The global economy grew 4.8% year-on-year in 2005. And with 4.9% growth projected for 2006 and recorded growth of 5.3% in 2004, the global economy looks set to grow at annual rate of about 5% for the third year in a row in 2006. Despite this sustained buoyant growth, some risks remain, such as the effect of soaring oil prices on oil-importing developing countries.
Global merchandise exports grew 13.2% in 2005, reaching a record US$10.3 trillion, according to JETRO estimates. This surge was driven mainly by developing countries, which accounted for 42.7% of the world’s merchandise exports in 2005 (after recording 20.5% year-on-year growth). Global exports of services recorded 10.8% growth in 2005.
Fueled by active cross-border M&As in Europe, global FDI (inflow) rose 23.2% to US$964.7 billion in 2005, recovering to more than 60% of the peak achieved in 2000. Large-scale corporate reorganizations in Europe and robust M&A activity in mobile phone, electric and finance industries helped account for the dramatic 84.9% rise (to US$819.3 billion) in global cross-border M&As in 2005.
Trends in Japan's Trade and Investment
Japan's exports grew 5.9% year-on-year to US$598.2 billion in 2005, while imports surged 14.1% to US$518.6 billion. On a quantity basis, however, the volume of Japan's trade leveled off in 2005, with imports and exports growing a mere 2.9% and 0.8% respectively. Japan's exports of electronic parts to Asian NIEs and ASEAN declined in the first half of 2005, due to worldwide inventory adjustment of IT-related products, while auto exports to the US remained buoyant. Japan's oil imports rose (on an amount basis), in line with continued global oil price hikes, while imports of IT products from China increased, on the back of growing demand for such products in Japan's domestic market.
Japan's net FDI outflow grew a robust 46.8% year-on-year to US$45.5 billion in 2005, marking the highest figure in 15 years. Japan's manufacturing sector accounted for a majority of this—in particular auto and auto parts makers working to expand their production/sales networks in the US and across Asia.
The level of FDI entering Japan in 2005 remained high, at US$30.1 billion, although registering a 7.1% drop from last year's figure. Disinvestment by foreign firms increased 9.3% to US$26.9 billion in 2005, led by withdrawal of investment capital by corporate revival funds. This accounts for a 58.7% fall (over last year’s figure) in Japan's net FDI inflow in 2005, to US$3.2 billion.
Growth Opportunities in Emerging Markets
Since 2000, the rapid growth of consumer markets in East Asia, India, Russia and Brazil has helped drive the global economy, with auto and electronic product makers reaping the largest benefit. In addition to China, India has of late been attracting considerable global attention for its huge domestic market potential and swelling population.
Among Japanese firms that have been more aggressive in targeting these countries, several strategies are proving effective, including: introducing low-cost products, allowing flexible payment options/schemes, selling products door-to-door and utilizing traditional distribution networks (such as non-corporate agents, local shops and marketplaces).
The Progress of East Asian Economic Integration and business strategies for Japanese firms
The growth of cross-border trade and investment in East Asia in recent years has helped speed the region's de facto integration.
Individually, the trade volumes of East China, South China and North China have exceeded or equaled those of ROK, Singapore and Thailand respectively. As such, these regions in China are acting as leading players in the East Asian economy in their own right and have become part of key economic zones, including the "Yellow Sea rim economic zone" (between North China and ROK), and the "cross-strait economic zone" (spans East and South China and Taiwan).
East Asia's intra-regional trade continues to expand, as governments in the region work to conclude free trade agreements (FTAs). For example, trade between India and Thailand was greatly accelerated after phased tariff reduction (covering 82 products) began in September 2004, under an Early Harvest Scheme provided for in the India-Thailand FTA.
As East Asia's institutional level economic integration progresses, Japanese firms will need to find a competitive edge, for example, by setting up export hubs in ASEAN countries that have FTAs in place with various countries. They also need to build stronger business ties with local firms, in order to utilize their know-how and other business assets and to gain quicker access to local markets. Japanese firms also need to rethink their policy of restricting product development and R&D to Japan, if they are to develop globally competitive products and technologies and meet the needs of East Asia's high-potential markets.
