Asia and Oceania

2016 JETRO Survey on Business Conditions of Japanese Companies in Asia and Oceania

December 21, 2016

Asia and Oceania Division China and North Asia Division Overseas Research Department

Japan External Trade Organization (JETRO) Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. Contents (2) Negative impact of soaring costs of production and services on business Summary of Surveys in Current Fiscal Year 3 38 activities (by industry)

(3) Specific type(s) of inflation countermeasures Key Points 6 39 (4)-(5) Specific type(s) of inflation countermeasures (by country/region) 40

1. Operating Profit Forecast

(1) Operating profit forecast for 2016 (by country/region and company size) 8 5. Procurement of Raw Materials and Parts (1) Ratio of labor/material costs to production costs (2) Proportion of profitable firms - 2008 to 2016 (by country/region) 9 42 (2) Local production cost in comparison with production cost in Japan, which is (3) Operating profit forecast for 2016 (by industry) 10 43 (4) Operating profit forecast for 2016 (by country/region, 11 taken as 100 domestic sales-oriented/export-oriented) (3) Procurement sources for raw materials and parts (by country/region) 44 (5) Operating profit forecast for 2016 (by year of establishment) 12 (4) Procurement sources of major countries (comparison with the 2010 survey 45

(6) Operating profit forecast for 2016 and 2017 13 and 2016 survey) (5) Procurement sources for raw materials and parts (by industry) (comparison with the previous year, by country/region) 46 (6) Local procurement sources for raw materials and parts (7) 2016 and 2017 DI (by country/region) 14 47 (by country/region/company size) (8) Operating profit forecast for 2016 and 2017 15 (7) Raw materials/parts that can be purchased only in Japan (comparison with the previous year, by industry) 48 (8) Reasons for difficulty in procuring the raw materials/parts from countries (9)-(10) Reasons for increased/decreased operating profit forecast for 2016 16 49 other than Japan

(9) Future raw materials/parts procurement policy; country(ies)/region(s) 2. Future Business Plan 50 considered an important future source of procurement (1) Approach to future business challenges in the next 1 to 2 years 18

(by country/region) (10) Reasons for raising future procurement rate for raw materials/parts 51 (2) Proportions of firms expecting to expand in the next 1 to 2 years 19 (2008 to 2016, by country/region) 6. Exports/Imports (3) Proportions of firms expecting to expand in the next 1 to 2 years 20 (1) Proportion of export sales to the total sales (by country/region) 52 (2) Breakdown of export destinations (by country/region) (2008 to 2016, China and other major countries in Asia) 53 (3) Most promising export market for business/products over the next 1 to 3 years (4) Approach to future business challenges in the next 1 to 2 years 21 54 (by country/region) (by industry and company size) (4) Utilization of FTAs/EPAs (total, by industry, by company size, and by (5) Approach to future business challenges in the next 1 to 2 years 22 55 country/region), proportions of firms utilizing FTAs/EPAs in 2015 and 2016 (by major industry and country/region) (by export/import), and trends in FTA/EPA utilization by Japanese-affiliated (6) Reasons for expected business expansion in the next 1 to 2 years 23 56 firms in ASEAN (7) Functions to expand 24 (5) FTA/EPA utilization (by country/region) (8) Functions to be expanded (by country) (2012 to 2016) 25 (9) Reasons for the future reduction, transfer or withdrawal 26 (10) Approach to future business challenges of Japanese-affiliated firms in 27 7. Possible Impact of the Trans-Pacific Partnership (TPP) on Business China in the next 1 to 2 years (1) Possible impact of the TPP on business (by country/region) 57 (2) Possible impact of the TPP on business (by industry) (11)-(12) Changes in the number of employees (changes in a year-on-year 28 58 (3) Specific impacts that the TPP may have on business comparison and future plans) 59

3. Management Matters 8. Wages (1) Year-on-year wage increase rate (by country/region) (1) Problems common to all regions (top 10) 30 60 (2) Year-on-year wage increase rate (China and major countries) (2)-(3) Problems common to all regions (top 10, response rate for each country/region) 31 61 (3) Base salary (monthly) (by job type and country/region) (4)-(6) Problems by country/region (top 5) 33 62 (4) Annual salary (by job type and country/region) (7) Comparison between China and other major countries in Asia 36 63

(top 5 for each country) (5) Bonuses (by job type and country/region) 64

4. Rising Costs of Production and Services (1) Negative impact of soaring costs of production and services on business activities 37 (by country/region)

Survey Summary (1) Purpose of Survey (Firms, %)

Firms responding Category  To understand the current business activities of Firms Valid Japanese-affiliated companies operating in Asia and surveyed Non- responses Manufacturing Oceania and to disseminate those findings widely. Valid (%) manufacturing

Total 10,983 4,642 100.0 2,335 2,307 42.3 Surveyed Countries/Regions Northeast Asia 2,507 1,258 27.1 594 664 50.2 China 1,379 604 13.0 388 216 43.8  Japanese-affiliated companies (with direct and indirect Hong Kong/Macau 388 270 5.8 45 225 69.6 Japanese investment of 10% or greater) operating in a total of 20 countries/regions in northeast Asia (5), Taiwan 531 209 4.5 80 129 39.4 ASEAN countries (9), southwest Asia (4), and Oceania (2). South Korea 209 175 3.8 81 94 83.7 ASEAN 7,019 2,582 55.6 1,401 1,181 36.8 Thailand 2,176 695 15.0 395 300 31.9 Survey Period Vietnam 1,285 639 13.8 409 230 49.7  October 11 to November 11, 2016 Indonesia 1,001 359 7.7 222 137 35.9 * (September 1 to 25 in China) Singapore 824 315 6.8 77 238 38.2

Malaysia 941 287 6.2 169 118 30.5

Response Rate Philippines 357 103 2.2 60 43 28.9

 Of a total of 10,983 surveys sent out, we received valid Cambodia 248 91 2.0 38 53 36.7

responses from 4,642 firms (42.3%). The breakdown of Myanmar 144 74 1.6 20 54 51.4 respondents by country and region is provided in the Laos 43 19 0.4 11 8 44.2 table to the right. Southwest Asia 994 522 11.3 262 260 52.5 備考 Notes India 795 411 8.9 203 208 51.7

 Bangladesh 121 54 1.2 32 22 44.6 調査はThe 1987survey年よ hasり実施し、本年度は第 been conducted since26回目。 1987, making Pakistan 42 31 0.7 17 14 73.8 2007this年度調査より year the 30thNon version.-manufacturing も調査対象に追加。  図表の数値は四捨五入しているため、合計が必ずしもSince 2007, the survey has included non- 100％ Sri Lanka 36 26 0.6 10 16 72.2 とはならない。manufacturing sectors.  TaiwanNumbersの調査については、公益財団法人交流協会の協力 in tables are rounded, so they do not Oceania 463 280 6.0 78 202 60.5 を得て実施した。necessarily total 100%.  Surveys in Taiwan were conducted with the assistance Australia 317 202 4.4 56 146 63.7 of the Interchange Association, Japan (IAJ). New Zealand 146 78 1.7 22 56 53.4

Large vs. Small and Medium- By industry category (Firms, %) sized Enterprises (SME) (%) Firms by Country/Region (Firms) Valid (%) Large SME Total 2,859 1,783 Manufacturing Total 2,335 50.3 Motor vehicles/Motorcycles 407 8.8 38.4 Northeast Asia 871 387 Electric machinery 379 8.2 China 387 217 Hong Kong/Macau 185 85 Chemical/Pharmaceutical 344 7.4 61.6 Taiwan Iron/Nonferrous metals/ 168 41 Metals 335 7.2 South Korea 131 44 Large General machinery 183 3.9 ASEAN 1,377 1,205 SME Food 150 3.2 Thailand 269 426 Note: The definition of “small and medium-sized enterprises” here is based Textiles 123 2.7 on the definition provided in Japan’s Small and Medium-sized Vietnam 310 329 Enterprise Basic Act. Precision machinery 91 2.0 Indonesia 220 139 Singapore 240 75 Rubber/Leather 56 1.2 Note: Industry category details are as follows: Malaysia 182 105 Wood/Pulp 46 1.0 1. Food: Foods, processed agricultural or marine products Philippines 62 41 2. Textiles: Textiles (yarn, cloth, synthetic fabrics), apparel, Other manufacturing textile products industries 221 4.8 Cambodia 37 54 3. Wood/Pulp: Lumber and wood products, paper and pulp 4. Chemical/Pharmaceutical: Chemicals and petroleum Myanmar 48 26 Non-manufacturing Total 2,307 49.7 products, pharmaceuticals, plastic products Laos 5. Iron/Nonferrous metals/Metals: Iron and steel (including cast 9 10 Wholesale/Retail 967 20.8 and forged products), nonferrous metals and products, fabricated metal products (including plated products) Southwest Asia 384 138 Transport 273 5.9 6. General machinery: General machinery (including metal molds and machine tools) India 321 90 Construction 164 3.5 7. Electric machinery: Electric machinery and electronic Bangladesh 20 34 equipment, electric and electronic parts and components Communications/Software 143 3.1 8. Motor vehicles/Motorcycles: Motor vehicles and motorcycles, Pakistan 28 3 motor vehicle and motorcycle parts and accessories Finance/Insurance 125 2.7 9. Precision machinery: Precision instruments, medical devices Sri Lanka 15 11 Other non-manufacturing 10. Wholesale/Retail: Trading, logistics, and sales companies industries 635 13.7 11. Finance/Insurance: Banks, insurance companies, and securities brokers Oceania 227 53 Note: Wholesale/Retail includes the sales bases of Australia 169 33 manufacturing firms. New Zealand 58 20

Total (n = 4,642 including 2 firms uncertain about establishment year) China (n = 604) Hong Kong/Macau (n = 270) Taiwan (n = 209)

780 25 26 104 116 23 21 22 23 21 516 528 96 16 16 19 19 394 1,197 69 42 46 12 41 191 33 167 133 103 145 4 26 628 49 2 0 4 4 14 4 0 22 22 0

-19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 Thailand (n = 695 including 1 firm uncertain South Korea (n = 175) about establishment year) Vietnam (n = 639) Indonesia (n = 359)

19 89 88 61 15 71 97 50 35 237 36 125 7 7 28 29 158 59 192 23 24 5 5 23 26 111 121 31 20 16 2 9 6 12 3 2 0 0 0 1 9 9 6 0

-19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 Malaysia (n = 287 including 1 firm uncertain Singapore (n = 315) about establishment year) Philippines (n = 103) Cambodia (n = 91)

34 31 27 12 11 12 24 24 24 70 20 60 61 28 9 66 14 19 12 16 16 21 14 44 9 9 45 37 4 3 4 1 1 1 1 0 0 0 0 0 2 3 1 5

57 11 169 33 2 36 34 147 9 5 3 3 0 0 0 0 0 2 1 0 0 0 0 0 0 0 0 6 0 3 1 0 5 7 7 2 0 0 1 0 2 1 11 0

-19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 Pakistan (n = 31) Sri Lanka (n = 26) Australia (n = 202) New Zealand (n = 78)

14 7 3 3 3 3 3 28 4 4 14 4 7 2 2 6 7 24 23 25 12 12 11 1 5 1 1 1 1 20 19 19 2 8 0 4 0 0 0 4 15 15 0 0

-19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -19701971 1976 1981 1986 1991 1996 2001 2006 2011 2016- -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 -1975-1980-1985-1990-1995-2000-2005-2010-2015 Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 5 Key Points (1) Results of JETRO’s 2016 Survey on Business Conditions of Japanese Companies in Asia and Oceania Recovery of business confidence in 2016, expectation for expansion in 2017

1. Increased operating profits for 2016 expected by 42.9%, business confidence in emerging countries improving (Refer to pages 13, 14, 16 and 17) Regarding the operating profit forecast for 2017 as well as that for 2016, over 40% of companies expect an increase. Companies predicting a downturn for 2017 came to 11.1%, a decrease of 13 points from the outlook for 2016 (24.1%). The diffusion index (DI) in 2017—the proportion of businesses reporting increased operating profits minus those reporting decreased operating profits compared to the previous year—marked 36.0 points, a 17.3-point increase compared with 2016. Among reasons for improvement, “sales increase in local markets” ranked first, followed by “improvement of production efficiency” and “sales increase due to export expansion.” Looking at the results by country and region, all countries except Laos saw an improvement of business confidence. In emerging countries such as Myanmar, Cambodia Bangladesh, India and Vietnam, the DI exceeded 50 points, indicating a significant improvement in business confidence.

2. Low intention to expand business in China and Southeast Asia likely to bottom out, continue decreasing in Southwest Asia (Refer to pages 18 and 20) Among respondents, 52.2% expect to expand business in the next one or two years, a 1.0-point increase from the 51.2% marked in the 2015 survey. Looking at the results by country and region, companies in China answering with “expansion” was 40.1% (up 2.0 points), while those answering with “reduction” was 5.3% (down 3.5 points). The rate of “expansion” in China rose for the first time in three years. In Southeast Asia, the response rate for “expansion” rose to 55.4% (up 1.2 points), indicating a recovery. Comparing the rate of “expansion” between Southeast Asia and China, Southeast Asia has consistently come out on top since 2012 when China showed a sudden decline, and the gap was 15.3 points in 2016. By country, strong intentions of expanding business were especially seen in Myanmar (79.7%), Cambodia (72.5%), Pakistan (71.0%) and India (70.7%).

3. Companies expecting surplus slightly increased, while those expecting deficit slightly decreased (Refer to page 8) Companies expecting operating profits for 2016 to be a surplus accounted for 62.8%, a 0.6-point increase from the 62.2% marked in the 2015 survey. Those expecting a deficit came to 21.8%, a 1.0-point decrease from the 22.8% in the 2015 survey. Looking at the rate of companies expecting a surplus by country and region, Korea (81.0%) and the Philippines (77.5%) marked the highest, closely followed by Taiwan, New Zealand and Australia. Meanwhile, the rate was below 40% in countries where many companies have comparatively shorter operational histories such as Myanmar (25.7%), Cambodia (30.3%) and Bangladesh (35.2%).

4. Rate of increasing wages biggest operational issue, but year-on-year rise coming to end (Refer to pages 30, 31, 60 and 61) Among operational issues, increased wages was the most commonly cited at 65.3%. Indonesia (82.2%) ranked first overtaking China (77.8%), followed by Vietnam (75.5%) and Myanmar (75.3%). Regarding the average rate of increase in wages for all industries on a year-on-year basis for 2016, a 10-percent level growth was recorded in the following four countries: Pakistan, Myanmar, Indonesia and India. Meanwhile, the rate for China has been slowing down by single digits since 2013 and is predicted to decline to 5.7% in 2017. Among almost all countries and regions, the rate of increase in wages is expected to be smaller than results in the recent past.

5. Local procurement rate in Vietnam increases significantly, while that in China approaches 70% ( Refer to pages 42, 44, 45, 46 and 50) Material costs accounted for approximately 60% of production costs. When asked about how they planned to reduce material cost, 72.0% of companies answered with “raising the local procurement.” Looking at the results by country and region, China’s local procurement rate (67.8%) was the highest (58.3% in 2010), especially for motor vehicles/motorcycles, which came to 72.3%. The local procurement rate in China, Thailand, India, Vietnam and the Philippines increased compared to their levels in 2010, with significant growth in Vietnam. Meanwhile, looking at the results of ASEAN major countries, Thailand, Indonesia, Malaysia, Vietnam and the Philippines saw an increase in rate of procurement from China compared to 2010. With the exception of Indonesia and Malaysia, all of these countries also saw a decrease in procurement from Japan.

6. Regarding impact of TPP on operation (Refer to pages 57, 58 and 59) When companies located in Trans-Pacific Partnership (TPP) countries were asked about the impact if the TPP came into force, 22.9% answered that they would be affected while 22.0% said they would feel no impact. While the rates of both sides were almost the same level, over half of companies answered with “not sure.” Among TPP countries and regions, Vietnam and Malaysia had the highest rates of those expecting an impact, while Singapore and Oceania had the highest rates of those expecting none. Looking at the results among all countries and regions by industry, a higher proportion of companies expected to be affected in the fields of food, textiles and transport, while those in precision machinery, motor vehicles/motorcycles, electric machinery and communication/software tended to anticipate no impact. Those in the category of finance/insurance had high rates of both answers. Companies in TPP countries were more likely to expect a positive impact on export, sales and production than those in non-TPP countries. Companies in non-TPP countries such as China, Taiwan and Thailand largely anticipated a negative impact from the TPP.

Operating profit forecast for 2016 (by country/region) (%) Operating profit forecast for 2016 (by country/region and company size) 0 20 40 60 80 100 0 20 40 60 80 100 (%) Total (n=4,598) 62.8 15.4 21.8 Large (n=2,826) 69.9 11.5 18.6

Total ASEAN (n=2,559) 60.8 15.4 23.8 SME (n=1,772) 51.5 21.5 27.0 South Korea (n=174) 81.0 9.2 9.8 Philippines Large (n=62) 83.9 6.5 9.7 Philippines (n=102) 77.5 11.8 10.8 SME (n=40) 67.5 20.0 12.5 Taiwan (n=207) 77.3 13.5 9.2 South Korea Large (n=130) 82.3 6.9 10.8 SME (n=44) 77.3 15.9 6.8 New Zealand (n=78) 76.9 9.0 14.1 Taiwan Large (n=166) 81.3 12.7 6.0 Australia (n=201) 70.7 12.9 16.4 SME (n=41) 61.0 17.1 22.0 Pakistan (n=31) 67.7 16.1 16.1 Thailand Large (n=266) 78.2 9.0 12.8 SME (n=425) 51.8 24.0 24.2 Singapore (n=311) 66.6 15.1 18.3 Vietnam Large (n=308) 72.7 6.8 20.5 HK & Macau (n=267) 65.9 18.7 15.4 SME (n=329) 53.5 17.0 29.5 Large (n=216) 71.3 8.8 19.9 China (n=596) 64.4 15.6 20.0 Indonesia SME (n=135) 41.5 20.7 37.8 Malaysia (n=285) 62.8 18.3 19.0 Large (n=168) 70.8 13.1 16.1 Australia SME (n=33) 69.7 12.1 18.2 Vietnam (n=637) 62.8 12.1 25.1 Large (n=184) 69.6 14.7 15.8 Thailand (n=691) 61.9 18.2 19.8 HK & Macau SME (n=83) 57.8 27.7 14.5 Indonesia (n=351) 59.8 13.4 26.8 Large (n=381) 68.8 13.4 17.9 China SME (n=215) 56.7 19.5 23.7 India (n=405) 53.6 15.1 31.4 Large (n=236) 67.8 15.3 17.0 Singapore Sri Lanka (n=26) 46.2 26.9 26.9 SME (n=75) 62.7 14.7 22.7 Large (n=180) 66.7 14.4 18.9 Laos (n=19) 36.8 31.6 31.6 Malaysia SME (n=105) 56.2 24.8 19.1 Bangladesh (n=54) 35.2 33.3 31.5 Large (n=316) 58.5 12.7 28.8 India SME (n=89) 36.0 23.6 40.5 Cambodia (n=89) 30.3 21.4 48.3 Large (n=35) 42.9 20.0 37.1 Myanmar (n=74) 25.7 12.2 62.2 Cambodia SME (n=54) 22.2 22.2 55.6 Profit Breakeven Loss Note: Countries/regions for which n for Large/SME  30 Profit Breakeven Loss  A total of 62.8% of the firms expect operating “Profit” for 2016, up 0.6 percentage points (pp) from 62.2% in 2015; in contrast, 21.8% of the firms expect operating “Loss,” down 1.0 pp from 22.8% in 2015.  By country/region, the proportion of firms expecting operating profit was the highest in South Korea at 81.0%, followed by the Philippines, Taiwan, New Zealand and Australia at over 70%, respectively.  A total of 69.9% of the large enterprises expect operating profit, which was higher than 51.5% of the SMEs by 18.4 pp. The proportion of positive forecasts was higher among large enterprises than SMEs in all the 13 countries/regions with valid responses from more than 30 companies. In particular, the proportion of profitable firms was higher among large enterprises than SMEs by over 20 pp in Taiwan, Thailand, Indonesia, India and Cambodia.

