A second wave of Japan’s investors, especially small and medium-size enterprises (SMEs), are seeking to invest in the Asean region and believe that Thailand could be a trading hub for the region despite the ongoing political conflict.
Prime Minister Shinzo Abe’s outward-looking economic policy and Japan’s shrinking domestic market are driving locals to look for ventures outside, and Asean is very attractive due to low production costs, high growth potential, the large market and the prospects of the Asean Economic Community (AEC).
Setsuo Iuchi, president of Japan External Trade Organisation (Jetro), commenting on the ongoing political conflict and its impact on foreign investors, said everybody wanted the problems to be solved as soon as possible.
He said many were still looking to invest in Thailand, judging from the rising number of applications with the Board of Investment (BOI).
Iuchi was speaking at a seminar organised by The Nation yesterday, in cooperation with the Yomiuri Shimbun and Japan News. It was sponsored by Toyota, Bank of Ayudhya, Ananda Development, and Thailand Convention and Exhibition Bureau.
Hisamichi Koga, vice president of the Japanese Chamber of Commerce (JCC), said he had seen a dramatic increase in Japanese investors in the region, especially Thailand, over the past few years. The seminar was entitled “Japan’s new wave of overseas investment: Thailand and Asean-plus-one”.
Koga said that with a depreciating economy in Japan, businesses were looking outside for revenue and production, which has propelled Japan’s overseas sales and production ratios to rise by 37.3 per cent and 38.6 per cent respectively in 2013.
Iuchi said Abe’s policies promoting investment outside Japan had provided incentives for Japanese companies to look outward, and Thailand remains their favourite destination.
However, he said, in order for the Kingdom to maintain its reputation and achieve sustainable growth, it needs to invest in infrastructure, improve interconnectivity with its neighbours and upgrade its customs procedure.
“Once the AEC is launched, Thailand will become a very important hub for manufacturing in this region, and in order to remain this way it needs to invest in transportation and improve interconnectivity with its neighbours,” Iuchi said.
He added that Thailand-based Japanese manufacturers remained largely unaffected by the turmoil and that large-scale investment deals had been signed before the protests began. However, he said, new investors might think twice before venturing into the country this time.
Koga, meanwhile, said the political situation would damage the country’s growth in the long run, but there was very minimal effect in the short term because several foreign investors are waiting for BOI approval. He also said that large manufacturers, such as automakers, would find it difficult to leave the Kingdom because they have been here for a long time and have established a strong supply chain. However, if the situation prolongs for another six months or a year, they might think about moving elsewhere.
Jump in investment
Japanese investment in the region jumped 55 per cent in the first six months of last year, equivalent to US$10.29 billion (Bt332.47 billion), compared to the year before. Meanwhile, a recent survey by the Japan Bank for International Cooperation showed that 84 per cent of the respondents had plans to strengthen their overseas operations in the next three years.
According to the International Monetary Fund (IMF), the gross domestic product (GDP) of the “Asean 5” – Indonesia, Malaysia, Philippines, Vietnam and Thailand – are expected to grow by 5.1 per cent.
Koga said JCC in Bangkok had more than 1,500 members, a dramatic increase from 97 companies in the 1990s, adding that 80 per cent of the members came from the automobile industry.
In terms of changing trends, Koga said that Thailand has been a favourite destination for investment in manufacturing for 40 years, and has now grabbed the attention of Japanese SMEs and non-manufacturing firms, especially those in the service sector.
Koga added that non-manufacturing companies investing in Thailand have been overtaking manufacturers, as only 89 manufacturing firms registered in 2013 compared to 185 non-manufacturing firms registering in the same year.
“Thailand is a favourite venture destination because its geographical location puts it at the centre of a growing region,” said Kanetsugu Mike, vice chairman of Krungsri Bank and senior managing executive officer of the Bank of Tokyo-Mitsubishi UFJ (BTMU).
Mike explained that the AEC would lift trade barriers and expand the market to 600 million people, offering large potential for market and GDP growth. In addition, the prospects of the Greater Mekong Sub-region (GMS) are also attracting Japanese investors.
Mike explained that an increase in Japanese businesses in Thailand had also increased the demand for Japanese services, such as banking and food, which is why more and more SMEs and non-manufacturing firms are eyeing investment opportunities in the Kingdom.