JETRO Releases 2012 Global Trade and Investment Report
Tokyo, Aug 9, 2012 – (JCN Newswire) – JETRO today released its "2012 Global Trade and Investment Report".
1. High growth potential among emerging countries, in spite of the slowing world economy
2. World trade hits a record high but then rapidly decreases in 2012, while the trade structure of emerging countries changes
3. Global flows of FDI increase for the second consecutive year, but projected to slow down in 2012 due to poor M&A performance
4. Japan sees robust exports of highly functional consumer products and a surge in imports of LNG and disaster-related goods
5. Japanese outward FDI shows a clear preference for emerging economies
6. Importance of WTO's multilateral trade frameworks reaffirmed
7. Japanese SMEs engaged in exports have more room to consider using FTAs
8. SMEs are accelerating overseas business development
9. Leading medium-sized firms and SMEs of the service sector kick into high gear in launching overseas expansion centering on Asia
10. SMEs are increasingly making greater efforts to secure and foster global human resources to shoulder a role in expanding overseas
Chapter 1: The World Economy, Trade and Direct Investment
1. High growth potential among emerging economies, in spite of the slowing world economy
Due to the European debt crisis, the world economy in 2012 has shown clear signs of slowdown. The growth of emerging countries is also at an increased risk of a downward swing. The contribution rate of these countries to the world economy from 2010 to 2017, however, is expected to reach about 60% (based on the outlook of the International Monetary Fund) and this demonstrates that the countries will continue to lead the global economy. From the perspective of the population of productive age (15 – 64 years of age), the emerging countries also hold an important position in the world economy. (These countries will witness peaks in "demographic bonus" at different times: Brazil in the 2020s, Iran and Bangladesh in the 2030s, and India and South Africa in the 2040s.) As of 2010, the total consumption expenditure of households of emerging countries was more than three-times as large as that of Japan. Their potential for economic growth is significant.
According to the estimation of JETRO, the value of world trade in 2011 hit a record high, increasing by 19.1% from a year earlier to 17.9688 trillion US dollars mainly due to the increased price of natural resources. China has become the world's largest export country for three consecutive years. However, its growth rate of exports (20.3%) has fallen below the average rate of emerging countries (23.3%). Since the beginning of 2012, the growth rate of world trade has been significantly blunted. (For the first quarter of 2012, the trade amount of 22 major countries increased by 4.6%.) Meanwhile, the presence of the emerging countries as a consumer market has been further increasing. The share of trade between emerging countries to the total world trade has increased from 6.5% in 2000 to 15.9% in 2011.
3.Global flows of FDI increase for the second consecutive year, but projected to slow down in 2012, due to poor M&A performance
By 2011, the amount of world foreign direct investment (FDI) had been increasing for two straight years, but still remained at 80% of its peak in 2007. Due to the slowdown of merger activities by European companies caused by repercussions of the European debt crisis, the value of cross-border M&A for the first half of 2012 decreased significantly by 42.5% from a year earlier (data calculated by JETRO based on data provided by Thomson Reuters). China's inward FDI has been steadily increasing, but accompanied by some qualitative changes, such as the share of FDI in the non-manufacturing industries has exceeded half of the total for two years straight, and investments in the eastern coast have dipped below 60% while those in the inland regions have increased.
In 2011, Japan's trade balance fell into the red for the first time in 31 years and stayed in the red in the first half in 2012. Imports of liquefied natural gas (LNG) for power plants have particularly surged. Comparing the trade balance one year before and after the Great East Japan Earthquake, increased imports of LNG led to more than 20% difference in the trade balance, dropping Japan's trade surplus into the red. In 2011, imports of energy saving devices and disaster prevention products also soared (number of electric fans: 7.69 million in 2010 to 17.24 million in 2011, number of flashlights: 42.34 million to 87.52 million, number of portable radios: 3.83 million to 10.53 million). In spite of the severe export environment, due in part to repercussions of the earthquake and appreciation of the yen, Japan's exports of sake and green tea has shown solid growth led by the world-wide boom in Japanese cuisine. Surprisingly, exports of highly functional Japanese consumer goods, such as leisure-related products, cosmetics, accessories and stationery items, have also steadily increased (playing cards: 98 million sets in 2010 to 148 million sets, skin care products: 19,000 tons to 24,000 tons, gold and platinum accessories: 26 tons to 45 tons, ballpoint pens: 720 million pens to 870 million pens).
