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Overseas Business Operationsby Japanese Manufacturing Companies
Toshiro NishizawaJBIC Institute
Japan Bank for International Cooperation
ICRIER - SPF
Conference on
“India-Japan Economic Cooperation”
July 14, 2008
Magnolia Hall, India Habitat Centre, New Delhi
Copyright © 2007 JBIC Institute. All Rights Reserved. 1
PROFILE OF JBIC
Copyright © 2007 JBIC Institute. All Rights Reserved. 2
JBIC is “a policy-based financing institution, which has a mandate to implement Japan’s external economic policy and economic cooperation.”
Established in October 1999
As a result of the merger of the Export-Import Bank of Japan (EXIM) and Overseas Economic Cooperation Fund (OECF)
100% owned by the Government of Japan
Total assets of JPY 21 trillion (US$ 200 billion)
Copyright © 2007 JBIC Institute. All Rights Reserved. 3
JBIC’s operations consist of:
“International Financial Operations”, ranging from export loans, import loans, overseas investment loans, untied loans, guarantees and equity participation
and “Overseas Economic Cooperation Operations”, providing Official Development Assistance loans
Copyright © 2007 JBIC Institute. All Rights Reserved. 4
Organizational Realignment
As a result of the government decision on the reform of policy-based financing institutions, the two types of operations conducted by the current JBIC will be realigned on October 1, 2008 as follows:International Financial Operations will be taken over by Japan Finance Corporation (“JFC”) as its international finance sector (“New JBIC”);Overseas Economic Cooperation Operations will be succeeded by new Japan International Cooperation Agency (“New JICA”).
Copyright © 2007 JBIC Institute. All Rights Reserved. 5
JBIC ANNUAL SURVEY ONOVERSEAS BUSINESS OPERATIONS
BY JAPANESE MANUFACTURING COMPANIES
Copyright © 2007 JBIC Institute. All Rights Reserved. 6
Survey Overview (p.2)
Companies Surveyed, Response Rates, and Overseas Affiliates(Units: No. of companies, %)
Survey targets: Manufacturing companies that have three or more overseas affiliates (including at least one production base)
No. of companies questionnaires were mailed to: 970
Responses returned: 600 (response rate: 61.9%)
Period of survey: Sent in July 2007Responses returned from July to
August
Main survey topics:-Medium-term business prospects-Evaluations for overseas business performance-Promising countries or regions for overseas
business operations-Competition in the global sales market-Important efforts domestically and abroad
to maintain/improve international competitiveness
No. of Respondent Companies by Industrial Classification
Paper & Pulp 7Wood & Wood Products 3
Transportation (excluding Automobiles) 8
Other36
Steel 15
Nonferrous Metals 16Ceramics, Cement &
Glass 16
Petroleum & Rubber19 Metal Products 21
Textiles 34
Foodstuffs35Precision
Machinery38 General
Machinery53
Chemicals85
Electrical Equipment & Electronics
111
Automobiles103
600Companies
See Appendix 1 for more detailed characteristics of the companies surveyed.
