Japanese Investment in Singapore

Investment flows from Japan into Asia have seen a 67% growth since 2005, from 1.8 to three trillion yen in 2011, while Japanese investments in North America have registered a 20% decline since 2005, from 1.5 to 1.2 trillion yen. The mounting constraints of a mature and saturated domestic market have forced Japanese companies to establish a commercial presence in Asia to grow their foreign market shares and
globalise their footprint. 

By Yuki Kuboshima, Deloitte

 

The new trend: Japanese FDI to ASEAN

 
With the rise of Asia, there is an acceleration of investment flows to the east. Today, Asia is seen as the most attractive destination worldwide for foreign direct investments (FDI), thanks to its strategic geographical location, cultural similarities and historical economic relationships. Specifically, the emerging economies in ASEAN have led to a new and growing middle-class in each country, thus cementing ASEAN’s importance and attractiveness as a high-potential market. In recent years, ASEAN countries have enjoyed a high proportion of FDI from Japan, a nation traditionally seen as a global production centre—over 62% of Japanese overseas subsidiaries have set up a presence in Asia since the end of 2010, with ASEAN countries being the largest recipient of FDI to Asia. In fact, FY11 saw Japanese FDI totalling 1.5 trillion yen to ASEAN, accounting for 17% of Japan’s overall FDI of 9.1 trillion yen.
 
And the trend will continue. In the years to come, more Japanese companies are expected to make the shift to ASEAN, as they minimise the risk exposure from the excessive concentration of investments in China, which is exacerbated by the ongoing diplomatic tension between the two countries over the disputed islands.
 

Sharing FDI in ASEAN

 
In 2011, Thailand received the largest amount of Japanese investment—a total of 27.3 billion yen—followed by Singapore at 24.6 billion yen. In the last few years, Thailand has been the global and Asian production hub for many Japanese companies—61% of Japanese FDI in Thailand pertains to manufacturing. In Singapore, on the other hand, 75% of Japanese FDI is contributed by non manufacturing industries such as wholesale and retail, and finance and insurance—many Japanese companies regard Singapore as a flourishing investment trading hub in ASEAN and Asia Pacific.
 

A shift in FDI to Singapore

 
Japanese FDI to Singapore are expected to increase as more companies continue to set up their regional headquarters in the island-state. As a result, companies will look at redeployment of capable talent to effectively execute business decisions in accordance with the in-market culture and business practices. Singapore has become a choice destination for Japanese firms for many reasons: low corporate income tax; the absence ofsignificant restrictions on foreign exchange transactions and capital movements; government incentives; a strong and transparent legal framework; economic and political stability; a diverse talent pool; and having English as the nation’s lingua franca. Notably, Singapore’s diverse talent pool has encouraged SMEs to also set up shop in the country.
 
Many large Japanese corporations—Kirin, Mitsui Chemical, Nissin Foods, HOYA, Suntory, Nishinbo, Panasonic and Hitachi Plant Technologies, among others—established their regional headquarters in Singapore, in 2011. This is unsurprising, given that Singapore offers Japanese firms geographical advantage for new frontier exploration to Cambodia, Laos, Myanmar, India, Pakistan, Bangladesh, the Middle East and Africa.
 

Expansion of sectors in Singapore

 
From 1970s to the 1980s, much of the investments went into the electronics and petrochemical industry cluster; then in the 1990s, investments flowed into the telecommunications and media industry cluster. In recent years, however, companies have explored shifting investments to higher-valueadded industries, while Japanese firms such as Panasonic, Hitachi, Fujitsu and Toshiba continue to invest in their Singapore subsidiaries in semiconductorrelated areas. A $6.1 billion government funding—introduced in 2010 over six years—spurred companies such as Hitachi and Mitsui Chemical to move up the value chain to invest in research  and development efforts. The Singapore government has further strengthened its FDI policy in the petrochemical industry cluster: Jurong Island, with its pipeline of multilateral connectivity, has attracted large investments from companies like Sumitomo Chemical, Asahi Kasei Chemicals and Zeon Corporation.
 
In recent years, investments in the business services sector—such as professional firms, talent management and recruiting agencies, advertising and PR agencies—have added to the growth of Japanese subsidiaries in Singapore from 1,500 to at least 2,000.
 
As witnessed in the historical trends of increasing investment flow from Japan to Singapore—from US$1.38 billion in 2005 to US$3.85 billion in 2010, and US$4.5 billion in 2012—the island-state will continue to be an important investment destination for Japanese companies in the near future.
 
 
 
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