With lower barriers to entry and increased consumer purchasing power, the land of the rising sun offers endless rays of golden opportunity for Australian SME exporters, following the success already experienced by Australian ICT export companies.
As the world’s second largest economy, with a GDP of $US 4.35 billion, it is baffling to hear terms such as “Asia ex-Japan” thrown around by some the world’s economists. Just like the champion yokozuna sumo wrestler, appearances can be deceiving. The Japanese economy remains a powerful force in today’s international market as it deftly adapts to the changing global environment.
Within the last century, the Japanese economy has undergone numerous developments–from rapid modernisation and empirical expansion to conservative fiscal management policies resulting in consistently low levels of inflation.
According to The Lowy Institute for international policy, the Japanese economy is currently experiencing its longest continuous expansion since the post-war ‘boom period’ of the 1960s. The figures for real GDP growth have averaged over 2 percent per year in the last five years, and with The Bank of Japan’s decision to wind back a stringent deflation-first policy, the country can now expect a return to economic growth with moderate price rises. This bodes well for Australian exporters.
The meteoric rise of the Chinese economy, coupled with the emergence of India (no we’re not talking cricket), will undoubtedly alter Asia’s power structure and subsequently the Australian trade market.
Data provided by Austrade and the Department of Foreign Affairs and Trade (DFAT) illustrates that in the 2006-2007 financial year, Japan maintained its position as Australia’s largest trading destination, equating to 14.3 percent of Australia’s total international trade. Unsurprisingly, Australian exports to Japan accounted for 19.4 percent of Australia’s total exports–more than exports to China and the United States combined.
While the economic data indicates a long-held consistency within the Japanese economy, the same can’t be said for Japanese consumer markets. The Japanese government organisation JETRO, (Japan External Trade Organisation), which promotes mutual trade and investment between Japan and the rest of the world, has identified the emergence of a segmented Japanese market impacting across all business sectors.
This shift from a conservative and traditional Japanese consumer to one that mirrors the changes in the Japanese economy– modern and liberalistic–removes the previously held stereotypical views of the Japanese consumer.
Old textbooks will tell you of fiercely brand-loyal consumers who value a relationship with their seller as more important than price. The modern 20 to 30-year-old Japanese consumer is generally less concerned with loyalty and is very willing to experiment with new products and practices. The new Japanese consumer also takes price into consideration much more than that of the ‘traditional’ consumer.
Other social trends such as the emergence of single women exerting considerable purchasing power and influencing social trends, and an increasingly aging Japanese population combine to create a market that holds considerable opportunities for potential exporters in Australia.
The age-old perception of the Japanese market being characterised by high barriers to entry and levels of domestic protectionism is evolving. Chief economist of the Australian Trade Commission, Tim Harcourt, believes that recent changes to international markets, including Japan, have greatly assisted Australian exporters.
“SME exporters say they have been helped by improved market access through tariff reductions and the new free trade agreements”, Harcourt says. “In addition, improvements in technology (through recent developments in e-commerce) have made getting into export markets a lot easier.”
According to research by Austrade and Sensis, around 14 percent of Australian SMEs currently exporting, sell to the Japanese market. Surprisingly, Australian exports consisted of only 4.8 percent of Japan’s total exports in 2006, ranking fifth behind China and the United States, indicating massive areas for growth for the globally competitive Australian SMEs.
A further boost for Australian business is the beginning of negotiations for a free trade agreement (FTA) between Australia and Japan, which commenced last year. While these negotiations are currently in the process of being finalised, it is widely expected that once completed an FTA will open the Japanese economy to opportunities never before seen for Australian SME exporters.
A DFAT feasibility report study has found that “an FTA would create new opportunities in sectors such as financial services, telecommunications, professional services, education, tourism, health and aged care, and tourism.” These sectors of the Japanese market have previously been off-limits for foreign exporters and possess extraordinary levels of wealth and value for prospective and current exporters.
Local Australian retailers can also expect a surge in popularity and price margins for Australian wine and jewellery in Japan. A bottle of wine sold for AUD$10 in Australia can easily reach AUD$200 in trendy Tokyo bars and clubs when promoted on the back of the Australian heritage and its highly regarded reputation. Similarly, Japan’s appetite for unique or unusual jewellery designs are opportunities that can be exploited by trading high quality designer opals and diamonds, as well as lower-end jewellery targeted to the youth sector.
The introduction of an FTA and associated trade benefits will have a positive impact across many industries. One such industry is Information and Communication Technology (ICT), due to the high level of technological development and utility within the Japanese market.
A group of Australian ICT companies recently travelled to Japan to participate in JETRO’s ICT business matching program: JETRO Bizmatc@CEATEAC 2007. The program provides Australian SMEs within the ICT and technology industries with the opportunity to find potential new business partners in Japan at the largest international technological and electronics exhibition in Asia.
MYstaff Pty Ltd was a 2007 JETRO Bizmatch participant, who have developed an internet-delivered HRM system and used the Bizmatch program as the first step in taking their product to the Japanese market.
“We often hear of the need to build relationships to be successful in Japan, but how do you do that if you are halfway across the world and don’t speak Japanese?” asks MYstaff CEO, Graham Kelly. “The JETRO bizmatching program removed a lot of those barriers. They arranged 10 meetings for us, including companies such as Fujitsu and Hitachi. We’ve already heard back from nine of the companies, and we are now negotiating a trial of our software in Japan. Our software featured in an article in one of Japan’s largest newspapers, which would have been unthinkable only a few months ago.”
With the Japanese economy undergoing a period of transition much to the delight of international exporters, the challenge for Australian businesses is to exploit the competitive advantages afforded by Australia’s strong relationships with Japan and the subsequent benefits of an impending FTA.
Japan is Asia’s most developed economy, with similar service and product demands to our own economy. Japan is Asia’s trendsetter–beat Japan and you can beat the rest of Asia.
* Fred Taylor is trade and investment officer of JETRO (www.jetro.go.jp/australia)