Proportion of profitable firms - 2008 to 2016 (by country/region)

(%) Northeast Asia (Excl. China) (%) ASEAN5 90 90

80 80

70 70

60 60 Hong Kong Taiwan South Korea 50 50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016

Note: Hong Kong includes Macao from 2011 Indonesia Singapore Thailand Philippines Malaysia (%) China, India, Vietnam 80

 70 In Northeast Asia (excluding China), the proportion of profitable firms increased in Taiwan and South Korea, although the proportion decreased from 2015 in Hong Kong. 60  In ASEAN5, the proportion of profitable firms increased in the Philippines, Singapore and Indonesia. The proportion was highest at 77.5% in the Philippines, which was the only country in which the 50 proportion of profitable firms exceeded 70%. The proportion decreased from 2015 in Thailand and Malaysia.  The proportion of profitable firms increased from 2015 in China 40 (64.4%, up 4.0 pp), India (53.6%, up 3.1 pp), and Vietnam (62.8%, up 2009 2010 2011 2012 2013 2014 2015 2016 4.0 pp). China India Vietnam

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 9 1. Operating Profit Forecast (3) Operating profit forecast for 2016 (by industry) Major industry categories by country and region Note: Countries/regions for which n  30 Manufacturing (%) (%) industries 0 20 40 60 80 100 Electric machinery 0 20 40 60 80 100 Manufacturing total (n=2,313) 63.5 14.1 22.4 China (n=72) 79.2 9.7 11.1 Thailand (n=48) 70.8 10.4 18.8 Rubber/Leather (n=54) 74.1 11.1 14.8 Vietnam (n=53) 60.4 9.4 30.2 Chemical/Pharmaceutical (n=336) 69.9 13.4 16.7 Malaysia (n=51) 58.8 27.5 13.7 Precision machinery (n=91) 69.2 12.1 18.7 Motor vehicles/ (%) Electric machinery (n=374) 68.2 14.7 17.1 Motorcycles 0 20 40 60 80 100 Motor vehicles/Motorcycles (n=405) 66.9 12.6 20.5 China (n=79) 74.7 5.1 20.3 Thailand (n=77) 68.8 13.0 18.2 Wood/Pulp (n=46) 63.0 10.9 26.1 Vietnam (n=60) 66.7 10.0 23.3 Iron/Nonferrous metals/Metals (n=333) 57.7 13.8 28.5 Indonesia (n=59) 62.7 15.3 22.0 Food (n=150) 57.3 13.3 29.3 India (n=69) 53.6 18.8 27.5 General machinery (n=181) 54.1 16.0 29.8 (%) Wholesale/Retail 0 20 40 60 80 100 Textiles (n=122) 50.0 25.4 24.6 South Korea (n=58) 86.2 5.2 8.6 Non-manufacturing New Zealand (n=30) 83.3 6.7 10.0 industries Taiwan (n=77) 80.5 10.4 9.1 Australia (n=82) 75.6 13.4 11.0 Non-manufacturing total (n=2,285) 62.1 16.6 21.3 HK & Macau (n=111) 73.0 16.2 10.8 Finance/Insurance (n=122) 78.7 9.0 12.3 Singapore (n=106) 72.6 13.2 14.2 Wholesale/Retail (n=962) 69.0 14.8 16.2 Thailand (n=137) 67.2 15.3 17.5 China (n=74) 62.2 21.6 16.2 Transport (n=267) 60.7 14.6 24.7 India (n=102) 61.8 14.7 23.5 Communications/Software (n=143) 60.1 21.7 18.2 Indonesia (n=47) 61.7 12.8 25.5 Construction (n=163) 43.6 19.6 36.8 Vietnam (n=51) 60.8 11.8 27.5 Malaysia (n=55) 58.2 27.3 14.6 Profit Breakeven Loss  The proportion of firms expecting operating profit for 2016 was higher in the manufacturing sector (63.5%) than the non-manufacturing sector (62.1%). In comparison with the 2015 survey (manufacturing: 62.6 %; non-manufacturing: 61.7%), the proportion increased by 0.9 pp in the manufacturing sector and by 0.4 pp in the non-manufacturing sector.  In the non-manufacturing sector, the proportion of profitable firms was particularly high in the finance/insurance industry (78.7%) .  The trends by country/region of the three industries with the largest number of valid responses are as follows. In the Electric machinery industry, operating profit is expected by 79.2% of the firms in China and by 70.8% of the firms in Thailand. In the Motor vehicle/Motorcycle industry, operating profit is expected by 74.7% of the firms in China and by 68.8% of the firms in Thailand. In Wholesale/Retail, the proportion of profitable firms is the highest in South Korea at 86.2%, followed by New Zealand and Taiwan at over 80%, respectively.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 10 1. Operating Profit Forecast (4) Operating profit forecast (domestic sales-oriented Operating profit forecast (export-oriented firms firms with export ratio < 50%) with export ratio ≥ 50%) (2016, by country/region) (2016, by country/region) (%) (%) 0 20 40 60 80 100 0 20 40 60 80 100 Total (n=2,602) 62.4 14.3 23.3 Total(n=1,533) 65.1 15.7 19.2 ASEAN (n=1,344) 59.8 15.2 25.1 ASEAN(n=995) 63.3 15.5 21.2 South Korea (n=125) 81.6 7.2 11.2 South Korea (n=40) 85.0 10.0 5.0 Taiwan (n=148) 79.7 10.8 9.5 New Zealand (n=25) 84.0 4.0 12.0 Philippines (n=39) 79.5 12.8 7.7 Philippines (n=60) 76.7 11.7 11.7 New Zealand (n=48) 75.0 10.4 14.6 Taiwan (n=42) Australia (n=137) 73.0 12.4 14.6 73.8 16.7 9.5 Pakistan (n=25) 68.0 12.0 20.0 Australia (n=53) 69.8 13.2 17.0 Vietnam (n=270) 67.0 8.2 24.8 Singapore (n=137) 69.3 14.6 16.1 HK & Macau (n=121) 64.5 18.2 17.4 Malaysia (n=128) 68.8 18.0 13.3 China (n=297) 63.3 14.8 21.9 HK & Macau (n=120) 68.3 15.8 15.8 Thailand (n=451) 61.9 18.2 20.0 China (n=164) 68.3 15.9 15.9 Singapore (n=140) 61.4 17.9 20.7 Indonesia (n=88) 67.1 14.8 18.2 Indonesia (n=237) 57.8 13.5 28.7 Thailand (n=199) 65.3 15.1 19.6 Malaysia (n=117) 56.4 18.0 25.6 India (n=46) 63.0 17.4 19.6 India (n=325) 52.3 13.9 33.9 Bangladesh (n=20) 30.0 25.0 45.0 Vietnam (n=328) 58.8 14.6 26.5 Cambodia (n=49) 24.5 20.4 55.1 Cambodia (n=33) 39.4 21.2 39.4 Myanmar (n=36) 22.2 16.7 61.1 Bangladesh (n=31) 38.7 35.5 25.8 Note: Countries/regions for which n  15 Note: Countries/regions for which n  15 Profit Breakeven Loss Profit Breakeven Loss

 The proportion of positive operating profit (forecast) was 62.4% among domestic sales-oriented firms (less than a 50% export ratio in the operating country/region), while the proportion was 65.1% among export-oriented firms (50% or larger export ratio in the operating country/region). The proportion was about the same as 2015 (62.7%) for domestic sales-oriented firms, while the proportion increased from 2015 (62.0%) for export-oriented firms.  In Cambodia, Malaysia and India, the proportion was higher among export-oriented firms than domestic sales-oriented firms by over 10 pp. On the other hand, of ASEAN countries, Vietnam and the Philippines were the countries in which the proportion was higher among domestic sales-oriented firms than export-oriented firms.  In South Korea, Taiwan, the Philippines and New Zealand, the proportion was high among both domestic sales-oriented firms and export-oriented firms.

Operating profit forecast for 2016 (by year of establishment) Profit Breakeven Loss (%) Total (n=4,598) 100 8.4 10.6 12.8 11.1 10.8 14.7 11.3 14.1 19.2 10.8 10.6 80 9.8 12.5 15.9 12.7 14.1 14.3 43.3 18.4 60 17.3 40 80.7 78.8 77.5 76.4 73.3 74.6 72.6 71.6 62.4 20 39.4 0 －1970 1971－75 1976－80 1981－85 1986－90 1991－95 1996－2000 2001－05 2006－10 2011－ (n=166) (n=132) (n=102) (n=144) (n=390) (n=511) (n=524) (n=624) (n=771) (n=1,232)

(%) China (n=596) (%) Vietnam (n=637) 100 100 12.5 14.7 15.8 9.7 10.3 15.3 17.5 16.8 7.5 80 4.2 39.8 80 10.3 10.7 16.2 16.3 20.4 14.2 43.6 60 60 16.3 12.8  By year of establishment, 40 83.3 40 82.8 79.4 firms established in an 71.8 69.1 67.9 70.5 62.8 earlier year are more 20 43.9 20 43.6 likely to expect operating 0 0 profit for 2016. －90 1991－95 1996－2000 2001－05 2006－10 2011－－2000 2001－05 2006－10 2011－ (n=24) (n=103) (n=68) (n=190) (n=113) (n=98) (n=93) (n=97) (n=190) (n=257)  A total of 43.3% of the (%) Thailand (n=691) (%) India (n=405) firms established in 2011 100 100 or later expect operating 5.7 8.5 11.4 12.1 16.4 17.5 13.8 21.2 22.8 loss. 6.9 80 22.5 17.1 14.6 46.0 80 46.7 21.7 15.2 19.3 60 60 82.1 21.7 14.2 40 69.0 71.6 69.1 40 79.3 60.8 63.6 57.9 20 32.3 20 39.1 0 0 －－－－－－ 90 1991 95 1996 2000 2001 05 2006 10 2011 －2000 2001－05 2006－10 2011－ (n=140) (n=71) (n=88) (n=110) (n=120) (n=161) (n=58) (n=33) (n=145) (n=169) Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 12 1. Operating Profit Forecast (6)

Operating profit forecast for 2016 Operating profit forecast for 2017 (by county/region, comparison with 2015) (by county/region, comparison with 2016) (%) (%) 0 20 40 60 80 100 0 20 40 60 80 100 Total (n=4,607) 42.9 33.0 24.1 Total (n=4,589) 47.1 41.9 11.1 ASEAN (n=2,558) 45.3 31.9 22.8 ASEAN (n=2,548) 49.6 40.3 10.1 Laos (n=19) 57.9 26.3 15.8 Bangladesh (n=54) 66.7 22.2 11.1 Vietnam (n=637) 57.0 28.9 14.1 Cambodia (n=89) 65.2 25.8 9.0 Bangladesh (n=54) 53.7 24.1 22.2 Myanmar (n=73) 64.4 31.5 4.1 India (n=409) 51.3 32.3 16.4 India (n=407) 62.4 30.0 7.6 Philippines (n=102) 51.0 26.5 22.6 Vietnam (n=638) 60.2 33.2 6.6 Cambodia (n=88) 50.0 35.2 14.8 Pakistan (n=31) 54.8 29.0 16.1 Sri Lanka (n=26) 46.2 26.9 26.9 Indonesia (n=351) 53.9 37.9 8.3 Indonesia (n=353) 45.9 31.7 22.4 Sri Lanka (n=26) 50.0 46.2 3.9 Pakistan (n=31) 45.2 32.3 22.6 New Zealand (n=78) 47.4 41.0 11.5 Thailand (n=695) 42.5 32.2 25.3 Thailand (=691) 45.3 44.4 10.3 Australia (n=202) 39.1 33.2 27.7 Philippines (n=102) 45.1 39.2 15.7 Taiwan (n=209) 38.8 34.0 27.3 Laos (n=18) 44.4 38.9 16.7 China (n=597) 38.4 34.5 27.1 Australia (n=202) 43.6 45.5 10.9 Malaysia (n=282) 37.2 30.9 31.9 China (n=594) 39.4 46.1 14.5 New Zealand (n=78) 37.2 39.7 23.1 South Korea (n=174) 38.5 42.5 19.0 Myanmar (n=72) 36.1 41.7 22.2 Malaysia (n=279) 38.4 46.2 15.4 Singapore (n=310) 32.6 37.1 30.3 Singapore (n=307) 36.5 49.5 14.0 South Korea (n=174) 32.2 35.1 32.8 Taiwan (n=206) 32.5 55.8 11.7 HK & Macau (n=269) 28.6 39.8 31.6 HK & Macau (n=269) 31.2 56.9 11.9

Increase Remain the same Decrease Increase Remain the same Decrease

 For 2016, a total of 42.9% of the firms expect an operating profit “Increase” over 2015, up 3.0 pp from 39.9% in the 2015 survey; the proportion of firms expecting an operating profit “Decrease” was 24.1%, down 3.3 pp from the 2015 survey (27.4%).  A total of 47.1% of the firms expect an “Increase” for 2017, up 2.3 pp from the 2016 forecast (44.8%) in the 2015 survey. Meanwhile, the proportion of firms expecting an operating profit “Decrease” was 11.1%, down 2.2 pp from the 2016 forecast (13.3%) in the 2015 survey.  In ASEAN, the proportion of firms expecting an “Increase" for 2016 forecast was 45.3% and that for 2017 forecast was 49.6%, both exceeding the overall average.

2016 DI (by country/region) 2017 DI (by country/region) (points) (points) -20 0 20 40 60 0 20 40 60 80

Total (n=4,607) 18.7 Total (n=4,589) 36.0 ASEAN (n=2,558) 22.5 ASEAN (n=2,548) 39.5 Vietnam (n=637) 42.9 Myanmar (n=73) 60.3 Laos (n=19) 42.1 Cambodia (n=89) 56.2  The DI (see Note), indicating Bangladesh (n=54) 55.6 Cambodia (n=88) 35.2 business confidence for 2016 India (n=409) 35.0 India (n=407) 54.8 operating profit, was 18.7 points, up 6.2 points from Bangladesh (n=54) Vietnam (n=638) 53.6 31.5 12.5 points in the 2015 Philippines (n=102) 28.4 Sri Lanka (n=26) 46.2 survey. By country/region, the DI was higher in Vietnam, Indonesia (n=353) 23.5 Indonesia (n=351) 45.6 Laos, Cambodia and India. Pakistan (n=31) 22.6 Pakistan (n=31) 38.7  The 2017 DI (36.0 points) Sri Lanka (n=26) 19.2 New Zealand (n=78) 35.9 almost doubled that of 2016. The 2017 DI surpassed that Thailand (n=695) 17.1 Thailand (n=691) 35.0 of 2016 in most of the New Zealand (n=78) 14.1 Australia (n=202) 32.7 countries/regions. Myanmar (n=72) 13.9 Philippines (n=102) 29.4 Taiwan (n=209) 11.5 Laos (n=18) 27.8 Australia (n=202) 11.4 China (n=594) 24.9 China (n=597) 11.2 Malaysia (n=279) 22.9 Malaysia (n=282) 5.3 Singapore (n=307) 22.5 Singapore (n=310) 2.3 Taiwan (n=206) 20.9 South Korea (n=174) - 0.6 South Korea (n=174) 19.5 HK & Macau (n=269) - 3.0 HK & Macau (n=269) 19.3

Note: DI is an abbreviation for Diffusion Index, the proportion of firms expecting improvement minus the proportion of firms expecting worsening. This figure reflects changes in business confidence. Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 14 1. Operating Profit Forecast (8) Operating profit forecast for 2016 Operating profit forecast for 2017 (comparison with 2015, by industry) (comparison with 2016, by industry) (%) (%) Manufacturing industries 0 20 40 60 80 100 Manufacturing industries 0 20 40 60 80 100 Manufacturing total (n=2,320) 46.6 30.6 22.8 Manufacturing total (n=2,311) 48.0 40.2 11.8 Chemical/Pharmaceutical (n=340) 56.2 23.8 20.0 Food (n=150) 62.7 28.7 8.7 Food (n=150) 54.0 30.7 15.3 General machinery (n=181) 54.7 37.6 7.7 Motor vehicles/Motorcycles (n=405) 51.1 27.2 21.7 Iron/Nonferrous metals/Metals (n=332) 53.0 34.6 12.4 Precision machinery (n=91) 50.6 28.6 20.9 Rubber/Leather (n=53) 49.1 37.7 13.2 Wood/Pulp (n=46) 50.0 28.3 21.7 Textiles (n=123) 48.8 40.7 10.6 Iron/NonferrousIron/Nonferrous metals/Metals metals/…(n=335) 49.0 26.9 24.2 Wood/Pulp (n=46) 47.8 43.5 8.7 Rubber/Leather (n=53) 45.3 32.1 22.6 Motor vehicles/Motorcycles (n=403) 47.6 39.5 12.9 Textiles (n=123) 44.7 32.5 22.8 Chemical/Pharmaceutical (n=340) 45.6 40.9 13.5 General machinery (n=182) 40.1 30.2 29.7 Precision machinery (n=91) 41.8 44.0 14.3 Electric machinery (n=376) 34.6 38.8 26.6 Electric machinery (n=375) 38.7 50.1 11.2 Non-manufacturing industries Non-manufacturing industries Non-manufacturing total (n=2,287) 39.1 35.5 25.5 Non-manufacturing total (n=2,278) 46.1 43.6 10.3 Communications/Software (n=142) 40.9 36.6 22.5 Communications/Software (n=141) 54.6 38.3 7.1 Wholesale/Retail (n=962) 39.1 33.4 27.6 Wholesale/Retail (n=958) 44.9 43.8 11.3 Transport (n=267) 38.2 28.1 33.7 Transport (n=269) 40.9 43.5 15.6 Finance/Insurance (n=124) 35.5 38.7 25.8 Construction (n=162) 39.5 46.9 13.6 Construction (n=164) 28.7 40.9 30.5 Finance/Insurance (n=123) 35.8 59.4 4.9

Increase Remain the same Decrease Increase Remain the same Decrease

 Compared with the 2015 survey, the proportion of firms expecting an operating profit “Increase” for 2016 increased in both the manufacturing sector (41.6% ⇒ 46.6%) and the non-manufacturing sector (37.9% ⇒ 39.1%).  The proportion of firms expecting an operating profit “Increase” for 2017 increased in both the manufacturing sector (48.0%) and the non-manufacturing sector (46.1%).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 15 1. Operating Profit Forecast (9) Reasons for increased operating profits forecast for 2016 (comparison with the reasons for the increase forecast for 2015 cited in the 2015 survey) (top 5, multiple answers) Response rate by country/region and industry (top 5) ■ 2016 (n=1,970) 2015 (n=1,813) (%) Country/region Industry category 0 20 40 60 80 India (83.3%) Sales increase in local markets 63.6 61.2 Indonesia (75.3%) Construction (74.5%) Taiwan (72.8%) Wholesale/Retail (73.6%) Improvement of production efficiency 38.6 Food (71.6%) South Korea (71.4%) Motor vehicles/Motorcycles (66.7%) (the manufacturing industry only) 36.1 Chemical/Pharmaceutical (62.6%) Australia (63.3%) Sales increase due to export expansion 27.9 26.9 Thailand (46.5%) Reduction of other expenditures 17.8 Textiles (58.2%) China (43.0%) Motor vehicles/Motorcycles (50.2%) (e.g., administrative/utility/fuel costs) 16.3 Electric machinery (39.8%) Vietnam (40.8%) Chemical/Pharmaceutical (34.2%) Reduction of procurement costs 17.0 Indonesia (39.5%) Iron/Nonferrous metals/Metals 20.2 India (38.9%) (34.2%)

Note: Countries/regions and industry categories for which n30 Reasons for decreased operating profits forecast for 2016 (comparison with the reasons for the decrease forecast for 2015 cited in the 2015 survey) (top 5, multiple answers) ■ 2016 (n=1,105) 2015 (n=1,256) (%) Country/region Industry category 0 20 40 60 80 51.3 South Korea (70.2%) Sales decrease in local markets Construction (75.5%) 58.0 Indonesia (62.0%) General machinery (64.8%) Singapore (60.6%) Wholesale/Retail (61.1%) Increase of labor costs 31.3 Chemical/Pharmaceutical (50.0%) 38.8 Thailand (59.0%) Motor vehicles/Motorcycles (50.0%) Taiwan (57.9%) Effects of exchange rate fluctuation 29.2 29.9 Cambodia (53.9%) Wood/Pulp (60.0%) Sales decrease due to export slowdown 27.6 Indonesia (50.6%) Textiles (53.6%) 29.4 China (49.1%) Motor vehicles/Motorcycles (47.7%) Food (43.5%) Production costs insufficiently shifted to 15.9 Vietnam (45.6%) Rubber/Leather (41.7%) selling price of goods 16.9 Myanmar (43.8%) Note: Countries/regions and industry categories for which n 10

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 16 1. Operating Profit Forecast (10) Reasons for increased operating profits forecast for 2017 (comparison with the reasons for the increase forecast for 2016 cited in the 2015 survey) (top 5, multiple answers) Response rate by country/region and industry (top 5) ■ 2016 (n=2,158) 2015 (n=2,035) (%) Country/region Industry category 0 20 40 60 80 Sales increase in local markets 72.6 India (86.2%) 69.8 Food (83.0%) China (85.0%) Wholesale/Retail (81.6%) Improvement of production efficiency 40.8 Indonesia (82.0%) Motor vehicles/Motorcycles (78.1%) (the manufacturing industry only) General machinery (75.8%) 44.5 Myanmar (80.9%) Construction (75.0%) Philippines (76.1%) Sales increase due to export expansion 29.6 32.0 Malaysia (45.6%) 16.7 Textiles (51.7%) Improvement of sales efficiency Vietnam (43.0%) Motor vehicles/Motorcycles (45.8%) 20.4 Electric machinery (43.5%) Thailand (41.0%) Food (41.5%) Reduction of other expenditures 15.1 India (40.8%) Iron/Nonferrous metals/Metals (e.g., administrative/utility/fuel costs) 15.3 South Korea (40.6%) (40.9%)

