Normally by this stage of the year, JETRO (the Japan External Trade Organization) would have issued the English translation of the top level findings of their annual surveys of Japanese companies in Europe (and internationally), but this does not seem to have happened this year. What is happening in Ukraine and the impact on Europe may well make any conclusions meaningless, but here, for what they’re worth, are the points which stood out for us.
Overall trends
More Japanese companies were forecasting profitability for 2021/2 than the previous year (65.7% vs 48.5%) but this is not yet back up to the pre-pandemic levels of profitability. The only countries where more than half of the Japanese companies there expected to see improved profitability – even compared to pre-pandemic levels – were Slovakia, Italy, Portugal and Sweden. Less than half of the Japanese companies in the UK, Czech Republic, Belgium, Spain, Denmark or Romania expected to see improved profitability in 2021 compared to 2019 or 2020.
This can be explained by the fact that in terms of sectors, ceramics and minerals, rubber, foods, machinery and wholesale were expecting a recovery, but banking, automotive, electronics and trading companies were all expecting conditions to worsen – sectors which are particularly active in the UK, Czech Republic and Belgium.
Many companies said that they were reviewing their supply chains and purchasing. Procurement costs and lead times have become new issues for manufacturers. UK based Japanese manufacturers seemed more pessimistic than in other countries in their forecasts, with nearly a quarter expecting conditions to worsen. Most Japanese companies were looking to procure more from central and Eastern Europe and between 14 to 28% were looking to reduce their procurement from the UK, dependin g on location and sector.
EU-Japan Economic Partnership Agreement
Nearly 50% of the respondents to the survey said they were using the EU Japan EPA for their imports into the EU – this was 80% for Japanese companies in Hungary, 65% Czech Republic, 64.3% Belgium, 53.3% Poland, 53.8% Netherlands, 48.4% Germany. This would probably reflects imports of automotive components into the EU from Japan, for at least the first 4.
EU UK TCA
25% of companies who are involved in UK-EU trade were using the TCA for exports from the UK to the EU and 10.4% were using it for exports from the EU to the UK. Around 50% of Japanese companies in the UK were using the UK Japan EPA to import from Japan to the UK and 39.1% were using it to export from the UK to Japan. 39.1% of Japanese companies in the UK were procuring from Japan, a 3.6% increase on the previous year.
More than 40% of Japanese companies in the region said that they did not know if the TCA had an impact on them or not and were concerned about the burdens of coordinating with suppliers and partners and the cost of making changes and self regulating.
Top issues
As in pre-pandemic years, employee recruitment and retention and high labour costs continue to be top concerns, with logistics and procurement costs also climbing up the list of priorities.
Brexit
Brexit has continued to be the top concern of Japanese companies in the UK, but less concerning than in 2020. Nonetheless, nearly 50% of Japanese companies in the UK see Brexit as having had a negative impact, two thirds if looking at manufacturers alone. Nearly half of Japanese manufacturers in the UK were experiencing issues with exporting to the EU from the UK and around 35% were experiencing problems with importing from the EU to the UK.
The second most concerning issue for Japanese companies in the UK is the pandemic, with employee recruitment and retention moving up from 5th to 3rd place, customs clearance still in 4th place (but a growing concern) and labour costs and GDPR at about the same level as the previous year.
Over half of Japanese companies in the UK were concerned about any deviation by the UK from GDPR, and 44% about having to deal with a UK CA mark in addition to the CE mark. 42% were worried about the movement of people between the UK and the EU – more so in the services sector than manufacturing. A third or so were also concerned about the REACH regulations and regulations on the movement of capital.
Unsurprisingly, there was an increased proportion of domestic UK sales by Japanese companies in the UK and a corresponding fall in sales to the EU.
Sales prospects
Poland was cited as the most promising sales destination for the third year running, with Germany second for the third year running too. Czech Republic, Hungary and Turkey are next most popular, then France and then Russia, with Slovakia and Spain also in the top 10. Overall, even including the UK, most Japanese companies were expecting to expand in the region in 2021/22. How the events of 2022 will affect this remains to be seen.
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