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JETRO survey shows Cambodia may miss out on Japanese firms shifting focus to Southeast Asian nations

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A rising number of Japanese companies are expanding business in Southeast Asia, according to the Japan External Trade Organization (JETRO).

However, to date, there has been hardly any concrete information on how many of the Japanese entities have targeted Cambodia for relocation although both Japan and Cambodia enjoy cordial relations.

One reason for this is the perception that Cambodia is not yet the hotspot for attracting big manufacturing from Japan because it is not yet ready to compete for these types of investments, given lower levels of development.

“Cambodia is not yet ready to compete for these types of investments, given lower levels of development. Thus, Cambodia should accelerate reforms and strengthen governance and institutions,” said Jayant Menon, lead economist at Asian Development Bank’s trade and regional cooperation office last year.

Companies are getting interested in Cambodia, says Miyao Masahiro, chief representative of the Japan External Trade Organisation (Jetro), Phnom Penh Office, last year.

“From the Jetro point of view, we are really interested in attracting Japanese manufactures to Cambodia because manufacturing is one of the big industries not only to affect the Cambodian economy, but also because it hires many Cambodian staff, which can reduce the unemployment rate in Cambodia and provide training programmes for workers. Thus, we believe that the manufacturing industry is one of the key industries needed to stimulate the Cambodian economy and society,” says Masahiro.

“Many Japanese companies who come to Cambodia to manufacture have been garment-related industries in the past but, recently, electric appliance or wire and food processing businesses are increasing their interest,” he adds.

Overall, 41% of Japanese companies are considering expanding operations in Viet Nam in the next three years, according to the Japan External Trade Organization (JETRO) survey.

The gap between the amount of Japanese investment to ASEAN and China expanded to JPY 20.4 billion $191 million, in 2019 from JPY10.2 billion in 2017, the report said.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam.

The Japanese government has also launched a rescue package with an economic support fund worth about $2.4 billion to help finance local businesses bringing manufacturing back to Japan from China, or to move it to other countries in Southeast Asia.

The move is aimed at reducing future risks of supply chain disruption in case of another black swan. Until the COVID-19 outbreak, China was Japan’s biggest trading partner.

Japan also launched a subsidy program to encourage domestic manufacturers to transfer their overseas production bases to Southeast Asia, as the coronavirus pandemic has greatly disrupted their supply chains heavily dependent on China.

The ¥23.5 billion or $220 million program, incorporated into the government’s emergency stimulus package to ease the economic fallout from the pandemic, will help firms diversify their supply chains by financially assisting the construction of production facilities as well as feasibility studies in ASEAN countries.

The initiative came after many automakers and other manufacturers suffered a shortage of parts produced in China after the new coronavirus outbreak started late last year in the central Chinese city of Wuhan.

“Even before the virus outbreak, there has been a growing need for Japanese firms to set up production bases in the ASEAN region,” an Economy, Trade and Industry Ministry official said. “(The subsidy scheme) will help our country build better relationships with ASEAN countries, too.”

To avoid various risks associated with a heavy reliance on production in China, such as anti-Japan demonstrations, rising wages and its tariff war with the United States, Japanese firms have tapped the Association of Southeast Asian Nations for alternative output bases under the “China plus one” strategy.

JETRO was established in 1958 by the Japanese Government as a governmental-related trade promotion agency. JETRO is assigned to strengthen balanced and harmonious trade and investment relations with other countries in the world through a network of 74 overseas offices in 55 countries and 44 local offices throughout Japan. Chimphu.VN/Capital Cambodia

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