Note: Countries/regions and industry categories for which n30 Reasons for decreased operating profits forecast for 2017 (comparison with the reasons for the decrease forecast for 2016 cited in the 2015 survey) (top 5, multiple answers) ■ 2016 (n=505) 2015 (n=604) (%) Country/region Industry category 0 20 40 60 80

Sales decrease in local markets 45.0 South Korea (69.7%) Construction (90.9%) 50.7 India (54.8%) Wholesale/Retail (58.9%) Australia (54.6%) General machinery (50.0%) Increase of labor costs 36.6 Iron/Nonferrous metals/Metals 43.9 Thailand (54.3%) (47.5%) Motor vehicles/Motorcycles (44.2%) Sales decrease due to export 29.5 Taiwan (54.2%) slowdown 30.5 China (57.0%) Textiles (61.5%) Food (53.9%) Effects of exchange rate fluctuation 19.0 Indonesia (55.2%) 21.4 Iron/Nonferrous metals/Metals Vietnam (47.6%) (52.5%) Malaysia (40.5%) Communications/Software (50.0%) Increase of procurement costs 16.0 20.0 HK & Macau (37.5%) Motor vehicles/Motorcycles (48.1%)

Approach to future business challenges in the next 1 to 2 years (by country/region) (%) 0 20 40 60 80 100 Total (n=4,613) 52.2 43.6 3.1 1.1 Myanmar (n=74) 79.7 20.3 Cambodia (n=91) 72.5 25.3 2.2 Pakistan (n=31) 71.0 29.0 India (=409) 70.7 27.6 1.7 Bangladesh (n=54) 66.7 25.9 5.6 1.9 Vietnam (n=638) 66.6 32.1 0.6 0.6 Philippines (n=103) 54.4 44.7 1.0 Indonesia (n=353) 51.6 45.0 2.3 1.1 Taiwan (n=208) 51.0 45.7 2.9 0.5 Thailand (n=690) 50.1 47.1 2.0 0.7 Singapore (n=312) 49.0 44.6 3.9 2.6 Sri Lanka (n=26) 46.2 46.2 7.7 Laos (n=18) 44.4 50.0 5.6 Malaysia (n=286) 44.1 50.0 4.2 1.8 South Korea (n=174) 43.1 53.5 3.5 Australia (n=202) 43.1 49.5 5.5 2.0 China (n=599) 40.1 52.8 5.3 1.8 HK & Macau (n=268) 35.8 54.9 6.7 2.6 New Zealand (n=77) 33.8 62.3 3.9 Expansion Remaining the same Reduction Transferring to a third country/region or withdrawal from current local markets

 A total of 52.2% of the firms selected “Expansion” as their approach to future business challenges in the next one or two years, up 1.0 pp from 51.2% in the 2015 survey. In contrast, 4.2% of the firms selected “Reduction” or “Transferring to a third country/region or withdrawal from current local markets,” down 0.7 pp from 4.9% in the 2015 survey.  By country/region, Myanmar marked the highest proportion of “Expansion” at 79.7%, followed by Cambodia, Pakistan and India at over 70%, respectively.  In China, 40.1% of the firms selected “Expansion,” up 2.0 pp from the 2015 survey (38.1%).

Proportions of firms expecting to expand in the next 1 to 2 years (2008 to 2016)

ASEAN Southwest Asia/Oceania Northeast Asia (%) (%) (%) 100 100 100

90 90 90 Cambodia 80 80 80

70 70 70 Pakistan South Korea 60 60 60 China Taiwan 50 50 50

40 40 40 Hong Kong 30 30 30 Sri Lanka 20 20 20 2008 09 10 11 12 13 14 15 16 2008 09 10 11 12 13 14 15 16 2008 09 10 11 12 13 14 15 16 Indonesia Malaysia Myanmar Bangladesh India China Taiwan Philippines Thailand Cambodia Pakistan Sri Lanka South Korea Hong Kong Vietnam Note: The survey of Cambodia started in 2010. Australia Note: Hong Kong includes Macao from 2011.

 Reviewing the survey results by country/region from 2008, the proportion of firms that selected “Expansion” as their approach to future business challenges in the next one or two years increased significantly in 2010 when the global economy recovered from the downturn following the Lehman crisis. The proportion of “Expansion” remained generally the same from 2011 to 2013 excluding several countries/regions, and decreased in 2014 and 2015. In 2016, the proportion increased from 2015 in many countries/regions in ASEAN and Northeast Asia.  In the 2016 survey, the proportion of firms that selected “Expansion” increased from 2015 by over 5.0 pp in Taiwan (8.4 pp) and Cambodia (5.9 pp). On the other hand, the proportion decreased from 2015 by over 5.0 pp in Sri Lanka (−26.8 pp), South Korea (−7.4 pp) and Pakistan (−5.7 pp).

Proportions of firms expecting to expand in the next 1 to 2 years (2008 to 2016, China and other major countries in Asia)

(%) 90 China

ASEAN 80 Indonesia

70 Thailand Vietnam

60 63.1 61.4 India 60.3 54.2 55.4 ASEAN

50 52.3 54.2 Note 1: ASEAN shows a weighted average of 46.5 40.1 nine countries, excluding Brunei. 40 Note 2: Figures for Cambodia and Laos have been 38.1 China included in the ASEAN average since 2010 and 2011, 30 respectively. 2008 2009 2010 2011 2012 2013 2014 2015 2016

 Comparing China with ASEAN, the proportion of firms that selected “Expansion” as their approach to future business challenges in the next one or two years was higher in China from 2008 to 2011. In 2012, however, ASEAN (61.4%) overtook China (52.3%). ASEAN has been higher than China by around 10 pp since 2012. In the 2016 survey, the difference was 15.3 pp.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 20 2. Future Business Plan (4) Approach to future business challenges in the next 1 to 2 years (by industry and company size) Manufacturing (%) Non-manufacturing (%) 0 20 40 60 80 100 0 20 40 60 80 100

Manufacturing total (n=2,320) 50.6 45.0 3.2 1.3 Non-manufacturing total (n=2,293) 53.9 42.2 3.0 0.9 Food (n=149) 66.4 31.5 2.0 Rubber/Leather (n=55) 56.4 43.6 Communications/Software (n=141) 68.1 30.5 1.4 Chemical/Pharmaceutical (n=341) 55.7 40.8 2.9 0.6 Wholesale/Retail (n=965) 55.9 39.9 3.3 0.9 Iron/Nonferrous metals/Metals (n=334) 52.7 44.0 3.0 0.3 Precision machinery (n=91) 45.1 4.4 50.6 Transport (n=272) 52.2 46.7 1.1 Wood/Pulp (n=46) 50.0 43.5 4.4 2.2 Motor vehicles/Motorcycles (n=405) 48.4 47.7 2.5 1.5 Finance/Insurance (n=123) 51.2 45.5 3.3 General machinery (n=183) 47.0 49.7 2.2 1.1 Construction (n=163) 37.4 52.8 8.0 1.8 Electric machinery (n=375) 45.1 48.3 4.3 2.4 Textiles (n=123) 43.1 49.6 3.3 4.1 Other non-manufacturing industries (n=629) 53.3 42.9 2.4 1.4 Other manufacturing industries (n=218) 48.2 45.9 4.6 1.4 (%) (%) 0 20 40 60 80 100 0 20 40 60 80 100 2016 (n=1,282) 53.4 42.9 2.8 0.9 2016 (n=1,559) 54.4 41.7 3.0 1.0 2015 (n=1,388) 50.9 43.6 4.6 0.9 2015 (n=1,557) 55.6 41.1 2.8 0.6 2014 (n=1,463) Large 56.4 39.6 3.4 0.7 2014 (n=1,625) 35.1 2.7 0.5 Large 61.7 2013 (n=1,393) 60.7 35.7 3.1 0.5 2013 (n=1,515) 64.8 32.0 2.4 0.8 2016 (n=1,038) 47.1 47.6 3.6 1.7 2016 (n=734) 52.9 43.2 3.1 0.8 2015 (n=1,035) 44.4 48.7 5.7 1.2 2015 (n=597) 52.4 43.4 3.2 1.0 4.0 0.8 SME SME 2014 (n=1,038) 48.7 44.7 5.4 1.3 2014 (n=605) 54.9 40.3 2013 (n=1,013) 52.3 42.5 3.8 1.3 2013 (n=615) 57.6 38.2 3.7 0.5 Expansion Remaining the same Reduction Transferring to a third country/region or withdrawal from current local markets

 By industry, the proportion of firms that selected “Expansion” as their approach to future business challenges in the next one or two years was higher in the non-manufacturing (53.9%) than the manufacturing sector (50.6%).  The proportion of firms that selected “Expansion” was especially high in Food (66.4%) in the manufacturing sector and Communications/Software (68.1%) in the non-manufacturing sector. In Textiles and Construction, on the other hand, the proportion of firms that selected “Expansion” was relatively low, and about 50% of the firms selected “Remaining the same.”  By company size, large enterprises are more likely to expand their businesses than SMEs in both manufacturing and non-manufacturing sectors. Although the proportion of firms selecting “Expansion” decreased in both large enterprises and SMEs for three consecutive years from the 2013 survey, the proportion increased in the 2016 survey except large enterprises in the non-manufacturing sector.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 21 2. Future Business Plan (5) Approach to future business challenges in the next 1 to 2 years (by major industry and country/region) Note: Country/region by industry categories for which n  30

Wholesale/Retail (%) Iron/Nonferrous metals/Metals (%) 0 20 40 60 80 100 0 20 40 60 80 100 Vietnam (n=51) 78.4 19.6 2.0 Vietnam (n=84) 78.6 21.4 India (n=102) 73.5 23.5 2.9 Thailand (n=74) 52.7 43.2 2.7 1.4 Indonesia (n=48) 68.8 31.3 China (n=38) 26.3 65.8 7.9 Thailand (n=138) 60.1 37.7 1.5 0.7 Taiwan (n=77) 57.1 40.3 2.6 Chemical/Pharmaceutical (%) China (n=75) 54.7 44.0 1.3 0 20 40 60 80 100 Australia (n=82) 51.2 40.2 7.3 1.2 Thailand (n=58) 63.8 36.2 Malaysia (n=55) 50.9 45.5 3.6 South Korea (n=34) 61.8 35.3 2.9 New Zealand (n=30) 43.3 53.3 3.3 Vietnam (n=50) 60.0 38.0 2.0 South Korea (n=58) 39.7 58.6 1.7 China (n=53) 43.4 50.9 5.7 HK & Macau (n=111) 36.9 55.9 4.5 2.7

Motor vehicles/Motorcycles (%) Electric machinery (%) 0 20 40 60 80 100 0 20 40 60 80 100 India (n=69) 63.8 34.8 1.5 Vietnam (n=53) 69.8 26.4 1.9 1.9 Indonesia (n=59) 49.2 49.2 1.7 Thailand (n=47) 48.9 48.9 2.1 Vietnam (n=60) 48.3 50.0 1.7 Malaysia (n=51) 37.3 54.9 5.9 2.0 China (n=79) 43.0 46.8 7.6 2.5 China (n=72) 30.6 55.6 8.3 5.6 Thailand (n=77) 36.4 63.6

Expansion Remaining the same Reduction Transferring to a third country/region or withdrawal from current local markets

 Comparing major industries in countries/regions with valid responses from more than 30 companies, the proportion of firms that selected “Expansion” as their approach to future business challenges in the next one or two years was high in Wholesale/Retail in Vietnam (78.4%) and India (73.5%). On the other hand, “Remaining the same” exceeded 50% in South Korea, Hong Kong & Macau and New Zealand.  In the Motor vehicles/Motorcycles industry, the proportion of “Expansion” was high in India (63.8%). In Indonesia, the proportion of “Expansion” increased by more than 10 pp to 49.2% from the 2015 survey (35.4%).  The proportion of “Expansion” exceeded 60% for all of the Iron/Nonferrous metals/Metals, Chemical/Pharmaceutical, and Electric machinery industries in Vietnam.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 22 2. Future Business Plan (6) Reasons for expected business expansion Note: Countries/regions for which n  30 in the next 1 to 2 years (multiple answers) (%) Reviewing High receptivity for High growth Relationship with Reduction of costs Easy to secure labor high-value added production and Sales increase (e.g., procurement/ Deregulations force potential clients products distribution labor costs) networks

0 25 50 75 100 0 25 50 75 0 25 50 0 25 50 0 25 50 0 25 50 0 25 50 0 25 50

Total Total 46.4 Total Total Total Total Total Total (n=2,401) 84.5 22.0 19.9 16.0 7.7 3.9 2.7

Malaysia India 68.5 Thailand 27.3 Taiwan Bangladesh 25.0 Australia Myanmar 40.7 Bangladesh 16.7 (n=126) 89.7 34.9 11.5

Thailand Myanmar 62.7 Taiwan 26.4 HK & Macau Singapore 19.1 HK & Macau India 9.0 Cambodia 9.1 (n=344) 88.4 31.9 9.6

South Korea Indonesia 60.8 Myanmar 25.4 China Thailand 17.2 China Philippines 5.4 Philippines 7.1 (n=75) 88.0 30.1 8.8

Vietnam Bangladesh 58.3 Bangladesh 25.0 Australia HK & Macau 17.0 India Singapore 3.3 Vietnam 5.2 (n=423) 87.7 27.6 8.7

India Philippines 55.4 Cambodia 24.2 South Korea Taiwan 17.0 Taiwan 8.5 Vietnam 2.8 Myanmar 3.4 (n=289) 86.5 26.7

Australia Cambodia 48.5 South Korea 24.0 Thailand Malaysia 16.7 Thailand 7.9 Bangladesh 2.8 Indonesia 3.3 (n=87) 86.2 22.1

Indonesia Singapore 46.7 Philippines 23.2 Vietnam 15.4 Indonesia 16.6 Singapore 7.2 South Korea 2.7 HK & Macau 2.1 (n=181) 85.6

Bangladesh Vietnam 45.9 Vietnam 22.2 Malaysia 15.1 India 16.3 South Korea 6.7 China 2.5 India 2.1 (n=36) 83.3

Taiwan China 44.4 Singapore 21.1 Philippines 14.3 Australia 16.1 Indonesia 6.6 Australia 2.3 Taiwan 1.9 (n=106) 82.1

China Taiwan 40.6 Indonesia 21.0 India 13.8 Vietnam 15.8 Vietnam 6.6 HK & Macau 2.1 South Korea 1.3 (n=239) 81.6

HK & Macau HK & Macau 38.3 HK & Macau 20.2 Singapore 13.8 Myanmar 15.3 Malaysia 6.4 Taiwan 1.9 Malaysia 0.8 (n=94) 80.9

Cambodia Australia 34.5 India 19.7 Indonesia 13.8 China 13.8 Cambodia 6.1 Thailand 1.2 Singapore 0.7 (n=66) 77.3

Myanmar Thailand 33.7 Australia 19.5 Cambodia 12.1 South Korea 12.0 Philippines 3.6 Indonesia 1.1 Thailand 0.6 (n=59) 76.3

Singapore South Korea 32.0 China 18.8 Myanmar 11.9 Philippines 10.7 Bangladesh 2.8 Malaysia 0.8 China 0.4 (n=152) 74.3

Philippines Malaysia 27.8 Malaysia 15.1 Bangladesh 11.1 Cambodia 10.6 Myanmar 1.7 Cambodia 0.0 Australia 0.0 (n=56) 73.2

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 23 2. Future Business Plan (7) Functions to expand (multiple answers) Note: Countries/regions for which n  30 (%)

Production Production Administrative Function of regional functions in providing Sales function (high-value (ubiquitous Logistics function R&D products) headquarters services (e.g., shared added products) services center, call center)

0 25 50 75 100 0 25 50 0 25 50 75 0 25 50 0 25 50 0 25 50 0 25 50

Total Total Total Total Total Total (n=2,370) 60.3 33.0 Total 25.4 12.1 9.7 7.5 6.7

HK & Macau China Philippines South Korea Singapore Singapore (n=94) 81.9 42.4 Bangladesh 54.3 21.4 20.0 32.2 11.4

Taiwan Thailand Indonesia China HK & Macau Taiwan (n=106) 75.5 40.4 Vietnam 41.3 17.5 15.7 11.7 10.4

India Indonesia Philippines Myanmar 17.0 India Taiwan Australia (n=287) 72.5 39.0 37.5 11.5 10.4 10.3

Australia Vietnam Thailand Singapore 16.8 Vietnam Thailand China (n=87) 72.4 38.4 31.6 11.2 7.1 7.2

Singapore South Korea 36.0 Indonesia Bangladesh 14.3 Taiwan China 6.8 Philippines 7.1 (n=149) 69.8 28.3 10.4

Bangladesh Malaysia 35.8 India India 13.2 Bangladesh Myanmar 6.8 Indonesia 6.8 (n=35) 68.6 27.5 8.6

Myanmar Bangladesh 31.4 Cambodia HK & Macau 12.8 Thailand Malaysia 6.7 India 6.6 (n=59) 62.7 27.3 8.0

South Korea India 30.7 Myanmar Australia 11.5 Malaysia Cambodia 6.1 Thailand 6.5 (n=75) 62.7 23.7 7.5

China Taiwan 30.2 Malaysia Malaysia 10.8 Indonesia 6.8 India 5.9 HK & Macau 6.4 (n=236) 58.1 22.5

Malaysia HK & Macau 24.5 China Thailand 10.6 Singapore 6.7 Philippines 5.4 Cambodia 6.1 (n=120) 57.5 19.1

Indonesia Philippines 23.2 South Korea Cambodia 10.6 Australia 5.8 Indonesia 5.1 Vietnam 5.0 (n=177) 55.9 12.0

Thailand Cambodia 21.2 HK & Macau 8.5 Taiwan 10.4 Philippines 5.4 Vietnam 3.6 South Korea 4.0 (n=339) 52.2

Philippines Myanmar 17.0 Australia 8.1 Vietnam 9.6 HK & Macau 5.3 Bangladesh 2.9 Myanmar 3.4 (n=56) 51.8

Cambodia Australia 16.1 Taiwan 6.6 China 8.5 Myanmar 3.4 South Korea 1.3 Malaysia 3.3 (n=66) 48.5

Vietnam Singapore 13.4 Singapore 4.7 South Korea 8.0 Cambodia 3.0 Australia 1.2 Bangladesh 2.9 (n=419) 47.5

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 24 2. Future Business Plan (8) Functions to be expanded (by country, 2012 to 2016) Production Production Sales function (ubiquitous products) (high-value added products) (%) (%) (%) 75 75 75

72.5 India 65 65 65 58.1

55.9 55 55 55 52.2 47.5 Vietnam Vietnam China 45 45 45 42.4 41.3 40.4 Vietnam Indonesia 39.0 35 35 35 38.4 Thailand 31.6 28.3 30.7 25 25 27.5 25 Indonesia 19.1 India China 15 15 15 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

China Vietnam Indonesia Thailand India

 The proportion of firms intending to expand “Sales function” remains at a high level in India (72.5%). The proportion increased from the 2015 survey by 5.1 pp in Vietnam.  The proportion of firms intending to expand “Production (ubiquitous products)” was more than 40% in Vietnam and around 30% in Thailand, Indonesia and India. The proportion decreased for two consecutive years in China, falling below 20%.  The proportion of firms intending to expand “Production (high-value added products)” generally increased. The proportion increased from the 2015 survey particularly in Indonesia (8.0 pp), Vietnam (4.7 pp), and China (3.2 pp).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 25 2. Future Business Plan (9) Reasons for the future reduction, (%) transfer or withdrawal (multiple answers) (%) By industry By company size Non- Manufacturing 0 20 40 60 80 manufacturing Large SME 54.9 Sales decrease 56.6 Sales decrease 51.0 59.5 57.1 51.9 54.8 Increase of costs 44.6 Increase of costs 48.7 (e.g., procurement/labor costs) (e.g., procurement/ 47.0 41.7 45.7 43.0 50.0 labor costs) 34.2 Low growth potential 36.8 Low growth potential 33.0 35.7 34.3 34.2 26.2 Reviewing production and 15.2 Reviewing production and 13.2 16.0 14.3 12.4 19.0 distribution networks distribution networks 16.7 12.5 Relationship with clients 10.5 Relationship with clients 15.0 9.5 10.5 15.2 19.1 10.9 Difficulty in securing labor 16.0 4.8 7.6 15.2 Difficulty in securing labor force 18.4 force 9.5 9.8 Tightening of regulations 7.9 Tightening of regulations 11.0 8.3 8.6 11.4 16.7 Low receptivity for Low receptivity for high-value 9.2 high-value 8.0 10.7 10.5 7.6 10.5 Total (n=184) added products 4.8 added products 19.0 ASEAN(n=76) Others 20.0 17.9 21.0 16.5 Others 18.4 China (n=42) 9.5

