Asian investment may prove dangerous

By Mitsuhiko Morimoto

TOKYO: Against the backdrop of the soaring yen in relation to the dollar, Japanese corporations are eager to invest in Asian countries--but there are risks involved.

Large numbers of Japanese companies are known to have gone to China without conducting detailed studies of the local situation.

An important element for successful Japanese investment in Asia appears to be making contributions to the countries where firms set up plants and factories.

There are accelerated moves among Japanese corporations to invest in Asia, targeting such countries as China, Vietnam, Myanmar and India. It is a phenomenon some analysts describe as a "third wave" of Japanese investment, following booms around 1970 and the latter half of the 1980s.

Mirroring the current boom in investment abroad, a travel agent is offering package investment inspection tours for groups or individuals.

The agent plans to organize trips this autumn to China and Vietnam for various kinds of business groups.

About 120 people, including car industry executives and the owner of a small restaurant, attended a briefing last month in Tokyo. The agent said he was surprised that people from such a wide spectrum were interested in overseas investment.

The yen's appreciation against the dollar and price busting are said to have brought about the latest investment boom.

Japanese manufacturers, hit hard by a loss of competitiveness due to the surge of the yen, to the Y$100 to the dollar level, have been forced to advance into Asia, where labor and other costs are lower than in Japan.

Inexpensive goods manufactured or low-priced parts procured in Asian countries have resulted in price busting in Japan, and some manufacturers have sought ways to shift the base of their operations out of Japan, further accelerating moves for overseas production.

The first overseas investment boom took place around 1970 when Japanese companies looked to Asian countries to counter labor costs in Japan, while the second boom took place in the latter half of the 1980s when the Plaza Accord triggered the yen's rise against the dollar.

One of the main features of the current boom is that small- and medium-size enterprises have freed themselves from "keiretsu" affiliation with major corporations, and a large number of them have joined in the moves to invest in Asia for their survival. Another characteristic is that the area of possible investment appears to extend to almost the entire continent.

The second wave of Japanese investment abroad targeted the newly industrializing economies and Thailand and Malaysia among members of the Association of Southeast Asian Nations (ASEAN). This time, while Japanese investment again seems concentrated on Thailand, it is also spreading to the other ASEAN members.

Japan's corporate advance into China is in full swing. However, Japanese investors are also beginning to consider India and Myanmar as possible countries for investment. Vietnam is also catching their attention.

Investors can choose where they want to invest, but analysts said that could be dangerous.

An official of the Japan External Trade Organization, who saw some Japanese companies set up operations in China while working at JETRO's Beijing office, said there were quite a few that went to China "simply because labor costs were low and without making a thorough study of the local situation. Naturally, problems have been on the rise."

In some cases, Japanese companies have launched joint ventures, but relations have been strained because a shortage of qualified staff has meant the Japanese side sends over personnel only once every six months.

An official of an association of Japanese companies operating overseas said a lack of local personnel could be a problem.

He said that what worries him is that friction could arise if, for instance, a company goes ahead with plans to set up an overseas plant thinking that it can somehow launch operations without paying much attention to the matter of personnel.

If Japanese companies hope to go abroad solely for the sake of low labor costs, they may fail. The reason? South Korean and Taiwanese companies are also rushing into China and Vietnam. Japanese firms may find themselves fighting with others to recruit workers or see labor costs go up quickly.

As a result, they may have to behave like migratory birds, moving from place to look for low costs. While such moves may be in line with economic realities, they may become problematical from the standpoint of making contributions to local communities.

The Tokyo Chamber of Commerce and Industry said in July in its overseas investment guide for small-and medium-size industries that companies will not be able to develop their overseas activities if they are overly concerned about the high yen and neglect to make contributions to local areas.

It has been 20 years since the late prime minister Kakuei Tanaka encountered anti-Japanese sentiment when he visited Thailand during a tour of the ASEAN countries. However, there appears to be no fear of a resurgence of such feeling since more local people are now involved in management of Japanese-owned factories.

Japanese firms should not rush to invest overseas just because of the high yen. Other considerations are important, too.

During the previous two investment booms, the Federation of Economic Organizations (Keidanren), the Japan Chamber of Commerce and Industry and various other associations issued overseas investigation guidelines.

Now that the third boom is under way, it might be a good idea for them to come up with new ones.

Mitsuhiko Morimoto is staff writer at the Yomiuri Shimbun

-- The Daily Yomiuri