BUSINESSWORLD, Manila, Philippines, Monday, November 17, 2003
ASEAN--new battle area
By LEOTES MARIE T. LUGO, Sub-editor
Japanese firms should strengthen their presence in China and Southeast Asia, including the Philippines, if they want to maintain their competitive edge on American and European companies.
A recent study by the Japan External Trade Organization (JETRO) noted that with the expected recovery of the global economy next year, competition between the world's biggest economies would center in the Association of Southeast Asian Nations (ASEAN)
and China.
"The ASEAN region is becoming a major battleground for the countries of Europe, North America and elsewhere, which are seeking to reap the benefits of strengthened cooperation with the region," said the 2003 Jetro White Paper on International Trade and Foreign Direct Investment.
Jetro is the Japanese government's arm in charge of promoting trade and investments in other economies.
The Jetro paper studied global trade and foreign direct investment (FDI) trends of major economies for 2002 and the first half of 2003.
"In the mid- to long-term, the Japanese economy requires expanded domestic demand through deregulation and structural reform, and the rebuilding of Japanese industrial competitiveness in the global economy, but particularly in East Asia," the paper added.
It said Japanese firms should follow strategic action in the region, which could mean more investments from Japanese companies into various industries within the ASEAN and China, and the rest of the region.
Among the 10-member ASEAN, Japanese firms particularly focus on what Jetro calls the ASEAN 4--Philippines, Malaysia, Thailand and Indonesia.
"Japanese firms have been setting up manufacturing operations in East Asia for many years, helping to turn the region into a global center of production. In the future, however, marketing activities in the region will grow even more important. Observers have noted how firms from Europe and the US have adopted long-term strategies for operations in China and the rest of East Asia, which they regard as growth markets," the paper said.
"In response, Japanese firms must take action... if they are to maintain and strengthen their competitive advantages in East Asia," it added.
Since the real estate bubble burst and the appreciation of the yen in the mid-1980s, Japanese firms have shifted production to and have been expanding their presence in East Asia.
The Jetro paper noted that so far these investments have paid off since sales of Japanese manufacturing affiliates in East Asia in fiscal year 2000 were at par with those in the US market, while the value of Japanese exports to East Asia even exceeded those to the United States.
"Japanese production networks developed in East Asia have become an integral component of the Japanese economy," the paper said.
The fast-expanding East Asian consumer market, fueled largely by the Chinese economy and the recovery of the ASEAN economies, is also another reason for Japanese firms to strengthen their presence in the region.
The Jetro paper pointed out that although the ASEAN market suffered a severe slump in consumption due to the Asian financial crisis, "recovery is underway," particularly in the ASEAN 4.
"Income levels in East Asia are expected to rise in conjunction with high economic growth, creating a new class of affluent consumers concentrated in urban areas, thereby fueling rapid growth of the region's consumer market," the paper said.
But it also noted that European and North American firms, recognizing the region's potential, have adopted long-term plans for expansion in East Asia.
"Japanese companies now face competition not only from Korean and Chinese firms, but also European and American rivals as well," it added.
Given these developments, the paper pushed for the fast-tracking of a trade agreement that would integrate Japan with ASEAN as well as the rest of the East Asian region.
"The rebuilding of Japanese industrial competitiveness must be pursued within a large, integrated business bloc combining Japan and the rest of East Asia," Jetro said.
"Japanese firms need to develop strategies that treat East Asia as a single business bloc. This means producing and procuring parts and materials from the most advantageous locations in the region," it added.
The paper identified the key zone for production and consumption as coastal Asia, extending from the Japanese archipelago, Korea, northeast China, Shanghai and the rest of the Chang Jiang Delta region, the Pearl Delta including Shenzhen and Hong Kong, and Taiwan and the ASEAN countries.
"If Japanese firms are to expand their operations in the strategic zone of coastal Asia, it is crucial that a free business bloc be created through free trade agreements and other economic alliances," it added.
Efforts are already underway for the proposed Japan-ASEAN Comprehensive Economic Partnership. Talks are also ongoing for possible trade pacts between Japan and Korea, and between China and ASEAN.
Japan already has a free trade agreement with Singapore, and the Philippine government has said it was keen on pushing for a free trade agreement with Japan as well.
In summary, the Jetro paper said if Japanese firms were to strengthen their competitive advantages in the increasingly competitive region, they must: