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Motivation in Japan's manufacturing industry toward business expansion in Europe returns to level from before financial crisis
Between October and November 2014, the Japan External Trade Organization (JETRO) conducted its latest survey on the business operations of Japanese-affiliated firms in Europe (the survey also covered Turkey, where all firms surveyed were manufacturers). We received 984 valid replies (a 65.8% response rate) out of 1,496 to whom we sent questionnaires.
A summary of the results is as follows:
1. Business outlook for next one or two years
・Among Japanese-affiliated manufacturers in Europe, 52.7% reported that they expect their business to expand in the next one or two years, a 2.8 point increase from the 49.9% in 2013. The response rate has returned to the level marked before the financial crisis and the European debt crisis (52.7% in 2007).
・Including non-manufacturers, 52.4% reported that they expect business expansion over the next one or two years, 44.4% answered with status quo and 2.6% marked downsizing.
2. Promising sales markets
・As a promising sales market outside of Europe, Turkey ranked first with 294 responses. Recently, there has been a trend for Japanese manufacturers to establish a base in Europe and expand sales channels to surrounding emerging countries such as Turkey. Sales growth is also expected in other countries including South Africa and the UAE.
・Meanwhile, Russia dropped in rank to second with 243 responses from last year, due to risks related to politics and the exchange rate.
3. Outlook for sales amount and operating profits
・Regarding operating profits for 2014, 70.1% of respondents expected a surplus, while those who expected to reach a balance and a deficit accounted for 17.0% and 13.0% respectively. For 2015, 43.5% expected it to improve from the previous year and 48.7% felt no change, while 7.8% marked a downturn.
・Regarding sales amount expected for 2014, 68.9% anticipated increased sales, while 31.1% reported decreased sales. Particularly, the response rate of increased sales was as high as 78.3% in Central and Eastern Europe and Turkey.
・Regarding outlook for the European economy, 11.9% of firms responded that they have already recovered from recession, while 67.4% reported that they need more time for recovery. Many firms are still cautious about the economic outlook.
4. Managerial issues
・As managerial issues, high labor costs were cited by 45.0% of firms, followed by securing human resources (42.6%) and economic recession and shrinking of markets (39.5%).
・Among respondents who cited an entry of new competitors (29.5%) as an issue, Chinese firms ranked the highest at 58.2%, followed by European firms with 28.5% and Korean firms with 27.8%. In Europe, Chinese firms have been actively acquiring European firms.
・Regarding efforts to develop localization of management, the following responses were reported: enhancement of training and fostering of local personnel contributing to localization (53.2%), recruitment of local personnel for middle-management positions (52.9%) and mid-career recruitment of local personnel expected to work at the forefront of localization efforts (43.4%).
5. EPA/FTA
・Regarding effects on business of economic partnership agreements (EPAs) and free trade agreements (FTAs) under negotiation by the EU, the largest number of firms showed high expectations for the Japan-EU EPA as beneficial (37.2%). Looking at results by region, figures of Central and Eastern Europe and Turkey (47.1%) exceeded that of Western Europe (35.8%). The response rate for the EU-US FTA was 15.8%.
・15.1% of firms marked the EU-ASEAN FTA as beneficial. By country, the high response rate for the FTA with Thailand (17.0%) is remarkable.
6. Local procurement
・Looking at countries/regions from which Japanese firms procure parts and materials, the highest ratio marked their local country (31.2%), followed by Japan (29.8%) and European countries outside of their local country (22.9%). The total of supply rates from Europe and Japan accounts for more than 80% (83.9%).
・Among suppliers of Japanese firms in their local country, local firms ranked the top at 80.2%, followed by Japanese-affiliated firms (10.9%) and Other foreign-affiliated firms (8.9%).