Japan's outward FDI in 2011 increased for the first time in three years (reaching 115.7 billion US dollars, double the record a year earlier). Its FDI to Asia hit a record high (increasing by 78.4% to 39.5 billion US dollars) in 2011. Europe and North America's combined share of Japan's total outward FDI stock, which was 70% in 2000, fell to 50% in 2011, while the share of Asia surged from 18% to 27%. Regarding the share by industry, over 50% of the total amount invested was put into non-manufacturing industries. Additionally, the rate of return on Japan's direct investment to China and ASEAN both exceeded 10%, while that to the EU and the U.S. remained at a 3% level respectively.
This demonstrates that the era of "profiting from Asia" has begun in the country. With a fear it may face a current-account deficit in the future, improvement in the rate of return on investment as well as expansion of profit scale are essential challenges for the Japanese economy. While total inward FDI to Japan has fallen below FDI withdrawal from Japan for two consecutive years, inward FDI in the manufacturing industry exceeded withdrawal for the sixth-year in a row. Backed by governmental incentives including a subsidy for foreign firms to locate facilities in Japan, a considerable number of new construction and expansion of factories and R&D sites by foreign manufacturing industries have been witnessed in the country.
Chapter 2: Development of World Trade Rules
IDE-JETRO (JETRO's Institute of Developing Economies) has conducted joint research on trade in value-added with the WTO in 2011. As this research clarified, the multilateral trade framework under the WTO has been vital in realizing the business environment necessary given the current reality of supply chains for companies pursuing globalization. Due to the stagnant Doha Round, the WTO has not been able to sufficiently fulfill its rule-making function. However, with its monitoring and surveillance function aimed to limit introduction of trade restrictions, as well as its judicial function to settle international trade disputes, the organization has still made significant contributions. There are also signs that the WTO's rule making under plurilateral trade frameworks are being vitalized. The organization, for example, has finally ended 15-year long negotiations to revise its Agreement on Government Procurement (GPA). In addition, in May 2012, it has embarked on full-scale efforts to expand product coverage of the Information Technology Agreement (ITA) aimed to abolish tariffs on IT products. The WTO has also been seeking ways to conclude negotiations for some priority agendas of the Doha Round, including that for trade facilitation.
As of the end of July 2012, the number of FTAs in effect has reached 221 in the world (an increase of 22 from a year earlier). Conclusion of South Korea's FTAs with the EU and the U.S. have boosted the FTA coverage rate (or trade shares of FTA partner nations) of the country to 34.0% of its total trade. Meanwhile, Japan is also considering new FTA possibilities in response to the call of the "era of FTAs between major trade powers," though its FTA coverage rate currently remains at 18.6%. Regarding FTAs with emerging economies*, which have significant market allure though many of them are imposing high tariffs as well as various investment restrictions, it is necessary for Japan to further examine potential economic effects of the FTAs, taking the situation surrounding FTAs already in effect into account. According to a questionnaire survey conducted by JETRO, the utilization rate of FTAs by Japanese firms has been increasing year by year. In recent years, they actively use FTAs between third countries centering on Asia. The utilization rate of small- and medium-sized enterprises (SMEs) in exports, however, remained at 24%, while the figures of large-scale companies marked 42%. Therefore, SMEs engaged in exports have room to make further use of FTAs as a way to reduce cost. Given the fact that many SMEs, about 30%, replied they were not familiar with institutions and utilization procedures of FTAs, information provision aimed to promote utilization of FTAs is essential for this to happen.
* Countries and regions which serve as Japan's major export destinations, however, have not yet been considered by Japan as possible FTA partners, e.g., Taiwan, Russia, Brazil, South Africa, Israel, Pakistan, Norway, Egypt and Bangladesh.
Chapter 3: Overseas business development of SMEs and their securing and fostering of global human resources
In a questionnaire survey conducted by JETRO, the number of respondent SMEs which replied that "they will expand their business overseas" has increased by some 60% compared to the previous survey conducted three years earlier. The ratio of companies citing "to meet the increase of overseas demand" as the top reason for overseas expansion reached 64%. As this shows, Japanese SMEs are increasingly launching direct sales of their products and services to global customers. Recently, Japanese companies in the manufacturing industry, in particular parts suppliers, have been increasingly motivated to expand their production overseas based on their own needs, rather than by requests from their clients. In addition, some of them have formed alliances with other SMEs to jointly enter overseas markets to hedge risks.
