The Hindu Business Line : Japanese firms keen to expand in emerging markets: Survey

New Delhi March 11 Japanese firms now increasingly eye expansion in emerging markets for their global ventures. In this new pattern, India and Vietnam rank higher in their sales operations and production of mid- to low-end product categories.

A survey of Japanese firms' global operations in 2006 just released by Japan's External Trade Organisation (JETRO) shows that among the 729 respondents, 524 (71.9 per cent) hold overseas bases, of which 10.1 per cent (53) are in India.

Besides India and Vietnam, Brazil, Russia and other Commonwealth of Independent States (CIS) countries also ranked high in the sales operations category, reflecting that more Japanese firms are planning expansion in the emerging markets. Willingness to expand sales operations in India and Vietnam was demonstrated for the second year in a row, reflecting strong economic growth and expanding markets in these countries, the survey found.

It said that increasing interest in local production reflects growing domestic demand in both countries' internal markets.

Whereas Japanese firms in iron and steel/non-ferrous metal/metal products, foods and beverages industries showed more interest in Vietnam, firms in car/car parts, other transportation machinery, iron and steel/non-ferrous metal/metal revealed greater preference for India.

To a specific query about risks of doing business in major Asian countries including China, India, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, Japanese firms surveyed said risks from "underdeveloped infrastructure" ranked highest among firms doing business in/with India (57.2 per cent) and Vietnam (47.9 per cent).

A high percentage of firms is worried about "underdeveloped or no accumulation of supporting industries" in their business with India and Vietnam, although such concern did not figure high among firms doing business in/with China.

Pointedly, the percentage of firms worrying about "tax issues" was also dominant in India (17.9 per cent), which suggests awareness among Japanese firms of India's "complicated taxation system."

The survey questionnaire was sent to a total of 2537 JETRO member firms engaged in manufacturing, trading (export/import) and wholesale/retailing, out of which 729 firms responded. Interestingly, Japanese firms expect their sales and operating profits to expand nearly 20 per cent at home and over 30 per cent abroad, between fiscal 2005 and 2010, reflecting a growing significance firms place on overseas markets. China topped all categories for business expansion by Japanese firms, with Thailand, the United States and Western Europe also ranking high in several segments.

However, on the issues of high/increasing labour costs and `political and social instability," the Japanese firms surveyed voiced their apprehensions over the former in Singapore, followed by China, Thailand and Malaysia and for the latter over the Philippines, followed by Indonesia and China. Indonesia also topped the list for concerns over the local currency, followed by China where further Yuan revaluations are expected.

Asked to name free trade areas (FTAs) under which firms have plans to utilise preferential tariff schemes, the Japan-Malaysia FTA ranked highest (24 firms), followed by the China-ASEAN FTA (21 firms) and Asean Free Trade Area (AFTA) with 20 firms. The Thailand-India FTA which currently applies to 82 early harvest items, ranked high among firms `utilising" or `planning to utilise' schemes, suggesting that Japanese firms are eying ASEAN as a possible base for targeting the growing Indian market.

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