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A little more than half of Japanese-owned firms in the Southern U.S. were projecting operating profits in fiscal 2021, a slower pace than most regions of the U.S. where the Japanese investors tend to be lighter on manufacturing.
That’s according to a survey released in December by the Japan External Trade Organization, or JETRO, which has been conducting detailed surveys of Japan’s subsidiaries abroad since the outset of the COVID-19 pandemic.
Released first in December but with an English version published only this week, the survey showed 53.2 percent of respondents in the South projecting operating profits, outpacing only the Midwest — another manufacturing-heavy region — where 52.1 percent said they would be profitable for the year.
The results seemed to bolster the idea that manufacturers face uncertainty and business hurdles their counterparts in the services, construction and other sectors aren’t facing as growth continues to recover.
The South lagged the Northeast and West regions, where 70 and 66 percent of Japanese companies expected profitability, respectively, leading to an overall average of 59 percent of Japanese companies across the U.S. that expected to be in the black for the year.
That was a dramatic shift from 2020, the first year of the pandemic, when just 47.1 percent of Japanese companies could foresee posting profits.
JETRO surveyed 848 companies with operations in the U.S., 231 of them hailing from the South, which has an outsized Japanese manufacturing presence, particularly in the automotive sector. Of the surveyed companies in the Southern region including Texas, 166 were in the manufacturing sector. In Georgia, 42 manufacturers participated in the survey alongside 14 non-manufacturing Japanese firms. Fifty of the respondents in Georgia said the state was home to their primary business location or factory.
In the survey, manufacturing-heavy regions correlated with a greater likelihood of companies bringing their employees back into the office during this phase of the pandemic.
On average, about 60 percent of respondents across the U.S. were requiring employees to come into the office, either as a general rule or part of the time with some flexibility for remote work.
In the automotive sector, the proportion of companies requiring in-person work was 92.3 percent — by far the highest among any sector surveyed. Some 71.4 percent of auto-sector firms said that “as a general rule, all employees work at the office” and another 20.9 percent said their employees “mainly work at the office, but remote work is also partially encouraged.”
In the South, across all sectors, those ratios were 48.7 percent and 21.1 percent respectively. This made the South the region with the highest proportion of in-person workers. The only region even close was the Midwest, where 41.9 percent of companies required on-location work as a rule, reflecting the fact that manufacturers for the most part can’t perform their duties off-premises. In the West and Northeast, where fewer Japanese manufacturers are present, the proportions of companies requiring on site work as a rule were 24 percent and 14.2 percent, respectively.
The JETRO survey contains a wealth of research helping Japanese firms in both the U.S. and Canada can benchmark themselves against counterparts in both countries.
Along with profit forecasts, it gauges companies’ business optimism, efforts they have undertaken to safeguard human rights (either by choice, customer pressure or regulatory enforcement) in their supply chains, how they plan to address environmental issues, the impact of the Biden administration’s policies on their growth plans and where they procure inputs for their operations.
The survey revealed that only about a third of Japanese companies are making use of U.S. trade agreements — for the most part the U.S.-Mexico Canada Agreement, which companies largely view as having a positive impact on their operations
But fewer firms are feeling pessimistic about trade in general. Only 26.1 percent said they saw a “negative impact overall” in the trade environment, down from 36 percent in the previous year. More companies were added to the “Do not know” category, however, and the retail and automotive sectors had some of the dimmest views of trade.
Among the reasons cited for their pessimism are steel tariffs on Japan (finally lifted this year), higher regulations, surging steel prices, delays in gaining access to inputs (supply-chain problems) and, perhaps counterintuitively, tariffs on China.
More than half of Japanese-owned subsidiaries saw the Section 301 tariffs on China — imposed by the Trump administration for the purpose of rectifying what the former president saw as a trade imbalance — as negative for their business. That’s because Chinese inputs are used in a wide variety of applications for companies from all over the world.
At the same time, all Japanese subsidiary companies are facing higher worker wages and finding difficulty landing new clients, according to common challenges they cited.
Also perhaps surprisingly, the South is home to the greatest proportion of companies that have launched (39.8 percent) or are planning to launch (31 percent) “decarbonization efforts” including energy conservation, development of environmentally friendly products, procurement of renewable energy, social contributions, electrification of buildings and vehicles and more.
See a news release here or view the full survey results here.