 In a multiple-choice question on the reason for business “Reduction” or “Transferring or withdrawal,” “Sales decrease” (54.9%) was most commonly cited, followed by “Increase of costs” (44.6%).  In comparison between ASEAN and China, the proportion of firms that cited “Low growth potential” or “Difficulty in securing labor force” was higher in ASEAN than China by 10.6 pp and 8.9 pp, respectively. On the other hand, the proportion of firms that cited “Tightening of regulations” was higher in China than ASEAN by 8.8 pp.  By industry, the proportion of firms in the non-manufacturing sector that cited “Sales decrease” was higher than that of firms in the manufacturing sector by 8.5 pp. On the other hand, the proportion of firms in the manufacturing sector that cited “Difficulty in securing labor force,” “Relationship with clients,” or ”Increase of costs” was higher than that of firms in the non- manufacturing sector by 11.2 pp, 5.5 pp, and 5.3 pp, respectively.  By company size, the proportion of SMEs that cited “Difficulty in securing labor force,” “Reviewing production and distribution networks,” or “Relationship with clients” was higher than that of large enterprises by 7.6 pp, 6.6 pp, and 4.7 pp, respectively. On the other hand, the percentage of large enterprises citing “Sales decrease” is larger than that of SMEs, with a difference of 5.2 pp.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 26 2. Future Business Plan (10) Approach to future business challenges of Japanese-affiliated firms in China in the next 1 to 2 years (%)

2012 (n=853) 52.3 42.0 4.0 1.8 2013 (n=931) 54.2 39.5 5.0 1.2 2014 (n=970) 46.5 46.0 6.5 1.0 2015 (n=863) 38.1 51.3 8.8 1.7 2016 (n=599) 40.1 52.8 5.3 1.8 Liaoning 6 firms Expansion Remaining the same Reduction Transferring to a third country/region or withdrawal from current local markets (9.8%) Reasons for reduction, transferring or withdrawal (%) 0 20 40 60 80 100 Breakdown of firms that responded reduction, Sales decrease 54.8 transferring or withdrawal 67.1 Jiangsu Increase of costs 50.0 (e.g., procurement/labor costs) 63.6 4 firms (5.3%) Low growth potential 26.2 36.4 Manufacturing 40 firms (10.4%) Relationship with clients 19.1 13.6 Precision machinery 3 (15.8%) Shanghai 3 firms Textiles 3 (14.3%) Tightening of regulations 16.7 (3.5%) 13.6 Electric machinery 10 (13.9%) Reviewing production and 16.7 Food 3 (10.7%) distribution networks 15.9 Motor vehicles/Motorcycles 8 (10.1%) Hubei 3 firms Guangdong Fujian Difficulty in securing labor force 9.5 Iron/Nonferrous metals/ 3 (7.9%) 14.8 Metals (7.5%) 15 firms 3 firms Chemical/Pharmaceutical 3 (5.7%) (12.6%) (9.7%) Low receptivity for high-value 4.8 added products 15.9 Non-manufacturing 3 (1.4%) Note: Industries, provinces/municipalities with three or more firms that selected “Reduction” or “Transferring or withdrawal” Others 9.5 13.6 Note 2: The percentages in the parentheses indicate the proportion of firms which selected “Reduction” or “Transferring or 2016 (n=42) 2015 (n=88) withdrawal” to the number of responding firms in respective industries or provinces/municipalities.

 As the approach to future business challenges in the next one or two years, the proportion of firms in China that selected “Reduction” (5.3%) or “Transferring to a third country/region or withdrawal from current local markets” (1.8%) decreased from the 2015 survey to 7.1%, remaining above the 7.0% mark as in the 2014 survey (7.5%). Meanwhile, the majority of firms (52.8%) selected “Remaining the same.”  In a multiple-choice question asking the reason for business “Reduction” or “Transferring or withdrawal,” “Sales decrease” had the highest proportion at 54.8%. This is followed by “Increase of costs” (50.0%) and “Low growth potential” (26.2%).  By industry category, the manufacturing sector (10.4%) selected “Reduction” or “Transferring to a third country/region or withdrawal from current local markets” more commonly than the non-manufacturing sector (1.4%). In particular, the proportion was high in Precision machinery (15.8%) and Textiles (14.3%).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 27 2. Future Business Plan (11) Changes in the number of employees (Changes in a year-on-year comparison, future plans, by country/region)

Local employees Year-on-year Plans for the next one year (%) (%) 0 20 40 60 80 100 0 20 40 60 80 100 Total (n=4,569) 36.7 46.8 16.5 Total (n=4,505) 41.9 48.4 9.7 Myanmar (n=72) 63.9 31.9 4.2 Myanmar (n=69) 69.6 26.1 4.4 Bangladesh (n=53) 60.4 28.3 11.3 India (n=400) 62.3 34.8 3.0 India (n=407) 53.8 38.6 7.6 Bangladesh (n=52) 61.5 32.7 5.8 Vietnam (n=634) 51.3 35.5 13.3 Cambodia (n=89) 57.3 33.7 9.0 Cambodia (n=86) 48.8 34.9 16.3 Vietnam (n=620) 56.8 37.7 5.5 Pakistan (n=30) 46.7 50.0 3.3 Pakistan (n=31) 54.8 41.9 3.2 Indonesia (n=353) 41.1 39.9 19.0 Philippines (n=101) 49.5 41.6 8.9 Philippines (n=102) 40.2 45.1 14.7 Laos (n=18) 44.4 50.0 5.6 Laos (n=18) 38.9 55.6 5.6 Indonesia (n=346) 42.5 42.2 15.3 Taiwan (n=205) 38.1 48.3 13.7 Taiwan (n=198) 40.4 53.5 6.1 South Korea (n=174) 37.4 50.6 12.1 Sri Lanka (n=25) 40.0 52.0 8.0 Sri Lanka (n=25) 36.0 48.0 16.0 Malaysia (n=271) 38.8 44.7 16.6 Thailand (n=686) 32.8 51.2 16.0 Thailand (n=677) 38.0 53.0 9.0 Singapore (n=308) 31.5 55.2 13.3 South Korea (n=169) 35.5 56.8 7.7 Malaysia (n=280) 29.3 53.2 17.5 Singapore (n=306) 35.0 57.5 7.5 Australia (n=202) 26.2 53.5 20.3 Australia (n=198) 31.8 58.6 9.6 New Zealand (n=77) 24.7 58.4 16.9 China (n=599) 29.4 52.9 17.7 HK & Macau (n=268) 21.3 55.2 23.5 HK & Macau (n=262) 23.3 66.4 10.3 China (n=589) 20.2 52.3 27.5 New Zealand (n=74) 20.3 70.3 9.5

Large (n=2,819) 38.9 45.0 16.1 Large (n=2,774) 42.1 48.5 9.4 SME (n=1,750) 33.0 49.8 17.2 SME (n=1,731) 41.7 48.1 10.2 Increase no change Decrease Increase no change Decrease

 Regarding year-on-year changes in the number of local employees by country/region, over 60% of the firms selected “Increase” in Myanmar and Bangladesh.  The proportion of firms planning to “Increase” the number of local employees in the next one year was the highest in Myanmar (69.6%), followed by India and Bangladesh at over 60%, respectively.  In China, Hong Kong & Macau and Australia, over 20% of the firms selected “Decrease” in a year-on-year comparison. The proportion of firms planning to “Decrease” local employees in the next one year was relatively high in China (17.7%), Malaysia (16.6%) and Indonesia (15.3%).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 28 2. Future Business Plan (12) Changes in the number of employees (Changes in a year-on-year comparison, future plans, by country/region) Japanese expatriates Year-on-year Plans for the next one year (%) (%) 0 20 40 60 80 100 0 20 40 60 80 100 Total (n=4,525) 13.5 71.9 14.6 Total (n=4,473) 9.5 76.0 14.5 Myanmar (n=71) 25.4 70.4 4.2 Bangladesh (n=52) 25.0 69.2 5.8 Bangladesh (n=52) 23.1 71.2 5.8 Sri Lanka (n=23) 21.7 65.2 13.0 Sri Lanka (n=24) 20.8 66.7 12.5 Myanmar (n=69) 20.3 69.6 10.1 Singapore (n=308) 20.1 66.9 13.0 Cambodia (n=88) 18.2 70.5 11.4 Philippines (n=103) 18.5 69.9 11.7 Philippines (n=102) 16.7 73.5 9.8 Cambodia (n=87) 18.4 74.7 6.9 India (n=401) 14.2 73.8 12.0 Pakistan (n=28) 17.9 82.1 Singapore (n=304) 13.5 73.7 12.8 Malaysia (n=270) 17.0 70.7 12.2 Malaysia (n=263) 11.0 71.1 17.9 India (n=405) 15.6 70.6 13.8 Pakistan (n=28) 10.7 85.7 3.6 Vietnam (n=628) 15.5 72.6 11.9 Vietnam (n=616) 10.6 74.7 14.8 Indonesia (n=353) 14.5 70.8 14.7 Thailand (n=668) 10.0 77.5 12.4 Thailand (n=675) 12.9 73.6 13.5 Indonesia (n=348) 9.2 75.6 15.2 Laos (n=18) 11.1 83.3 5.6 HK & Macau (n=262) 6.5 75.6 17.9 Taiwan (n=201) 10.5 75.6 13.9 Australia (n=199) 6.0 85.9 8.0 Australia (n=199) 9.6 72.4 18.1 Taiwan (n=198) 5.1 81.8 13.1 South Korea (n=173) 8.1 76.9 15.0 South Korea (n=170) 4.1 80.0 15.9 China (n=595) 8.1 69.2 22.7 China (n=595) 3.2 74.5 22.4 HK & Macau (n=264) 8.0 71.2 20.8 New Zealand (n=69) 2.9 92.8 4.4 New Zealand (n=71) 4.2 85.9 9.9 Laos (n=18) 94.4 5.6

Large (n=2,795) 15.2 69.1 15.7 Large (n=2,762) 9.7 74.0 16.3 SME (n=1,730) 10.6 76.5 12.8 SME (n=1,711) 9.2 79.2 11.6 Increase no change Decrease Increase no change Decrease  Regarding changes in the number of Japanese expatriates by country/region, “No change” was most frequently selected in all countries/regions in both year-on-year comparison and in plans for the next one year.  In a year-on-year comparison, approximately 20% of the firms selected “Decrease” in China and Hong Kong & Macau.  As for plans for the next one year, over 20% of the firms selected “Increase” in Bangladesh, Sri Lanka and Myanmar. On the other hand, “Decrease” accounted for 22.4% in China.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 29 3. Management Matters (1) Problems common to all regions (top 10, multiple answers) (%) 2016 2015 Change By industry By company size Non- Answers Manufacturing Large SME (%) (%) (points) manufacturing 1 Wage increase 65.3 69.0 - 3.7 72.0 58.5 64.9 65.9

2 Difficulty in quality control 50.5 52.9 - 2.4 50.5 - 46.4 55.3 Competitors’ market shares are 3 46.6 48.1 - 1.5 48.0 45.2 50.1 41.0 growing (cost-wise competition) 4 Quality of employees 44.1 48.6 - 4.5 45.8 42.4 43.3 45.5 Difficulty in local procurement of raw 5 43.2 43.5 - 0.3 43.2 - 41.2 45.6 materials and parts Difficulty in developing in new clients 6 37.6 38.0 - 0.4 35.5 39.8 35.0 41.8 on market 7 Major clients requesting lower prices 35.2 37.5 - 2.3 42.0 28.2 34.8 35.7

8 No more room for cost-cutting 34.5 37.9 - 3.4 34.5 - 35.3 33.6 Volatility of local currency’s exchange 9 34.0 31.1 2.9 37.3 30.7 33.9 34.1 rate against the Japanese yen Complicated customs clearance 10 30.3 34.9 - 4.6 37.0 23.5 30.6 29.9 procedures

 “Wage increase” (65.3%) was most frequently cited as a management matter, followed by “Difficulty in quality control” (50.5%). The proportion of firms that cited "Wage increase" in Indonesia (82.2%) surpassed that of firms in China (77.8%), and the proportion exceeded 70% in these two countries, as well as in Vietnam (75.5%) and Myanmar (75.3%).  By industry category, manufacturing industries cited “Wage increase,” “Major clients requesting lower prices,” and “Complicated customs clearance procedures” more commonly than non-manufacturing industries, with a difference of over 10 pp.  By company size, large enterprises cited “Competitors’ market shares are growing (cost-wise competition)” more frequently than SMEs, with a difference of 9.1 pp, while SMEs cited “Difficulty in quality control” and “Difficulty in developing new clients” more commonly than large enterprises, with a difference of over 5 pp.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 30 3. Management Matters (2) Note: Countries/regions for which n  10 Problems common to all regions (top 10, multiple answers, response rate for each country/region) (%) Competitors’ market shares Difficulty in quality Difficulty in local procurement are growing (cost-wise Wage increase Quality of employees of raw materials and parts control competition) 0 25 50 75 100 0 25 50 75 100 0 25 50 75 100 0 25 50 75 100 0 25 50 75 100

Total (n=4,592) Total (n=4,587) 65.3 Total (n=2,236) 50.5 46.6 Total (n=4,587) 44.1 Total (n=2,236) 43.2

Bangladesh Indonesia (n=348) 82.2 Laos (n=11) 81.8 Pakistan (n=31) 61.3 Laos (n=18) 72.2 81.3 (n=32) India (n=407) 59.2 China (n=599) 77.8 Cambodia (n=38) 76.3 Myanmar (n=73) 65.8 Cambodia (n=38) 73.7 South Korea 53.8 Vietnam (n=633) 75.5 Malaysia (n=159) 64.2 (n=173) Cambodia (n=89) 62.9 Myanmar (n=20) 70.0 Bangladesh Myanmar (n=73) 75.3 Myanmar (n=72) 52.8 60.4 Thailand (n=388) 59.0 (n=53) Vietnam (n=401) 64.8 Singapore Philippines Cambodia (n=89) 69.7 52.6 57.3 Vietnam (n=401) 58.6 (n=310) (n=103) Laos (n=11) 63.6 Malaysia (n=285) 67.7 Bangladesh Taiwan (n=208) 51.4 Indonesia (n=348) 56.3 56.3 (n=32) Philippines (n=58) 62.1 India (n=406) 67.5 Indonesia (n=352) 47.7 Malaysia (n=285) 53.3 Indonesia (n=215) 54.9 Indonesia (n=215) 56.3 Sri Lanka (n=26) 65.4 Thailand (n=687) 47.3 India (n=406) 49.5 Philippines (n=58) 53.5 India (n=190) 51.6 Australia (n=202) 62.9 Malaysia (n=284) 46.1 Thailand (n=685) 48.5 Pakistan (n=17) 52.9 Pakistan (n=17) 41.2 Singapore 59.8 Vietnam (n=633) 45.7 Vietnam (n=633) 42.5 (n=311) India (n=190) 51.1 Thailand (n=388) 36.3 Thailand (n=685) 59.3 China (n=599) 44.4 China (n=599) 42.4 Myanmar (n=20) 50.0 Malaysia (n=159) 34.6 HK & Macau Bangladesh Singapore 59.2 41.5 35.7 (n=267) (n=53) (n=311) China (n=367) 45.0 Philippines HK & Macau China (n=367) 26.7 South Korea 37.9 35.2 57.5 (n=267) (n=174) HK & Macau (n=103) 29.3 Bangladesh (n=41) Taiwan (n=76) 26.3 49.1 Cambodia (n=89) 37.1 Taiwan (n=207) 34.3 (n=53) Taiwan (n=76) 26.3 HK & Macau South Korea 36.9 Pakistan (n=31) 32.3 24.0 Pakistan (n=31) 45.2 (n=268) (n=75) New Zealand 22.7 New Zealand South Korea Philippines (n=22) 35.1 31.6 Singapore (n=69) 18.8 44.7 (n=77) (n=174) (n=103) South Korea 21.3 (n=75) Australia (n=202) 26.2 Laos (n=18) 44.4 Australia (n=202) 33.7 Australia (n=48) 18.8 New Zealand New Zealand Australia (n=48) 18.8 18.2 HK & Macau 35.1 Sri Lanka (n=26) 30.8 (n=77) 17.1 (n=77) (n=41) Singapore (n=69) 14.5 New Zealand Laos (n=18) 16.7 Sri Lanka (n=26) 15.4 13.6 Taiwan (n=207) 31.9 (n=22)

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 31 3. Management Matters (3) Note: Countries/regions for which n  10 Problems common to all regions (top 10, multiple answers, response rate for each country/region) (%)

Difficulty in developing in Major clients requesting No more room for Volatility of local currency’s Complicated customs exchange rate against the new clients on market lower prices cost-cutting Japanese yen clearance procedures

0 25 50 75 100 0 25 50 75 100 0 25 50 75 100 0 25 50 75 100 0 25 50 75 100

Total (n=4,592) 37.6 Total (n=4,592) 35.2 Total (n=2,236) 34.5 Total (n=4,573) 34.0 Total (n=4,490) 30.3

HK/Macau South Korea New Zealand Bangladesh 45.9 46.8 50.0 Taiwan (n=206) 45.6 55.8 (n=268) (n=173) (n=22) (n=52) South Korea Myanmar (n=72) 43.1 India (n=407) 45.1 45.5 China (n=367) 48.2 (n=173) India (n=402) 53.7

Thailand (n=687) 41.6 Pakistan (n=31) 41.9 South Korea Thailand (n=684) 45.0 40.0 Myanmar (n=70) 52.9 (n=75) Singapore 41.6 Thailand (n=687) 40.6 Malaysia (n=283) 43.5 (n=310) Malaysia (n=159) 39.6 Indonesia (n=346) 48.8 Bangladesh 41.5 China (n=599) 36.6 Indonesia (n=352) 38.4 Vietnam (n=627) (n=53) Taiwan (n=76) 36.8 47.5 South Korea 41.0 Australia (n=201) (n=173) Indonesia (n=352) 35.8 37.3 Cambodia (n=87) 44.8 Australia (n=48) 35.4 China (n=599) 40.9 Malaysia (n=284) 34.9 China (n=593) 36.8 Laos (n=17) 41.2 Singapore (n=69) 34.8 Philippines Malaysia (n=284) 39.8 35.3 Philippines Vietnam (n=633) 33.2 (n=102) 40.0 Indonesia (n=215) 34.4 (n=100) Laos (n=18) 38.9 Taiwan (n=208) 33.2 India (n=405) 34.6 China (n=568) 34.2 Thailand (n=388) 34.3 New Zealand HK/Macau Vietnam (n=633) 36.7 32.5 30.8 (n=77) (n=266) Pakistan (n=31) 29.0 Vietnam (n=401) 31.2 HK/Macau Indonesia (n=352) 34.7 32.1 Sri Lanka (n=26) 30.8 (n=268) Thailand (n=682) 23.3 Bangladesh Cambodia (n=38) 26.3 New Zealand India (n=407) 33.9 30.2 30.3 (n=53) (n=76) Malaysia (n=260) 21.5 Singapore Philippines (n=58) 25.9 Singapore Cambodia (n=89) 33.7 28.7 28.4 (n=310) (n=310) Sri Lanka (n=25) 20.0 Philippines HK/Macau (n=41) 24.4 Taiwan (n=208) 32.7 28.2 Pakistan (n=31) 25.8 (n=103) Taiwan (n=205) 14.6 New Zealand India (n=190) 22.6 South Korea 31.2 Cambodia (n=89) 23.6 Vietnam (n=633) 20.4 10.1 (n=77) (n=169) Bangladesh Philippines 15.6 Bangladesh Singapore 31.1 Australia (n=202) 22.8 (n=32) 11.3 8.4 (n=103) (n=53) (n=309) Sri Lanka (n=26) Pakistan (n=17) 11.8 New Zealand 26.9 Myanmar (n=72) 19.4 Myanmar (n=72) 4.2 6.6 (n=76) Pakistan (n=31) Myanmar (n=20) HK/Macau 25.8 Sri Lanka (n=26) 19.2 10.0 Cambodia (n=89) 0.0 6.5 (n=262) Australia (n=202) 19.8 Laos (n=18) 11.1 Laos (n=11) 9.1 Laos (n=18) 0.0 Australia (n=202) 4.5

2016 2015 2016 2015 Singapore survey survey Indonesia survey survey (%) (%) (%) (%) 1 Wage increase (n=311) 59.8 68.3 1 Wage increase (n=348) 82.2 80.5 Competitors’ market shares are growing (cost- 2 Quality of employees (n=348) 56.3 58.7 2 52.6 52.7 wise competition) (n=310) Difficulty in local procurement of raw materials 2 56.3 61.0 Difficulty in developing new clients on market and parts (n=215) 3 41.6 41.1 (n=310) 4 Difficulty in quality control (n=215) 54.9 55.2 Sluggishness in major sales markets Volatility of the local currency’s exchange rate 4 40.3 42.4 5 54.3 70.8 (consumption downturn) (n=310) against the US dollar (n=352) Personnel costs of Japanese (expatriate) 5 36.7 42.0 officers and staff (n=311)

