TThe Japan External Trade Organisation has published its annual survey of the international operations of Japanese companies. An overview in English is available here, but not the full version that is available in Japanese only.
The English language overview only mentions Europe once, in the context of China, the US and Western Europe comprising 60% of the export destinations that Japanese companies are focusing on. The more detailed Japanese version breaks Western Europe into the UK and Western Europe excluding UK. As a consequence, the UK didn’t make the top 10 of future export destinations. 56.7% selected China (up from 49.1% in 2012), then the USA (50.3% – a large increase on 34.1% in 2012), Taiwan, Vietnam and Thailand. Western Europe excluding the UK was next, at #6, selected by 39.8%, up from 23.2% in 2012. Clearly the gravity model of trade is not dead yet, but a less hostile presidency or an Economic Partnership Agreement helps.
The report also highlights the interest of Japanese companies, particularly SMEs, in using e-commerce to trade abroad. However, digital trade does not seem to be overcoming the gravity model either. Again, China is by far the most popular sales destination for e-commerce, then the USA, Taiwan, Hong Kong, Singapore, South Korea and Thailand. France just pips the UK at 8th, cited by 16.3%, up from 10.4% in 2016. The UK was cited by 14.9% of companies, not much changed from 14.2% in 2012. In terms of where Japanese companies are focusing their future e-commerce efforts, China was selected by 40% (for food, drink, cosmetics, clothing, machinery, and haircare products), then the US for food – particularly tea and rice – cosmetics, clothing and machinery. Germany was selected by 5.2%, France by 4.9% and the UK by 3.4%.
In terms of where Japanese companies are planning to expand their business (not just via exports), a leap in the USA’s popularity stands out again – up 8% from 31.9% in 2019. Western Europe (including the UK) was 6th most popular, after China, Vietnam, the USA, Thailand and Taiwan, selected by 30.4%, up 5% on a year ago. Japanese companies who are looking to expand in Western Europe are mainly manufacturers of ICT and electronic devices, clothing and apparel and “other manufacturing”. Expanding in Western Europe was the fourth highest choice as a destination for expanding the R&D function for new product development, the fifth highest choice for expanding R&D for localisation, high value added manufacturing, regional coordination functions and logistics. The UK did best as the destination for R&D for new product development, coming in at 8th, after China, Vietnam, USA, Taiwan, Western Europe, Thailand, Indonesia and Singapore. It was the tenth ranked choice for R&D for localisation and for regional coordination, 11th for logistics, 12th for high value added manufacturing, 13th for sales and not in the top 15 for applied engineering.
The UK has become the world’s fifth largest economy again, having dropped to 6th, after India was hit by a recession. You might, therefore, have expected the UK to rank higher if market size were all that counted. That it has not is partly due to gravity, but also the maturity of the UK-Japan business relationship and Japanese companies’ search for growth, not to mention the uncertain impact of Brexit in the longer run.
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