Japan accelerates expansion in China
A strengthening yen and a shrinking population is driving Japanese companies to accelerate their expansion into the China market.
'The appreciation of the yen is pushing Japanese companies to reduce production costs in order to stay competitive in the export trade,' said Mika Hanada, director of the agriculture, forestry, fisheries, and food department of the Japan External Trade Organisation (Jetro).
'One of the best ways will be revising the supply chain of Japanese goods and moving production bases further into China, which is one of the most important export markets for Japan,' said Hanada, who was in Hong Kong to attend an international Food Expo.
Hanada also said the number of Japanese companies seeking advice from Jetro on overseas investment had risen significantly from April onwards. These include companies in the electronics, vehicle and food industries.
The Japanese yen strengthened to 76.785 yen per US dollar as at August 13, compared with its pre-quake level of 83.0 yen per US dollar. Economists have warned that the strengthening of the currency could wipe out the country's fledgling post-quake economic recovery.
As of June this year, China accounted for 20 per cent of Japan's total exports, and 21.1 per cent of its total imports. Imports from China - up 21.4 per cent year-on-year - are growing at a faster rate than exports to the country, which were up 14.3 per cent year on year in the first half.
Japan's trade deficit with China was US$5.2 billion in June, compared with its total trade deficit of US$47.3 billion.
For Japanese companies eyeing low-cost production bases, inland areas such as Chengdu, Chongqing, and Changsha were to be likely targets, said Hanada, rather than coastal cities which were already saturated with both Japanese and Western companies.
Increasing concerns with food safety and quality in the mainland's growing market would provide good opportunities for Japanese food companies, which were famous for adhering to the most stringent of standards, said Hanada. However, to succeed in securing a market share in the food production industry in China, Japanese companies would need to revise their management culture, she advised.
'It's tough working for Japanese companies because they always demand the best,' said Hanada, who previously spent three years working for Jetro in Shanghai. 'But the remuneration package is not always as attractive with US and European companies, which are also breaking into the food industry of China.'
There was also a management ceiling common to Japanese companies and local Chinese staff would rarely get promoted to senior management, which would remain Japanese.
'This will have to change, too, if we want the best of local talent in China,' Hanada said.
On the other hand, despite the pressing need for Japanese companies to expand their production bases to China, Japanese senior management staff were not as eager to locate themselves on the mainland compared with their US and European counterparts.
While most US and European staff members were sent to China on a voluntary basis, such decisions were always top-down in Japanese companies, which would appoint senior management staff to rotate in China every three to five years. As a result, Japanese management leaders in China were not as enthusiastic and charismatic as their Western counterparts, as most of them just 'want to finish their term as soon as possible, making as few mistakes as possible', said Hanada.
That made it even more difficult for Japanese companies to retain local talent. One reason behind the reluctance of Japanese companies to move the best of their staff to China concerned intellectual property ownership, since it was not uncommon that Japanese companies found their technology being copied by local people after years of training.
One of the ways of tackling this issue would be setting up joint-ventures with mainland companies - to share the risks, while benefiting from their local knowledge and distribution networks.
Kikoman Corporation, a major Japanese soya bean sauce manufacturer, set up a joint venture with Chinese group Zhenji and Taiwanese group Uni-President in Hebei province. Nippin, a Japanese flour manufacturer, established a similar joint venture with Taiwanese and Chinese counterparts in Tianjin city.
Yukiguni Maitake, the world's largest grower of fresh Kosher maitake mushrooms, merged with a Chinese company and set up a production plant in Shanghai that involved 150 million yuan (HK$182.59 million) of capital investment.
Hanada said more joint ventures were now in the pipeline.
'Japan's population is shrinking. In order for Japanese companies to survive and grow, we need to work out a strategy to expand into our export markets,' she said.
of Japan's total exports went to China, as of June this year, and 21.1 per cent of its total imports were from China