Results of JETRO’s 2014 Survey on Business …...The indicator of business confidence for 2014 (DI...

Copyright (C）2015 JETRO. All rights reserved. 1

Results of JETRO’s 2014 Survey on

Business Conditions of Japanese-Affiliated Firms

in Canada

January, 2015

Japan External Trade Organization (JETRO)

Overseas Research Department

North America Division

Copyright (C) 2015 JETRO. All rights reserved. 2

About the Survey

This survey has been conducted since 1989 by the JETRO Canada office, with this

being the 25th implementation (there was no survey conducted in 2004.)

1. Purpose

To survey and analyze the state of Japanese-affiliated companies in Canada (business

confidence, performance, management challenges, etc.) with the aim of facilitating

business activities and management strategy planning for Japanese-affiliated

companies.

2. Survey coverage

The definition of a “Japanese-affiliated company” is one for which “the investment

from the Japanese parent company is at least 10%,” including both direct and indirect

investments. For example, consider a Company A, which is an American subsidiary

with a Japanese parent company that holds a 20% share. If Company A itself holds a

50% share of a subsidiary, Company B, then the parent Japanese company for Company

A owns a 10% share of Company B (0.2 x 0.5 x 100), so that Company B would also be

regarded as a “Japanese-affiliated company.” (Company B is a sub-subsidiary of the

parent Japanese company.) The same type of calculation applies to sub-sub-subsidiaries

as well.

3. Method

The target companies were informed by the Toronto office of an Internet address

(URL) where the questionnaire was posted. Respondents entered their answers directly

onto the survey form on this website.

4. Period

September 3 to October 17, 2014

5. Response rates

The requests were made to 233 Japan-affiliated companies in Canada, with responses

received from 136, for a response rate of 58.4%.

Note: The number of companies responding is an aggregate based on the cooperation of

each company, using information sources regarded as reliable by the JETRO office, but

the absolute accuracy and completeness of the information cannot be guaranteed.


1. Business Conditions

○ The indicator of business confidence for 2014 (DI value 21.8) improved in

comparison to the previous year (DI 14.3). Since there was an increase in product

demand, there were many responses indicating that “it feels like the economy is

recovering” and “the economy seems stable.”

- The diffusion index (DI) that indicates business confidence (proportion of

businesses reporting increased operating profits minus those reporting decreased

operating profits compared to the previous year) was 21.8 for 2014 (Fig. 1). There

were many companies indicated that they expected improvement in the categories

of processed food, agricultural or fishery products, and the key industries of

transportation machines (cars and motorcycles) and parts for these machines.

- With regard to the operating profit for 2014, 42.9% reported an increase compared

to 2013, with 36.1% reporting that it would remain the same, and 21.1% expecting a

decrease (Fig. 2). In addition, 74.4% of the companies indicated that they are

expecting to be profitable in 2014 (Fig. 5). The reasons given for the improvement,

in order of frequency (multiple answers permitted) were “Sales increase in local

markets” (78.6%), “Sales increase due to export expansion” (21.4%), and “Effects of

exchange rate fluctuation” (19.6%) (Fig. 3). In comparison, the main reasons given

for worse results were “Sales decrease in local markets” (59.3%), and “Sales

decrease due to export slowdown” (18.5%) (Fig. 4).

- The answers about forecasts for operating profit in 2015 compared to 2014 show

that slightly more companies expect an increase (45.1%) rather than remaining the

same (44.4%) (Fig. 2). The reasons for the improvement, in order of frequency

(multiple answers permitted) were “Sales increase in local markets” (70.0%),

“Improvement of sales efficiency” (20.0%), and “Sales increase due to export

expansion” (16.7%) (Fig. 6). Reasons for an expected decrease were “Sales decrease

in local markets” (57.1%) and “Increase of other expenditures (e.g.,

administrative/utility/fuel costs)” (21.4%) (Fig. 7).

<Performance is strong, particularly in the automotive industries. Many view that

the economy is now strong and stable>

* The comments indicated by arrowhead bullet points in the main text (type of industry

indicated in parentheses) are quotes from interviews with the firms that responded to

the questionnaire, and, in part, comments on the survey questionnaire.

The economy seems strong because overall demand is growing for car sales.

[Transportation machines (cars and motorcycles)]

There is a feeling that the economy is recovering in the aluminum industry. [Metal

goods (including plated products)]


The industry is maturing for cameras/ business-related equipment. For Canada as

a whole, however, things vary in different business categories, but there are

industries looking for growth. With the influx of immigrants, and the low yet

continuing growth of GDP, the economy is considered to be stable. [Electric

machines and electronics]

Although there is no feeling of an economic downturn, it does not seem to be better

than the economic situation in the U.S. [Trading]

2. Future Business Plan

○ With regard to future business expansion, nearly 50% indicated that they would

remain the same, and the percentage of those expecting to expand is higher than in

the previous year.

