Complete Property Market Updates of Singapore

April 24, 2008

More Japanese MNCs expect S’pore operations to be profitable

Filed under: General — Propertymarketupdates @ 3:38 pm

But high labour costs pushing many to mull plant relocation to nearby countries: Jetro survey

In a year when fewer Japanese multinational corporations in Asia were likely to make money, more Japanese operations in Singapore were saying otherwise.

The latest poll of Japanese firms in the region shows 88.3 per cent of the Japanese manufacturers that have set up shop here were expecting to turn in operating profits last year, up from 83.7 per cent which reported gains in 2006.

The number is likely to pick up this year as more Japanese MNCs here – up from 59.3 per cent to 66.7 per cent – are looking to even stronger export sales in 2008 despite uncertainty in the global market, according to the poll of 1,745 Japanese MNCs taken by the Japan External Trade Organisation (Jetro) in October-December last year.

More also anticipated improved production efficiency and churning out more high value-added products.

Export sales were the single biggest contributor to profit expectations among Japanese MNCs. Other factors included local sales, prices, costs, productivity and the exchange rate.

Notwithstanding a brighter outlook for their bottom line in Singapore, Japanese MNCs still seemed bothered by the high labour costs – and many, the largest number in the region, were planning to relocate their plants to neighbouring countries, according to the poll.

Jetro, which is the Japanese government’s trade and investment promotion agency, says that Thailand is a popular alternative location for Japanese manufacturers of chemicals and electric and electronic parts in Singapore and Indonesia.

Japanese producers of electric machinery and electronic equipment here have also been shifting their operations to China.

Yet, it doesn’t mean that Japanese firms can make more money in other parts of Asia.

For Asia as a whole, the Jetro poll shows that the number of Japanese MNCs likely to post an operating profit has slipped from 71.5 per cent in the previous year to 69.9 per cent in 2007 – lower than the number in Singapore. Among the countries where there was a drop in the number were those where the Japanese has a big presence – China, Hong Kong, Malaysia and Thailand.

After South Korea, Singapore in 2007 had the largest percentage of Japanese MNCs predicting a profitable year for their operations here.

The proportion in South Korea jumped from 79.3 per cent in 2006 to 92 per cent in 2007. But the biggest improvement was seen in Vietnam, where the proportion of Japanese MNCs expecting operating gains rose from 58.2 per cent to 77.8 per cent.

Commenting on the latest poll, Jetro says that the less upbeat sentiment of Japanese firms in 2007 came ‘amid a difficult business environment marked by upward pressure on procurement costs due to soaring resource prices’.

Among non-manufacturing Japanese MNCs with a presence in Asia, the overall proportion looking to an operating profit last year was about the same as that for Japanese manufacturers – 69.5 per cent, according to the Jetro poll.

For Singapore alone, the proportion was 74.7 per cent, with 18.7 per cent expecting ‘no change’ and 6.7 per cent predicting ‘deficit’. Only Taiwan (92.3 per cent), South Korea (83.3 per cent) and Hong Kong (76.1 per cent) had a higher proportion of Japanese firms likely to make money.

Japanese non-manufacturers’ presence in Vietnam was still relatively small, according to Jetro. In China, they were working to develop the domestic markets and build service and sales networks.

Despite some Japanese manufacturers relocating their operations from here to other Asian countries, more than half (59.7 per cent) of the Japanese firms polled in India still valued Singapore highly as a market in the next 5-10 years – higher than the proportion in Thailand (44.5 per cent).

Source : Business Times – 7 Apr 2008

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