Operating in the fastest-growing region on Earth, Japanese businessmen are seizing opportunities in East Asia that many of their Western rivals are failing to grasp. The position of European and U.S. companies is strong in East Asia, but it is weakening daily--diluted by the flow of Japanese capital, technology, trade and government aid.
So far, the battles are largely being fought in the corporate arena. But with tensions between the West and communist countries easing, economic conflicts between the West and Japan are becoming increasingly political. East Asian countries, once mostly colonized by the Europeans and later strongly under the influence of the United States, may be increasingly forced to choose between these older links and their newer ones with Japan.
Japanese officials are beginning to acknowledge the true scale of the country's regional influence. In an unusually frank report last year, the government's Economic Planning Agency said: "The position of the U.S. has dropped in relative terms. . . . Japan's position has risen dramatically."
Others put it more bluntly. "Americans, British, French all make a lot of noise. But the Japanese are the real power in Asia," said K. C. Kwok, an economist at Hong Kong & Shanghai Bank in Hong Kong.
Some Asian countries feel threatened by Japan's resurgence, particularly those that harbor bitter memories of Japanese rule during World War II. But for the most part they are prepared to swallow their pride in the hope of sharing the rewards of Japan's vast wealth--a hope that in many countries is already being fulfilled. "Japan is the only country capable of supplying resources to the region," said Ali Wardhana, a former Indonesian Cabinet minister.
Japan's first postwar investments in the region were made to secure supplies of raw materials, principally from Indonesia. This was followed in the 1970s and early 1980s by waves of investment mainly in the newly industrialized economies (NIEs)--South Korea, Taiwan, Hong Kong and Singapore--designed to enter their markets through import-substitution and to establish export bases.
Since 1985, the rise of the yen has forced Japanese companies to redouble their efforts. With wages and currencies climbing in the NIEs, Japanese interest has focused on the members of the Assn. of South East Asian Nations. Of these, Thailand had been the main target for the past two years; now it is Indonesia and Malaysia.
Low labor costs are the main impetus. Early last year, a skilled worker's wages in Singapore were 20% of those in Tokyo, according to Mitsui Research Institute. For Bangkok, the figure was 10% and for Jakarta, 4%. Japanese industrialists expect these gaps to close, but not for a long time.
Japanese influence varies greatly between countries. But by most macroeconomic measures, the Japanese have overtaken the Europeans and are fast catching up with the Americans. According to the Nomura Research Institute, Japan takes 25%--the biggest share--of ASEAN's exports, principally oil and gas and raw materials. For the NIEs, the United States is the preeminent market, accounting for 31% of exports in 1988. But Japanese imports from Asia are growing fast: by 20% last year to $88 billion. Meanwhile, Japan has long been East Asia's biggest import source, supplying vital machinery and office equipment.
Japan overtook the United States in the mid-1980s as the largest provider of foreign capital to the region. In the year to March, 1989, Japan's flow of direct investment to Asia was $5.6 billion, compared to $1.4 billion in 1985. The nearest comparable figure for the United States (for the calendar year 1988) was $2.3 billion. Japanese investment in the United States and Europe is greater than in Asia. But relative to the size of the region's economies, the Asian investments are huge--four times more for Thailand than for the United States, for example.
As for government aid, Japan, the world's largest donor, provides 60% of Asia's official development assistance--a sum that accounts for about 60% of Japan's aid budget. The microeconomic details are just as compelling.
Japanese banks account for 56% of bank deposits in Hong Kong; Japanese department stores have 30% of the colony's retail sales. At night the names of Japanese companies in neon lights illuminate Hong Kong's harbor. In Malaysia, one Japanese company, Toray, accounts for a quarter of the nation's textile exports. In Thailand, most of the cars clogging Bangkok streets are made at local Japanese-run assembly plants.
Western companies are by no means out of the race. Many Western companies in East Asia are at least as strong as the Japanese. Exxon, Shell, British Petroleum and other Western oil groups dominate oil and gas exploration and production. IBM is the biggest supplier of large computers. The top companies in chemicals and pharmaceuticals include Du Pont of the United States, the British group ICI and BASF of West Germany.
Japanese bankers may have the deepest pockets, but other banks have better connections--including Hong Kong & Shanghai Bank, Standard Chartered Bank and Deutsche Bank. However, U.S. and European executives concede that overall they are not matching the Japanese effort. "Japanese don't necessarily see opportunities first, but pursue them more actively," said Martin Barrow, a director of Jardine Matheson, the Hong Kong trading house.
Politicians often feel the same way. Chatichai Choonhavan, the Thai prime minister, recently said: "You Americans don't compete enough with the Japanese. I don't want my children to speak Japanese. I want them to speak English."
Some Japanese say their biggest competitors in Asia are not Westerners but other Asians, especially internationally minded Korean, Taiwanese and overseas Chinese businessmen, such as Y. K. Pao and Li Kashing, the heads of two of Hong Kong's biggest trading houses, and the chiefs of the large Korean conglomerates, Samsung, Hyundai, Daewoo and Lucky-Goldstar.
Western executives say Japanese companies are succeeding for the same reason as elsewhere--a willingness to think long term. Tom White, chairman of the Asia-Pacific Council of American Chambers of Commerce, said: "I don't subscribe to the view that U.S. and European companies are out of it. But the Japanese are more aggressive. They can get cheap capital. We can't."
The Japanese acknowledge that East Asian markets are often small, but they look at the growth rates achieved over the past decade and extrapolate them into the 1990s. Senior Japanese executives in activities as diverse as banking, motors, electronics and hotels expect East Asia to generate an increasing proportion of their international profits.
By melding Japanese managers, technicians and machines with low-cost local workers, Japanese companies are producing increasingly advanced goods for export. Mitsubishi Motor exports Proton cars from Malaysia to the United Kingdom and Lancers from Thailand to Canada. This year it is considering exporting station wagons to Japan.
There is nothing new about transferring labor-intensive work overseas to low-wage countries. Japanese industry has only about 5% of its production overseas, compared to 20% for the United States. But Japan is likely to catch up; the Ministry of International Trade and Industry estimates key sectors, including autos, machine tools and industrial electronics, could have from 30% to 50% of their output abroad by 1995-2000. Consumer electricals could point the way; 90% of Japan's fans are already made abroad as are 60% to 65% of its radios and radio cassettes.
The corporate giants are being followed by their parts makers. Japanese companies are particularly persistent in keeping control of the manufacturing process. Izumi Hara, an economist at the Industrial Bank of Japan, said: "Japanese companies never quit any product area so they do not lose technology, even if it means going to China to make black-and-white televisions."