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Japanese companies must adapt to a changed Asia

11 Apr Japanese companies must adapt to a changed Asia

Japanese interest in South and Southeast Asia is surging for both economic and political reasons. Yet, while welcome by many in the region, the reasons for this renewed focus must be considered. There are also new factors that the Japanese must look at and adapt to. Otherwise, expectations from both sides will be frustrated.

One economic push factor comes from unconventional “Abenomics” as the new administration and Bank of Japan pump out more money at low interest rates. Domestic production cannot absorb it all, given that labour and other costs remain high, despite the managed drop in the yen’s value.

But the strongest push for the Japanese comes from China. The spat between the two Asian giants over the Senkaku/Diaoyu islands is much larger than the rocks and islets themselves. The riots last year across Chinese cities against Japanese producers and products suggest that Beijing cannot or will not rein in its citizens. Some in Tokyo also feel China is assuming a sense of superiority to assert pressure on Japan, as never before.

There are also pull factors in looking to the Association of Southeast Asian Nations and India. Amid global uncertainties, these emerging markets offer some of the best prospects. The opening of Myanmar has also captured the attention of many.

Japanese companies can build on past ties and experience. There is, however, a need to realise that not all things are as they were. Three key changes bear special notice.

First, more countries are democratic and complex. Some investors will long for the days of strongmen like Suharto or when China first opened, when deals were pushed quickly from the top down, whether corrupt or clean. India was never like that, and nor is today’s Indonesia. Land grabs, poor conditions and wages for workers, and the ill effects of pollution: all of these are resisted these days, and the media brings attention quickly to any woes.

Societies will be better off with the awareness to better manage foreign investment. But foreign investors must learn to navigate and manage a more multifaceted landscape.

A second new dimension is that a more regional approach is required. Past investments were largely in one country or another, and then linked back to Japan. This is changing.

Disruptions – like the 2011 floods in Thailand – show the risk of choosing a single base abroad. Spreading out production will lessen that exposure but can only be possible if the countries are closely integrated. Japanese and other multinational investors will do well therefore to give attention to the Asean plans for an economic community by 2015 and, further, links between Asean and India.

Corporations must also adjust internally to take a truly regional approach. In this, many Japanese corporations face some disadvantages. Many simply import managers from Japan. Anecdotally, a Western multinational seems more likely to have its regional operations headed by a local.

The demand across Asean and India will be for more localisation – both in company leadership and higher-value product content. Government incentives and social expectations will push Japan to change the ways it operates in Asia. If Japanese companies return looking for the old Asia of strong men, cheap land and servile, low-wage labour, their expectations will be frustrated.

In the Fukuda doctrine of the 1970s, the Japanese were gracious to speak of an equal relationship. The reality then was that the rest of Asia lagged several steps behind. Today, however, leading companies and more developed economies in Asia have a more equal working relationship with Japan.

The renewed interest and vigour of Japan – both in the government and corporations – can build new partnerships across the region. However, it will need more than a wish to be anywhere but China. Japanese will need to look at engaging other Asians in new ways.

ABOUT THE AUTHOR:

Simon Tay is chairman of the Singapore Institute of International Affairs and associate professor at the National University of Singapore Faculty of LawThis article first appeared in the South China Morning Post.