Warning on China-Japan tech links
Businesses dependent on products and services from China or Japan have been advised to develop contingency plans in the event that relations between the two countries worsen.
Tech research firm Gartner said around 95 per cent of the world's largest 2000 firms, many of them tech outfits, had interests, employees and investments in China and Japan.
"Most large global companies will have to adjust their strategies and plans if the China-Japan situation remains volatile. For many companies, it is no longer 'business as usual' in north-east Asia," Gartner Research director Dion Wiggins said.
If tensions did escalate, this would also affect Hong Kong and South Korea, and was likely to spread to other societies with strong historical ties to China, Mr Wiggins said.
"This extreme outcome could hasten the onset of a global recession and would certainly kill off initiatives to develop joint standards in areas such fourth-generation mobile networks, RFID, open source software and next-generation internet," he said.
In such a scenario, Japanese technology firms would reduce commitment to the Chinese market. Many would withdraw and India would probably become Japan's new base for low-cost manufacturing.
"Chinese industry will suffer, as its source of leading-edge technology dries up amid continuing export restrictions from the US and Europe. Some technology companies from North America, Europe and elsewhere in Asia will acquire Japanese assets at attractive prices, but others will steer clear and divert sourcing away from an unstable region," Mr Wiggins said.
But if the status quo prevailed in the long-term, Japanese technology firms would assume a lower profile in China through intermediaries and local brand strategies.
"Chinese IT service and software firms will reduce their Japanese business initiatives. As they refocus on North America and Europe, these Chinese firms will meet more direct competition from established global IT service firms, particularly those from India," Mr Wiggins said.
Outlining a third scenario - where business returned to almost as-usual - Mr Wiggins said the impact would be mostly felt by Chinese and Japanese companies.
"Chinese consumers will start to favour alternative brands, whether home-grown or from South Korea and Taiwan, while nascent efforts by Chinese technology companies to enter the Japanese consumer market will meet even more resistance," he said.
Japanese firms were likely to resume frozen investments in China but would be on the lookout for diversification. Interest in offshore IT and business process service providers in the Philippines, Vietnam, Thailand, Malaysia and Australia, was likely to grow.
Direct cumulative investment by Japanese companies in China exceeded $US48 billion ($A62.82 billion) from 1979 to 2003. In the same period, the US invested $US43.6 billion in China, while Europe - through combined direct investments of Britain, France, Germany and Italy - invested $US28.6 billion in China.