JAPAN IN THE SHADOW OF CHINA?

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1 JAPAN IN THE SHADOW OF CHINA? Mattias Bergman Vice President Swedish Trade Council IFN 13 august

2 AGENDA How important is Japan today? What is changing? Areas with special interest for Swedish companies

3 JAPAN IS SMALLER, BUT BIGGER THAN SWEDEN Land area: km 2, or 80% of Sweden Land shape: Mountainous as Norway Only 20% habitable People: 126 million (Sweden 8,9) Capital: Tokyo, 11,8 million (30 million for greater Tokyo) (Stockholm 1million)

20% habitable People: 126 million (Sweden 8,9) Capital:

4 JAPAN IS THE 2nd BIGGEST ECONOMY - and larger in size than Germany, England + Sweden together Share of World Nominal GDP by region (unit %) World US 46,2 42,2 28,6 28,5 31,8 27,2 Japan 4,0 8,3 11,2 15,2 14,9 9,0 EU 15 29,0 30,7 35,8 33,8 28,3 27,6 Asian NIEs 0,7 0,8 1,5 2,7 3,2 3,3 ASEAN 4 1,1 1,1 1,8 1,5 1,5 1,7 China 5,5 3,7 2,1 1,8 3,4 5,4 Latin America 3,9 4,8 5,9 4,6 4,7 6,3 Canada 3,7 3,5 2,8 2,9 2,2 2,6 Others 5,8 4,8 10,3 12,0 10,1 17,0 Source: World Bank, IMF, Bank of China. Note: Numbers are calculated on current prices, based on USD.

27,6 Asian NIEs 0,7 0,8 1,5 2,7 3,2 3,3 ASEAN 4 1,1 1,1 1,8 1,5 1,5 1,7 China 5,5 3,7 2,1 1,8 3,4 5,4 Latin America 3,9 4,8 5,9 4,6 4,7 6,3 Canada 3,7

5 CHINA WILL GROW IN IMPORTANCE - but Japan will remain as mega player Rank 2005 Country GDP 2006 (USD bn) Rank 2050 Country Estimated GDP 2050 (USD bn)* United States Japan Germany China UK France Italy Canada Spain Brazil Korea, rep (14) China United States India Japan Brazil Russia UK Germany France Italy India 887 Source: World Bank, IMF, Goldman Sachs *only BRIC and G6 are compared in the study

13244 4367 2897 2630 2374 2232 1853 1269 1226 1068 888 1 2 3 4 5 6 (14) 7 8 9 10 China United States India Japan Brazil Russia UK Germany

6 JAPAN S ECONOMY IS THE SAME SIZE AS THE REST OF ASIA Philippines + Bangladesh + Vietnam Asia GDP distribution India Taiwan Taiwan ROC 4% Others 9% India 8% Thailand, Singapore South Korea 8% Japan 47% Indonesia, Malaysia China China 24% Malaysia Sources: World Bank, Cabinet Office Japan, STC calculation, IMF (2005)

Thailand, Singapore South Korea 8% Japan 47% Indonesia, Malaysia China China

7 JAPAN IS BY FAR THE LARGEST CONSUMER MARKET IN ASIA Total consumer spending (USD Billion) Consumer spending per capita (USD) Japan 2784 Japan China 709 Singapore Korea 326 Taiwan 8657 India 316 Korea 6659 Taiwan Indonesia =1867 Malaysia Thailand Thailand 92 China 546 Singapore 53 Indonesia 534 Malaysia 41 India 316 Source: CIA world fact book, OECD, EUROSTAT, Euro monitor international

316 Korea 6659 Taiwan Indonesia 199 131 =1867 Malaysia Thailand 1697 1443 Thailand 92 China 546

8 DESPITE THE LONG RECESSION, JAPAN IS STILL A VERY RICH COUNTRY Rank Source: World Bank, MIPRO Luxemburg Norway Switzerland United States Denmark Iceland Japan Sweden United Kingdom Germany France China India Gross National Income per capita USD, Average monthly disposable income per household SEK thousands 35 Japan 21 Sweden Average savings for Japanese household: SEK 1.5 million

