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Southeast Asian countries hopes to lure Japanese companies from China

24 September 2012
The Edge

Southeast Asian countries hopes to lure Japanese companies from China

The spat between China and Japan over the Senkaku-Diaoyu islands has led to strained economic relations. In the wake of this development, Southeast Asia may stand to benefit as Japanese companies explore alternate investment locations. In an article published in The Edge, Spire Research and Consulting shared its perspective on one of Asia’s burning issues.

The tug-of-war between China and Japan over the cluster of islands that the Japanese call the Senkakus and the Chinese call the Diaoyus may result in Japanese multinationals reconsidering their dependence on China as a major investment destination. As the issue flared up this summer, mass protests and riots were seen across many cities in Japan, leading to some Japanese factories and retail outlets in China being vandalized and shut down.

This tension may represent an opportunity for Southeast Asian countries, which may devise strategies to attract Japanese companies. Leon Perera, Chief Executive Officer of Spire Research and Consulting, opined that proactive efforts by the governments of other Southeast Asian countries would go a long way in attracting Japanese multinationals to invest in their countries.

Citing the rare earth incident, Perera said, “The issue of rare earths and the recent protests are both turning points for Japanese companies when it comes to choosing where they want their manufacturing facilities, going forward.” He highlighted that political stability, government support and a robust supply base of parts are essential factors which companies consider while setting up manufacturing sites in any country.

Perera mentioned that several Japanese companies are already considering Southeast Asia and India as possible alternate manufacturing locations. For Southeast Asia in particular, Perera named Vietnam as a prominent emerging investment destination. He also added that Thailand had been the most favored spot until the 2011 Thailand floods that devastated Bangkok.

However, he noted that nothing would change overnight. After all, the extent of Japanese supply chains in China was enormous and deeply-rooted in the efficient supplier base that China offers. Moreover, the size of the China market implies the need for some market-oriented investment to remain.

A shift in Japanese investment would be seen over the next few years. However, it would be impossible for Japanese companies to withdraw from China, given its vital importance as a global consumer market.

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