The 2nd ASEAN Reader

91. Outlook for Japanese FDI in ASEAN

452 Seiichi Masuyama By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 91. OUTLOOK FOR JAPANESE FDI IN ASEAN SEIICHI MASUYAMA Reprinted in abridged form from Seiichi Masuyama, “The Role of Japan’s Direct Investment in Restoring East Asia’s Dynamism: Focus on ASEAN”, in Restoring East Asia’s Dynamism, edited by Seiichi Masuyama, Donna Vandenbrink, and Chia Siow Yue (Tokyo: Nomura Research Institute and Tokyo Club Foundation for Global Studies; and Singapore: Institute of Southeast Asian Studies, 2000), pp. 213–58, by permission of the author and the publishers. According to the survey by the EXIM Bank, the motivation of Japanese corporations to undertake FDI in the medium term (up to fiscal 2001) has declined (Table 1). The proportion of respondents who see investments increasing in Asia in the medium term has declined, and the decline is particularly steep for investments in ASEAN. The reasons for the decline in ASEAN, according to the same survey, are the near-term uncertainty of Japanese corporations about the recovery of local demand and the outlook for ASEAN currencies and the deterioration in the political and social condition in some countries (Table 2). These reasons are in addition to the fact that they have more or less completed a cycle of new investment. Moreover, Japanese corporations’ evaluation of their operations in ASEAN countries has TABLE 1: Areas of Increasing Investment by Japanese Firms in the Medium Term Percent of respondents expecting to increase investment in: Rest of Asia North Latin Survey Year China ASEAN NIEs Asia total America EU America Other FY1994 29.5 24.7 10.3 7.9 72.4 11.4 8.6 4.4 3.3 FY1995 24.0 23.9 11.2 10.1 69.2 13.4 9.3 4.7 3.4 FY1996 21.1 24.0 9.4 10.6 65.1 13.8 9.9 6.3 4.9 FY1997 18.5 21.3 9.5 10.0 59.3 14.2 10.9 8.7 7.0 FY1998 17.4 16.4 8.1 7.7 49.6 18.5 15.1 7.3 6.8 SOURCE: Export-Import Bank of Japan. “EXIM Japan FY 1998 Survey”. Table III-2-3, p. 23. 091 AR Ch 91 22/9/03, 12:59 PM 452 Outlook for Japanese FDI in ASEAN 453 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville deteriorated on every measure, particularly on profitability (Table 3). Such a low evaluation should discourage Japanese investments in ASEAN across-the-board, although the survey does not differentiate between export-oriented investments and domestic market-oriented investments. The 1998 EXIM Bank survey indicates that the short-term strategies of Japanese corporations on investment in ASEAN are mainly defensive, with an element of retrenchment . Over one-third (34.1 percent) of respondents answered that they would invest to support existing operations. Some are taking this opportunity to enhance their control over management.1 Almost one in ten respondents (9.8 percent) said that they would increase their equity ownership to more than 50 percent to gain control of management. About one-fourth (24.3 percent) of respondents said that they would reduce their scale of investment by limiting investments to maintaining existing facilities, and 16.6 percent said that they would not implement new investments. An additional 2.0 percent said that they would withdraw their existing investments. 27.4 percent said that they would stick to existing plans. Only 5.1 percent said that they would increase investment to expand their existing TABLE 3: Japanese Companies’ Average Evaluation of Investment Results, by Area Sales Profitability Localisation Overall Evaluation 1996 1997 1996 1997 1996 1997 1996 1997 ASEAN 3.28 2.89 3.21 2.76 3.28 3.15 3.35 3.04 China 2.70 2.74 2.65 2.67 2.94 2.89 2.85 2.81 NIEs 3.42 3.30 3.31 3.31 3.49 3.54 3.40 3.42 Latin America 3.11 3.15 3.16 3.05 3.11 3.2 3.13 3.15 North America 3.15 3.50 3.07 3.14 3.58 3.63 3.25 3.34 EU 3.23 3.20 2.99 2.99 3.46 3.47 3.31 3.22 NOTE: Fiscal year. Evaluation scores range from 1 (unsatisfactory) to 5 (satisfactory). SOURCE: Export-Import Bank of Japan. “EXIM Japan FY...