“The region has abundant natural resources and low-cost labour, and therefore it will continue to be our priority in foreign investment in the coming years.”
Each country in Asean has its own strengths in specific areas, and the investment models vary from one place to the next, said Mr Iuchi, who is also the chief representative for Asean and South Asia of the Japan External Trade Organisation (Jetro).
But as a single entity, the region has been gaining momentum, capacity and credibility in world competitiveness. Japanese foreign direct investment in Southeast Asia last year was between 600 billion and 700 billion yen (220-260 billion baht) — more than what Japanese companies invested in China.
In the first half of this year, according to the Board of Investment (BoI), Japanese investors applied for incentives for projects worth a total of 130 billion baht for incentives.
“Half of the Japanese investors visiting my office for advice and guidance are interested in investing in Thailand,” said Mr Iuchi. “The environment and the workers here are very warm and welcoming. And importantly, Thailand has a very fine location is being the centre of this region”.
The number of investors visiting the Jetro office now averages 100 a month, outstripping the figures before last year’s flooding. Automotive parts and electronics remain the key focus of Japanese investors. More than 50% of the products made in Thailand are exported back to Japan and elsewhere. However, a shortage of both skilled and unskilled workers in the country remains a worry for Japanese investors.
“The mismatch in the labour market is empirically supported from both the perspectives of employers and employees in Thailand,” said Mr Iuchi. “Firms pay large wage premiums to college graduates; therefore it leads to high levels of excess demand for labour to hold such qualifications.”
In short, talented vocational graduates are in short supply for jobs for which a bachelor’s degree is not needed.
At the same time, Mr Iuchi advises, Thailand needs to broaden and deepen the intellectual infrastructure for industry. More research and development needs to be promoted so that businesses can add value to offset higher costs of labour and other inputs.
Thailand needs to move to the next level because Vietnam, the Philippines and Indonesia have been attracting a lot more Japanese manufacturing FDI thanks to their cheaper labour and rich natural resources. However, exporting is not a priority for Japanese investors in these countries.
“The local markets in these three countries are huge, especially those 240 million in Indonesia,” Mr Iuchi said. “Unlike Thailand, the Japanese invest in these countries and sell the products mainly to the domestic markets.”
With growing confidence in the government and the upgrade in the credit rating of Southeast Asia’s largest economy, Japan sees a lot of opportunities in Indonesia for low-cost manufacturing. More than 1,000 Japanese companies in Indonesia now employ up to 300,000 workers. However, the lack of infrastructure is a concern, as are transparency, laws and regulations. Like all investors, the Japanese dislike uncertainty.
Japan is also Vietnam’s largest foreign investor, with ventures valued at US$4.16 billion, or 65% of the country’s total FDI, in the first half. The recent Tokyu real estate project in southern Binh Duong province, worth up to US$1.2 billion, underlined Japanese investors’ strong interest.
The less developed economies of Asean are also on Japanese radar, according to Mr Iuchi.
“For Cambodia, Laos and Myanmar, Japanese investors believe these countries hold a number of advantages in their natural resources and strategic positions in the emerging Mekong region,” he said.
Infrastructure improvement, agriculture, power generation and construction all have more potential in Asean’s emerging economies. Political stability, labour-intensive export processing and domestic market import substitution are attractive factors for investors.
Despite a rapid increase in recent years, Japan’s investments in Cambodia, Laos and Myanmar are still low compared with those of Thailand, China and South Korea.
“Significant changes that we want to see in Asean are the improvement of customs procedures and higher levels of connectivity between Asean member nations both in terms of trade promotion and logistics links,” Mr Iuchi told Asia Focus.
Simplifying the region’s customs procedures and harmonising product standards — two key goals of the Asean Economic Community — would stimulate trade with Japan. The region needs a tariff information database so that all Harmonised System codes are consistent, and better digital systems for filing import and export documents.
Development of hard infrastructure including rail systems and seaports to improve logistics links remains a big challenge for the region, as is electricity supply in some area.