- Regarding the directions for business development in the next one or two years,

49.3% indicated that they expect things to remain the same, while 46.3% expect to

expand, which is higher than last year (38.9%) (Fig. 8). The reasons for expected

expansion, in order of frequency (multiple answers permitted), include “Sales

increase” (85.5%), “High growth potential” (43.5%), and “High receptivity for

high-value added products” (19.4%) (Fig. 9). The specific functions that respondents

want to expand are “Sales functions” (67.2%), “Production (high-value added

products)” (29.5%), and “Production (ubiquitous products)” (21.3%) (Fig. 10).

Reasons given for future reduction, location transfer, or withdrawal were “Sales

decreases” (66.7%) and “Low growth potential” (33.3%).

○ On the question of issues faced in promoting management localization, the

answers concentrated on “Little progress in delegating authority from

headquarters to the local offices” and “Difficulty recruiting local candidates for

executive positions.” There is a concern about communication with the

headquarters, and how to secure the talented personnel who can become future

management candidates.

- Measures being implemented to encourage localization of management, in order of

frequency (multiple answers permitted) include “To strengthen system to

train/cultivate local human resources by focusing on localization of corporate

management” (52.2%), “To assign local staff to a general manager/manager position”

(44.0%), and “To encourage mid-level hiring activities to obtain competent local

staff by focusing on localization of corporate management” (41.0%) (Fig. 11). On the

question of issues faced in promoting management localization, the indicated issues

with headquarters/Japan side were “Little progress in delegating authority from


the headquarters to local offices” (17.6%), “Difficulty in reducing the number of

Japanese expatriate staff” (17.6%), and “Inadequate language skills of the Japanese

expatriate staff (English and local languages)” (16.8%) (Fig. 12). Issues on the local

side include “Difficulty in recruiting local candidates for executive positions”

(35.9%), “Insufficient performance/awareness among local staff” (29.0%), and

“Insufficient capabilities for local planning and marketing” (12.2%) (Fig.12).

- Over the last year, 31.1% of the respondents indicated that the number of local

employees had increased, and 51.5% said there was no change. There were 17.4%

indicating a decrease. With regard to future plans on the number of local employees,

34.9% said they planned to increase the number, 56.6% had no changes planned,

and 8.5% expect to decrease (Fig. 13).

- For the Japanese expatriate staff, 75.6% of the companies indicated that there was

no change since last year. For the future as well, 76.2% indicated that no changes

were planned (Fig. 14).

<There are still issues with communication with the head office in Japan affecting

the promotion of delegation of authority to local personnel>

More than a difficulty in recruiting people, it seems to be harder to effectively plan

human resource development under the Canadian system where there is no fixed

retirement age. [Transportation machines (cars and motorcycles)]

Our problem is that the systems at the head office in Japan have not kept up with

the localization of the subsidiary. There has been improvement in the conversations

and e-mail with the local staff in English, but it is still not sufficient, and

communication through expatriate staff is still needed. [Transportation machines

(cars and motorcycles)]

We have no problem with delegation of authority. We have tried hiring and training

executive candidates, but the turnover is pretty severe. The more talented the

people are, the more likely it is that they leave during training. [Transportation

machines (cars and motorcycles)]

We have local employees in more than half of the management positions, so I think

our localization is more advanced. With regard to the difficulty with hiring

executive candidates, I think we can only continue to be proactive in all areas, and

diligently work on hiring, education/training, evaluation and compensation.

[Electric machines and electronics]

3. Sales and Procurement

○ Approximately 60% of products manufactured in Canada were sold domestically,

while around 20% were exported for sales to the U.S. Regarding future direction of


sales policy, “maintaining the present conditions” accounted for the majority of

responses.

- 63.5% of products manufactured in Canada were sold domestically (Fig. 15).

Followed by the U.S. (19.4%) and Japan (12.5%).

- For future sales policy, 37.3% of the companies indicated that they intend to expand

in Canada. Overall, the most selected answer was “stay the same” (Fig. 16).

<In many cases, the Canadian corporation does not have the authority to decide to

engage in sales in other regions>

Since group sales companies have jurisdiction in other countries, like Mexico and

Central/South America, we don’t have any plans to expand. [Electric or electronic

machines]

Our company buys finished products from a U.S. company and sells them in the

Canadian market. We only sell in Canada. Any expansion of sales destinations is

handled by the U.S. company. [Transportation machines (cars and motorcycles)]

○ For the procurement of raw materials and parts, 38.5% are procured within

Canada, followed by 32.8% from the U.S., and 16.7% from Japan. Many of the

respondents indicated that they planned to expand procurement from Asia.

- For the breakdown of procurement sources for raw materials and components,

38.5% is procured from within Canada (9.0% from Japanese-affiliated local

companies, 28.4% local companies, and 1.1% other foreign-affiliated companies).

Other main sources are the U.S. (32.8%) and Japan (16.7%) (Fig. 17).

- Target countries often indicated by those planning to expand their procurement

sources include the currently low procurement source level regions of ASEAN

(71.4%), and Taiwan/Korea/Hong Kong (44.4%) (Fig. 18).

