Jan 15 2015
The last few years have seen increased Japanese investment in South-East Asia and India, spurred on in part by turbulent domestic economic conditions in Japan and ongoing geopolitical tension with China. The impact is being felt in boardrooms across the region.
Edward Lorenz coined the term the butterfly effect to refer to how small changes in weather patterns can lead to more significant changes over time. When Chinese/Japanese relations deteriorated in the wake of the Diaoyu/Senkaku Islands dispute, few could predict that it would lead to a surge in growth in South-East Asia, but the effect is clear. So strong is the connection, you could call it the Japan effect.
Asia’s growth story has been written by China in recent years. China’s economic growth, economic competitiveness and increased overseas investment are undoubtedly reshaping the global economy, but Japan, long silent, is also having a significant impact in some countries. Japan is the top trading partner in Thailand and a close second to many other ASEAN countries. In 2012, anti-Japanese protests in China forced many firms to rethink their China strategy and refocus attention on more friendly markets.
Japan External Trade Organization (JETRO) Chairman, Hiroyuki Ishige, commented in April 2014 that "viewed from the Japanese companies' headquarters, China's economy and China's political situation present a considerable amount of risk."
This process was further aided by the election of the new Prime Minister, Shinzō Abe, and its economic and foreign policies as well as increasing labor costs in China. According to The Economist (1 November 2014), Japanese investment in South-East Asia doubled to US$24 billion over the past year, while investment in China fell by two-fifths. As these Japanese firms expand, so does their need for talent that can work within a Japanese organizational framework and build a bridge between multiple, diverse markets.
AESC member executive search firms across have Asia reported increased use of senior recruitment services by Japanese firms as they try to find the best possible talent to drive expansion in South-East Asia and elsewhere. Opportunities abound for those individuals with experience in the electronics, automotive and foodstuffs industries. Indonesia and the Philippines have seen sizable investment, but Myanmar, Thailand, Vietnam, Laos and Cambodia have also seen substantial growth on 2012 levels.
Indeed, many of these countries are predicted to be amongst the fastest growing economies on earth in 2015, with growth rates over 6%. Having learned from mistakes made during the last surge of Japanese investment in the 1980’s, today’s firms are seeking to find leaders that have a global mindset and experience to match. Some AESC member firms have also noticed increased use of search services to find top international talent for Japanese boards. Clearly experience with Japanese firms is important, but it’s not the deal breaker that it once was.
A similar transformation is underway in India. During a recent visit to New Delhi, the Japanese Prime Minister announced an intention to double investment in the South Asian giant to US$34 billion by 2018. The introduction of Japanese designed high-speed rail systems on the proposed Ahmedabad to Mumbai route, cleaning of the Ganges River, and joint construction of nuclear power plants were sighted as examples of increased cooperation by India’s Business Standard newspaper. Only one month after Prime Minister Abe’s visit, Japanese telecoms giant, SoftBank, announced plans to invest US$10 billion in India in the areas of infrastructure, technology and electronic retailing.
Increased India/South-East Asia/Japan economic links offer particular opportunities for Indian executives in ASEAN markets. This is especially so given significant Indian cultural and historical connections to the region and the opportunities for ASEAN to act as a bridge to the Indian market. Bhavishya Sharma, Director of AESC member firm, Athena Executive Search/IIC Partners, commented in July 2014 that “major hiring [of Indian professionals] can be seen in the technology, financial services, digital media and the ITES sectors with regards to South-East Asia.”
Ironically, the weak link in this growth story is Japan itself. Its average economic growth rate varies from quarter to quarter and its long term prospects remain anemic given its aging population. However, should current trends continue, it might be time for global executives to consider the region. The opportunities may be greater that you think.