2023 is going to be an interesting year in which we will likely see great changes in how and where global businesses expand. According to one 2022 report by the Japan External Trade Organization (JETRO), Japanese companies are demonstrating a significant shift in their global expansion strategies.
Here, we will explore some of the ways that Japanese businesses are changing the way they grow and take a look at the new target countries that Japanese companies are choosing as expansion targets.
What is Changing in Terms of Japanese Expansion Strategies?
According to the 2022 JETRO report on the business performance of Japanese companies, there has been a marked shift in target markets for overseas expansion. Mainly, this shift has come as a result of a changing attitude to China as a potential manufacturing center. In part, due to the continued long-term effects of the pandemic, China is less and less regarded as the only option for manufacturing needs. Instead, Japanese companies are seeking opportunities for expansion to a larger variety of countries, mainly around Southeast Asia. The countries who have benefitted most form this change have therefore been Vietnam and India, with Bangladesh, Laos, and Pakistan also becoming more and more popular as options. In general, profits for Japanese companies working in China have decreased. Delays in the supply chain caused by pandemic restrictions negatively affected the ability of many companies to deliver products. However, by casting their gaze beyond China yet still staying within the APAC regions, Japanese companies can keep their supply chains reasonably short while benefitting from a shifting balance in terms of labor costs and ease of doing business.The 3 Biggest Changes We are Seeing and Why
The report by JETRO puts this shift down to several related factors and provides specific outcomes of these changes in key industries.Less Interest in China
Strict Zero-Covid regulations around jobs in China damaged the ability of many companies to work efficiently across borders during the pandemic. Consequently, the study provides a Diffusion Index that demonstrates Japanese investment in China has dropped from 14.7 to -15.1, meaning a general decline in interest and investment. This number is worse for the transport equipment and industrial machinery sectors.Increased Interest in Vietnam
Since the relaxation of international pandemic mandates (and the delay in the removal of those of China), Japanese companies have found it increasingly easy to do business with Vietnam. Accordingly, a Diffusion Index shows Japanese companies investing in Vietnam at a much higher rate, from -5.1 to 25. This is particularly important when industries like precision medical equipment and foods are taken into account as they previously represented strengths in the Chinese market.A Wider Spread of Industries Across SEA
Due to the early relaxation of activity restrictions in India, and the continued growth of the purchasing power of this market, the Diffusion Index for Japanese investment in India has increased from 48.9 (2021) to 51.3% (2022). While less of a stark contrast than that of Vietnam, it is still important when considering the often talked about growth of the Indian economy. This change has happened most importantly in the rubber, ceramics, and transportation equipment industries where India has previously stated it would seek development. As a result, Japanese companies in these industries are likely to see the benefit of developing Indian manufacturing power. India in general seems like a long-term target destination for many companies. With a large population that speaks English well, and many major cities capable of attending to the varied requirements of foreign investors, India is well placed to offer more in the near future. The forecast, therefore, looks good for the development of these profitable industries across SEA. Despite recent removals of pandemic-era mandates, there is little to suggest that international companies will immediately seek to return their supply chains to China now that the change has already begun. As a result, it’s suggested that companies find new ways to adapt to these circumstances and take advantage of the growing resources and developments that are available.How Can Japanese Companies (and Everybody Else) Make the Most of These Business Trends in 2023?
In general, we will likely see a continued movement of Japanese companies from China to Vietnam and India, with lesser but still significant movement toward the emerging markets of Bangladesh, Laos, and Pakistan. As growing markets, these are a high priority for both Japanese companies and the talent that could be hired or transferred there. As a result, now is the best time to learn more about the and challenges of a range of new countries and regions. In these cases, having the support of an HR and employment outsourcing services partner can be the difference between success and failure. The right partner can take care of all the necessities, from work visas to benchmarks on the local cost of living and work experience. Unfamiliar markets also need new compliance measures to protect your workers. International expansion strategies need best practices that make the most of new knowledge to ensure you are a competitive potential employer.
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