Japan”™s import-export market was in the spotlight of the recent Connecticut Business & Industry Association (CBIA) webinar “Unlocking Japanese FDI & Trade Opportunities.”
Jeff Hubbard, market president for Liberty Bank, opened the webinar by noting Japan was the largest foreign direct investor in the U.S., adding that the country is “playing a major role in economics, capital investments, employment and increasing U.S. merchandise exports. Japanese total direct investment in the U.S. hit a record in 2020 at $679 billion, including $310 billion in the manufacturing sector.”
Hubbard also pointed out that Japanese investment in the U.S. was responsible for almost 1 million American jobs while Japan was both the fourth-largest trading partner for the U.S. and one of top 10 export markets for Connecticut-made goods.
Hubbard was followed with brief appearances by Kotaro Suzuki, Japan”™s Consul General in Boston, and Kenichi Kawamoto, president of the New York office of Japan External Trade Organization (JETRO), a government agency. Suzuki noted that his office represented Japanese interests in the New England states while Kawamoto recalled a 2021 presentation that JETRO made in Hartford to foster an interest in Japan among Connecticut”™s business community.
Daiki Nakajima, director of business development at JETRO New York, occupied the lion”™s share of the Japanese representation in the webinar. He highlighted findings of the 2022 JETRO Survey on Business Conditions for Japanese Companies Operating Overseas, which polled 787 out of 1,841 Japanese companies now operating in the U.S. Nakajimi acknowledged the economic difficulties on both sides of the Pacific, but stressed that the majority Japanese companies were not pessimistic about the near future.
“Despite some of the challenges we currently face, 46% (of the companies polled expect) improvement from the previous year, 40% expect flattening and 13% expect worse,” he said. “We continue to see a strengthening of business sentiment in the U.S. as an opportunity ”” it has been a positive trend that moves forward.”
Nakajima continued by pointing out that in regard to future business, “50% of the companies that we surveyed are looking to expand their business in the U.S. in the next one to two years. The main reason for this is high-growth potential.”
Japanese companies are also more interested in doing business with the U.S. versus Asia”™s largest economy. Nakajima detailed how Japanese manufacturers procured 49.5% of their raw materials and parts from within the U.S., with only 5.7% coming from China; internal procurement within Japan accounted for a 31.2% share. From the 408 Japanese companies, which have already procured in the U.S., 83 companies polled by JETRO said they will expand their procurement ”” but out of the 94 companies, which have already procured from China, only seven predicted they would expand their procurement from that country while 30 predicted they would reduce their Chinese-based procurement.
“This also shows the importance of the alliance between the U.S. and Japan in terms of business,” Nakajima added.
Still, Japanese companies operating in the U.S. admitted they were not in a problem-free zone. The JETRO survey”™s Japanese corporate respondents cited an “increase in wages of employees” as the most common challenge of their U.S. operations (67.5%) followed by “rising logistics costs” (56.9%), “slow development of new customers” (52.5%), “difficulty in recruiting workforce (general staff)” (51.4%) and “rising procurement costs” (50.7%). When pressed for specifics, the greatest challenges cited were the “upward pressure on wages due to prolonged inflation and disruptions in entire supply chains” and “increased borrowing interest burdens due to rising interest rates and workforce shortages.”
But despite these issues, Japanese companies are still focused on their U.S. operations. Nakajima detailed that in terms of “foreign investments in all 50 states, Japanese companies were the number one in 36 of those 50 states.”
For the Connecticut perspective, the webinar brought in Melissa Grosso, director of state office for the U.S. Department of Commerce”™s Commercial Service, who offered insight on what local companies can expect from the Japanese market.
“Japan is a large economy, but its growth is not huge,” she said. “At this point, its population is aging and shrinking.”
Grasso explained the Japanese economy has existed under intermittent deflation since the mid-1990s while the median age is 48.4 ”” the country has more adults over 75 than children under 15. But despite the sluggish population and a greying population, Grosso pointed out that Japan is a G7 member that maintains the world”™s third largest economy behind the U.S. and China and a $5 trillion gross domestic product.
“And the unemployment numbers are very, very low at 2.8%,” she said.
Grosso acknowledged that Connecticut exports to Japan in 2022 totaled $477 million, with most of the activity occurring in the transportation equipment, machinery, computer and electronic products sectors.
For companies looking for growth opportunities in Japan, Grosso stated that energy-related technologies offer great potential because “Japan has almost no natural resources, so most of their crude oil, LNG, coal and uranium is coming from outside of the country.” She also championed fintech as a significant Japanese growth market.
“Japanese banks have actively adopted fintech into their businesses and, importantly for Connecticut, insuretech is a leading sub sector within this realm,” she said.
Grosso recalled Japan”™s shifting demographics as being a target market for products and services aimed for an aging population.
“The government of Japan is promoting standalone medical software,” she said. “They”™re particularly looking at digital health, telemedicine, wearable medical devices, and watch-over services for the elderly. So, there are some good opportunities there. On the pharmaceutical side, Japan is the third-largest pharmaceuticals market in the world and a critical export market for U.S. pharmaceutical suppliers.”
Grosso also pointed to the “geopolitical considerations in the Asia Pacific” has fueling defense industry imports.
“In 2021, U.S. aerospace products made up more than 53% of Japan”™s total supply,” she said. “Importantly for Connecticut, some of leading subsectors are engines and helicopters ”” we do both of those fabulously well here in Connecticut and have a very strong supply chain in that sector.”