2016 2015 2016 2015 Malaysia survey survey Vietnam survey survey (%) (%) (%) (%) 1 Wage increase (n=633) 75.5 77.9 1 Wage increase (n=285) 67.7 63.3 Difficulty in local procurement of raw materials 2 64.8 65.2 2 Difficulty in quality control (n=159) 64.2 58.4 and parts (n=401) Volatility of the local currency’s exchange rate 3 56.9 62.3 3 Difficulty in quality control (n=401) 58.6 55.6 against the US dollar (n=283) Complicated customs clearance procedures 4 47.5 55.8 4 Quality of employees (n=285) 53.3 51.7 (n=627) Competitors’ market shares are growing (cost- Competitors’ market shares are growing (cost- 5 46.1 44.5 5 45.7 45.3 wise competition) (n=284) wise competition) (n=633)

2016 2015 2016 2015 Thailand survey survey Philippines survey survey (%) (%) (%) (%) Difficulty in local procurement of raw materials 1 Wage increase (n=685) 59.3 60.1 1 62.1 62.3 and parts (n=58) 2 Difficulty in quality control (n=388) 59.0 58.2 2 Quality of employees (n=103) 57.3 50.0 3 Quality of employees (n=685) 48.5 51.0 3 Difficulty in quality control (n=58) 53.5 52.0 Competitors’ market shares are growing (cost- 4 47.3 43.9 4 Wage increase (n=103) 44.7 31.4 wise competition) (n=687) Volatility of the local currency’s exchange rate Volatility of local currency’s exchange rate 5 40.2 33.1 5 45.0 41.2 against the US dollar (n=102) against the Japanese yen (n=684)

Note: Top 5 responses are listed above, except for “No particular problem.” Orange-highlighted items are not included in the top 10 common problems in “3. Management Matters (1). ” Note: Red-highlighted items increased by 10 pp or more from 2015. Blue-highlighted items decreased by 10 pp or more from 2015. Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 33 3. Management Matters (5) 2016 survey 2015 survey Bangladesh (%) (%) Difficulty in local procurement of raw materials and parts Problems by country/region (top 5, multiple answers) 1 81.3 70.6 (n=32)

2016 survey 2015 survey 2 Power shortage or blackout (n=32) 65.6 47.1 India (%) (%) 3 Time-consuming customs procedures (n=52) 63.5 50.0 1 Wage increase (n=406) 67.5 70.3 Competitors’ market shares are growing (cost-wise 2 59.2 63.5 4 Inadequate logistics infrastructure (n=32) 62.5 44.1 competition) (n=407) 3 Complicated customs clearance procedures (n=402) 53.7 56.9 5 Quality of employees (n=53) 60.4 57.1 Tax burdens (i.e. corporate taxes and transfer pricing taxes) 4 52.6 57.1 (n=405) Difficulty in local procurement of raw materials and parts 2016 survey 2015 survey 5 51.6 52.5 Cambodia (%) (%) (n=190) 1 Difficulty in quality control (n=38) 76.3 60.6 Difficulty in local procurement of raw materials and parts 2 73.7 72.7 (n=38) 2016 survey 2015 survey Pakistan (%) (%) 3 Wage increase (n=89) 69.7 62.7 Competitors’ market shares are growing (cost-wise 1 61.3 40.0 4 Quality of employees (n=89) 62.9 60.2 competition) (n=31) 2 Difficulty in quality control (n=17) 52.9 52.9 5 Complicated customs clearance procedures (n=87) 44.8 47.4

3 Wage increase (n=31) 45.2 53.3 2016 survey 2015 survey 4 Major clients requesting lower prices (n=30) 41.9 50.0 Laos (%) (%)

4 High import duties (n=31) 41.9 42.9 1 Difficulty in quality control (n=11) 81.8 58.3

2 Quality of employees (n=18) 72.2 72.2 Difficulty in local procurement of raw materials and parts 3 63.6 50.0 (n=11) Sri Lanka 2016 survey 2015 survey (%) (%) 4 Difficulty in recruiting middle management staff (n=18) 50.0 44.4 1 Wage increase (n=26) 65.4 48.7 Difficulty in local procurement of raw materials and parts Lack of thorough information on trade rules and regulations 2 55.6 63.6 5 47.1 38.9 (n=9) (n=17) 3 Difficulty in quality control (n=9) 44.4 63.6 Tax burdens (i.e. corporate taxes and transfer pricing taxes) 2016 survey 2015 survey 4 34.6 25.0 Myanmar (%) (%) (n=26) 5 Time-consuming customs procedures (n=25) 32.0 19.4 1 Power shortage or blackout (n=20) 85.0 50.0

2 Wage increase (n=73) 75.3 68.8 Difficulty in local procurement of raw materials and parts Note: Top 5 responses are listed above, except for “No particular problem.” Orange-highlighted 3 70.0 100.0 items are not included in the top 10 common problems in “3. Management Matters (1). ” (n=20) Note: Red-highlighted items increased by 10 pp or more from 2015. Blue-highlighted items 4 Quality of employees (n=73) 65.8 50.0 decreased by 10 pp or more from 2015. 5 Difficulty in recruiting middle management staff (n=73) 60.3 53.1

2016 2015 2016 2015 China survey survey South Korea survey survey (%) (%) (%) (%) 1 Wage increase (n=599) 77.8 84.3 1 Wage increase (n=174) 57.5 67.7 2 No more room for cost-cutting (n=367) 48.2 54.2 Competitors’ market shares are growing (cost-wise 2 53.8 57.6 3 Difficulty in quality control (n=367) 45.0 61.4 competition) (n=173) Competitors’ market shares are growing (cost-wise 4 44.4 50.7 3 Major clients requesting lower prices (n=173) 46.8 46.8 competition) (n=599) Volatility of the local currency’s exchange rate 5 Quality of employees (n=599) 42.4 55.5 4 45.1 41.2 against the Japanese yen (n=173) Sluggishness in major sales markets (consumption 4 45.1 39.9 downturn) (n=173)

2016 2015 2016 2015 Hong Kong & Macau survey survey Australia survey survey (%) (%) (%) (%) 1 Wage increase (n=267) 59.2 67.0 1 Wage increase (n=202) 62.9 66.2 2 Difficulty in developing in new clients (n=268) 45.9 44.8 Volatility of the local currency’s exchange rate 2 41.8 48.2 Sluggishness in major sales markets (consumption against the US dollar (n=201) 3 44.0 35.8 downturn) (n=268) Volatility of the local currency’s exchange rate 3 37.3 33.5 Competitors’ market shares are growing (cost-wise against the Japanese yen (n=201) 4 36.9 44.8 competition) (n=268) 4 No more room for cost-cutting (n=48) 35.4 35.7 5 Quality of employees (n=267) 35.2 41.2 Competitors’ market shares are growing (cost-wise 5 33.7 43.4 competition) (n=202)

2016 2015 2016 2015 Taiwan survey survey New Zealand survey survey (%) (%) (%) (%) Competitors’ market shares are growing (cost-wise 1 No more room for cost-cutting (n=22) 50.0 28.1 1 51.4 45.4 competition) (n=208) 2 Wage increase (n=77) 35.1 39.7 Volatility of the local currency’s exchange rate Competitors’ market shares are growing (cost-wise 2 45.6 38.1 2 35.1 38.5 against the Japanese yen (n=206) competition) (n=77) Sluggishness in major sales markets (consumption Volatility of the local currency’s exchange rate against 3 38.9 47.2 4 34.2 33.3 downturn) (n=208) the US dollar (n=76) 4 No more room for cost-cutting (n=76) 36.8 40.0 5 Major clients requesting lower prices (n=77) 32.5 28.2 5 Quality of employees (n=207) 34.3 37.7

Comparison between China and other major countries in Asia (top 5, multiple answers)

中国China インドIndia Wage increase Wage increase 中国インドネシア 100 China Indonesia Tax burdens (i.e. corporate taxes 100 Tax burdens (i.e. corporate taxes and transfer pricing taxes) Difficulty in quality control and transfer pricing taxes) 80 Difficulty in quality control 80 60 60 Volatility of the local Volatility of the local Competitors’ market shares are 40 Competitors’ market shares are 40 currency’s exchange rate currency’s exchange rate growing (cost-wise competition) growing (cost-wise competition) against the US dollar 20 against the US dollar 20 0 0

Complicated customs Quality of employees Complicated customs Quality of employees clearance procedures clearance procedures

Volatility of local currency’s Difficulty in local procurement Volatility of local currency’s Difficulty in local procurement exchange rate against the of raw materials and parts exchange rate against the of raw materials and parts Japanese yen Japanese yen No more room for cost-cutting No more room for cost-cutting

Wage increase Wage increase 中国ベトナム China Vietnam 中国China Thailandタイ 100 100 Tax burdens (i.e. corporate taxes Tax burdens (i.e. corporate taxes Difficulty in quality control and transfer pricing taxes) 80 Difficulty in quality control and transfer pricing taxes) 80 60 60 Volatility of the local Volatility of the local 40 40 Competitors’ market shares are currency’s exchange rate Competitors’ market shares are currency’s exchange rate growing (cost-wise competition) against the US dollar growing (cost-wise competition) against the US dollar 20 20 0 0

Complicated customs Complicated customs clearance procedures Quality of employees Quality of employees clearance procedures

No more room for cost-cutting No more room for cost-cutting

 “Difficulty in quality control,” “Growing market shares of competitors” and “Quality of employees” were cited more commonly in India, Indonesia, Vietnam and Thailand than in China.  “Wage increase” was cited more commonly in China than in India and Thailand. “No more room for cost-cutting” was cited more commonly in China than other four countries, with a difference of over 10 pp.  “Complicated customs clearance procedures” was cited more frequently in India, Indonesia and Vietnam than in China, with a difference of over 10 pp. On the other hand, the proportion was lower in Thailand than in China by more than 10 pp.

Note: Countries/regions for which n  10 Negative impact of soaring costs of production and services Significantly affected Slightly affected on business activities (by country/region) Hardly any impact No impact (%) 0 20 40 60 80 100 Total (n=4,525) 33.2 47.7 16.0 3.1 Indonesia (n=350) 46.9 43.7 8.3 1.1 Pakistan (n=31) 48.4 38.7 9.7 3.2 Myanmar (n=71) 45.1 40.9 11.3 2.8 Malaysia (n=275) 36.4 48.0 14.2 1.5 Cambodia (n=89) 39.3 44.9 13.5 2.3 India (n=402) 36.8 47.3 12.4 3.5 China (n=576) 33.5 49.8 13.9 2.8 Australia (n=201) 36.3 46.8 13.4 3.5 Vietnam (n=626) 35.5 47.1 15.5 1.9 Philippines (n=102) 32.4 49.0 17.7 1.0 HK & Macau (n=265) 32.1 49.1 14.7 4.2 Thailand (n=680) 29.4 50.0 18.2 2.4 Bangladesh (n=53) 32.1 45.3 18.9 3.8 Singapore (n=308) 26.0 50.3 19.2 4.6 Sri Lanka (n=25) 20.0 56.0 20.0 4.0 Laos (n=17) 29.4 41.2 17.7 11.8 South Korea (n=172) 26.2 43.6 25.0 5.2 New Zealand (n=77) 14.3 54.6 23.4 7.8 Taiwan (n=205) 20.0 44.4 28.8 6.8

 A combined 80.9% of the firms responded that their business activities are "Significantly affected" or "Slightly affected" by the negative impact of the rising costs of production and services resulting from soaring prices of payroll, energy, and raw materials. About 80% of the firms in Asia and Oceania are affected negatively.  The proportion of firms sustaining negative impact was the highest in Indonesia at 90.6%, followed by Pakistan, Myanmar and Malaysia.  By industry in Indonesia, the impact was most serious in Food, Textiles, Rubber/Leather, General machinery, Precision machinery, and Communications/Software. A combined 100% of the firms responded that their business activities are "Significantly affected" or "Slightly affected" by negative impact. The proportion of firms that selected “Significantly affected” was the highest in Textiles (88.9%).  By industry in China, over 50% of the firms selected "Significantly affected" in Food (57.1%), Textiles (57.1%) and Wood/Pulp (50.0%).

Negative impact of soaring costs of production and services on business activities (by industry)

Manufacturing (%) Non-manufacturing (%) 0 20 40 60 80 100 0 20 40 60 80 100 Manufacturing total Non-manufacturing total 41.2 46.2 11.0 1.6 25.1 49.3 21.0 4.5 (n=2,291) (n=2,234)

Textiles (n=122) 64.8 27.9 7.4 Transport (n=266) 32.0 48.5 16.2 3.4 Communications/Software 28.8 48.9 18.7 3.6 Food (n=148) 47.3 41.2 10.1 (n=139) 1.4 Wholesale/Retail (n=947) 25.9 53.6 18.0 2.5 Wood/Pulp (n=46) 45.7 50.0 4.4

Construction (n=158) 23.4 47.5 26.0 3.2 Rubber/Leather (n=52) 44.2 51.9 3.9 Finance/Insurance (n=119) 6.7 50.4 31.1 11.8 Motor vehicles/ 41.7 47.6 9.5 Motorcycles (n=401) 1.3 Iron/Nonferrous Significantly affected Slightly affected Hardly any impact No impact 41.1 48.7 9.0 1.2 metals/Metals (n=333) Electric machinery 40.9 46.5 10.2 2.4 (n=372)  A total of 87.4% of the manufacturing firms and 74.4% of the non- manufacturing firms responded that they are “Significantly affected” General machinery 39.2 48.9 10.2 1.7 or “Slightly affected” by the negative impact of rising costs. (n=176) Manufacturing firms are affected more seriously than non- Chemical/Pharmaceutical manufacturing firms. 36.2 45.1 16.0 2.7 (n=337)  In the manufacturing sector, the proportion of firms that selected “Significantly affected” was the highest in Textiles. Precision machinery  35.2 48.4 16.5 In the non-manufacturing sector, the proportion of firms affected (n=91) negatively was high in the Transport industry at over 80%.  The combined proportion of “Hardly any impact” and “No impact” is Significantly affected Slightly affected Hardly any impact No impact the highest in Finance/Insurance of all industries, exceeding 40%.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 38 4. Rising Costs of Production and Services (3) Total (n = 3,610) Specific type(s) of inflation countermeasures Note: China includes a shift of production/service capabilities to other areas in the mainland. (multiple answers) Industries with a significantly higher response rate than average (%) 0 20 40 60 80 100 Answers Response rate Total 50.0 Finance/Insurance 68.7 Cost-cutting (e.g., administration cost, indirect 1 50.0 cost) Transport 58.9 Reviewed suppliers of raw materials and Electric machinery 57.4 2 39.6 procurement content Total 39.6 Encouraged recruitment of local staff, reduced 3 28.8 Wood/Pulp 65.9 payroll cost Rubber/Leather 65.3 4 Raised the prices of products (services) 26.0 General machinery 59.7 Complicated/Reconsidered productions Total 28.8 5 (Consolidation of lineup, improvement, adding of 23.1 Finance/Insurance 49.3 value) Construction 41.8 Cost-cutting by mass production and volume 6 20.7 Motor vehicles/Motorcycles 31.9 sales Cost-cutting by increasing local procurement Total 19.5 7 19.5 rate Motor vehicles/Motorcycles 43.8 Encouraged automation and power-saving (e.g., Precision machinery 36.8 8 18.8 introduced industrial robots) General machinery 36.4

9 No particular measures 5.4 Total 18.8 Electric machinery 41.3 Shifted production/service capabilities to the 10 4.5 Motor vehicles/Motorcycles 38.4 third country/areas(*) Rubber/Leather 36.7

 The most common inflation countermeasure was “Cost-cutting (e.g., administration cost, indirect cost)” at 50.0%. In particular, this countermeasure is taken (considered) more commonly by non-manufacturing industries, such as Finance/Insurance and Transport. The proportion of firms that “Encouraged recruitment of local staff and reduced payroll cost” or that is considering doing so was also high.  In the Wood/Pulp and Rubber/Leather industries, the proportion of firms that reviewed or are considering reviewing “suppliers of raw materials and procurement content” exceeded 60%.  In the Motor vehicles/Motorcycles industry, 43.8% of the firms implement (consider) “Cost-cutting by increasing local procurement rate,” while 38.4% of the firms implement “Encouraged automation and power-saving.”

Note 1: Countries/regions for which n  50 Specific type(s) of inflation countermeasures (by country/region) (multiple answers) (1/2) Note 2: China includes a shift of production/service capabilities to other areas in the mainland. (%) Cost-cutting Reviewed suppliers of raw Complicated/Reconsidered Encouraged recruitment of local Raised the prices of products (e.g., administration cost, materials and procurement productions staff, reduced payroll cost (services) (Consolidation of lineup, improvement, indirect cost) content adding of value)

0 25 50 75 100 0 25 50 75 100 0 25 50 75 100 0 25 50 75 100 0 25 50 75 100

Total Total Total Total Total (n=3,610) 50.0 (n=3,610) 39.6 (n=3,610) 28.8 (n=3,610) 26.0 (n=3,610) 23.1

Australia Thailand Myanmar Myanmar New Zealand (n=166) 63.9 (n=536) 46.6 (n=60) 43.3 (n=60) 40.0 (n=51) 31.4

South Korea Indonesia Cambodia New Zealand Taiwan (n=119) 58.0 (n=314) 45.5 (n=75) 37.3 (n=51) 39.2 (n=132) 30.3

China Vietnam China Australia South Korea (n=452) 57.7 (n=515) 44.1 (n=452) 35.2 (n=166) 33.7 (n=119) 28.6

HK & Macau India India Indonesia Thailand (n=213) 55.9 (n=335) 43.0 (n=335) 33.7 (n=314) 30.9 (n=536) 27.4

Singapore China HK & Macau India HK & Macau (n=232) 55.2 (n=452) 41.8 (n=213) 32.9 (n=335) 29.6 (n=213) 27.2

Taiwan Malaysia Singapore HK & Macau China (n=132) 53.0 (n=228) 41.7 (n=232) 32.3 (n=213) 29.1 (n=452) 24.3

Philippines Taiwan Vietnam Malaysia Indonesia (n=83) 50.6 (n=132) 40.2 (n=515) 30.1 (n=228) 28.1 (n=314) 24.2

Indonesia Philippines Taiwan South Korea Philippines (n=314) 50.0 (n=83) 38.6 (n=132) 29.6 (n=119) 25.2 (n=83) 24.1

New Zealand Cambodia Malaysia Vietnam Myanmar (n=51) 49.0 (n=75) 37.3 (n=228) 29.4 (n=515) 25.1 (n=60) 21.7

Malaysia New Zealand Indonesia Singapore Singapore (n=228) 48.3 (n=51) 37.3 (n=314) 26.4 (n=232) 24.1 (n=232) 20.7

India South Korea Thailand Taiwan India (n=335) 47.5 (n=119) 33.6 (n=536) 24.3 (n=132) 23.5 (n=335) 20.0

Vietnam HK & Macau Philippines Thailand 31.0 Malaysia (n=515) 46.2 (n=213) (n=83) 19.3 (n=536) 23.3 (n=228) 19.7

Thailand Australia Philippines 28.3 Australia Vietnam (n=536) 42.0 (n=166) (n=166) 18.7 (n=83) 20.5 (n=515) 18.8

Myanmar Myanmar China 21.7 South Korea Australia (n=60) 41.7 (n=60) (n=119) 17.7 (n=452) 18.6 (n=166) 18.7

Cambodia Singapore Cambodia 19.8 New Zealand Cambodia (n=75) 34.7 (n=232) (n=51) 15.7 (n=75) 17.3 (n=75) 17.3

Note 1: Countries/regions for which n  50 Specific type(s) of inflation countermeasures (by country/region) (multiple answers) (2/2) Note 2: China includes a shift of production/service capabilities to other areas in the mainland. Encouraged automation and (%) Cost-cutting by mass Cost-cutting by increasing local Shifted production/service production and volume sales power-saving capabilities to the third country/areas procurement rate (e.g., introduced industrial robots)

0 25 50 75 100 0 25 50 75 100 0 25 50 75 100 0 25 50 75 100

Total Total Total Total 4.5 (n=3,610) 20.7 (n=3,610) 19.5 (n=3,610) 18.8 (n=3,610) India Singapore India Malaysia 10.8 (n=335) 27.8 (n=335) 34.9 (n=228) 30.3 (n=232)

Philippines China HK & Macau China 8.9 (n=83) 27.7 (n=452) 25.7 (n=452) 30.1 (n=213)