Survey year FY2007 FY2006 FY2005 FY2004 FY2003
Surveyed companies 970 967 945 939 932
Responses 600 594 590 595 571
Response rate 61.9 61.4 62.4 63.4 61.3
Overseas Affiliates 11,516 10,152 10,847 10,079 9,838
Copyright © 2007 JBIC Institute. All Rights Reserved. 7
I. Status of Overseas Business Operations and Strategic Directions
Copyright © 2007 JBIC Institute. All Rights Reserved. 8
Overseas production and sales both on the rise, approaching 1/3 of the total production and sales …. (p.5)
Ratio of Overseas Production (average for all industries)
0%
5%
10%
15%
20%
25%
30%
35%
40%
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Actual Planned
(Medium-term plan)
Overseas Production Ratio
Overseas Net Sales Ratio
Estimate for FY2007
(FY)
Copyright © 2007 JBIC Institute. All Rights Reserved. 9
Overseas Production & Net Sales Ratios
(n=563)
(n=498)
15%
20%
25%
30%
35%
40%
45%
15% 20% 25% 30% 35% 40% 45%Overseas Production Ratio (%)
FY2004 figuresFY2002 figures
FY2006 figures
Average for all Industries
Electrical Equipment &
ElectronicsGeneral Machinery
Chemicals
Auto-mobiles
Ove
rsea
s Net
Sal
es R
atio
(%)
(21.5%, 24.6%)
(18.9%, 28.0%)
(41.5%, 41.8%)
(38.6%, 40.9%)
(32.1%, 35.3%)
(21.3%, 27.2%)
(25.9%, 27.8%)
(27.3%, 42.1%)
(26.6%, 26.4%)
(30.5%, 33.2%)
Overseas operations in general machinery and automobile industries particularly showing strong growth …. (p.5)
Copyright © 2007 JBIC Institute. All Rights Reserved. 10
81.9%
18.0%
0.2%
79.1%
20.2%
0.7%
82.8%
17.1%
0.2%
82.2%
16.8%
1.0%
0%
20%
40%
60%
80%
100%
FY2004 FY2005 FY2006 FY2007
Medium-term Prospects (next 3 years or so) for Overseas Operations
590 575 580 595 companies
Scale back/withdraw
Maintain present level
Strengthen or expand
Strategies of strengthening or expanding overseas business operations continue …. (p.6)
Copyright © 2007 JBIC Institute. All Rights Reserved. 11
Medium-term Prospects (next 3 years or so) for Overseas Operations by industry
595 34 32 83 53 108 103 38 companies
All industriesFoodstuffs Textiles
Chemicals
General machinery
Electrical equipment & electronics
AutomobilesPrecision machinery
20%
40%
60%
80%
100%
0%
85.3%
14.7%0.0%
88.0%
12.0%
0.0%
82.2%
16.8%
1.0%
56.3%
37.5%
6.3%
81.1%
18.9%
0.0%
76.9%
19.4%
3.7%
88.3%
11.7%
0.0%
78.9%
21.1%
0.0%
Focus on automobiles stands out …. (p.6)
Scale back/withdraw
Maintain present level
Strengthen or expand
Copyright © 2007 JBIC Institute. All Rights Reserved. 12
Ratio of Reasons Cited for Being Promising (average for all reasons, percentages relative to FY2003 levels of same)
Local Market
Current size of local market 29.1
Future growth potential of local market 70.9
0%
20%
40%
60%
80%
100%
120%
FY2003 FY2007
30.7
77.3
100 108
Low-cost Operations
Inexpensive source of labor
73.856.1
Inexpensive components & raw materials
0%
20%
40%
60%
80%
100%
FY2003 FY2007
14.8
100
7126.2
Motivations for overseas investment are shifting from the search for low-cost to local markets …. (p.15)
Copyright © 2007 JBIC Institute. All Rights Reserved. 13
II. Promising Countries Ranking
Copyright © 2007 JBIC Institute. All Rights Reserved. 14
28S aud i A rab ia2 1 st16A ustra lia28P o land2 0 th16C an ad a28A ustra lia1 9 th28H u ng ary28H o ng K o n g1 8 th21 2E ngland21 0T urkey1 7 th21 2P hilip p ines21 0E ngland1 6 th31 4M exico31 3C zech R ep u b lic1 5 th31 5C zech R ep u b lic31 5G erm an y1 4 th31 5P o land31 5P hilip p ines1 3 th31 5G erm an y42 1M exico1 2 th52 2M alaysia42 1M alaysia1 1 th62 7T aiw an52 4T aiw an1 0 th83 9Ind o ne sia63 2K o rea9 th94 4K o rea94 6Ind o nesia8 th94 5B razil94 7B raz il7 th
