1. Report | Japan Focus
Intra the dragon
The growth of intra-Asia trade will be a key topic
at Sibos 2012 in Osaka, with Japan already reaping
some of the rewards on offer. Ben Poole reports.
J
apan has traditionally been a supplier supply chains can be vulnerable. Strong side internationally. They have learnt a lot
of sophisticated goods and parts supply chain risk mitigation programmes from both Fukushima and the flooding
to other Asian countries. Now it is have been top of mind for Japanese that occurred in Thailand in 2011 and are
becoming a supplier of credit and corporates this year. trying to tackle risks to the supply chain in
investment. The role of trade finance has three key ways:
been rising in Asia as a result of the banking Strengthen the chain
crisis in Europe and to some extent in the While some supply chain risks are obvious 1. Further diversifying production sites.
US. Japan has become more of a supplier to see and relatively easy to plan for, others Traditionally, Japanese manufacturers
of cash flow and credit, while a tightening have the potential to be overlooked until it have a large capacity in Thailand, China and
of regulation has helped give a boost to the is too late. In terms of big industry in Japan, Taiwan, but recently the trend has been
country’s derivatives market. the two main manufacturing sectors are to invest into more Asean countries,
“Japanese banks are increasing their share automobiles and electronics. These two such as Indonesia.
of trade financing in the Asia region, while industries are diversifying their production 2. Strengthening risk management
increasing their long-term lending. Japanese
direct investment into Asian countries is
also rising,” says Masayuki Kichikawa, Japan
chief economist with Bank of America “Japanese banks are increasing their
Merrill Lynch (BofAML). According to the share of trade financing in the Asia region,
Japanese External Trade Organisation
(JETRO), Japan’s outward foreign direct while increasing their long-term lending.
investment (FDI) in 2011 increased for
the first time in three years, amounting to
Japanese direct investment into Asian
US$115.7bn, double that of 2010. While countries is also rising.”
confidence clearly seems to be rising, the
Masayuki Kichikawa, Bank of America Merrill Lynch
Fukushima earthquake last year brought into
sharp focus the fact that even the strongest
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2. Japan Focus | Report
capabilities. Japanese manufacturers need
to prepare for unforeseen supply chain
problems on a country-by-country basis. The Fukushima earthquake last year
Each country that they operate in will have
its own inherent issues. For example, in
brought into sharp focus the fact that
India, the electricity supply is currently an even the strongest supply chains
important operational risk.
3. Increasing inventory. Until the 2011
can be vulnerable.
earthquake, Japanese manufacturers were
well known for keeping their inventory levels
very lean by optimising the timing of supply chain risk mitigation programme brings will From January to April 2012, inward FDI in
and production. be needed by Japanese manufacturers as Japan posted a net inflow of US$920mn
they are facing competition from foreign due to increased investment from Asia,
This was a good way of managing costs. rivals being wooed by incentives from the Switzerland and the US.
However, this technique was directly Japanese government.
challenged by the earthquake and Bucking the overall trend, inward FDI Trading partners
subsequent events saw many supply in the manufacturing industry in 2011 Japanese FDI has been going from strength
chains disrupted. Manufacturers are now exceeded withdrawal. In total there was to strength, and the JETRO report underlines
maintaining a higher level of inventory than a net outflow of US$1.7bn of inward FDI the fact that emerging and local Asian
before. That isn’t to say that inventories from Japan, but the manufacturing sector economies are feeling the greater benefit of
are now excessive, but companies are achieved a healthy US$2.41bn net inflow. this. Japan’s FDI to Asia hit a record high of
acknowledging the fact that they need to be This was helped in part by subsidies such US$39.5bn last year. The report also notes
able to cover the loss of supply chain and as the Subsidy Programme For Projects that from 2000 to 2011, the percentage of
therefore calculate their optimal inventory Promoting Asian Site Location In Japan, total Japanese FDI to Europe and North
level based on that. The competitive which was part of a series of measures America dropped from 70% to 50%, while
advantage that having a robust supply taken by the Japanese government in 2011. over the same time period the percentage
www.gtreview.com GTR Sibos Supplement 2012 | 7

3. Report | Japan Focus
of FDI going to Asia jumped from 18% to provides an overview of some of the direct investment is increasing.