Indonesia Thailand New Zealand Indonesia 7.8 (n=314) 26.4 (n=536) 22.4 (n=314) 22.9 (n=51)

Vietnam Vietnam Taiwan Vietnam 7.6 (n=515) 22.9 (n=515) 21.6 (n=515) 22.1 (n=132)

South Korea Indonesia Australia Philippines 7.2 (n=119) 22.7 (n=314) 21.3 (n=83) 21.7 (n=166)

Myanmar Malaysia China 21.7 Thailand 4.9 (n=60) (n=228) 17.5 (n=536) 17.2 (n=452)

Thailand South Korea South Korea Malaysia 21.6 4.8 (n=536) (n=119) 16.8 (n=119) 16.8 (n=228) Australia South Korea 19.9 Taiwan Cambodia (n=166) (n=132) 15.2 (n=75) 14.7 (n=119) 4.2

Malaysia Myanmar 18.9 Cambodia Taiwan (n=228) (n=75) 14.7 (n=132) 14.4 (n=60) 3.3

Cambodia Thailand 18.7 Philippines Australia (n=75) (n=83) 13.3 (n=166) 13.3 (n=536) 3.2 China 17.0 Myanmar Singapore Vietnam (n=452) (n=60) 10.0 (n=232) 12.5 (n=515) 3.1 New Zealand 15.7 New Zealand India Indonesia (n=51) (n=51) 9.8 (n=335) 11.0 (n=314) 2.9 Taiwan 13.6 Singapore New Zealand Cambodia (n=132) (n=232) 9.1 (n=51) 9.8 (n=75) 2.7 HK & Macau 13.2 HK & Macau HK & Macau India (n=213) (n=213) 6.6 (n=213) 8.0 (n=335) 1.2 Singapore 10.3 Australia Myanmar Philippines (n=232) (n=166) 4.8 (n=60) 3.3 (n=83) 1.2

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 41 Manufacturing sectors 5. Procurement of Raw Materials and Parts (1) only Note: Country/region for which n  10 Ratio of labor/material costs to production costs Ratio of labor/material costs to production costs (by company size and industry) (by country/region) (%) (%) 0 20 40 60 80 100 0 20 40 60 80 100 Laos (n=10) 40.0 38.5 21.5 Total (n=2,057) 19.7 58.4 21.9 Myanmar (n＝17) 30.4 50.2 19.4 Cambodia (n=36) 29.5 54.9 15.6 Large (n=1,095) 16.6 62.6 20.8 New Zealand (n=15) 29.4 55.1 15.5 SME (n=962) 23.1 53.6 23.3 HK & Macau (n=31) 24.9 50.1 25.0 Australia (n=43) 24.0 55.7 20.3 Textiles (n=115) 31.8 51.3 16.9 Sri Lanka (n=10) 23.9 62.6 13.5 General machinery (n=159) 22.2 57.9 19.9 South Korea (n=66) 23.2 60.9 15.9 Precision machinery (n=75) 20.8 57.7 21.5 Bangladesh (n=30) 23.1 57.9 19.0 Electric machinery (n=310) 19.6 61.7 18.7 Thailand (n=367) 21.0 56.1 22.9 Singapore (n=55) 20.4 55.0 24.6 Rubber/Leather (n=48) 19.4 49.5 31.1 Vietnam (n=382) 19.5 56.9 23.6 Iron/Nonferrous metals/Metals (n=309) 19.3 56.0 24.7 China (n=334) 18.8 59.5 21.7 Food (n=136) 18.6 56.0 25.4 Indonesia (n=206) 18.5 59.8 21.7 Chemical/Pharmaceutical (n=299) 17.2 61.1 21.7 Philippines (n=55) 17.9 59.3 22.8 Wood/Pulp (n=41) 16.4 60.1 23.5 Malaysia (n=151) 16.5 60.4 23.1 Motor vehicles/Motorcycles (n=378) 15.4 61.8 22.8 India (n=168) 16.3 62.6 21.1 Labor costs Material costs (raw materials, parts) Other Taiwan (n=65) 15.8 62.9 21.3 Pakistan (n=16) 10.4 78.9 10.7 Note: “Production cost” includes the costs of all resources consumed in producing an item, such as materials, labor, and others. Labor costs Material costs (raw materials, parts, etc.) Other

 The ratio of labor costs to local production costs of Japanese-affiliated firms averaged 19.7%, while the ratio of material costs averaged 58.4%. Thus, the material costs constitute a majority of local production costs. In comparison with the 2015 survey, labor costs increased by 0.1 pp, while material costs decreased by 1.6 pp.  By country/region, the ratio of labor costs is relatively high in Laos, Myanmar, Cambodia and New Zealand. On the other hand, the ratio of material costs is high in Pakistan (78.9%), where Motor vehicles/Motorcycles is the major industry.

Local production cost in comparison with production cost in Local production cost in comparison with production cost in Japan, which is taken as 100 (by company size and industry) Japan, which is taken as 100 (by country/region)

Note: Country/region for which n  10 By industry 0 20 40 60 80 100 0 20 40 60 80 100 120

Total (n=1,925) 78.9 Australia (n=39) 112.0 Motor vehicles/Motorcycles (n=356) 83.9 Singapore (n=45) 92.8 South Korea (n=68) 91.3 Wood/Pulp (n=41) 82.3 Iron/Nonferrous metals/Metals New Zealand (n=16) 86.6 80.8 (n=296) Pakistan (n=13) 84.9 Food (n=126) 80.1 Indonesia (n=190) 82.6 Chemical/Pharmaceutical (n=274) 79.9 Thailand (n=354) 79.4 China (n=314) General machinery (n=151) 79.4 79.4 Malaysia (n=138) 79.0 Electric machinery (n=281) 77.5 Taiwan (n=60) 78.4 Rubber/Leather (n=43) 74.5 India (n=155) 78.4 Precision machinery (n=72) 73.7 Myanmar (n=14) 77.9

Textiles (n=104) 63.3 HK & Macau (n=28) 74.1 Philippines (n=50) 73.6 By company size 0 20 40 60 80 100 Vietnam (n=359) 73.2

Large (n=1,000) 81.9 Bangladesh (n=30) 61.3 SME (n=925) 75.6 Cambodia (n=35) 58.3

Note: “Production cost” includes the costs of all resources consumed in producing goods, such as materials, labor, and others.

 Compared with the production cost in Japan, which is taken as 100, the average local production cost decreased from 80.6 in the 2015 survey by 1.7 pp to 78.9.  By industry, production costs are relatively high in Motor vehicles/Motorcycles, Wood/Pulp and Iron/Nonferrous metals/Metals, while the cost is lower in Textiles at 63.3.  By company size, the costs of SMEs (75.6) were lower than those of large enterprises (81.9) by 6.3 pp. The difference increased by 1.3 pp from the 2015 survey (with a difference of 5.0 pp).  By country/region, Australia (112.0) surpassed Japan in production costs, while the costs are lower in Cambodia (58.3) and Bangladesh (61.3).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 43 Manufacturing sectors 5. Procurement of Raw Materials and Parts (3) only Procurement sources for raw materials and parts Note: Country/region for which n  10 (by country/region, responses total 100%) Local Japan ASEAN China Other (%)

0 20 40 60 80 100 Total (n=2,022) 46.5 30.1 8.3 7.2 7.9 China (n=327) 67.8 25.9 2.3 4.0 Thailand (n=367) 57.1 28.9 3.0 5.3 5.7 New Zealand (n=21) 56.3 7.8 6.3 3.4 26.2 India (n=165) 54.1 24.5 9.8 4.4 7.2 Australia (n=43) 51.1 15.2 11.7 8.2 13.8 South Korea (n=66) 49.2 35.1 3.5 6.1 6.1 Taiwan (n=61) 46.5 34.6 4.2 6.6 8.1 Indonesia (n=201) 40.5 34.1 10.8 5.3 9.3 Malaysia (n=143) 36.6 32.8 12.9 5.6 12.1 Vietnam (n=379) 34.2 35.6 12.0 10.5 7.7 Myanmar (n=16) 34.1 16.3 21.9 18.8 8.9 Philippines (n=55) 31.6 39.0 8.1 8.7 12.6 Pakistan (n=17) 29.7 15.1 22.1 10.7 22.4 Sri Lanka (n=10) 29.7 14.6 10.4 27.3 18.0 Bangladesh (n=30) 25.3 21.9 7.1 34.0 11.7 Singapore (n=47) 20.3 39.7 18.3 12.7 9.0 HK/Macau (n=29) 20.3 30.1 12.8 22.2 14.6 Cambodia (n=36) 13.9 31.3 21.5 28.8 4.5

 The largest procurement source for raw materials and parts in the local production activities of Japanese-affiliated firms was "Local" (46.5%), followed by “Japan" (30.1%) and "ASEAN" (8.3%). The local procurement (dependency) rate remained the same as in the 2015 survey (46.5%). The procurement rate from Japan decreased by 0.9 pp, while that from ASEAN and China increased slightly.  By country/region, the local procurement rate is high in China, and the rate increased by 3.1 pp from the 2015 survey (64.7%).  The rate of procurement from Japan is highest in Singapore (39.7%), followed by the Philippines (39.0%) and Vietnam (35.6%).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 44 Manufacturing sectors 5. Procurement of Raw Materials and Parts (4) only Procurement sources of major countries (comparison with the 2010 survey)

100% 3.3 4.0 3.9 2.7 5.0 5.7 7.2 6.1 5.5 7.0 8.3 7.7 5.2 3.0 2.3 2.0 9.3 12.1 12.6 3.2 5.3 5.0 2.1 2.5 4.4 90% 4.7 4.4 6.1 5.5 3.0 5.3 10.5 3.5 5.6 10.2 9.8 15.8 13.2 8.7 80% 25.9 14.8 10.8 12.5 35.4 12.9 12.0 38.2 16.6 8.1 70% 31.0 28.9 24.5 35.1 60% 31.1 33.3 29.1 34.1 32.8 35.6 50.0 50% 39.0 42.5 40% 67.8 30% 58.3 56.1 57.1 54.1 55.0 49.2 45.2 45.9 20% 42.9 40.5 36.6 34.2 31.6 27.2 10% 22.4

0% 2010 2016 2010 2016 2010 2016 2010 2016 2010 2016 2010 2016 2010 2016 2010 2016 (n=464) (n=327) (n=503) (n=367) (n=74) (n=165) (n=43) (n=66) (n=87) (n=201) (n=175) (n=143) (n=100) (n=379) (n=89) (n=55) China Thailand India South Korea Indonesia Malaysia Vietnam Philippines

Local Japan ASEAN China Other

 Comparing the procurement sources for raw materials and parts in eight major countries in the 2010 survey with those in the 2016 survey, local procurement rates increased in China, Thailand, India, Vietnam and the Philippines. The rate increased by approx. 12 pp in Vietnam and by approx. 10 pp in China during the six years.  The procurement rate from Japan is increasing in Indonesia and Malaysia.  The procurement rate from China increased in all six countries, excluding India. The rate is particularly high in Vietnam at 10.5%.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 45 Manufacturing sectors 5. Procurement of Raw Materials and Parts (5) only Note: Countries/regions for which n>15. “n” indicates the numbers of valid responses for each industry by country/region. Procurement sources for raw materials and parts Top 4 countries/regions regarding the local (by industry, responses total 100%) procurement rate in major industries Motor vehicles/ 0 20 40 60 80 100 (%) (%) Motorcycles 2.1 China (n=68) 72.3 22.2 3.4 0 20 40 60 80 100 2.8 Thailand (n=71) 66.0 26.4 3.0 Total(n=2,022) 46.5 30.1 8.3 7.2 7.9 1.8 India (n=62) 58.8 25.5 12.1 1.9 1.7 Food (n=133) 65.9 13.5 6.9 12.3 Indonesia (n=57) 43.5 37.0 11.7 4.8 1.4 Iron/Nonferrous 3.0 0 20 40 60 80 100 (%) Wood/Pulp (n=43) 59.0 14.7 9.5 14.5 metals/Metals 1.2 2.3 China (n=35) 67.8 28.4 1.7 2.6 7.0 General machinery (n=158) 57.2 31.5 2.4 3.7 Thailand (n=71) 56.7 32.2 2.4 5.2 5.3 Motor vehicles/Motorcycles India (n=21) 54.7 30.2 8.4 51.2 30.7 10.5 4.4 1.4 (n=372) 3.2 Vietnam (n=80) 39.7 37.5 8.0 6.5 8.3 Iron/Nonferrous Chemical/ 45.7 33.6 6.3 9.9 0 20 40 60 80 100 (%) metals/Metals (n=311) 4.5 Pharmaceutical Chemical/Pharmaceutical China (n=45) 64.7 24.9 4.1 6.3 44.1 28.9 10.2 6.4 10.4 (n=293) Thailand (n=54) 53.0 28.3 5.9 5.0 7.8 Rubber/Leather (n=46) 42.2 36.9 9.7 6.5 South Korea (n=30) 48.5 37.1 2.2 5.0 7.2 4.7 India (n=23) 40.7 20.0 12.8 10.1 16.4 Textiles (n=111) 35.6 23.5 8.4 21.5 11.0 Electric machinery 0 20 40 60 80 100 (%) Electric machinery (n=296) 34.4 35.9 10.6 14.1 5.0 China (n=61) 50.0 42.4 3.4 4.2 Thailand (n=44) 41.1 31.0 7.0 17.0 3.9 Precision machinery (n=77) 31.5 43.2 8.3 10.0 7.0 Taiwan (n=16) 38.8 43.4 7.3 6.0 4.5

Local Japan ASEAN China Other Malaysia (n=43) 31.8 38.3 12.5 11.4 6.0

 By industry, the local procurement rate of raw materials and parts is high in Food and Wood/Pulp at 65.9% and 59.0%, respectively. Meanwhile, the procurement rate from Japan is high (over 40%) in Precision machinery.  In the Electric machinery industry, the local procurement rate decreased to 34.4% by 0.6 pp from the 2015 survey, and the rate of procurement from Japan also decreased by 2.7 pp to 35.9%. The procurement rates from ASEAN and China increased by 1.4 pp to 10.6% and by 2.8 pp to 14.1%, respectively.  In all four industries with valid responses from more than 200 companies, the local procurement rate exceeded 50% in China. In the Motor vehicles/Motorcycles industry, the rate in China increased to 72.3% by 4.5 pp from 67.8% in 2015.

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 46 Manufacturing sectors 5. Procurement of Raw Materials and Parts (6) only Local procurement sources for raw materials and parts Local procurement sources for raw materials and parts (by country/region, responses total 100%) (by company size and industry, responses total 100%)

Local companies Japanese-affiliated companies Other foreigh-affiliated companies Local companies Japanese-affiliated companies (%) Other foreign-affiliated companies (%) 0 20 40 60 80 100 0 20 40 60 80 100 Total (n=1,729) 54.7 37.9 7.4 Large (n=920) 56.6 35.9 7.5 South Korea (n=59) 88.2 7.4 4.4 SME (n=809) 52.6 40.3 7.1 Australia (n=33) 84.9 5.2 9.9 ＝ Myanmar (n 10) 83.5 9.0 7.5 Food (n=118) 80.9 14.4 4.7 Pakistan (n=12) 80.0 11.3 8.7 Wood/Pulp (n=40) 71.0 21.5 7.5 Taiwan (n=54) 78.7 18.0 3.3 Textiles (n=87) 59.3 27.1 13.6 Bangladesh (n=24) 76.2 17.5 6.3 Chemical/Pharmaceutical (n=259) 57.1 34.0 8.9 New Zealand (n=14) 73.6 17.9 8.5 Rubber/Leather (n=40) 56.9 37.3 5.8 India (n=147) 73.4 19.0 7.6 General machinery (n=144) 55.3 39.3 5.4 China (n=307) 59.4 35.4 5.2 Iron/Nonferrous metals/Metals (n=264) 51.9 39.6 8.5 Cambodia (n=22) 58.0 11.2 30.8 Precision machinery (n=60) 45.9 49.3 4.8 Malaysia (n=119) 56.8 38.7 4.5 Electric machinery (n=249) 45.7 45.4 8.9 Singapore (n=27) 53.8 28.2 18.0 Motor vehicles/Motorcycles (n=317) 42.9 52.2 4.9 Indonesia (n=171) 47.2 48.8 4.0 Thailand (n=349) 43.4 52.0 4.6  “Local companies” was the largest local procurement source, at Vietnam (n=310) 41.1 45.8 13.1 54.7%, followed by “Japanese-affiliated companies” (37.9%) and "Other foreign-affiliated companies" (7.4%). HK & Macau (n=14) 40.0 47.1 12.9  In the Philippines and Thailand, “Japanese-affiliated Philippines (n=45) 36.3 53.8 9.9 companies” exceeded 50% as a procurement source.  By industry, “Local companies” exceeded 80% in Food. Note: Countries/regions for which n ≥ 10

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 47 Manufacturing sectors 5. Procurement of Raw Materials and Parts (7) only Raw materials/parts that can be purchased only in Japan Yes (by industry) (%) (%) 0 20 40 60 80 100 100 Yes No General machinery (n=141) 87.9 80 Electric machinery (n=268) 83.2 Textiles (n=84) 81.0 60 80.9 80.4 Motor vehicles/Motorcycles (n=329) 80.6 40 Precision machinery (n=75) 80.0 Chemical/Pharmaceutical (n=235) 79.6 20 Iron/Nonferrous metals/Metals 78.0 19.1 19.6 (n=263) 0 Rubber/Leather (n=40) 77.5 FY2015 FY2016 Food (n=77) 76.6 (n=1,807) (n=1,677) Wood/Pulp (n=23) 60.9 Yes (by country/region) (%)  Firms that procure raw materials and parts from Japan were asked if there are any raw 0 20 40 60 80 100 materials/parts that can be procured only from Japan. As a result, 80.4% of the firms answered “Yes” to this question. The percentage decreased by 0.5 pp from the 2015 survey (80.9%). Cambodia (n=26) 96.2  By industry, over 70% of the firms in all industries excluding Wood/Pulp responded “Yes.” Bangladesh (n=18) 88.9  Major raw materials and parts included in the responses are as follows: Indonesia (n=174) 86.2 General machinery: Steel products, engines, and special processed products Taiwan (n=53) 84.9 Electric machinery: Semiconductors, special resin materials, electronic parts, and special metal products Thailand (n=307) 83.4 Textiles: Chemicals, special cloth, special thread, and high-grade materials Vietnam (n=328) 82.6 Motor vehicles/Motorcycles: Steel products, electronic parts, forged parts, engine parts, and metal fittings South Korea (n=58) 81.0 Precision machinery: Electronic circuit parts, special materials, and high-precision parts Malaysia (n=110) 80.9 Chemical/Pharmaceutical: Special resin materials, special plastic raw materials, coating materials, additives, and pigments India (n=132) 77.3 Iron/Nonferrous metals/Metals: Special steel products, special metal products, steel China (n=284) 77.1 products, and special chemicals Singapore (n=42) 71.4 Rubber/Leather: Chemicals, special chemical products, synthetic rubber, and rubber raw materials Philippines (n=51) 70.6 Food: Ingredients, food additives, seasoning, fragrances, packaging materials, and HK & Macau (n=25) 64.0 machine parts Wood/Pulp: Raw materials, base cardboard papers, packaging materials, and equipment Australia (n=30) 56.7 parts. Note: Countries/regions for which n  15

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 48 Manufacturing sectors 5. Procurement of Raw Materials and Parts (8) only Reasons for difficulty in procuring Response rate by country/region and the raw materials/parts from countries other than Japan industry category (rank order) By country/region By industry category (n=1,335) (%) 0 20 40 60 80 100 % % Because they cannot be produced in areas India (n=100) 90.0 Rubber/Leather (n=31) 93.6 other than Japan in terms of 83.3 quality/technology. South Korea (n=47) 89.4 Textiles (n=68) 86.8 Taiwan (n=45) 84.4 Food (n=59) 86.4 Because we have no choice but to procure Iron/Nonferrous metals/Metals raw materials/parts from Japan since our Thailand (n=256) 84.4 84.8 client company asks us to do so. 37.5 (n=204) Malaysia (n=85) 83.5 Precision machinery (n=59) 83.1 Because Japanese providers have competitive advantage by providing stable % % supply/timely delivery services. 17.2 Indonesia (n=149) 49.7 Textiles (n=68) 47.1 Motor vehicles/Motorcycles China (n=214) 42.5 44.5 Because of the prevention of our technology (n=263) drain/protection of our intellectual property. Thailand (n=256) 40.6 Iron/Nonferrous metals/Metals 12.7 42.2 (n=204) Because those Japanese products have competitive advantage in terms of their 9.0 % % production costs. Philippines (n = 36) 27.8 General machinery (n=123) 24.4 Motor vehicles/Motorcycles Because it is essential for our deals to be Indonesia (n=149) 22.2 17.9 treated swiftly and flexibly in teams of (n=263) 4.2 Thailand (n=256) 17.2 specification changes/services/maintenance. Electric machinery (n=220) 17.7

Because it is difficult to dissolve relationship % % with our Japanese providers. 2.9 Taiwan (n=45) 28.9 Food (n=59) 20.3

South Korea (n=47) 19.2 Precision machinery (n=59) 20.3 China (n=214) 17.8 Chemical/Pharmaceutical  As to the reason why it is difficult to procure the raw materials/parts from 14.6 countries other than Japan, 83.3% of the firms mentioned (n=185) “quality/technology,” followed by “materials/parts designated by the client Note: Country/region and industry category for which n  30 company” (37.5%).

