When Showa, a Japanese company that supplies precision parts to companies like Toyota and Nintendo, went looking for a site for its first overseas factory, China was the obvious first choice. Many of Showa’s customers have factories there and it is the biggest market in the region. But in the end the company’s president chose Thailand. Why? “You might as well go to a place where people like you, not hate you,” he told the WSJ.Showa joins other Japanese companies turning away from China and looking instead to South and Southeast Asia. “Japanese investment in Southeast Asia jumped 55% in the first six months of 2013 from the year before, to $10.29 billion,” the WSJ reports, “while outlays in China tumbled 31% to $4.93 billion.” Investors and executives point to anti-Japan riots that erupted in China last year after the Japanese government bought the disputed Senkaku Islands as the beginning of the shift. Rising wage costs in China and China’s increasingly aggressive foreign policy are also a factor in the decision to look further afield.This is an opportunity not just for Southeast Asian countries like Thailand, Vietnam, and Burma, but for India as well. India must develop as an industrial power if it hopes to enrich and empower its millions of rural citizens. That means cutting some of the overwhelming red tape that prevents foreign firms from investing in the country. India isn’t yet talked about in the same breath as its Southeast Asian neighbors when it comes to finding attractive locales for Japanese firms to invest abroad. But Abenomics has helped boost foreign investment to $122 billion in 2012 (up 12 percent from 2011 and 67 percent more than in 2007) and encouraged Japanese investors to look abroad (84 percent of executives polled recently said they plan to increase their overseas interests). India thus has a rare opportunity to attract investment by some of the word’s most successful businesses.No doubt the business-friendly Narendra Modi, who was announced as the opposition BJP candidate for Prime Minister today and who turned Gujarat into a haven for big business and foreign investors, has his eye on all of these developments.
Japanese Companies Skip China, Turn to Southeast Asia (and India Too?)