Trend Shows Japanese Investors Relocating To Malaysia After 2011 Catastrophies

By Massita Ahmad KUALA LUMPUR, April 27 (Bernama) -- Japanese investors are increasingly locating their businesses to Malaysia after the aftermath of March 11, 2011 earthquake and tsunami in Japan and the floods in Thailand which disrupted their global operations. Malaysia is a highly sought-after investment destination as they search for safe and secure locations to cut spiralling insurance costs stemming from the disasters of 2011 which disrupted their operations. Figures from the Ministry of International Trade and Industry (MITI) showed that the trend was evident as Japanese investments approved in the manufacturing sector last year was the highest ever since 1980, valued at U$3.2 billion. Some quality and high technology projects approved were Panasonic Energy Malaysia Sdn Bhd; Ibiden Malaysia Sdn Bhd; Sony EMCS (M) Sdn Bhd; Kaneka Paste Polymers Sdn Bhd; and, Japan Silicon Malaysia Sdn Bhd. To-date, 2,422 manufacturing projects worth US$19.5 billion with Japanese participation were implemented, making Japan the largest investor in Malaysia. These projects are mainly in electronics & electrical (E&E), non-metallic mineral, basic metal, petroleum products, chemical and motor vehicle industries. The magnitude 9.0 earthquake in Japan could lead to insured-property losses of nearly US$35 billion, making it one of the most expensive catastrophes in history, according to a risk-modelling analysis released by a US consulting group a few days after the earthquake. The insurance cost of the quake is nearly as much as the entire worldwide catastrophe loss for the global insurance industry in 2010 and could result in higher prices in the insurance market after years of declines, said Boston-based AIR Worldwide. They don't want to go through such losses again, hence the search for suitable alternative investment locations and Malaysia is a perfect choice. Thus, Japanese investors would likely not want to take more risks investing in areas that are "vulnerable" and having to paying higher insurance prices. Deputy Minister of Internationmal Trade and Industry, Mukhriz Mahathir, said the ministry had anticipated some of the potential impacts on Japanese investment flows due to the catastrophic events last year. Mukhriz said one of them would be greater realignment and restructuring of production and marketing networks in other countries than in Japan. "There is also the possibility of them outsourcing manufacturing activities for parts and components and strengthening offshore production facilities," he said. He said MITI has anticipated a relocation of major Japanese companies within the affected E&E sub-sectors or products and the car parts and components sector. "There will also be potential investment outflows from Japan as companies begin to strategise and realign their operations. "Strategic partnerships may also be formed with other major players within the same industry to mitigate the effects of future disasters," he said in response to Bernama’s e-mailed query on whether it was timely for Malaysia to position itself for relocation of foreign businesses. It was widely reported that much of Japan's Pacific coast could be inundated by a tsunami if a powerful offshore earthquake hits Japan again. Mukhriz, who was in Sendai and Tokyo from April 25, 2012 leading a four-day Asean Economic Ministers’ Roadshow, said Japanese foreign direct investment outflows had been seen in three other "waves" before. The first was after the first oil crisis in 1973; after the second oil crisis in 1979; and, in 1986 during Endaka (appreciation of the yen) after the 1985 Plaza Accord, where the G-5 countries agreed to weaken the US dollar to help ease US' huge trade deficit which worked against Japan. Realising the potential impact, Mukhriz said, MITI and its agencies were currently undertaking strategies to attract the affected Japanese firms to Malaysia. In addition to the trade and investment mission, specific project missions (SPMs) in collaboration with the relevant industry associations from the car and electronic sectors were being dispatched to Japan, he said. "It is to assess the requirements of the affected firms and initiate talks with them to include Malaysia as the potential location for their relocation plans," he said. Mukhriz said there has been a surge in interest from Japanese companies undertaking manufacturing activities that consume large quantity of electricity. Malaysian Investment Development Authority (MIDA), he said, was in discussions with them. "Complete and detailed information on the supply and cost of electricity in both Peninsular Malaysia and Sabah and Sarawak is key to attracting these projects," he said. Mukhriz said MIDA offices in Japan were continuously identifying companies affected by the disaster and also firms that had indicated that they would be looking for offshore locations to mitigate the strengthening yen. "These companies will be contacted on a regular basis to enable swift response to their needs," he said. He said the overseas centres were also closely working with Japanese banks to provide assistance to the banks’ clients seeking information on offshore locations. "These efforts have been effective as the banks are the first points of contact for most companies seeking information on overseas locations," he said. According to Mukhriz, mergers and acquisitions appeared to be the new trend for Japanese multinational corporations flushed with funds and the strong yen to form strategic partnerships to access new markets and strengthen their production capacities. He said that MIDA would step up its engagement with leading industry players to get leads on their investment plans and pro-actively entice them to examine Malaysia as their preferred location. He said focused meetings with targeted companies in specific industry sectors were being held in Japan that had been impacted by both the earthquake and the strong yen, and E&E, car, green technology, food sectors were targeted. "Personalised letters had been sent to presidents of selected companies that are at advanced stage of discussions with MIDA to tip the decision in Malaysia’s favour. "Some of the companies are Sanyo Electric, Toyo Tanso, Eiki Industrial, Akashi-Kikai Industry, Shin-Etsu, Daihatsu Motor, and Toho Titanium," he said. Before leaving to Sendai and Tokyo, Mukhriz led a two-day trade and investment mission to Kyoto and Nagoya from April 23. -- BERNAMA