Future raw materials/parts procurement policy (by country/region, multiple answers) Note: Countries/regions for which n  50

Ratio of firms that responded that they would raise Ratio of firms that responded that they would raise Ratio of firms that responded they would raise the the local procurement rate in the operating the procurement rate from “ASEAN” procurement rate from “China” country/region (%) (%) (%) 0 25 50 75 100 0 25 50 0 25 50

Total (n=2,032) 72.0 Total(n=2,032) 25.2 Total (n=2,032) 12.1 ASEAN (n=1,264) India (n=174) 85.6 32.3 South Korea (n=66) 33.3 Malaysia (n=148) 43.9 China (n=318) 81.1 Taiwan (n=63) Vietnam (n=385) 33.3 31.8 Thailand (n=365) 77.5 Philippines (n=55) 30.9 Malaysia (n=148) 22.3 Vietnam (n=385) 75.3 Indonesia (n=201) 30.4 Indonesia (n=201) 10.5 Indonesia (n=201) 72.6 Thailand (n=365) 20.8 Vietnam (n=385) 9.4 South Korea (n=66) 69.7 Taiwan (n=63) 20.6 Thailand (n=365) Malaysia (n=148) 68.9 South Korea (n=66) 16.7 8.8 Taiwan (n=63) 68.3 India (n=174) 14.4 Philippines (n=55) 7.3 Philippines (n=55) 61.8 China (n=318) 6.0 India (n=174) 6.9

Important local procurement sources to raise the local procurement rate (by country/region, multiple answers) Note: Countries/regions for which n  50  As a raw material/part procurement policy in the Ratio of firms that responded that local companies Ratio of firms that responded that Japanese- future, the largest proportion of are important for raising the local procurement rate affiliated companies are important for raising the (%) (%) firms at 72.0% responded that local procurement rate they would raise the local 0 25 50 75 100 0 25 50 75 100 procurement rate in the operating country/region. Total(n=1,407) 80.5 Total (n＝1,407) 59.1  India (n=149) 94.6 ＝ As local procurement sources Indonesia (n 145) 71.7 that will become important in China (n=221) 86.0 Thailand (n＝279) 71.0 the future for raising the local procurement rate, “Local Indonesia (n=145) 84.8 ＝ Vietnam (n 289) 68.5 companies” were cited by Thailand (n=279) 77.4 Malaysia (n＝94) 61.7 80.5% of the firms, while “Japanese-affiliated firms” was Vietnam (n=289) 75.4 China (n＝221) 52.9 cited by 59.1%. Malaysia (n=94) 68.1 India (n＝149) 47.0

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 50 Manufacturing sectors 5. Procurement of Raw Materials and Parts (10) only Reasons for raising future procurement rate for raw materials/parts (multiple answers)

Reason for raising procurement rate Reason for raising procurement rate Reason for raising procurement rate Reason for raising procurement rate from local market from ASEAN from China from Japan (n=1,448) (%) (n=504) (%) (n=241) (%) (n=195) (%) 0 20 40 60 80 100 0 20 40 60 80 100 0 20 40 60 80 100 0 20 40 60 80 100

To make costs lower 84.9 83.9 88.8 24.1

To shorten lead time 63.3 31.8 13.7 14.9

To diversify risks 17.2 28.2 17.0 18.5

To improve quality 16.0 22.0 16.6 67.2

To speed up after-sales/ maintenance services 13.7 5.4 3.7 7.7

To follow instructions by clients 8.0 6.8 8.3 28.7

Tariff reduction in line Not applicable with FTA 16.5 8.7 9.7

 For firms that responded that they would raise the procurement rate from the local market, ASEAN, and China, the biggest reason was “to make costs lower.”  The major reasons for raising the local procurement rate were “to make costs lower” (84.9%) and “to shorten lead time” (63.3%).  The major reasons for raising the procurement rate from ASEAN were “to make costs lower” (83.9%), “to shorten lead time” (31.8%), “to diversify risks” (28.2%), and “to improve quality” (22.0%).  The biggest reason for raising the rate of procurement from Japan was “to improve quality” (67.2%).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 51 6. Exports/Imports (1) Proportion of export sales to the total sales (by country/region, responses as 0-100%)

(%) 100 2.9 2.1 1.8 4.1 1.4 4.3 10.3 7.3 6.5 7.2 8.0 12.8 7.8 7.9 13.6 11.7 13.5 15.4 90 5.1 12.1 3.5 11.3 23.3 26.3 12.0 18.7 28.0 68.8 7.5 6.9 8.5 14.6 8.9 32.1 49.0 80 15.4 27.6 28.0 2.1 8.3 14.4 23.8 25.5 68.8% 2.1 5.8 59.8% 17.2 15.6 10.3 9.6 70 8.0 6.3 10.0 10.3 57.3% 28.6 10.3 1.4 4.8 3.6 52.6% 25.3 60 48.8% 8.2 13.6 3.6 15.1 12.7 19.3 17.8 1.2 16.0 28.3 11.3 50 26.6 27.8 31.6 22.2 36.6% 39.7% 9.3 7.8 74.5 33.9 7.3 7.8 36.1% 25.6 8.1 3.8 9.1 40 12.0 45.7% 3.9 62.1 30.2% 45.0% 4.0 3.9 27.7% 29.2% 29.6% 45.1% 13.3 10.3 15.0 17.8 3.9 30 51.6 23.3% 23.6% 10.1 21.4% 54.8 16.8% 37.2 46.6 14.5% 20 36.0 32.5 32.0 31.4 31.3 37.3 27.6 25.4 27.6 24.7 25.3 10 35.9 31.5 23.7

South New HK & India Pakistan Myanmar Taiwan Indonesia Australia Thailand Total China Cambodia Singapore Sri Lanka Malaysia Vietnam Philippines Bangladesh Laos Korea Zealand Macau (n=374) (n=29) (n=47) (n=192) (n=327) (n=191) (n=653) (n=4,161) (n=465) (n=84) (n=279) (n=25) (n=247) (n=600) (n=99) (n=51) (n=16) (n=165) (n=73) (n=244)

0% 1-25% 25-50% 50-75% 75-100% 100% Average Domestic sales-oriented Export-oriented (export ratio: less than 50%) (50% +)

 The average export-to-local sales ratio of Japanese-affiliated firms exceeded 50% in Laos (68.8%), Bangladesh (59.8%), the Philippines (57.3%) and Vietnam (52.6%). On the other hand, India (14.5%) and Pakistan (16.8%), with an export ratio below 20%, had a high proportion of domestic sales.  The proportion of totally export-oriented firms (export ratio: 100%) was high in Laos (68.8%), Bangladesh (49.0%) and Cambodia (32.1%). Meanwhile, completely domestic sales-oriented firms (export ratio: 0%) exceeded 50% in Myanmar (74.5%), Pakistan (62.1%), Cambodia (54.8%) and India (51.6%).

Breakdown of export destinations (by country/region, responses total 100%) Note: Countries/regions for which n  10 (%) 0 10 20 30 40 50 60 70 80 90 100 Total (n=2,821) 42.4 24.6 7.6 1.6 4.6 3.6 15.6 Bangladesh (n=38) 78.3 0.23.7 3.4 5.6 8.9 0.4 Myanmar (n=13) 70.6 17.2 2.2 1.2 8.5 Cambodia (n=40) 68.8 21.1 1.5 5.0 2.6 1.1 China (n=338) 59.0 10.5 0.9 5.6 3.4 20.7 0.6 Vietnam (n=463) 58.4 19.5 4.4 4.3 2.7 10.1 Laos (n=12) 55.8 32.1 8.3 1.7 2.1 0.2 Philippines (n=76) 51.2 20.7 6.6 6.7 4.5 10.2 Indonesia (n=205) 47.2 31.7 2.61.6 4.8 3.4 8.7 Thailand (n=481) 40.4 31.9 4.5 3.6 4.0 3.3 12.4 Sri Lanka (n=18) 39.7 13.4 3.2 3.2 14.1 10.4 16.0 India (n=183) 36.7 25.0 1.8 6.1 10.0 20.4 New Zealand (n=44) 35.8 3.8 9.4 2.1 4.1 44.9 Taiwan (n=122) 31.3 14.9 28.3 0.9 7.7 1.8 15.1 HK & Macau (n=164) 30.6 13.4 38.7 0.8 2.9 2.8 11.0 South Korea (n=111) 29.8 12.8 25.6 1.6 8.0 5.1 17.3 1.0 1.9 Australia (n=125) 29.5 9.6 6.2 2.6 49.2 Malaysia (n=169) 27.8 46.5 4.4 1.9 5.0 3.1 11.4 Pakistan (n=13) 17.7 13.5 3.6 1.9 5.0 9.2 49.2 Singapore (n=206) 12.2 60.1 4.7 4.2 1.7 2.6 14.4 Japan ASEAN China India US Europe Other

 Japan was the largest export destination (as a total of all surveyed countries/regions) for Japanese-affiliated firms, at 42.4% on average, followed by ASEAN (24.6%).  The composition of major export destinations remained almost the same as in the 2015 survey with only limited changes; exports to Japan decreased by 2.6 pp, while exports to ASEAN and China increased by 3.0 pp and 1.0 pp, respectively.  Japan accounted for over 50% in Bangladesh, Myanmar, Cambodia, China, Vietnam, Laos and the Philippines. Japan is the major export destination for Textiles (91.5%), Transport (90.2%), Communications/Software (84.4%), and Rubber/Leather (84.1%).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 53 6. Exports/Imports (3) Most promising export market for business/products over the next 1 to 3 years (by country/region) Note: Countries/regions for which n  10

(%) Total (Manufacturing/Non-manufacturing) (%) Manufacturing (%) Non-manufacturing Total (2016) 25 25 25 20 20 20 18.2 Total (n=3,431) 17.6 17.1 15 Country % 15 15 13.6 10.1 1 Japan 17.6 10.8 8.9 10 10 8.6 10 8.7 9.0 2 Vietnam 10.8 8.3 8.5 8.3 7.5 5 6.0 5 5 8.3 3 Indonesia 8.6 7.7 7.2 0 4 China 8.3 0 0 2012 2013 2014 2015 2016 5 Thailand 7.5 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Japan Indonesia Japan Indonesia China Japan Indonesia China Thailand China Thailand Vietnam India Thailand US Most important Vietnam CLM Vietnam country/region * CLM: Cambodia, Laos and Myanmar Japan is most important (%) Indonesia is most important (%) 1st 2nd 3rd 1st 2nd 3rd Vietnam (n=533) Japan 29.1 CLM 14.1 Thailand 13.0 Singapore (n=268) Indonesia 21.6 Vietnam 16.4 India 10.5 China (n=361) Japan 28.8 Vietnam 9.1 US 8.9 Malaysia (n=145) Indonesia 20.0 Thailand 17.2 Vietnam 12.4 Indonesia (n=256) Japan 24.2 Thailand 11.7 Malaysia 9.4 Philippines (n=89) Japan 24.7 US 12.4 Thailand 11.2 Middle East is most important (%) Cambodia (n=65) Japan 26.2 Thailand 21.5 Vietnam 16.9 1st 2nd 3rd Bangladesh (n=44) Japan 27.3 Europe 22.7 India 11.4 Pakistan (n=23) Middle East 21.7 Indonesia 8.7 Europe 8.7 Myanmar (n=26) Japan 19.2 Thailand 15.4 ― ― Sri Lanka (n=22) Japan 27.3 India 22.7 Middle East 13.6 Africa is most important (%) 1st 2nd 3rd China is most important (%) India (n=290) Africa 16.6 Japan 15.9 Middle East 12.4 1st 2nd 3rd HK & Macau (n=218) China 29.8 Vietnam 20.6 Japan 7.3  The most promising export markets over the next one to three years (as a total Taiwan (n=154) China 30.5 Vietnam 15.6 Japan 10.4 of all surveyed countries/regions) were Japan, Vietnam, Indonesia, China, and Thailand, in that order. South Korea (n=143) China 30.8 Vietnam 16.8 Japan 11.2  The percentage increased from the 2015 survey in Vietnam and China, while it decreased in Indonesia, Japan, and Thailand. Vietnam is most important (%)  In the manufacturing sector, the percentage for Vietnam, which had been 1st 2nd 3rd ranked sixth or below until the 2015 survey, increased by 1.9 pp to lift the Thailand (n=578) Vietnam 21.8 Indonesia 15.2 CLM 14.5 country to the fourth place (8.5%).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 54 Note 1: The proportions in the two charts on the top are calculated as the ratio of firms that are using at least one FTA or EPA to firms that are involved in either exporting or importing, or both. Note 2: The proportions in the two charts on the bottom are calculated as the ratio of firms using FTAs/EPAs for 6. Exports/Imports (4) exporting (or importing) to firms involved in exporting (or importing).

Utilization of existing (in force) FTAs/EPAs (only companies involved in export/import) Note: Countries/regions for which n  10

Proportions of firms utilizing FTAs/EPAs Proportions of firms utilizing FTAs/EPAs (total, by company size and industry) (by country/region) (%) Total (n=2,548) 47.5 (%)  A total of 47.5% of firms Large (n=1,556) 49.0 South Korea (n=85) 67.1 engaged in trade are SME (n=992) 45.0 Indonesia (n=242) 62.0 using FTAs/EPAs, up New Zealand (n=33) 57.6 3.0 pp from the 2015 Thailand (n=432) survey. Textiles (n=94) 70.2 57.2 India (n=238) 55.0  Large enterprises Chemical/Pharmaceutical (n=234) 61.5 Australia (n=128) 50.0 (49.0%) are more likely Food (n=98) 60.2 Malaysia (n=185) 49.7 to be using FTAs/EPAs Motor vehicles/Motorcycles (n=276) 58.7 Cambodia (n=45) 48.9 than SMEs (45.0%). Iron/Nonferrous metals/Metals (n=241) 55.6 Vietnam (n=403) 47.2  By industry, the Textiles Wood/Pulp (n=28) 53.6 Bangladesh (n=25) 40.0 and Chemical/ Rubber/Leather (n=40) 50.0 Philippines (n=63) 38.1 Pharmaceutical General machinery (n=120) 48.3 Pakistan (n=16) 37.5 industries use Wholesale/Retail (n=670) 46.7 China (n=215) 34.4 FTAs/EPAs more than Transport (n=72) 44.4 Taiwan (n=91) 31.9 other industries. Singapore (n=178)  Precision machinery (n=60) 36.7 31.5 By country/region, Myanmar (n=22) 22.7 FTA/EPA use by Electric machinery (n=273) 34.8 HK/Macau (n=129) 18.6 Japanese-affiliated Construction (n=44) 13.6 firms is the highest in Communications/Software (n=41) 12.2 South Korea at 67.1%, Proportions of firms 0utilizing FTAs/EPAs20 40 in 2015 and60 2016 80 Trends in FTA/EPA utilization by Japanese- followed by Indonesia, (by export/import) affiliated firms in ASEAN New Zealand, Thailand, (%) India, and Australia at 50 over 50%, respectively. 44.7 46.1 2016 43.8 42.6  FTA/EPA use increased 41.3 45 (n=1,854) 40.3 40.7 40.4 from the 2015 survey 40 45.2 both in imports and 2015 42.4 43.1 37.9 40.4 exports. (n=1,743) 35 38.9 29.7 35.0  FTA/EPA use by 0 10 20 30 40 50 (%) 30 35.0 Japanese-affiliated 23.0 firms in ASEAN 25 increased by about 2 pp 2016 20 24.1 from the 2015 survey 45.9 (n=1,955) both in imports and 15 19.7 exports. 2015 (n=1,833) 42.8 10 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 10 20 30 40 50 (%) Export Import

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 55 6. Exports/Imports (5) Note: These figures include firms making use of Early Harvest accelerated tariff reductions for designated products. Bilateral FTAs/EPAs are included in multi lateral FTA/EPAs FTA/EPA utilization The percentage of firms using FTAs/EPAs is calculated as the ratio of firms making use of FTAs/EPAs to firms involved in importing /exporting

Export Import Export Import Firms % of all Firms % of all Firms Firms % of all Firms % of all Firms making firms making firms Firms Trade Trade involved Firms making firms making firms involved using of using using of using Trade Trade involved partners partners in involved using of using using of using in export FTAs/EPA FTAs/EPA FTAs/EPA FTAs/EPA partners partners in import in export FTAs/EPA FTAs/EPA FTAs/EPA FTAs/EPA s s s s import s s s s Japan 258 101 39.1 Japan 343 156 45.5 ASEAN 201 97 48.3 China 126 63 50.0 Japan 69 18 26.1 Japan 189 85 45.0 India ASEAN 56 23 41.1 ASEAN 114 81 71.1 China 97 45 46.4 ASEAN 118 66 55.9 South Korea 32 16 50.0 Thailand India 89 39 43.8 South Korea 42 21 50.0 Japan 55 18 32.7 Japan 87 42 48.3 Australia 35 19 54.3 India 27 11 40.7 Australia New Zealand 40 10 25.0 ASEAN 42 29 69.0 South Korea 34 17 50.0 ASEAN 35 16 45.7 US 26 13 50.0 Japan 266 84 31.6 Japan 284 90 31.7 New ASEAN 179 72 40.2 ASEAN 189 78 41.3 Australia 20 11 55.0 Zealand Vietnam China 94 27 28.7 China 140 33 23.6 ASEAN 102 19 18.6 Hong Kong 80 14 17.5 South Korea 31 14 45.2 South Korea 35 11 31.4 Hong Kong 102 21 20.6 ASEAN 74 25 33.8 China India 23 10 43.5 Taiwan 58 10 17.2 Taiwan 47 14 29.8 Japan 135 47 34.8 Japan 213 111 52.1 South Korea 55 11 20.0 ASEAN 103 49 47.6 ASEAN 142 82 57.7 Indonesia HK & Macau China 108 21 19.4 China 82 10 12.2 China 41 17 41.5 China 83 34 41.0 China 59 21 35.6 China 60 16 26.7 India 31 10 32.3 South Korea 31 14 45.2 Taiwan China 47 20 42.6 China 47 25 53.2 ASEAN 116 59 50.9 Japan 153 47 30.7 South ASEAN 32 19 59.4 ASEAN 32 23 71.9 Japan 102 32 31.4 ASEAN 99 40 40.4 Korea US 30 17 56.7 EU 23 16 69.6 Malaysia China 53 21 39.6 China 78 21 26.9 EU 26 15 57.7 US 21 13 61.9 India 30 16 53.3 South Korea 30 10 33.3 South Korea 20 12 60.0 ASEAN 163 51 31.3 Japan 111 28 25.2  Many (30 to 50% of) firms in Thailand, Malaysia, Indonesia and Vietnam are Japan 62 16 25.8 ASEAN 82 26 31.7 using FTAs/EPAs within ASEAN (AFTA), as well as in business with Japan. Singapore India 58 10 17.2 China 51 11 21.6  In India, FTA use increased from the 2015 survey in imports from Japan and China 46 11 23.9 ASEAN.  In China, FTA use decreased by 7.4 pp from the 2015 survey in exports to Japan 50 11 22.0 Japan 56 12 21.4 ASEAN. In South Korea, FTA use exceeded 50% both in imports from and Philippines ASEAN 30 9 30.0 ASEAN 31 10 32.3 exports to ASEAN, EU and US, indicating more prevalent use of FTAs than China 23 6 26.1 other countries/regions.