<There are many companies in Canada that procure materials and components from

U.S. entities and their Japan headquarters. Some Canadian companies also indicated

that there is no intent to change the procurement policies.>

Basically, the products we are selling are almost all obtained from our group

companies, and most are purchased through the Japan headquarters. We have no

plans to shift our suppliers. [Electric machines and electronics]

4. Management Challenges

○ As general managerial issues, “recruiting executive officers and general staff” was

ranked at the top. Primary factors of increasing costs included “Increase in labor costs

including salaries and bonuses” and “foreign exchange risks of the Canadian and the

U.S. dollar.” On the other hand, as key factors suppressing sales, many firms stated the


same reasons as last year, such as “severity in price competition” and “difficulty in

developing differentiated products.”

- General management issues indicated, in order of frequency (multiple answers

permitted) were “Recruiting workers for management positions” (33.1%),

“Recruiting regular workers” (32.2%), and “Retention of workers” (27.1%) (Fig.

19). For Japanese-affiliated companies in Canada, the big issues appear to be

securing and managing employees.

- The factors contributing to rising costs in order of frequency (multiple answers

permitted) were “Increase in labor costs (including salaries and bonuses)”

(65.4%), “Foreign exchange risks (Canadian dollar/U.S. dollar)” (50.4％), and

“Increase in raw material, natural resource and commodity prices” (35.4%) (Fig.

20).

- Factors attributed to contributing to weaker sales, like the previous year were

“Severity in price competition” (79.8%), “Difficulty differentiating ourselves from

competitors” (45.4％), and “Popular products from competitors” (38.7%) (Fig. 21).

<Although there are many job-seekers, it is difficult to find quality personnel>

There is no concern about personnel shortages, but the aging of employees is an

issue. [Parts for transportation machines (cars and motorcycles)]

There tends to be insufficient human resources in Calgary where the economy

continues to be strong. [Non-ferrous metals]

Many of the expatriate staff who have experiences working in other countries

consider the Canadian workers to be honest and reliable. The issues with securing

general staff are less about a lack of ability, and more about high attrition rates

related to compensation, such as working hours and salary. [Electric machines and

electronics]

On the subject of securing management and executive level personnel, there is

always a lot of competition for the talented people, but when the business

environment is changing significantly, it is necessary to respond immediately to the

uncertainties and changes, further increasing the demand for even higher quality

and activity of the leaders. This is what is behind the accelerating competition for

human resources. [Electric machines and electronics]

<As a measure to handle personnel costs, early retirement schemes are also being

introduced>

(As a labor cost policy) Wage increases are kept at about the same level as the

inflation rate, and wage levels are set as needed for each post, with consideration of

the levels in other industries. [Transportation machines (cars and motorcycles)]

Since they (employees) try to continue working indefinitely, we have created an


early retirement program offering incentives of about one year’s worth of salary to

gradually induce people to retire. This is contributing to a decrease in labor costs.

[Other manufacturing]

Reduction of personnel requirements through improved operations efficiency.

[Transportation machines (cars and motorcycles)]

<Since many of the Japanese-affiliated companies in Canada settle their accounts in

U.S. dollars, the Canadian dollar/U.S. dollar exchange rate fluctuations impact the

bottom line.>

Products from the U.S. companies are purchased with U.S. dollars, and sold to

Canadian customers priced in Canadian dollars, so there is an impact from the

exchange rate. [Parts for transportation machines (cars and motorcycles)]

The prices for feed grains used as a raw material and for the pork for export that

constitutes a large portion of the products are quoted in U.S. dollars, so the

exchange rates have a big influence on the business. [Processed food, agricultural

or fishery products]

Since purchases are made in U.S. dollars, there is a certain influence from changes

in the exchange rate. We recognize that handling exchange rate fluctuations is a

management issue. [Electric machines and electronics]

<Intensifying price competition puts pressure on business operations. Factors include

competition from Asian companies and industry maturation >

Our main competitors are Japanese makers. The products themselves have been

commoditized, leading to large price drops. [Precision machines and apparatuses]

There is very little competition from Asian companies. The competition for our

products (pork) mainly comes from the U.S., Japan and parts of Europe. [Processed

food, agricultural or fishery products]

Although sales are increasing, there is intensifying competition from Korean auto

makers using pricing as their advantage to expand sales. [Transportation machines

(cars and motorcycles)]

The main factor behind the intensifying price competition is the maturation of the

industry. [Electric machines and electronics]

5. Capital Investment

○ About 60% of the respondents indicated that capital investment remained the same

in 2014 in comparison to 2013. However, the percentage indicating an increase over

the previous year was higher.


- For the comparison of capital investment in 2013 and 2014, 58.9% responded that it

remained the same (Fig. 22). However, the percentage of those indicating an

increase over the previous year was higher (28.8% this year, 19.8% in 2013). The

main uses of the capital investments in order of frequency (multiple answers

permitted) were “Modernization and efficiency improvement of the plant

(include expanding or renewing of machines and facilities)” (53.1%) and

“Enhancement of technology and R&D” (23.4%) (Fig. 23).

