News
From September 6, 2013 through October 18, 2013, the Japan External Trade Organization (JETRO) conducted its latest surveys on Japanese-affiliated firms (manufacturers in the US and both manufacturers and non-manufacturers in Canada). 661 valid replies were received from firms in the US (a 65.8% response rate) out of 1,005 to whom we sent questionnaires, while 126 replies were received for the Canada survey (a 66.7% response rate) out of 189. The findings of the survey are summarized as follows:
(1) Operating profits in 2013: Surplus expected to increase to pre-Lehman shock levels; approximately 60% of Japanese firms expect business to continue expanding
・The diffusion index (DI) – the proportion of businesses reporting increased operating profits minus those reporting decreased operating profits compared to the previous year – is used to measure business confidence, and the estimate for 2013 came to 31.7 points, rising from 29.9% in 2012.
In line with the upward momentum of the US economy, all business sectors centering on transportation machines (motor vehicles and two-wheeled vehicles) (69.6%), electric and electronic parts (66.0%) have achieved good results. The main reason was “increased sales in the local market” (78.9%). 79.7% of firms reported a surplus in operating profits, which indicates recovery to pre-Lehman shock levels (78.3% in 2007). Regarding the forecast for 2014, 53.3% of firms predict increased operating profits. (6.8% predict decreased operating profits.)
・Regarding the outlook of business, 60.1% of respondents expect their business to expand in the next one or two years, which exceeds the number of the previous year (57.1% in 2012). Some of the major reasons (multiple answers allowed) were “increased sales” (88.9%) and “high growth potential” (41.6%).
(2) Managerial issues: Factors associated with increased expenses (increased labor costs and health care costs) are major concerns
According to the survey, the main factors for increased costs (multiple answers allowed) were an increase in employee-related costs such as “increased labor costs (including salaries and bonuses)” (63.8%) and “increased health care costs” (55.4%). Both figures have increased from that of the previous year (55.1% and 52.4%, respectively). (Note: The Patient Protection and Affordable Care Act provides that firms with 50 or more employees which do not offer health insurance to those working full-time will pay a penalty of $2,000 (per employee). This will be effective on January 1, 2015.)
(3) Enhancing production in the US: A little under 20% of firms that have transferred production to other countries will enhance their production in the US
157 firms (23.8%) reported that they have in the past transferred US manufacturing facilities to other countries. Among them 26 firms (16.6%) have relocating production to America, 36 (22.9%) indicate that they might do so in the future, while 95 (60.5%) have no plans to do so. Reasons for relocation include the need to respond to strong demand within the US. One firm stated “we moved production to China, however orders in the US increased, so we resumed production there” (parts for transportation machines [motor vehicles and two-wheeled vehicles]). Meanwhile, reasons given for not considering relocation include “high cost of production in the US” (electric machines and electronics) and “we have just started production in Mexico, and cannot consider reducing operations there” (transportation machines [motor vehicles and two-wheeled vehicles]).
(4) Business sectors whose markets are expected to expand most: energy, environment, medical and health
A number of respondents consider the fields of energy (58.1%), environment (49.8%), medical (42.7%) and health (29.2%) as the most likely to grow faster in the next few years in the US market. The major reasons were the shale revolution, rising environmental awareness, an aging society, obesity-related health problems and increased business opportunities as a consequence of healthcare reform.
(5) Influence of the shale revolution: 30% indicate positive, significantly exceeding the percentage reporting negative
Regarding the influence of the shale revolution, 30.7% indicated that it was positive, significantly exceeding the 2.9% who stated that it was negative. Firms that indicated a positive influence reported that the advancement of capital investment by petroleum, petrochemical and gas companies will increase the orders for equipment (general machines), or that the market for chemical products used in the production processes is expected to expand (chemical products, oil products).
(6) Business in Lain America: Close to 80% of firms interested
In terms of business in Latin America, close to 80% of companies express interest: 52.2% of firms are doing business and/or have a business base in Latin America; and 26.5% are not doing business in Latin America, but are interested in doing business in the region. Brazil (79.4%) and Mexico (79.4%) are the top two countries that companies reported interest in.
Results of survey on business conditions of both Japanese manufacturers and non-manufacturers in Canada
(1) Business confidence: Compared with the previous year, confidence has taken a step back. About 60% of firms expect their business to level off in next one or two years.
The estimated DI for 2013 came to 14.3 points, decreasing from 17.8 points in 2012. Regarding capital investment, 66.7% of the respondents answered that the level for 2013 will remain the same as 2012. Regarding the outlook of business, 55.6% of respondents expect their business to remain the same in the next one or two years.
(2) Managerial issues: Factors associated with increased expenses (increased labor costs and Canadian dollar’s rise) are major concerns
According to the survey, the main factors for increased expenses (multiple answers allowed) were “increased labor costs (including salaries and bonuses) (60.3%), “the Canadian dollar’s rise against the US dollar” (31.0%) and “increased raw material, natural resource and commodity prices” (30.2%). Regarding weak sales, many cited “severity in price competition” (79.4%), “difficulties in differentiating our products or ourselves from competitors” (43.7%) and “popular products from competitors” (39.7%).
(3) Enhancing production in Canada: 20% of firms that have off-shored to other countries will enhance their production in Canada
Among 25 firms (19.8%) that have in the past transferred all or part of their Canadian manufacturing facilities out of the country, five firms (20.0%) indicated they are relocating, six (24.0%) may do so in the future, and 14 (56.0%) have no plans to do so. The major reason for relocation is the increase in transportation costs (parts for transportation machines [motor vehicles and two-wheeled vehicles]). Meanwhile, the reasons given for not relocating are that Canadian markets are not expected to grow (transportation machines [motor vehicles and two-wheeled vehicles]) or that competition among manufacturers in Canada has intensified due to the high Canadian dollar (parts for transportation machines [motor vehicles and two-wheeled vehicles]).
(4) Business sectors whose markets are expected to expand most: Energy, environment, medical and health
Many of respondents consider the energy (65.1%), environment (38.1%), medical (32.5%) and health (25.4%) fields as the most likely to grow faster over the next few years in the Canadian market. The major reasons were Canada’s rich resources, aging population and increased awareness of health.
(5) Influence of the shale revolution: 30% indicate positive, significantly exceeding the percentage reporting negative
Regarding the influence of the shale revolution, firms reporting a positive influence (32.5%) significantly exceeded those indicating a negative influence (4.0%). The reasons for indicating a positive influence are that new business opportunities will be generated (parts for transportation machines [motor vehicles and two-wheeled vehicles]), orders of equipment will increase (general machines), transportation costs will decrease (transportation/warehouses), and that there will be a positive influence on the economy in Canada (other).
