Japanese companies expanding in PH – JETRO survey

More than 50 percent of Japanese companies in the country are expanding their operations on prospect of higher profit in the next two years despite issues of wage hike and volatility of the local currency, according to the latest survey conducted by the Japan External Trade Organization (JETRO).

Based on the 2016 JETRO Survey on Business Conditions of Japanese Companies in Asia and Oceania, companies have recovered their confidence in 2016 and are expanding in 2017-2018 on improved economies in emerging countries in these regions.

In the case of the Philippines, 54.4 percent of companies surveyed are expanding their operations while 44.7 percent said they are planning to transfer to a third country or withdraw from current local markets. Only a small one percentage point said they will reduce operation.

The survey also showed that Japanese businessmen in the Philippines expect improved operating profit forecast at 29.4 points up from 28.4 points in 2016. The survey related this positive outlook to the higher Diffusion Index, the proportion of firms expecting improvement minus the proportion of firms expecting worsening. The overall DI or the confidence indicator among the countries surveyed was at 36 percent, almost doubled that of 2016, surpassing that of 2016 in most of the countries.

In terms of the number of employees, the survey showed that 49.5 percent of Japanese firms in the Philippines will be hiring more this year compared to 40.2 percent in 2016.

Notably, the survey showed that companies in China, Malaysia and Indonesia have the highest number of decreases in personnel for this year.

The top five problems common to all regions and countries are wage increase, difficulty in quality control, growing competitors’ market shares, quality of employees, and difficulty in local procurement of raw materials.

Of these five challenges, only one problem – growing competitor’s market share – is not in the top five problems for Japanese firms operating in the Philippines. The top five issues in the Philippines by Japanese managers are difficulty in local procurement of raw materials and parts, quality of employees, difficulty in quality control, wage increase and volatility of the local currency’s exchange rate.

Problems of exchange rate and wage increases were highlighted in the Jetro survey for the Philippines. The peso had a rough time in the last two quarters of 2016 as it weakened against the US dollar to almost R50, which also affected the yen exchange rate.

There is still the unresolved issue on labor as the Duterte administration seeks to ban contractualization, which has been a prevalent practice among employees to reduce cost.

Majority of Japanese firms are also facing rising costs of production and services with 80.9 percent of firms surveyed responded their business activities are significantly affected or slightly affected. In the Philippines, 32.4 percent said they are significantly affected while 49 percent are slightly affected and only 14.7

percent are hardly affected.

Among manufacturing industries, the worst affected by the rising cost of production and services are textiles, food, wood/pulp, rubber/leather, and motor vehicles.

Meanwhile, Trade and Industry Secretary Ramon M. Lopez said a big Japanese electronics manufacturing company has made up its mind to pursue its investment in the country. The Japanese had put on hold its plan in the country following the labor contractualization issue. Lopez, however, refused to identify the Japanese company except to say it is a big investor.

In addition, Lopez said he will reiterate to the Japanese government the Philippine request for the lowering or removal of tariffs on the country’s pineapple and banana exports.

Lopez said he is going to raise this during the 35th Philippines-Japan Joint Economic Council meeting in Tokyo on February 28.