Note: Countries/regions for which n 20 or firms making using of FTAs/EPAs for which n 10

Possible impact of the Trans-Pacific Partnership (TPP) on business (by country/region)

 15.4% of the firms answered “Yes” and the percentage was lower 15.4 than those who answered “No” (24.6%) and “Unknown” (60.1%). 60.1  However, an average of 22.9% of the firms in TPP signatories answered “Yes” and the percentage was over 10 pp higher than 11.6% in non-TPP countries/regions. n=4,336  By country/region, 29.2% and 23.3% of the firms in Vietnam and Yes Malaysia, respectively, which are TPP signatories, answered “Yes” 24.6 and the percentage was higher than those who answered “No.” No

Unknown Note: Countries/regions for which n ≥ 30

TPP signatories Non-TPP countries/regions (%) (%) 0 10 20 30 40 50 0 10 20 30 40 50 11.6 Non-TPP countries/regions (n=2,870) 25.9 18.5 TPP signatories (n=1,446) 22.9 Myanmar (n=54) 22.0 29.6 South Korea (n=170) 17.1 29.2 28.2 Vietnam (n=623) 16.5 17.5 Taiwan (n=200) 27.0 HK & Macau (n=262) 14.9 Malaysia (n=270) 23.3 24.4 13.3 14.7 Indonesia (n=340) 19.4 18.9 New Zealand (n=74) Philippines (n=101) 11.9 46.0 26.7 Cambodia (n=86) 11.6 Australia (n=199) 15.6 29.1 32.7 11.0 Thailand (n=657) 21.6 Singapore (n=300) 15.0 India (n=390) 9.0 26.3 27.4 6.9 China (n=490) 30.8 Yes No 3.8 Bangladesh (n=53) 37.7

Possible impact of the Trans-Pacific Partnership (TPP) on business (by industry)

Manufacturing (%) Non-manufacturing (%) 0 20 40 60 80 100 0 20 40 60 80 100 14.4 16.5 Total (n=2,220) Total (n=2,116) 22.3 26.9 27.3 35.6 Food (n=143) Transport (n=236) 21.7 17.4 20.4 23.3 Finance/Insurance (n=113) Textiles (n=120) 30.1 23.3 15.8 18.2 Wholesale/Retail (n=923) Wood/Pulp (n=44) 22.0 25.0 12.5 Construction (n=152) Chemical/Pharmaceutical 15.1 25.7 (n=325) 18.5 Communications/Software 7.8 14.4 (n=128) 30.5 General machinery (n=174) 18.4

Iron/Nonferrous 13.4 Yes No metals/Metals (n=328) 20.7 12.5  The percentage of the firms in the non-manufacturing sector which Precision machinery (n=88) 33.0 answered “Yes” was 16.5% and higher than that of the firms in the manufacturing sector (14.4%). 12.4 Electric machinery (n=354)  In the manufacturing sector, the percentage of the firms which 22.6 answered “Yes” was the highest in Food (27.3%), followed by 10.0 Textiles (23.3%) and Wood/Pulp (18.2%). Food was the only Rubber/Leather (n=50) 18.0 industry in which the percentage of “Yes” exceeded that of “No.”  In the non-manufacturing sector, the percentage of the firms which Motor vehicles/Motorcycles 9.6 answered “Yes” was highest in Transport. (n=385) 23.9

Yes No

Specific impacts that the TPP may have on business Top 3 countries/regions and industries

(n=565) (%) Country/region Industry 0 20 40 60 80 100 % % Increase of export from your New Zealand (n=13) 69.2 Transport (n=59) 57.6 44.3 location Malaysia (n=53) 62.3 General machinery (n=22) 54.6 Australia (n=27) 51.9 Textiles (n=23) 52.2

Increase of sales in your location 28.7 Vietnam (n=158) 45.6 Finance/Insurance (n=21) 42.9 New Zealand (n=13) 38.5 Wholesale/Retail (n=126) 41.3 India (n=30) 33.3 Construction (n=13) 38.5 Increase of production in your 25.0 location Vietnam (n=158) 38.0 General machinery (n=22) 63.6 Philippines (n=11) 36.4 Textiles (n=23) 60.9 Reduction of procurement costs for raw materials or parts you 22.3 Malaysia (n=53) 34.0 Motor vehicles/Motorcycles (n=35) 57.1 purchase from existing suppliers Indonesia (n=43) 37.2 Construction (n=13) 46.2 Change of suppliers for procuring South Korea (n=25) 36.0 Motor vehicles/Motorcycles (n=35) 37.1 15.9 raw materials or parts Singapore (n=39) 28.2 Iron/Nonferrous metals/Metals (n=43) 32.6

Vietnam (n=158) 20.3 Textiles (n=23) 30.4 Decrease of sales in your location 8.5 India (n=30) 20.0 General machinery (n=22) 27.3 Malaysia (n=53) 18.9 Iron/Nonferrous metals/Metals (n=43) 25.6

Decrease of export from your Chemical/Pharmaceutical (n=46) 6.6 Taiwan (n=26) 34.6 17.4 location China (n=26) 19.2 Food (n=38) 15.8 Philippines (n=11) 18.2 Finance/Insurance (n=21) 14.3 Decrease of production in your location 5.8 China (n=26) 26.9 Textiles (n=23) 17.4 HK/Macau (n=31) 19.4 Transport (n=59) 11.9 Taiwan (n=26) 11.5 Chemical/Pharmaceutical (n=46) 8.7

 TPP signatories are expecting increase in exports, sales China (n=26) 46.2 Textiles (n=23) 26.1 and production more than non-TPP countries/regions , Thailand (n=61) 13.1 Iron/Nonferrous metals/Metals (n=43) 14.0 while China, Taiwan, Thailand and other non-TPP Taiwan (n=26) 7.7 Electric machinery (n=40) 12.5 countries/regions are expecting decrease. Note: Countries/regions and industries for which n ≥ 10 Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 59 8. Wages (1) Year-on-year wage increase rate The numbers in parentheses indicate the numbers of firms that responded. Total Manufacturing Non-manufacturing (%) (%) (%) Pakistan (27) 10.8 Pakistan (13) 11.5 Myanmar (42) 10.9 Myanmar (59) 10.3 Indonesia (177) 10.9 Pakistan (14) 10.2 Indonesia (287) 10.1 Bangladesh (27) 10.5 Cambodia (43) 9.8 India (312) 10.0 India (153) 10.4 India (159) 9.7 Bangladesh (45) 9.8 Sri Lanka (9) 10.3 Bangladesh (18) 8.8 Vietnam (517) 9.6 Vietnam (333) 10.3 Indonesia (110) 8.7 Cambodia (76) 9.6 Cambodia (33) 9.3 Vietnam (184) 8.5 Sri Lanka (22) 7.6 Myanmar (17) 8.8 FY2015 China (162) 6.1 China (465) 6.1 Laos (8) 6.9 Sri Lanka (13) 5.7

← Laos (13) 5.9 China (303) 6.1 Philippines (38) 5.7 Philippines (85) 5.4 Philippines (47) 5.3 Malaysia (84) 5.1 Malaysia (226) 4.8 Malaysia (142) 4.7 Laos (5) 4.4 Thailand (575) 4.2 Thailand (324) 4.1 Thailand (251) 4.2 South Korea (65) South Korea (135) 3.8 3.9 South Korea (70) 3.8 Singapore (56) 3.5 FY2016 FY2016 Hong Kong (215) 3.5 Hong Kong (180) 3.5 Hong Kong (35) 3.5 Singapore (237) 3.0 Taiwan (103) 3.2 Taiwan (55) 2.5 Taiwan (158) 2.9 Singapore (181) 2.9 Australia (44) 2.4 Australia (165) 2.4 Australia (121) 2.4 New Zealand (14) 2.0 New Zealand (55) 1.8 New Zealand (41) 1.7

(%) (%) (%) Pakistan (27) 10.1 Pakistan (13) 11.1 India (155) 9.5 India (305) 9.8 India (150) 10.0 Myanmar (41) 9.4 Myanmar (58) 9.4 Bangladesh (26) 10.0 Pakistan (14) 9.1

Bangladesh (44) 9.2 Indonesia (174) 9.4 Bangladesh (18) 8.0 Indonesia (286) 8.8 Myanmar (17) 9.4 Indonesia (112) 7.8 Vietnam (509) 8.1 Vietnam (325) 8.4 Cambodia (41) 7.7 Cambodia (76) 7.9 Cambodia (35) 8.2 Vietnam (184) 7.7 Sri Lanka (22) 6.0 Sri Lanka (9) 6.7 China (157) 5.9 FY2016 China (455) 5.7 Laos (8) 6.0 Sri Lanka (13) 5.4 Laos (13) 5.2 China (298) 5.7 Philippines (38) 5.2 ← Philippines (85) 5.0 Philippines (47) 4.8 Malaysia (79) 4.6 Malaysia (210) 4.4 Malaysia (131) 4.3 Laos (5) 4.0 Thailand (569) 4.1 Thailand (319) 4.2 Thailand (250) 4.0 South Korea (132) 3.6 South Korea (65) 3.7 South Korea (67) 3.6 Hong Kong (214) 3.1 Hong Kong (34) 3.5 Hong Kong (180) 3.1 FY2017 FY2017 Singapore (228) 2.9 Singapore (53) 3.1 Singapore (175) 2.9 Taiwan (158) 2.7 Taiwan (55) 2.4 Taiwan (103) 2.9 Australia (162) 2.3 Australia (43) 2.3 Australia (119) 2.3 New Zealand (55) 2.0 New Zealand (14) 1.9 New Zealand (41) 2.0

Total Manufacturing Non-manufacturing

(%) (%) (%) 30 30 30

20 20 20

9.8 10.0 10 10 10 9.5 8.8 9.4 8.4 8.1 7.8 7.7 5.7 5.7 5.9 4.1 4.2 4.0

0 0 0 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017

China India Thailand Indonesia Vietnam

Note: 2017 rates are forecasts.

 By industry category, the wage increase rate fluctuates relatively less in the non-manufacturing sector.  In 2016, the wage increase rate (total; same applies to the following) decreased in China, Thailand, India, Indonesia, and Vietnam.  In China, the wage increase rate decreased every year after peaking out at 12.9% in 2011. The rate was 6.1% in 2016 and is expected to decrease to 5.7% in 2017 (forecast).  In Indonesia, the wage increase rate decreased every year after peaking out at 24.7% in 2013. The rate was 10.1% in 2016 and is expected to decrease to 8.8% in 2017 (forecast).  The wage increase rate is expected to decrease gradually in all countries in 2017 (forecast).

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 61 8. Wages (3) Base salary (monthly) The numbers in parentheses indicate the numbers of firms that responded.

Manufacturing・Worker Manufacturing・Engineer Manufacturing・Manager

Unit: US$ Unit: US$ Unit: US$ Australia (34) 3,640 Australia (29) 5,468 New Zealand (12) 7,446 New Zealand (13) 3,231 New Zealand (9) 4,754 Australia (40) 6,816 Hong Kong (28) 1,962 Singapore (28) 2,586 Singapore (49) 4,050 South Korea (52) 1,935 South Korea (46) 2,483 Hong Kong (28) 3,807 Singapore (43) 1,703 Hong Kong (12) 2,402 South Korea (55) 3,497 Taiwan (47) 1,051 Taiwan (40) 1,333 Taiwan (47) 2,096 China (317) 428 Malaysia (132) 763 Malaysia (148) 1,516 Thailand (310) 346 China (263) 674 Thailand (294) 1,438 Malaysia (145) 345 Thailand (286) 652 China (289) 1,266 Indonesia (171) 298 Pakistan (10) 589 Pakistan (12) 1,251 Philippines (47) 238 India (127) 487 India (144) 1,179 India (128) 224 Indonesia (149) 449 Indonesia (162) 993 Pakistan (12) 208 Vietnam (278) 416 Philippines (43) 963 Vietnam (330) 204 Sri Lanka (8) 396 Vietnam (293) 901 Cambodia (34) 175 Cambodia (23) 391 Cambodia (30) 885 Sri Lanka (8) 165 Laos (5) 378 Laos (7) 732 Laos (8) 141 Philippines (43) 370 Sri Lanka (8) 720 Myanmar (15) 124 Myanmar (13) 272 Myanmar (16) 694 Bangladesh (26) 111 Bangladesh (18) 258 Bangladesh (25) 638

Non-Manufacturing・Staff Non-Manufacturing・Manager Base salary: Salary excluding benefits, as of October 2016 (September 2016 for China) Unit: US$ Unit: US$ Worker: Regular general workers with 3 years of work experience, not including contract-based and probationary workers Australia (103) 4,192 Australia (103) 7,084 Engineer: Regular employees who are core technicians, graduates New Zealand (37) 3,146 New Zealand (37) 5,369 of a vocational college or university, and have 5 years of experience Singapore (176) 2,461 Singapore (160) 4,347 Manager (Manufacturing): Regular employees who are section South Korea (70) Hong Kong (153) managers in charge of sales, university graduates, and who have 10 2,423 4,000 years of work experience Hong Kong (170) 2,269 South Korea (64) 3,854 Staff: Regular general workers with 3 years of work experience, not Taiwan (96) 1,288 Taiwan (95) 2,286 including dispatched and probationary workers China (180) 871 China (140) 1,842 Manager (Non-manufacturing): Regular employees who are section Malaysia (87) 830 Malaysia (87) 1,712 managers in charge of sales, university graduates, and who have 10 Thailand (256) 685 India (144) 1,481 years of work experience India (156) 604 Thailand (218) 1,478 Philippines (37) 482 Philippines (34) Note: Except for Cambodia, base salaries were reported in local 1,312 currencies. (For Myanmar, salaries were reported selectively Indonesia (108) 460 Indonesia (94) 1,161 either in the local currency or in U.S. dollars.) The average Vietnam (189) 443 Pakistan (12) 1,102 wage for each job type in the local currency was converted to Sri Lanka (12) 416 Myanmar (29) 1,069 the U.S. dollar, using the average exchange rate of October Pakistan (13) 372 Vietnam (162) 1,030 2016 (September 2016 for China) published by the central Myanmar (45) 350 Cambodia (38) 906 bank of each country/region or by the State Administration of Cambodia (43) 346 Sri Lanka (10) 898 Foreign Exchange for China. For Myanmar, where firms Laos (5) 298 Laos (4) 632 reported base salaries either in the local currency or in U.S. dollars, base salaries reported in the local currency were Bangladesh (19) Bangladesh (17) 193 582 converted to U.S. dollars.

Manufacturing・Worker Manufacturing・Engineer Manufacturing・Manager

Unit: US$ Unit: US$ Unit: US$ Australia (34) 51,481 Australia (29) 76,216 Australia (38) 92,560 New Zealand (13) 38,683 New Zealand (8) 56,978 New Zealand (11) 88,096 South Korea (49) 34,531 South Korea (46) 43,587 Singapore (38) 63,147 Hong Kong (24) 28,369 Singapore (24) 41,548 South Korea (53) 58,531 Singapore (35) 27,286 Hong Kong (12) 36,266 Hong Kong (26) 56,061 Taiwan (42) 17,298 Taiwan (35) 22,209 Taiwan (44) 35,231 China (264) 9,595 China (219) 13,643 Thailand (270) 23,935 Thailand (283) 6,152 Malaysia (90) 11,724 China (245) 23,577 Malaysia (89) 5,550 Thailand (261) 11,180 Malaysia (92) 23,029 Indonesia (154) 5,131 Pakistan (9) 9,818 Pakistan (10) 22,143 Philippines (43) 4,056 India (119) 7,909 India (128) 18,891 Vietnam (292) 4,025 Indonesia (135) 7,653 Indonesia (146) 16,276 Pakistan (11) 3,808 Vietnam (249) 6,651 Philippines (40) 15,216 India (119) 3,721 Sri Lanka (8) 6,232 Vietnam (257) 14,629 Sri Lanka (7) 2,422 Philippines (39) 6,025 Cambodia (28) 11,879 Cambodia (30) 2,376 Laos (5) 5,621 Sri Lanka (8) 11,389 Laos (8) 2,325 Cambodia (21) 5,492 Bangladesh (25) 11,311 Myanmar (12) 2,167 Bangladesh (18) 4,550 Laos (7) 11,305 Bangladesh (26) 2,042 Myanmar (10) 3,860 Myanmar (13) 9,922

Non-Manufacturing・Staff Non-Manufacturing・Manager Annual salary (annual amount of real obligation fees): Unit: US$ Unit: US$ Total liability for an employee (the total of annual base salary, Australia (107) 56,928 Australia (110) 101,392 benefits, social security, overtime allowances, and bonuses, New Zealand (33) excluding severance benefits, as of FY2016) New Zealand (33) 44,244 92,741 Singapore (157) 39,613 Singapore (145) 69,506 See the previous page for the definitions of worker, engineer, South Korea (67) 36,976 South Korea (63) 60,963 manager (manufacturing), staff, and manager (non- Hong Kong (147) 34,066 Hong Kong (129) 57,459 manufacturing). Taiwan (79) 23,072 Taiwan (81) 39,721 China (153) 16,407 China (124) 36,543 Note: Except for Cambodia, annual salaries were reported in Malaysia (66) 12,612 Malaysia (65) 25,699 local currencies. (For Myanmar, salaries were reported selectively either in the local currency or in U.S. dollars.) Thailand (223) Thailand (188) 11,278 23,684 The annual salary for each job type in the local currency India (144) 8,859 India (136) 22,939 was converted to U.S. dollars, using the average Indonesia (87) 7,594 Philippines (29) 20,680 exchange rate of October 2016 (September 2016 for Philippines (32) 7,391 Indonesia (81) 19,286 China) published by the central bank of each Vietnam (162) 6,839 Sri Lanka (10) 16,380 country/region or by the State Administration of Foreign Cambodia (37) 5,957 Vietnam (141) 16,028 Exchange for China. For Myanmar, where firms reported Sri Lanka (10) 5,775 Pakistan (10) 15,666 annual salaries either in the local currency or in U.S. Pakistan (12) Myanmar (22) dollars, annual salaries reported in the local currency 5,373 14,669 were converted to U.S. dollars to calculate the average. Myanmar (36) 5,236 Cambodia (33) 12,523 Laos (5) 4,000 Bangladesh (15) 9,773 Bangladesh (16) 3,307 Laos (4) 8,684

Manufacturing・Worker Manufacturing・Engineer Manufacturing・Manager

Unit: months Unit: months Unit: months

South Korea (53) 3.9 Pakistan (11) 3.9 Pakistan (12) 3.6 Pakistan (12) 3.8 South Korea (46) 3.5 Thailand (299) 3.1 Thailand (315) 2.9 Thailand (292) 3.0 Taiwan (45) 3.1 Taiwan (49) 2.9 Taiwan (40) 3.0 South Korea (53) 3.0 Singapore (43) 2.0 Singapore (28) 2.2 China (290) 2.2 China (325) 2.0 China (262) 2.0 Singapore (48) 2.1 Malaysia (140) 1.9 Bangladesh (19) 2.0 Indonesia (157) 2.1 Bangladesh (27) 1.8 Malaysia (122) 1.9 Malaysia (135) 2.0 Indonesia (170) 1.8 Indonesia (148) 1.9 Sri Lanka (8) 1.9 Sri Lanka (9) 1.7 Sri Lanka (8) 1.9 Bangladesh (26) 1.9 Hong Kong (31) 1.5 Philippines (41) 1.5 Philippines (41) 1.7 Vietnam (340) 1.4 Vietnam (282) 1.4 Hong Kong (31) 1.7 Philippines (45) 1.4 Hong Kong (13) 1.4 Vietnam (292) 1.5 Myanmar (15) 1.1 Laos (5) 1.3 Laos (7) 1.3 India (116) 1.1 Myanmar (12) 1.3 New Zealand (9) 1.2 Laos (8) 0.7 India (114) 1.1 Myanmar (15) 1.2 Cambodia (28) 0.7 Cambodia (21) 0.8 India (124) 1.2 New Zealand (8) 0.5 New Zealand (7) 0.7 Australia (30) 0.9 Australia (24) 0.5 Australia (20) 0.6 Cambodia (26) 0.9

Non-Manufacturing・Staff Non-Manufacturing・Manager

Unit: months Unit: months Taiwan (99) 2.8 Taiwan (98) 2.9 South Korea (63) 2.6 South Korea (58) 2.9 Thailand (250) 2.4 Thailand (213) 2.5 Singapore (177) 2.2 Singapore (158) 2.4 Philippines (36) 2.1 Philippines (33) 2.3 China (174) 2.0 China (143) 2.2 Pakistan (14) 1.9 Pakistan (12) 2.1 Malaysia (81) 1.9 Malaysia (76) 2.1 Indonesia (110) 1.9 Indonesia (96) 2.0 Bangladesh (19) 1.8 Bangladesh (17) 1.7 Hong Kong (173) 1.6 Hong Kong (152) 1.7 Vietnam (194) 1.6 Vietnam (162) 1.7 India (152) 1.3 India (138) 1.5 Sri Lanka (11) 1.3 Australia (94) 1.3 Myanmar (44) 1.2 Cambodia (35) 1.2 Cambodia (39) 1.1 Myanmar (28) 1.2 Australia (92) 0.8 Sri Lanka (10) 1.1 New Zealand (31) 0.6 New Zealand (29) 0.6 Laos (6) 0.5 Laos (5) 0.6

Copyright © 2016 JETRO. All rights reserved. Reproduction without permission is prohibited. 64 Contact details for inquiries: Japan External Trade Organization (JETRO) Overseas Research Department / Asia and Oceania Division / China and North Asia Division

1-12-32 Akasaka, Minato-ku, Tokyo 107-6006 TEL: 03-3582-5179 (Asia and Oceania Division) 03-3582-5181 (China and North Asia Division) E-mail: [email protected] (Asia and Oceania Division) [email protected] (China and North Asia Division)

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