2 09 8R ussia1 89 3U nited S ta tes6 th2 11 0 4U nited S ta tes2 31 1 4R ussia5 th2 91 4 2T hailand2 61 3 2T hailand4 th3 31 5 9V ie tn am3 51 7 8V ietn am3 rd4 72 2 9Ind ia5 02 5 4Ind ia2 nd7 73 7 2C hin a 6 83 4 2C hin a 1 st
percentage share (% )
(C o m pan ie s)4 8 4FY 2 0 0 6 S u rveypercentage
share (% )(C o m pan ie s)
5 0 3T h is year’s su rveyR ank in g
28S aud i A rab ia2 1 st16A ustra lia28P o land2 0 th16C an ad a28A ustra lia1 9 th28H u ng ary28H o ng K o n g1 8 th21 2E ngland21 0T urkey1 7 th21 2P hilip p ines21 0E ngland1 6 th31 4M exico31 3C zech R ep u b lic1 5 th31 5C zech R ep u b lic31 5G erm an y1 4 th31 5P o land31 5P hilip p ines1 3 th31 5G erm an y42 1M exico1 2 th52 2M alaysia42 1M alaysia1 1 th62 7T aiw an52 4T aiw an1 0 th83 9Ind o ne sia63 2K o rea9 th94 4K o rea94 6Ind o nesia8 th94 5B razil94 7B raz il7 th
2 09 8R ussia1 89 3U nited S ta tes6 th2 11 0 4U nited S ta tes2 31 1 4R ussia5 th2 91 4 2T hailand2 61 3 2T hailand4 th3 31 5 9V ie tn am3 51 7 8V ietn am3 rd4 72 2 9Ind ia5 02 5 4Ind ia2 nd7 73 7 2C hin a 6 83 4 2C hin a 1 st
percentage share (% )
(C o m pan ie s)4 8 4FY 2 0 0 6 S u rveypercentage
share (% )(C o m pan ie s)
5 0 3T h is year’s su rveyR ank in g
Promising Countries/Regions for Overseas Business Operations over the Medium-term (next 3 years or so) (multiple response)
Note: left column = respondent companies; right column = percentage share
China maintains the top position, but India, Vietnam, and Russia increase their shares …. (p.13)
Copyright © 2007 JBIC Institute. All Rights Reserved. 15
Promising Countries/Regions for Overseas Business over the Medium-term (next 3 years or so): Percentage Shares
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY2003 FY2004 FY2005 FY2006 FY2007
China India Vietnam
Thailand Russia USA Brazil Indonesia
(490 Companies)
(497) (483) (484) (503)
Interest shifts from China to India, Vietnam, and other countries …. (p.7)
Copyright © 2007 JBIC Institute. All Rights Reserved. 16
Existence of Concrete Business Plans for Promising Countries/Regions
150
100
50
0
50
100
300
US
KoreaIndonesia
Taiwan
No plan
Plans exist
(Unit: Companies)
112
252
157
62
71
23
54
46
17
21 23
19 11
1616
13
10
218
115
89
159
72
57
59
115
35
77
55
33
18
26Brazil
13
31
18
27
China
India
58
80
Thailand
104
52
Vietnam Russia
LeftFY2007
RightFY2006
14
India, Vietnam, and Russia are attracting more companies’attention, but the majority yet to have concrete business plans …. (p.13)
Copyright © 2007 JBIC Institute. All Rights Reserved. 17
Rest of A
sia & O
ceania
No. of Companies to Strengthen/Expand Operations
Russia &
other CIS
(Companies)
Korea
Taiw
an
Singapore
Hong K
ong
Thailand
Indonesia
Malaysia
Philippines
Northeastern
Northern
Eastern
Southern
InlandIndiaV
ietnam
North A
merica
Mexico
Brazil
Rest of L
atin Am
erica
EU
15
Central &
Eastern E
uro
Rest of E
urope
Middle E
ast
Africa
All industries
China
11792
6391
256
10684
5684
167
292
213
67
168139
24
229
6077
173
101
37
9059
3 -5 7 20 18 4 -2 6 0 15 -2 -10 -4 45 21 -1 22 17 16 16 2 14 26 20
2627
717
-50
0
50
100
150
200
250
300
350 FY2007 Survey results
Change since FY2006Legend
The number of companies to strengthen operations in China leveling off, spreading out into other countries …. (p.8)
Copyright © 2007 JBIC Institute. All Rights Reserved. 18
III. India and Other Promising Destinations—Comparison
Copyright © 2007 JBIC Institute. All Rights Reserved. 19
Number of companies with one or more production bases
