Southeast Asia draws renewed look as investment destination

by Kayo Mimizuka

Kyodo

Japanese firms have renewed their focus on Southeast Asian countries as investment destinations as they increasingly seek to disperse their operations from China amid the Senkakus territorial dispute.

China has long been one of the key overseas investment hubs for Japanese firms, which have enjoyed plenty of business opportunities since starting to eagerly invest in the country in the early 1990s. But Southeast Asia is becoming comparatively more attractive in light of the rising costs and difficulties of doing business in China, analysts say.

Around 100 companies last week participated in an event to encourage Japanese companies to invest in Singapore and other members of the Association of Southeast Asian Nations, jointly organized by major Japanese office rental agency Crosscoop Singapore Pte. and the Singapore Business Federation. Around 200 people also joined in a similar seminar held last week organized by the federation and the Japanese Chamber of Commerce and Industry in Singapore.

The number of participants in the first event almost doubled from a similar seminar held before anti-Japan protests and ensuing boycotts of Japanese products erupted in China after Japan nationalized some of the Senkaku islets on Sept. 11, according to Motofumi Shoji, managing director at Crosscoop.

“I hear that consumer backlash against Japan is still quite strong (in China). More and more companies are now coming to Singapore to offset such risks,” he said.

According to data from the Bank of Japan, Japanese direct investment in ASEAN countries in the April to June period rose around 40 percent from a year earlier to ¥380.2 billion, exceeding the ¥300.5 billion invested in China. This was attributed to Japanese firms’ shifting stance to refrain from heavily concentrating business operations in China amid increasing labor disputes and rising labor costs in the world’s second-largest economy.

Last year, direct investments in ASEAN doubled from 2010 to ¥1.5 trillion, and the trend will likely remain the same down the road, financial sources said.

Around 82 percent of Japanese firms operating in China said they would withdraw or downsize their businesses in China due to cost increases, compared to around 39 percent of companies operating in ASEAN countries, according to data compiled by the Japan External Trade organization in fiscal 2011.

“Since last year, Japanese companies have started to turn their eyes again to Southeast Asia. The sovereignty clash over the Senkaku Islands is also pushing them (to look for production bases in countries other than China,)” said Yosuke Oishi, manager at the Singapore Tourism Board’s Japanese branch, which cosponsored the event.

Among the participants, Chieko Hashimoto, executive producer at sales promotion agency Hiromori Inc., said her company is planning to open an office in Singapore as its corporate clients are shifting their business focus from China to Southeast Asia.

“The adverse affect is tremendous. I think the impact (of the boycott of Japanese products) will continue,” Hashimoto said.

Amid strained economic ties between Tokyo and Beijing, ASEAN countries are also eager to attract more investments from Japan.