The overseas business development of Japanese retailers, restaurants and other firms engaged in the business-to-customer (BtoC) services has been gaining momentum. In a questionnaire survey conducted by JETRO, subject Japanese companies in the service industry selected China (42%) and the United States (18%) as the top two locations of their business bases overseas and these were then followed by Singapore, Taiwan, and Vietnam. Among the firms operating in China, half of them have located their bases in Shanghai. The city also attracted the largest attention from subject companies considering launching business overseas.
Singapore, Bangkok (Thailand), Ho Chi Minh (Vietnam) and Dalian (China) were also highly ranked. By industry, major Japanese convenience stores doubled their shops in Asia, from 18,000 at the beginning of 2006 to 35,000 at the beginning of 2012. The number has drawn close to that in Japan: 41,000. Not only major companies, but also leading medium-sized companies and SMEs under various categories, including restaurants, retailers, beauty support services and education, have also expanded business overseas. Some have directly launched overseas expansion without even locating their branches in areas around Tokyo or the Kansai region.
In the fields of agricultural, forestry and marine products and foodstuff, many SMEs, even in the face of economic headwinds such as appreciation of the yen, are continuing to make efforts to exploit overseas markets, utilizing opportunities such as trade fairs and exhibitions abroad. On June 20, JETRO presented five proposals to the Government of Japan and has been working towards further promotion of exports in these fields. The proposal consists of: 1) a continuous approach towards early termination of overseas restrictions against Japanese products imposed in the wake of the Fukushima nuclear accident; 2) a response to safety regulations set by countries/regions in the rest of the world and strengthening provision of that information to related industries; 3) promotion of discussions on the quarantine of animals and plants; 4) development of a system of intellectual property protection aiming at enhancing brand awareness of Japanese products as well as prevention of counterfeit products; and 5) a strategic response to logistics needs.
10. SMEs are increasingly making efforts to secure and foster global human resources to shoulder a role in expanding overseas
Along with the increased reliance on the overseas market, SMEs have been frequently required to develop their business overseas adapting to local environments. These SMEs, however, lack of global human resources. In addition to foreign language competency, JETRO defined core competencies which should be possessed by those human resources as 1) the ability to take action, 2) the ability to convey oneself and 3) the ability to achieve in a multicultural environment. As additional requirements for management executives and middle management people, we defined them as having experience in overseas business such as being stationed abroad, expertise in their respective industries, strong leadership and management ability including in regards to multinational employees, a global business scope and human networks.
Major Japanese companies strive to secure and foster global human resources through mass employment of foreign workers, sending young workers still new to their respective fields abroad and conducting overseas executive training programs. On the other hand, many SMEs, which find it much harder to take such measures, are hesitant to launch business operations overseas on the grounds of insufficient human resources. In spite of such adverse conditions, however, there are some SMEs making efforts to expand overseas by independently securing and fostering the necessary human resources.
Some have utilized foreign students in Japan or former-trainees who completed the special skill training course for foreigners in Japan, or Japanese workers with volunteer work experience overseas as liaisons to bridge the firms with local counterparts or clients. Some SMEs have accumulated knowhow on international business by utilizing retirees who have abundant experience in global business, or by taking advantage of international trade fairs and exhibitions.
For securing and fostering global human resources, support from the government and related organizations is crucial. Governmental organizations of Europe, North America and Asia provide a boost to the human resources development of SMEs by offering various support programs. In Japan, multiple governmental organizations and municipalities have made efforts such as overseas internship projects.
Along with securing and fostering human resources development, it is important for top executives to "globalize themselves". For personnel recruitment, the management of SMEs needs to convey a clear message to strong career-minded international students on the value of working for the SMEs in order to attract them. For Japanese SMEs to develop business closely involved in global markets from this time forward, they should focus their energy on "Hito-zukuri (building people)" in addition to "Mono-zukuri (manufacturing products)".
About JETRO
The Japan External Trade Organization, or JETRO, is a government-related organization that works to promote mutual trade and investment between Japan and the rest of the world. Originally established in 1958 to promote Japanese exports abroad, JETRO's core focus in the 21st century has shifted toward promoting foreign direct investment into Japan and helping small- to medium-sized Japanese firms maximize their global export potential. For more information, please visit http://www.jetro.go.jp.