Number of companies indicating the relevant country being “promising for overseas operations over the medium-term”
India
0
50
100
150
200
250
300
FY03 FY04 FY05 FY06 FY07
(Companies) Vietnam
0
50
100
150
200
FY03 FY04 FY05 FY06 FY07
(Companies)
Number of Companies with Production Bases and Indicating the Country as Promising (p.14)
China
050
100150200250300350400450500550
FY03 FY04 FY05 FY06 FY07
(Companies) Thailand
0
50
100
150
200
250
300
350
FY03 FY04 FY05 FY06 FY07
(Companies)
Copyright © 2007 JBIC Institute. All Rights Reserved. 20
Businesses in China and Thailand being cultivated more deeply, while India and Vietnam gain attention as new destinations.Although responses citing China as a promising country for overseas operations have decreased, the number of companies with production bases there is steadily increasing. About 80% of the 600 respondent companies have production bases there, and it is an extremely important destination for overseas expansion for Japanese companies.Although companies citing Thailand as a promising overseas destination have reached a plateau in terms of numbers, about 50% of respondent companies already have production bases there, making it a core of operations in Southeast Asia. The ratios of companies owning production bases in India and Vietnam remain at a mere 10% and 15% respectively, actual moves into these countries are expected to pick up in the near future.
Copyright © 2007 JBIC Institute. All Rights Reserved. 21
IV. Why Promising?
Copyright © 2007 JBIC Institute. All Rights Reserved. 22
19.9355. Social/political situation stable
19.9355. Base of export to third countries
31.3554. Qualified human resources
36.4643. Good for risk diversification
53.4942. Future growth potential of local market
71.01251. Inexpensive source of laborRatio
No. of companies(Total number of respondent companies: 176)
Vietnam Thailand
28.5375. Current size of local market
32.3424. Concentration of industry
33.1433. Supply base for assemblers
47.7622. Future growth potential of local market
48.5631. Inexpensive source of laborRatio
No. of companies(Total number of respondent companies: 130)
Inexpensive source of laborGood for risk diversification
Qualified human resources
Reasons for Vietnam being promising
FY03 FY04 FY05 FY06 FY07(85 Companies) (108) (126) (154) (176)
0%
20%
40%
60%
80%
100%
Inexpensive source of labor
Current size of local marketConcentration of industry
Reasons for Thailand being promising
FY03 FY04 FY05 FY06 FY07(141Companies) (146) (145) (133) (130)
0%
20%
40%
60%
(p.17)
Copyright © 2007 JBIC Institute. All Rights Reserved. 23
China India
Reasons for China being promising
0%
20%
40%
60%
80%
FY03(447 Companies)
FY04(448)
FY05(393)
FY06(362)
FY07(336)
Inexpensive source of laborCurrent size of local marketTax incentives for investment
24.7835. Inexpensive components & raw materials
28.3954. Supply base for assemblers
30.11013. Current size of local market
50.31692. Inexpensive source of labor
79.82681. Future growth potential of local market
RatioNo. of
companies(Total number of respondent companies: 336)
15.0375. Current size of local market
23.2574. Supply base for assemblers
29.7733. Qualified human resources
47.61172. Inexpensive source of labor
84.62081. Future growth potential of local market
RatioNo. of
companies(Total number of respondent companies: 246)
Reasons for India being promising
FY03 FY04 FY05 FY06 FY07
(69 Companies) (112) (168) (223) (246)
0%
20%
40%
60%
80%
100%
Inexpensive source of laborFuture growth potential of local market
Qualified human resources
(p.16)