6. Changing Business Environment

○ With regard to the effects of the shale revolution, 19.4% indicated that the effects

were positive, far exceeding the number indicating a negative effect (6.0%).

However, answers of “no effect” and “effect unknown” accounted for more than half

of the responses. For the specific effects, in addition to “Increase of product

demands,” negative effects like “Increase of raw material prices (including crude

oil-related)” were also cited.

○ With respect to utilization of FTAs, high use rates were indicated for import/export

activities with the U.S. and Mexico, who are NAFTA members.

○ The fields most expected to have market growth in the next few years (multiple

answers permitted) include Shale gas, Environment, Health, and Medical.

○ Effects of the shale revolution in North America

- With regard to the effects of the shale revolution, 19.4% indicated that the effects

were positive, far exceeding the number indicating a negative effect (6.0%) (Fig. 24).

However, 39.6% responded that there was no effect and 35.1% said “effect

unknown,” which accounted for more than half of the responses. Specific effects

cited, in order of frequency, included “Increase in product demands” (45.5%),

“Increase in raw material (including crude oil-related) prices” (12.1%), and

“Decrease in fuel costs” (9.1%) (Fig. 25). There seems to be some negative impact

from the shale development, such as rising prices for raw materials.

<There is expected to be growth in the businesses related to shale development >

(Shale development) is expected to lead to greater business opportunities, like

construction of liquefied natural gas (LNG)-related facilities. [Trading company]

For B to B transactions, focusing mainly on office equipment, the growth of

Canadian business (accompanying shale development) is a business opportunity

for us. [Electric machines and electronics]

○ Utilization of bilateral or multilateral FTAs


- For trade with the U.S. and Mexico, both NAFTA members, companies indicated

that high utilization of FTAs. For the U.S. they are used for export 55.6% and

import 56.3%. With Mexico the utilization rates are export 57.1％ and import

53.8％ (Fig. 26).

<There were comments indicating expected business expansion as a result of CETA

(Comprehensive Economic and Trade Agreement) establishment between the EU and

Canada>

We are hoping that CETA will contribute to exports of aluminum to the EU.

[Non-ferrous metals]

We have high expectations for more opportunities as tariffs are reduced and

restrictions are eased on the export of pork (when CETA is enacted). [Processed

food, agricultural or fishery products]

* Canada and the European Union (EU) reached an agreement for CETA in October 2013. It

is planned to enter into force after being ratified in Canada.

○ Fields in which the markets are expected to grow in the next two or three years

- The Canadian markets expected to experience growth in the next few years selected

by the respondents (up to a maximum of three fields), in order of frequency, were

Shale gas/Shale oil (52.4%), Environment (42.1%), Medical (27.0%), Health (27.0%),

and Cloud & mobile (storage, Big Data, mobile devices, SNS, etc.) (19.8%) (Fig. 27).

<There are signs that demand for environmentally-friendly products is growing in

Canada>

The environmental standards for products have become stricter recently, so there

seems to be a stronger demand (for environmentally-friendly products). [Precision

machines and apparatuses]

The keywords for the automotive industry are safety and peace of mind, so I think the

demand for environmentally-conscious products is growing. [Transportation

machines (cars and motorcycles)]

The characteristics of aluminum make it something that contributes a lot to “eco”

products. For example, the lighter cars have really increased demand, so we can see

the increased demand for environmentally-conscious products. [Non-ferrous metals]

There seems to be potential for eco-products, but the reality is that we are not there

yet. [Processed food, agricultural or fishery products]

At this point we don’t recognize any increased environmental consideration for

automobiles. Of course the cars with good gas mileage sell, but that is directly related

to gasoline prices. I don’t think there is any growing concern for the environment in

Canada. [Transportation machines (cars and motorcycles)]


Fig. 1: Changes in year-to-year operating profit as indicated by DI and real Canada's

GDP growth rate

27.8 26.5

37.4

12.9

-2.6

20.0

10.4

22.1 21.5

8.6

-5.1

-35.8

30.5

-3.1

17.8

14.3

21.8

34.6

4.3 4.1

5.0 5.1

1.7

2.8

1.9

3.1

3.2

2.6 2.0

1.2

-2.7

3.4

2.5

1.7 1.6 1.6

2.2

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

△ 40

△ 30

△ 20

△ 10

0

10

20

30

40

50

97 98 99 00 01 02 03 04

*

05 06 07 08 09 10 11 12 13 14 15

(est.)

DI change (left scale)

Real GDP growth rate (yr-to-yr、right scale)

(DI value) (%)Fig. 1 Changes in year-to-year operating profit as indicated by DI and real Canada's GDP growth rate

Note: DI is an abbreviation for diffusion index calculated as the proportion of businesses reporting increased

operating profits minus those reporting decreased operating profits compared to the previous year. It is an indicator

of the direction of changes, such as business confidence. 2014 and 2015 are IMF estimates (announced Oct. 2014).

* There was no survey in 2004.

