HIGH LABOUR COSTS in China and diversification of Japanese business will continue to bring more direct investment from Japan to Asean countries, a Japan External Trade Organisation (Jetro) official said yesterday.
In the first 10 months of this year, more than 14 trillion yen (Bt4.4 billion) of Japanese direct investment flowed to Asean countries, compared with only 7.6 trillion yen to China in the same period, said Isamu Wakamatsu, director of the Asia and Oceania division of Jetro’s overseas research department.
In 2012, more than 11 trillion yen of Japanese direct investment flowed to Asean countries and 10 trillion yen to China, he said, noting that this trend would continue next year.
High labour costs in China encouraged Japanese investors, notably those in labour-intensive industries, to look for new places to do business. They mostly shifted to low-wage countries in the Mekong basin such as Laos, Cambodia and Myanmar, which are situated next to China, he said.
Wages in China have increased over the past five years as the government changed its economic-development policy to put more emphasis on domestic consumption rather than export as before, he said. Increasing people’s disposable incomes fuels consumption.
Besides this, however, economic diversification within the Asean countries as well as within Japanese modes of investment contributed to the shift towards Southeast Asia, Wakamatsu said.
Within Asean, Japanese investment is now being diverted from the advanced but high-cost economies of Thailand, Indonesia and Vietnam to new areas such as Cambodia, Laos and Myanmar, he said.
“Myanmar in particular is a new trend. As many as 800 Japanese businesspeople contacted our office in November alone to seek information on opportunities for trade and investment” in that country, Wakamatsu told a group of journalists from Asean visiting Japan. Thailand and Indonesia have increased their minimum wages by more than 40 per cent over the past two years, so some investors moved to Mekong countries to exploit low pay, he said.
Notably those that invest in Thailand adopted a new strategy of “Thailand plus one” after the major flood in 2011 and the dramatic rise in wages. “Major investment is still in Thailand as the market is still promising, but some labour-intensive parts [of their business] are moving to neighbouring [countries] such as Cambodia, Laos and Myanmar,” he said.
Diversification has also taken place within Japanese firms, he said. While big companies have maintained their investment in China, the smaller ones such as suppliers have looked at smaller countries such as those in Asean, he said.
Previously manufacturing was the flagship of Japanese investment abroad, but this has changed to service industries such as restaurants, retailers and education, he said.
However, Japanese investors wanting to do business in Southeast Asia face many problems, according to a recent Jetro survey.
The top problem in Singapore is the difficulty of recruiting general workers, while the top trouble in Thailand, Malaysia, Indonesia and Vietnam is high labour costs. Japanese investors have found difficulties in local procurement of raw materials and parts for their production in the Philippines, Cambodia and Laos. The top problem in Myanmar for Japanese business is a shortage of electrical power, according to the survey.