronavirus. Japanese-affiliated companies based in Europe seeking to implement digitalization.
In September 2020, the Japan External Trade Organization (JETRO) conducted its latest survey on the business conditions of Japanese-affiliated companies in Europe. 949 valid responses were received (66.9% response rate) out of 1,419 to whom we sent questionnaires.
- Operating Profit Forecast
- Current Domestic Market and Future Prospects
- Operational Challenges
- COVID-19 crisis
- Britain's Exit from the European Union
- Impact of Changes in Trade Environment
- Local Procurement and Future Direction
- Future Promising Sales Destinations
- Business Outlook for Next 1 or 2 Years
For trade between Japan and the EU, the simple average of companies' responses (value-based procurement) from Japan for Japanese-affiliated companies based in the EU was 36.6%, an increase of 5.2 percentage points from the 2018 survey, conducted before the EU-Japan EPA came into effect. With the utilization of the EU-Japan EPA also increasing, use of the self-declaration system is gradually being adopted. More than 70% of Japanese-affiliated companies based in the UK that import from Japan plan to utilize the Japan-UK EPA, or are considering utilizing it.
Summary of Survey Results
1. Operating profit forecast, domestic market conditions, and domestic market future prospects
- The proportion of companies predicting profitability in 2020 was 48.5%. This was a 22-point decrease over the 70.5% of the previous year. This is the lowest level recorded since the survey changed from the previous manufacturing sector-only survey to include the non-manufacturing sector in 2012. The percentage predicting a loss recorded a new high (slide 1-1).
- Responses indicating a decrease in operating profit (57.4%) for 2020 relative to the previous year were significantly higher than those indicating an increase (13.0%). The Hotel/travel industry has been seriously affected (1-5).
- The proportion of companies responding "Better" or "Slightly Better" in relation to current market conditions in the country they are based in decreased significantly from 32.6% in the previous year’s survey to 8.0% (2-1).
2. The impact of COVID-19 and realignment of businesses
- The most common operational challenge selected by all Japanese-affiliated companies based in Europe was "Spread of COVID-19", at 57.2%. By country, particularly high responses were recorded in Spain (87.5%), Switzerland (86.7%), and France (67.9%). In terms of specific COVID-19 issues, a high proportion of companies in Spain cited "Decline in consumption demand", while in Switzerland and France it was "Restrictions on cross-border travel" (3-1, 3-5).
- Companies affected by COVID-19 seek to digitalize their operational strategies and business models. The expansion of working from home, and the enthusiastic use of initiatives such as utilization of virtual exhibitions and promotion of AI usage is striking (4-2).
- For 2021 and beyond, a relatively high proportion of companies planned to begin "Changeover in procurement sources", "Streamlining by staff reduction", and "Reduction of expatriates" (4-2).
- In terms of support policies offered by individual countries, "Support measures for investment in digitalization" attracted the most attention at 34.1%, with particularly high proportions in Italy (53.3%), the UK (42.7%), and Belgium (36.8%), which shows the enthusiasm of Japanese-affiliated companies based in Europe for digitalization (4-3).
|1||Spread of COVID-19||—||—||57.2||—|
|2||High labour costs||40.5||40.3||40.4||0.1|
|3||UK’s exit from the EU||—||56.5||39.7||△ 16.8|
|4||Securing Human Resources||43.6||41.8||34.0||△ 7.8|
|5||Lower prices offered by
3. Britain’s exit from the EU
- The most common operational challenge for Japanese-affiliated companies based in the UK continued to be "UK’s exit from the EU" (3-4).
- In terms of trade issues after the end of the transitional period, nearly 70% of manufacturing companies based in the UK expressed concern regarding "Export from the UK to the EU", underpinning the importance of the EU market. 51.7% of manufacturing companies based in the UK expressed concern about "Export from the EU to the UK", reaching 78.3% if all companies expressing anxiety about either imports or exports were counted.
- In terms of concerns about the business environment, the most common response for companies both in the UK and the EU was "Economic slump in the UK". In terms of specific concerns common to companies both in the UK and the EU in relation to "Changes in UK Regulations and Legislation", the most frequent response for the manufacturing sector was "CE marking", whereas for the non-manufacturing sector it was "Constraints of free movement of persons between the EU and UK" (5-5, 5-6).
- For UK-based Japanese-affiliated companies from the manufacturing sector, the simple average of companies' responses (value-based procurement) from the EU was 13.5%, a decline of 10.4 percentage points over that of the previous year's survey. In response to questions about the future direction of procurement, 25.0% selected "Decrease", a rise of 2.3 points (8-2, 8-3).
4. Utilization of the EU-Japan EPA
- Regarding the utilization of the EU-Japan EPA by Japanese-affiliated companies based in the EU, the proportion of companies responding that they utilized it for imports from Japan to the EU (including the UK) was nearly half the total, at 48.1%. If "Preparing to utilize" and "Considering to utilize" are included, this rises to approximately 80%. By country, relatively high levels were recorded in Czechia (75.0%), the Netherlands (56.0%), Belgium (50.0%), Italy (50.0%), and Germany (46.0%) (7-1).
- In terms of issues associated with utilization, approximately half of respondents cited "Cooperation with supplier/business partners", but on the other hand the "Proof of origin procedures (self-certification)" that occupied the top spot in the previous year's survey declined by more than 10 percentage points in the 2020 survey. With utilization of the EPA beginning to spread, securing the necessary rules of origin documentation from suppliers and business partners remains an issue for some companies (7-5).
- The simple average of companies' responses (value-based procurement) from Japan for Japanese-affiliated companies based in the EU was 36.6%, which has grown by 5.2 percentage points from the 2018 survey, conducted before the EU-Japan EPA came into effect. In Germany and the Netherlands, where there are clusters of Japanese-affiliated companies and where the EPA is heavily utilized, the average rate exceeded 40% (8-1).
- For Japanese-affiliated companies based in the UK that import/export between the UK and Japan, the proportion that responded that they were "Planning to utilize" or "Considering utilizing" the Japan-UK EPA for "Imports from Japan to the UK" was 73.7%. This appears to show the intention of companies based in the UK to achieve a smooth transition from the EU-Japan EPA to the Japan-UK EPA when it comes into effect on January 1, 2021 (7-9).
5. Other major trends
- In relation to current market conditions in the country they are based in, companies in Central and Eastern Europe responding "Better" and "Slightly Better" totaled 23.4%, significantly higher than the same figure for Western Europe (6.3%). As for prospects, the percentage exceeded that for Western Europe by more than 10 percentage points (2-1, 2-2).
- In terms of Business outlook for the next 1 or 2 years, the proportion of the Central and Eastern European manufacturing sector responding with "Expansion" was 45.2%, which was again more than 10 percentage points higher than the manufacturing sector in Western Europe (10-1).
- In terms of operational challenges, the proportion of manufacturing sector companies based in Central and Eastern Europe responding "Rapid labour costs growth", although lower than in the previous survey, exceeded that of "Spread of COVID-19" (4-3).
- Approximately 30% responded "Poland" when asked about future promising sales destinations. Of the top 10 such countries, 5 were in Central and Eastern Europe, showing that expectations towards this region are shifting from the previous perception of being primarily production bases to becoming markets in their own right (9).
Tanaka Susumu, Fukui Takayasu, Yamada Yoshiyuki
Europe, Russia and CIS Division, JETRO