Respondents: 133 companies


Fig. 2: Year-to-year operating profit changes

54.3 52.4 51.6

35.3 35.5

41.3

37.7

39.8

42.5

36.7

29.6 21.8

50.6

32.7

42.5

37.3

42.945.1

19.2

21.8

34.2

42.3

26.4

37.5 35.1

42.5

36.6 35.2

35.7

20.6

29.3

31.4

32.9

39.7 36.1

44.4

26.5 25.9

14.2

22.4

38.1

21.3

27.3

17.7

21.0

28.1

34.7

57.6

20.1

35.8

24.7 23.0 21.1

10.5

0

10

20

30

40

50

60

70

97 98 99 00 01 02 03 04

*

05 06 07 08 09 10 11 12 13 14 15

(est.)

Increase Remain the same Decrease•

(%)

* There was no survey in 2004. Respondents: 133 companies


Fig. 3: Reasons for increased operating profits forecast for 2014 (Multiple answers)

21.4

78.6

19.6

14.3

14.3

16.1

14.3

10.7

7.1

29.4

70.6

26.5

14.7

5.9

14.7

23.5

11.8

8.8

9.1

90.9

9.1

13.6

27.3

18.2

0.0

9.1

4.5

0% 20% 40% 60% 80% 100%

Sales increase due to export expansion

Sales increase in local markets

Exchange rate fluctuation

Reduction of procurement costs

Reduction of labor costs

Reduction of other expenditures (e.g.,

administrative/utility costs)

Improvement of production efficiency （Manufacturing）

Improvement of sales efficiency

Other

Total (56 companies)

Manufacturing (34 companies)

Non-manufacturing (22 companies)


Fig. 4: Reasons for decreased operating profits forecast for 2014 (Multiple answers)

18.5

59.3

3.7

7.4

11.1

3.7

0.0

7.4

25.9

14.3

57.1

7.1

14.3

14.3

0.0

0.0

7.1

28.6

23.1

61.5

0.0

0.0

7.7

7.7

0.0

7.7

23.1

0% 20% 40% 60% 80%

Sales decrease due to export slowdown

Sales decrease in local markets


Increase of procurement costs

Increase of labor costs

Increase of other expenditures (e.g.,


Rising interest rates

Production costs insufficiently reflected in selling price

of goods

Other

Total (27companies)

Manufacturing

(14companies)

Non-manufacturing

(13companies)


Fig. 5: Changes in operating profit and Canada's real GDP growth rate

72.3 71.3

78.2

81.6 72.5

67.5 64.9

74.1 73.1

75.8

67

51.5

65.2

64.2

75.9

75.474.4

11.4

7.6

10.9

7.1

12.2

22.5

18.8 18.5 17.7

14.6 18.3

22.2

25.6

19.5

11.7 12.714.3

16.3

21.1

10.9 11.3

15.3

10.0 16.2

7.4

9.1 9.6

14.7

26.3

9.1

16.4

12.4 11.911.3

4.3 4.1

5.0

5.1

1.7

2.8

1.9

3.1 3.2

2.6

2.0

1.2

-2.7

3.4

2.5

1.7

2.0

2.3

-3

-2

-1

0

1

2

3

4

5

6

0

10

20

30

40

50

60

70

80

90

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Profit Break-even Loss Real GDP growth rate （right axis)

Profit

Real GDP growth rate (over previous year)

Loss

Breakeven

(%)(%)

Note: The GDP growth rate for 2014 is the IMF estimate (announced Oct. 2014). There was no survey in 2004.



Fig. 6: Reasons for increased operating profits forecast for 2015 (Multiple answers)

16.7

70.0

6.7

10.0

8.3

15.0

11.7

20.0

6.7

20.6

61.8

5.9

11.8

2.9

11.8

20.6

17.6

8.8

11.5

80.8

7.7

7.7

15.4

19.2

0.0

23.1

3.8

0% 20% 40% 60% 80% 100%

Sales increase due to export expansion

Sales increase in local markets


Reduction of procurement costs

Reduction of labor costs

Reduction of other expenditures (e.g.,


Improvement of production efficiency

(Manufacturing)

Improvement of sales efficiency

Other



Non-manufacturing

(26 companies)


Fig. 7: Reasons for decreased operating profits forecast for 2015 (Multiple answers)

14.3

57.1

0.0

14.3

14.3

21.4

0.0

7.1

21.4

0.0

83.3

0.0

0.0

33.3

33.3

0.0

16.7

16.7

25.0

37.5

0.0

25.0

0.0

12.5

0.0

0.0

25.0

0% 20% 40% 60% 80% 100%

Sales decrease due to export slowdown

Sales decrease in local markets


Increase of procurement costs


Increase of other expenditures (e.g.,


Rising interest rates

Production costs insufficiently reflected in selling

price of goods

Other



Non-manufacturing

(8 companies)


Fig. 8: Business development in the next one or two years

Expansion

46.3%Remain the same

49.3%

Reduction

3.7%

Withdrawal or transfer

to a third

country/region

0.7%


Expansion

46.3% Remain the same

49.3%

Reduction

3.7%

Withdrawal or

transfer to a third

country/region

0.7%

（注）回答企業数：134

社

図 2 今後 1～2年の事業展開の方向性


Fig. 9: Reasons for the future business expansion in the next one or two years (Multiple

answers)