Copyright © 2007 JBIC Institute. All Rights Reserved. 24
V. What are the Remaining Challenges?
Copyright © 2007 JBIC Institute. All Rights Reserved. 25
34.5495. Execution of legal system unclear
34.5494. Underdeveloped legal system
35.2503. Underdeveloped local supporting industries
39.4562. Difficult to secure management-level staff
47.9681. Underdeveloped infrastructure
RatioNo. of
companies(Total number of respondent companies: 142)
Vietnam Thailand
23.2265. Security/social instability
24.1274. Difficult to secure technical/engineering staff
36.6413. Difficult to secure management-level staff
38.4432. Rising labor costs
42.9481. Intense competition with other companiesRatio
No. of companies(Total number of respondent companies: 112)
Challenges faced in Vietnam
FY03 FY04 FY05 FY06 FY07(71) (82) (94) (127) (142)
0%
20%
40%
60%
Rising labor costsUnderdeveloped infrastructureLack of information on the country
Challenges faced in Thailand
FY03 FY04 FY05 FY06 FY07(106) (102) (103) (107) (112)
0%
20%
40%
60%
Rising labor costsSecurity/social instability
Difficult to secure management-level staff
(p.17)
Copyright © 2007 JBIC Institute. All Rights Reserved. 26
China India
Increased taxationRising labor costs
Underdeveloped infrastructure
39.11275. Execution of tax system unclear
44.91464. Intense competition with other companies
53.51743. Rising labor costs
54.51772. Insufficient protection for intellectual property rights
64.92111. Execution of legal system unclearRatio
No. of companies(Total number of respondent companies: 325)
23.2485. Lack of information on the country
44.9494. Labor problems
23.7503. Intense competition with other companies
27.1562. Execution of legal system unclear
54.11121. Underdeveloped infrastructure
RatioNo. of
companies(Total number of respondent companies: 207)
Challenges faced in China
0%
20%
40%
60%
(427) (423) (380) (351) (336)FY03 FY04 FY05 FY06 FY07
0%
20%
40%
60%Challenges faced in India
FY03 FY04 FY05 FY06 FY07(60) (95) (127) (178) (207)
Rising labor costsUnderdeveloped infrastructureLack of information on the country
(p.16)
Copyright © 2007 JBIC Institute. All Rights Reserved. 27
For India, Infrastructure is viewed as a very real problem .... (p.19)
Note: These graphs represent which elements of infrastructure were thought to be underdeveloped by companies that chose “underdeveloped infrastructure” as a response to questions about “issues in promising countries”. The percentages in the graphs were calculated by dividing the number for each by the total number of companies giving answers to the “issues in promising countries” question.
India
Vietnam
(n=207)
(n=142)
China
(n=325)
40.1%
27.1%
14.0%11.1% 10.6%
31.5%
25.8%
11.8% 12.4% 11.2%
37.2%37.1%
0%
10%
20%
30%
40%
Roads Electricity Water Communications Railways Ports
5.5%
24.6%
10.2%
4.9%3.1% 1.2%
4.8%
22.8%
6.3%3.1% 2.6% 1.7%
0%
10%
20%
30%
40%
28.9% 28.2%
14.1% 14.8%
9.2%
14.1%
31.5% 31.5%
15.7%14.2%
8.7%
14.2%
0%
10%
20%
30%
40%
Left2007
Right2006
Many infrastructure-related issues cited for India. Roads, electricity and water in particular were listed as issues that need to be addressed.
As the problem of insufficient information is solved and companies are beginning to study actually investing in India, the infrastructure issue is coming to be viewed as a very real problem.
Roads Electricity Water Communications Railways Ports
Roads Electricity Water Communications Railways Ports