27%. Within this 27%, China remains countries in Asia that offer particularly There is a certain level of confidence in
important at around 12%, but it is the share good opportunities for growth. “Intra- Japan that a steady but sustained amount
of Asean countries that is providing the Asian trade is maturing in my view,” says of economic growth can be achieved by
impetus for the overall rise in Asia, scoring BofAML’s Kichikawa. “Traditionally, Japanese its trade relationships within Asia. While
a marked increase from their traditional manufacturers invested in Asian countries China is feeling the pinch of a relative
10% share of Japanese FDI. JETRO states that to diversify their production locations. But slowdown, it is still achieving growth rates
the rate of return from Japanese FDI in China recently we are seeing manufacturers, and that make it the envy of the West. With the
and Asean both exceeded 10%, compared retailers, increasing their investment in Asia potential that exists in a variety of other
to just 3% each from the EU and the US. in an effort to capture the growing demand countries within Asia, Japanese companies
These rates highlight the benefits of in consumption in growing Asian countries.” have the chance to diversify their production
local regional investment for the Japanese The direct investment from Japan to Asia is facilities still further and protect their supply
economy. The ‘Asia Snapshot’ box story becoming more complex and the variety of chains. GTR
Asia snapshot
Simon Constantinides, regional head has driven a very large export market for There is a lot of potential in Bangladesh,
global trade & receivables finance electronics. There is a good commodities which we are seeing through a lot of
Asia Pacific, HSBC, examines which base there. investment, and the country is looking to
Asian countries offer particularly good drive infrastructure growth. It will be a test
opportunities for trade growth. Indonesia to see how well the government does in
Indonesia is similar to Malaysia in many delivering on its commitments to build out
China respects, particularly on the commodities infrastructure.
Using HSBC research, we forecast that by and manufacturing side, with a powerful
2016 China will become the world’s largest chemicals industry as well. The country has Vietnam
two-way trade market of imports plus exports, a diversified manufacturing base. We are Vietnam is still a market of opportunity.
so we are very bullish about opportunities very positive about Malaysia and Indonesia It is going through some challenges right
there. China has also seen a shift from the being strong markets. now. It has got inflation down below double
finished goods market to the semi-finished digits, compared to nearly 18% last year.
goods market. There is a transient point now Singapore Vietnam does have labour rate wages rising
where products will come in, some work on Singapore is a key trading market and is very quite aggressively, and they are trying to
them will be done in China while some other business-friendly. There is a strong rule of kerb inflation by restricting borrowing and
work will be done elsewhere. This change law, and it is very geographically accessible lending. But they have a young and energised
creates opportunities for China. The country to both north and south Asia. Things are a workforce, and a lot of natural resources
has a very diversified manufacturing base, little slow at the moment for Singapore in available to the market as well.
and there is still a very strong demand for terms of its domestic production for exports
commodities and raw materials. – electronics and pharmaceuticals, for
example – but that will come back. Singapore
India is still a key trading environment for all
India is obviously an important market, but it is different types of commodities.
currently going through a bit of a tough time.
The phrase that we hear from industrialists is Bangladesh
‘policy paralysis’. We would like to see India Bangladesh is an important market that has a
address some of the fiscal challenges that it very favourable wage structure. It has a huge
has, such as inflation and a weakening rupee. population of around 160 million people and
Simon Constantinides, HSBC
But its economy, with its industrial base, still so has a big consumer demand potential. Its
presents huge opportunities. labour market is a good alternative to some
of the more high-price markets where we
Malaysia see labour rates pushing up, such as
Malaysia has a diversified manufacturing Vietnam and China.
base. Malaysia has been investing in its
infrastructure and this is continuing. You’ve
got a business-friendly environment that
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