Japanese firms eye expansion, not relocation
Following the advent of the coronavirus pandemic in Wuhan, China last December, it was assumed that a number of Japanese companies based in the East Asian nation would shift their factories to less affected countries like Bangladesh and Vietnam.
However, Bangladesh might not benefit greatly after all as a very few of the Japanese companies want to relocate from China, said a senior official of the Japan External Trade Organisation (JETRO) last week.
Bangladesh, however, could still enjoy the fruits of Japanese investment as majority of the existing Japanese companies want to expand their operations in Bangladesh, the JETRO official added.
JETRO is a government organisation that works to promote mutual trade and investment between Japan and the rest of the world. As such, the organisation oversees all of Japan's foreign investment.
According to the annual JETRO survey, 99 per cent of the Japanese companies operating in China will remain where they are.
Only 0.9 per cent will even consider diversifying their business to a third country or region in the next one or two years, said Yuji Ando, Bangladesh country representative of Jetro.
"We cannot say for certain that Japanese companies have started relocating to other counties," Ando said in reply to a query from The Daily Star last week.
"However, the Japanese government plans to support its companies to diversify their production base," he added.
As of 2019, the number of Japanese companies operating in China is 33,050.
As per the statistics from JETRO Dhaka, the number of Japanese companies operating in Bangladesh has quadrupled over the past 10 years and as of April 2020, stands at 310, Ando said.
The cumulative value for foreign direct investment (FDI) from Japan is about $370 million.
Japanese investment may favour labour-intensive sectors like the apparel and IT, which have the possibility to diversify Japan's procurement of such products from China to Bangladesh.
In the past, rather than the COVID-19 pandemic, it was other issues such as increased labour costs in China that pushed companies to expand their markets to emerging countries like Bangladesh.
Considering the huge potential for growth in countries like Bangladesh, the JETRO survey also found that about 70.3 per cent of all Japanese companies would consider expanding their businesses in the next one or two years.
This rate is the highest among 19 countries and regions in Asia and Oceania.
But due to the ongoing pandemic, companies will have to recoup their losses before making any plans for expansion. This means that government support for those companies will play a key role in their decision to reach other markets.
At times, Japanese investors complain about different challenges they face in Bangladesh, the official said.
"We can say that we have two major issues. First, tax and foreign exchange. Second, the improvement of investment climate."
The regulation of telegraphic transfer of remittance for import trade is one of the more symbolic issues as companies have to bear high transaction costs and spend considerable amounts of time on import trade, Ando said.
The government temporarily relaxed regulations on working capital loans from parent companies as such but the limitation for eligibility and term should be relaxed further, he said.
"I understand that the budget for financial support is limited so I strongly believe that it is high time for the Bangladesh government to go for regulatory reforms (deregulation) to improve the bottlenecks and promote FDIs, especially in the tax and foreign exchange policy and investment climate."
This would support local companies and directly contribute to improving the country's position in the 'Ease of Doing Business' index of the World Bank. Investors are always closely watching the government's efforts to improve investment climates, he added.