85.5

43.5

19.4

14.5

3.2

1.6

17.7

16.1

4.8

90.6

43.8

21.9

18.8

6.3

3.1

6.3

12.5

3.1

80.0

43.3

16.7

10.0

0.0

0.0

30.0

20.0

6.7

0% 20% 40% 60% 80% 100%

Sales increase

High growth potential

High receptivity for high-value added products

Reduction of costs (e.g., procurement/labor costs)

Deregulation

Ease in securing labor force

Reviewing production and distribution networks

Relationship with clients

Other


Manufacturing

(32 companies)

Non-manufacturing

(30 companies)


Fig. 10: Expanding functions in case of business expansion in the next one or two years

(Multiple answers)

67.2

21.3

29.5

11.5

4.9

18.0

9.8

3.3

58.1

35.5

48.4

16.1

6.5

9.7

6.5

0.0

76.7

6.7

10.0

6.7

3.3

26.7

13.3

6.7

0% 20% 40% 60% 80% 100%

Sales function

Production (ubiquitous products)

Production (high-value added products)

R&D

Function of regional headquarters

Logistics function

Administrative functions in providing services

(e.g., shared services, call center)

Other


Manufacturing

(31 companies)

Non-manufacturing

(30 companies)


Fig. 11: Measures to encourage localization of corporate management (Multiple answers)

52.2

41.0

21.6

26.9

44.0

23.1

14.9

13.4

4.5

14.2

3.0

60.0

38.7

25.3

28.0

44.0

26.7

10.7

14.7

4.0

10.7

2.7

42.4

44.1

16.9

25.4

44.1

18.6

20.3

11.9

5.1

18.6

3.4

0% 20% 40% 60% 80%

Strengthen training/seminars focused on localization

Encourage mid-career hiring to obtain competent

local staff with focus on localization

Reform of personnel systems (merit-based

promotion, etc.) with focus on localization

Assign local staff to executive positions

Assign local staff to general manager/manager

positions

Strengthen R&D capacity to develop quality of

products/services for local markets

Strengthen authority in local office to allow

decision-making for sales strategies

Delegate authority to local office from headquarters

Obtain human resources/management resources

through M&A

No particular actions

Other


Manufacturing

(75 companies)

Non-manufacturing

(59 companies)


Fig. 12: Issues faced in promoting management localization (Multiple answers)

6.1

17.6

10.7

17.6

12.2

16.8

8.4

35.9

9.9

3.1

29.0

12.2

10.7

7.6

20.6

6.7

18.7

9.3

17.3

9.3

18.7

8.0

33.3

6.7

1.3

30.7

14.7

10.7

6.7

20.0

5.4

16.1

12.5

17.9

16.1

14.3

8.9

39.3

14.3

5.4

26.8

8.9

10.7

8.9

21.4

0% 10% 20% 30% 40% 50%

Disagreement over recruitment policy between local

office and headquarters

Difficulty in reducing the number of Japanese

expatriate staff

Shortage of positions available to local staff

Little progress in delegating authority from the

headquarters to local office

Inadequate management capabilities of Japanese

expatriate staff

Inadequate language skills of Japanese expatriate staff

(English and local languages)

Other

Difficulty recruiting local candidates for executive

positions

High turnover rate of local candidates for executive

positions

Inadequate language skills of local staff (Japanese and

English)

Insufficient performance/awareness among local staff

Insufficient capabilities for local planning and

marketing

Insufficient capabilities to develop local products and

services

Other

There is no particular issue

Issu

e w

ith t

he

hea

dqu

arte

rs/J

apan

sid

eIs

sue

wit

h t

he

loca

l si

de


Manufacturing

(75 companies)

Non-manufacturing

(56 companies)


Fig. 13: Changes in the last year and future plans for number of local employees

34.9

31.1

56.6

51.5

8.5

17.4

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Local hires

(future plan)

(n=129)

Local hires

(change in the last

year) (n=132)

Increase No change Decrease


Fig. 14: Changes in the last year and future plans for number of Japanese expatriate staff

7.9

8.7

76.2

75.6

15.9

15.7

0% 20% 40% 60% 80% 100%

Japanese expatriate

(future plan) (n=126)

Japanese expatriate

(change in the last year) (n=127)



Fig. 15: Breakdown of product sale destinations (By country/region and industry)

67.9

100.0

73.0

95.8

52.5

56.8

74.3

80.0

15.0

100.0

100.0

30.0

100.0

2.3

94.0

36.1

63.5

12.4

22.9

4.3

47.5

14.8

21.0

15.0

16.7

70.0

6.0

29.3

19.4

3.1

0.2

3.3

1.0

1.2

4.1

0.2

0.6

0.7

0.3

0.9

12.6

10.0

1.0

66.7

97.7

28.3

12.5

3.0

0.8

17.6

0.7

4.0

1.7

5.1

2.6

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other manufacturing (n=12)

Print and publication (n=0)

