TOKYO -- The lure of economic integration makes Southeast Asia the most promising market for foreign expansion in 2016 amid a dimming outlook for China, according to a survey of Japanese, Chinese and South Korean business leaders.
Chief executives in the three countries were polled in early to mid-December about their outlooks for business and the global economy this year. Officials at 104 Japanese businesses, 107 Chinese enterprises and 102 South Korean companies responded. The Nikkei, China's Global Times and South Korea's Maeil Business Newspaper conducted the survey together.
Manufacturers provided the most responses in Japan, at 51%. Nonmanufacturers accounted for 49% of Chinese respondents, with the financial sector adding another 34%. Manufacturing was again the leader in South Korea at 49%, while financial companies accounted for 22%.
Asked to name strong potential markets for their companies' products and services, 66.3% of Japanese respondents and 59.2% of those in South Korea pointed to Southeast Asia, putting it in the lead. Chinese executives favored their own country 56.1% of the time but mentioned Southeast Asia 29% of the time, making the region the most popular foreign market on the list. The share of respondents citing Southeast Asia fell 10 points from a year earlier in both China and Japan but remained high.
Both Japanese and Chinese respondents said Indonesia and Thailand held the most potential as both consumer markets and production sites among Southeast Asian nations. Yet Vietnam topped both categories in South Korea, with 71.1% of respondents calling it a good location for production and 64.4% labeling it a particularly promising consumer market. The country was just mentioned 20-30% of the time in China and Japan for each category.
South Korea has a history of major investments in Vietnam. Samsung Electronics' global smartphone production center is in the country's north, while a mega-skyscraper built by the Lotte conglomerate has been open for business in Hanoi since September 2014. Such previous involvement is thought to make Vietnam more welcoming to South Korean business than Thailand and other nations where Japanese enterprises made inroads early on.
The ASEAN Economic Community, launched at the end of 2015 by the Association of Southeast Asian Nations, is also eyed with anticipation by East Asian business managers as a driver of growth. The economic integration scheme is intended to free up trade in goods and services within the bloc and lubricate the movement of people and capital throughout the region.
Companies are seen taking advantage of the AEC's debut to revamp operations through such steps as relocating factories and service centers or overhauling logistics chains. Japan has led the charge into the ASEAN area so far. The creation of the economic sphere prompted 7.2% of respondents in the country to make such changes already or hatch plans to do so in the near future. The figure rises to 34.9% when those considering reorganizations are included.
Meanwhile, China's reputation seems to have deflated somewhat as neighbors to the south have drawn attention. Japanese respondents were particularly tough on the regional economic heavyweight. Only 27.9% mentioned China as a promising market, down 12.7 points from a year earlier. The country's favorability in South Korea dropped 2.1 points to 52%. Even Chinese respondents took a dimmer view of their home market, with 56.1% saying it had strong potential -- a 19.9-point plunge.
The decelerating economy there and its side effects lie at the root of the slides. Around 28% of Chinese and South Korean respondents, alongside 26.8% in Japan, reported being hurt by falling prices due to oversupply in the steel and other markets. Japanese companies must shift the focus of operations to higher-value-added fields where Chinese enterprises are not competing, said Jin Jianmin of the Fujitsu Research Institute.
Personal consumption in China continues to show double-digit growth year over year. Yet 60-70% of respondents in each country predicted that growth would continue at a slower pace going forward.
Department stores and other physical retailers are feeling pressure as China's e-commerce sector grows. Major real estate developer Dalian Wanda Group announced in 2015 plans to shutter 40 or so of the roughly 90 department stores it operates. Department store Jiuguang, known for its broad selection of Japanese foods and other products, in December suspended business at a location in the northern city of Shenyang, Liaoning Province.
Around 70% of respondents in each country feared that China's economic deceleration would negatively affect their companies. Raising the quality of products and services was the coping tactic most often proposed. Turning to other emerging markets, including Brazil, Russia and Southeast Asia, was mentioned as a possibility by 26.8% of Japanese respondents. Those in China and South Korea, meanwhile, preferred to focus on the Chinese interior or dig deeper into the Chinese market with new operations.
Relations among Japan, China and South Korea, both bilaterally and as a trio, showed signs of thawing out 2015, with their heads of state agreeing to resume regular summits. Increased investment among the three may not be far behind. An overwhelming 97.9% of Japanese respondents and 93.1% of South Korean respondents said warmer ties would have a very or somewhat positive impact on investment in their neighbors.
A number of China's executives viewed the developments as beneficial as well. But 43.9% of respondents there said the effects on investment would be not at all positive. Meanwhile, 44.9% of Chinese respondents said Japan should join the China-led Asian Infrastructure Investment Bank and just 27.1% opposed participating.
Businesses leaders are also turning their eyes back to dependable developed nations as clouds gather over China and other emerging economies. North America was called a promising market by 49% of Japanese respondents and 30.6% of South Korean respondents -- a roughly 5-point jump in both cases. Japan's respondents also mentioned their own country 51.9% of the time, making it the second-most-favored here, behind Southeast Asia.
Around 10-20% of respondents in each nation said South Asia was another strong potential market. Regional heavyweight India's gross domestic product is thought to have grown more than 7% in 2015, putting the country on the horizon as a giant on the rise.