Chinese firms can learn from Japan’s ASEAN strategy
Following China’s Belt and Road initiative, countries in the Association of Southeast Asian Nations ( ASEAN) have become an important target region for Chinese outbound investment. Given that ASEAN countries also receive abundant investment from Japan, the competition between China and Japan over projects has frequently made headlines, especially in regards to high- speed rail projects. Some Chinese enterprises are even wondering if Japanese firms are following their moves.
But this is a misunderstanding. Statistics from the ASEAN Secretariat show that for three consecutive years until 2014, Japan was the second- largest source of foreign direct investment in the ASEAN region behind the EU.
Several reasons explain the ongoing Japanese investment in ASEAN countries.
First, like Chinese enterprises, Japanese firms also need to expand into overseas markets. Japan has experienced two lost decades, which has rendered the country’s economic growth inadequate. In addition, a growing aging population and declining population growth drive Japanese enterprises to seek new investment opportunities in neighboring countries. The development potential and low labor cost in ASEAN economies pose huge appeal to Japanese companies and Japan’s savings glut has prompted idle capital to increasingly flow into the ASEAN market.
Second, Japan’s increasing investment in the ASEAN region demonstrates the country’s determination to reshape its image as a defeated power and rebuild Japanese people’s confidence in the future by facilitating Japanese investment in the ASEAN region to help boost the development of the members’ economies.
Third, the ASEAN economies have an enormous demand for technology as their industries undergo rapid development and Japan can fill that gap. ASEAN economies expect that in addition to funding, Japan’s involvement will bring advanced technology and ideas for business management, which would elevate product quality within the region and enhance capability for exploring global markets. Japanese companies can meet both demands in capital and technology, and the idea of “Made with Japan” offers a grandiose sense for ASEAN economies.
Also, Japan’s increased investment in the ASEAN market acts as a check on China’s growing clout in the region. Therefore, when China’s “Going Out” strategy meets Japanese overseas expansion, Chinese businesses will face a tough battle securing footholds outside of their home market.
This fight between Chinese enterprises and their Japanese counterparts is not always a good thing for ASEAN countries, but rather a big headache.
Many might still remember the farcical outcome that resulted from China and Japan vying for a high- speed rail project in Thailand. China offered project- related loans with a 50- year tenure at an annualized interest rate of 2 percent. Japan offered better terms – a 40- year loan at an interest rate of a mere 0.1 percent plus a 10- year grace period.
In pure commercial terms, the proposal submitted by Japan was the better of the two. Nevertheless, Thailand couldn’t choose, trapped between Japan, the nation’s largest foreign investor, and China, its top trading partner. As a result, Thailand has chosen to tempo- rarily shelve the project to avoid falling into an impasse from working with one side while neglecting the other.
As such, a rising number of Chinese enterprises investing in overseas markets, especially in ASEAN countries, amid the push for the One Belt and One Road strategy, could gain a competitive edge by drawing inspiration from the Japanese way of investing in the ASEAN market, which can be best epitomized into three words – capacity, intention and demand. Chinese businesses need to initially find out what their capacities are so they can foster strengths and circumvent weaknesses before ascertaining their intentions of investing beyond their home territory, and ultimately, pinpointing demand in investment destinations.
On top of that, the Chinese government should give further policy support to Chinese enterprises venturing into overseas markets. In Japan’s case, in a bid to encourage international expansion, the Japanese government provides wide- ranging statistics that outline the overall investment climate of potential investment destinations and various individual industries.
In addition, special assistance is offered to small and medium- sized firms that lack sufficient capital and technology in the form of money as well as pre- investment market surveys.
When China’s strategy of going out is confronted with Japan’s ambition of investing overseas, battles are set to be fought, which will need multi- faceted efforts from both Chinese businesses and the government.
This fight between Chinese enterprises and their Japanese counterparts is not always a good thing for ASEAN countries, but rather a big headache.