Medical devices (n=0)

Precision machines (n=1)

Parts for transportation machines (cars and

motorcycles) (n=19)

Transportation machines (cars and motorcycles)

(n=4)

Electric or electronic parts (n=2)

Electric machines or electronics (n=5)

Machines (including molds and power tools)）(n=7)

Metal goods (including plated products) (n=1)

Non-ferrous metals (n=3)

Steel (including cast and wrought products) (n=0)

Ceramic, earth or stone products (n=3)

Rubber goods (n=1)

Pharmaceuticals (n=0)

Plastic products (n=3)

Chemical/petroleum products (n=1)

Paper and pulp (n=0)

Furniture and interior goods (n=0)

Timber and wood products (excluding furniture

and interior goods) (n=3)

Clothes and textiles (n=1)

Textiles (yarn, woven and chemical fiber products)

(n=0)

Processed food, agricultural or fishery products

(n=8)

All companies (n=74)

Canada U.S. Mexico South/Central America (ex. Mexico) Japan Other


Fig. 16: Future plans for changes in product procurement destinations (by

country/region)


Fig. 17: Breakdown of material/parts procurement sources (By country/region and industry)

5.0

13.5

23.8

6.4

25.0

9.0

31.6

18.4

13.8

8.6

45.7

80.0

80.0

50.0

68.3

10.0

28.1

28.4

2.1

0.8

3.3

3.8

1.1

17.6

100.0

46.5

40.8

100.0

25.8

20.0

15.0

11.7

45.0

30.0

50.0

70.0

30.0

60.0

10.0

32.8

0.3

3.6

0.9

0.30.03

1.5

0.8

3.8

2.1

4.3

1.4

4.5

0.1

2.4

10.0

8.8

2.3

6.0

1.5

19.0

8.6

1.7

3.3

2.9

4.0

0.5

1.6

2.2

2.1

3.3

15.0

2.5

1.5

30.9

13.4

21.8

24.2

15.0

5.0

21.7

70.0

15.0

1.7

30.0

14.5

16.7

14.0

20.0

1.9

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other manufacturing (n=10)

Print and publication (n=0)

Medical devices (n=0)

Precision machines (n=1)

Parts for transportation machines (cars and

motorcycles) (n=17)

Transportation machines (cars and motorcycles)

(n=4)

Electric or electronic parts (n=1)

Electric machines or electronics (n=5)

Machines (including molds and power tools)

(n=7)

Metal goods (including plated products) (n=1)

Non-ferrous metals (n=3)

Steel (including cast and wrought products) (n=0)

Ceramic, earth or stone products (n=3)

Rubber goods (n=1)

Pharmaceuticals (n=0)

Plastic products (n=3)

Chemical/Petroleum products (n=1)

Paper and pulp (n=0)

Furniture and interior goods (n=0)

Timber and wood products (excluding furniture

and interior goods) (n=3)

Clothes and textiles (n=1)

Textiles (yarn, woven and chemical fiber

products) (n=0)

Processed food, agricultural or fishery products

(n=8)

All companies (n=69)

Canada (local Japan-affiliated company) Canada (local business) Canada (other foreign-affiliated company)

U.S. Mexico South/Central America (ex. Mexico)

Taiwan, Korea, Hong Kong ASEAN China

EU Japan Other


Fig. 18: Future plans for material/parts procurement sources (By country/region)

0.0

6.3

9.1

23.1

71.4

44.4

0.0

50.0

29.3

40.0

34.3

35.7

50.0

59.4

90.9

69.2

28.6

55.6

100.0

50.0

63.4

60.0

62.9

64.3

50.0

34.4

0.0

7.7

0.0

0.0

0.0

0.0

7.3

0.0

2.9

0.0

0% 20% 40% 60% 80% 100%

Other (n=2)

Japan (n=32)

EU (n=11)

China (n=13)

ASEAN (n=7)

Taiwan, Korea, Hong Kong (n=9)

South/Central America (ex. Mexico)

(n=2)

Mexico (n=4)

U.S. (n=41)

Canada (other foreign-affiliated

company) (n=5)

Canada (local business) (n=35)

Canada (local Japan-affiliated

company) (n=14)



Fig. 19: Management challenges: Management problems in general (Multiple answers)

Fig. 20: Management challenges: Factors for cost increases (Multiple answers)

Fig. 21: Management challenges: Factors for weak sales (Multiple answers)

Rank Item Respondents (118) Rate (%)

1 Recruiting workers for management positions 39 33.1

2 Recruiting regular workers 38 32.2

3 Retention of workers 32 27.1

4 Recruiting engineers 26 22.0

5 Acquiring work visas for Japanese expats 23 19.5

6 Employment procedures 11 9.3

7 Labor union related disputes including strikes 6 5.1

8 Safety measures (for automobiles, food, medicines, etc.) 5 4.2

9 Assisting Japanese expats (e.g. acquiring driver’s licenses, etc.) 3 2.5

10 Antitrust measures 2 1.7

Other 27 22.9


1 Increase in labor costs (including salaries and bonuses) 83 65.4

2 Canadian dollar/U.S. dollar exchange risk 64 50.4

3 Increase in raw material, natural resource and commodity prices 45 35.4

4 Increase in transportation costs (including gasoline price) 42 33.1

5 Yen/Canadian dollar exchange risk 31 24.4

6 Increase in healthcare costs 18 14.2

7Increase in costs due to tightened regulations on

distribution/logistics14 11.0

8 Increase in financing costs 13 10.2

9 Legal work-related costs (compliance-related matters) 12 9.4

10 Increase in tax 8 6.3

11 Visa application costs 7 5.5

12 Labor management costs (labor disputes/lawsuits) 4 3.1

Other 9 7.1


1 Severe price competition 95 79.8

2 Difficulty in differentiation from competitors 54 45.4

3 Popular products from competitors 46 38.7

4 Difficulty expanding sales channels 40 33.6

5 Low awareness of company’s products and technologies 16 13.4

6Approval and authorization system for product sales in

Canada (e.g., safety standards, the Buy Canadian rules)11 9.2

7Increase in prices of products exported to the U.S. due to

strong Canadian dollar10 8.4

8 Pirated or counterfeit products 9 7.6

9Decrease in sales and disruption of distribution channels due

to natural disasters4 3.4

10 Approval and authorization system for product sales in the

U.S. (e.g., safety standards, the Buy American rules)1 0.8

Other 7 5.9


Fig. 22: Changes in capital investment in 2014, compared to 2013

Increase from previous

year

28.8%

Remained the same

58.9%

Decrease from

previous year

12.3%

Respondents in manufacturing: 73 companies


Fig. 23: Usage of capital investment in 2014 (Multiple answers)

Fig. 24: Effect of the North American shale revolution on business

17.2

53.1

1.6

23.4

6.3

14.1

18.8

0% 20% 40% 60%

Expansion of current production facilities

Factory modernization and efficiency improvement

(include expanding or renewing of machines and

facilities)

New plant construction

Enhancement of technology and R&D

Environmental measures

(reduction of greenhouse gases, conservation etc.)

Investment in IT for more efficiency

Other

Respondents in

manufacturing:

64 companies

Positive

19.4%

Negative

6.0%

No effect

39.6%

Don't know

35.1%



Fig. 25: Specific effect of the shale revolution on business (Multiple answers)

6.1

12.1

9.1

3.0

6.1

9.1

45.5

3.0

3.0

3.0

3.0

30.3

0% 20% 40% 60%

Decrease of raw material prices

Increase of raw material (including crude oil-

related) prices

Decrease of fuel costs

Increase of fuel costs

Decrease of transportation costs

Increase of transportation costs

Increase of product demands

Decrease of product demands

Severity in price competition

Competition in recruiting skilled workers


Other



Fig. 26: Bilateral/Multilateral FTA utilization

* U.S. and Mexico are member states of the North American Free Trade Agreement (NAFTA)

* European Free Trade Association (EFTA) = Iceland, Norway, Switzerland, Liechtenstein

No. of

valid

responses

Using Studying

use

Not using

(not

planned)

No. of

valid

responses

Using Studying

use

Not using

(not

planned)

U.S. 5430

55.6%

5

9.3%

19

35.2%64

36

56.3%

9

14.1%

19

29.7%

Mexico 148

57.1%

0

0.0%

6

42.9%13

7

53.8%

2

15.4%

4

30.8%

Chile 52

40.0%

0

0.0%

3

60.0%2

0

0.0%

0

0.0%

2

100.0%

Costa Rica 11

100.0%

0

0.0%

0

0.0%0 0 0 0

Peru 20

0.0%

0

0.0%

2

100.0%2

0

0.0%

0

0.0%

2

100.0%

Colombia 31

33.3%

0

0.0%

2

66.7%1

0

0.0%

0

0.0%

1

100.0%

EFTA 0 0 0 0 22

100.0%

0

0.0%

0

0.0%

Panama 11

100.0%

0

0.0%

0

0.0%0 0 0 0

Israel 20

0.0%

0

0.0%

2

100.0%0 0 0 0

Jordan 0 0 0 0 0 0 0 0

For Imports, do you make use of /are you

investigating the use of FTA preferential

tariffs?

For Exports, do you make use of /are you

investigating the use of FTA preferential

tariffs?


Fig. 27: Industries for which the market is most likely to grow in the next few years

(Max. 3 answers)

52.4

42.1

27.0

27.0

19.8

18.3

11.9

7.9

7.9

7.1

5.6

5.6

4.8

4.8

2.4

1.6

0.8

0.8

0% 20% 40% 60%

Shale gas and oil

Environment

Health

Medical

Cloud and Mobile

Real estate

Transportation

Biotech

Information security

Utilities

Agriculture, Food processing

Educational services

Business services

Rail/Roads/Bridges

Nanotech

Accommodation, Food, Entertainment

Robotics, Mechatronics

OtherRespondents:126 companies

Results of JETRO’s 2014 Survey on Business …...The indicator of business confidence for 2014 (DI...

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