National Income per capita USD, 2004 1 290 620 56 230 52 030 48 230 41 400 40 650 38 620 35 770 33 940 30 120 30 090 37 180

9 JAPAN IS NOT MORE EXPENSIVE THAN OTHER MAJOR CITIES Gross wage comparison Index, 2005 Price comparison (incl. rent) Index, 2005 Copenhagen Zurich London Oslo Oslo 143 New York 100 New York Frankfurt Tokyo Copenhagen Brussels 111 Hong Kong 96 Stockholm London Zurich Paris Berlin 103 Dublin 95 Tokyo 100 Stockholm 91 Note: Price comparison based on a basket of 115 goods and services, including 3 rent categories, weighted in favor of Western European consumer habits Source: UBS Prices and earnings

100 Brussels 111 Hong Kong 96 Stockholm London 108 103 Zurich Paris 96 95 Berlin 103 Dublin 95 Tokyo 100 Stockholm 91 Note: Price

10 BIG MAC PRICES A TELLING EXAMPLE Local price of one Big Mac translated into US$ May 2006 Sweden 4.53 Euro area 3.77 United States Japan Japan 100% higher than US in 1995 China 1.31 Source: Economist

53 Euro area 3.77 United States Japan 2.23 3.

11 JAPAN - A WORLD LEADER IN MANY SECTORS Electronics Car Audio, navigation systems Microwave and satellite communication Semiconductors VCRs, home audio, flat panel screens Leisure products Musical instruments Advanced hobby products Video games, animations Machinery Home air conditioners Industrial sewing machines Robotics Optical instruments All types of cameras, TV equipment Transportatation Automobiles, Trucks, Forklift trucks Commercial Tires Ships

hobby products Video games, animations Machinery Home air conditioners Industrial sewing machines Robotics

12 Japan is BIG and an important market What is changing Areas with special Interest for Swedish companies

13 THE JAPANESE BUSINESS STRUCTURE - You only see the tip of the iceberg Extremely successful global players Sony, Toyota, Nintendo, Honda, Canon, Matsushita Smaller successful international players NSK, Citizen, Konami, Disco, YKK, Kyocera Domestic companies with little or no international sucess (Chemicals, medical products, software, services) Domestic companies, with no int l aspirations (Agriculture, construction, energy, health care, retai transportation and logistics, food preparations etc)

Domestic companies with little or no international sucess (Chemicals, medical products, software, services) Domestic

14 GLOBALISATION INCREASE - Threat or opportunity? Deregulation Increased competition Partner? Reduced margins Looking for new Markets Competitor?

15 A MORE FLEXIBLE LABOUR MARKET 6 % Unemployment rate - % of economically active population 5 The life time employment is all over. Many Japanese companies lay off large number of employees. Qualified persons apply for less qualified jobs. Requested salaries lower than at former employment. Qualified employees available and on bargain discount The key to successful business in Japan is to recruit, develop and maintain Japanese staff

Requested salaries lower than at former employment.

16 GLOBALISATION AND DIGITALISATION TRANSFORMS THE SALES CHANNELS Global Japanese companies can not pay more than their international competitors but the cost of doing business in Japan is still higher More Japanese companies can buy direct Every middle man has to add a value More Foreign companies takes control of their own business by setting up their own presence

Japan is still higher More Japanese companies can buy direct Every middle man has to add a

17 GROWTH OF CHINA MAINLY POSITIVE EFFECTS ON JAPANESE ECONOMY Increased demand for intermediate inputs (e.g., steel, electronic components) and manufacturing equipment Increased demand from Chinese consumers Broader export portfolio with wide regional participation 11.8 CHINA JAPAN Cheaper goods for Japanese consumers Outsourcing of jobs to China 00 Exports Note: Figures for 2004 Source: Ministry of Economy, Trade and Industry; business press; STC analysis 00 Imports

portfolio with wide regional participation 11.8 CHINA JAPAN 10.

18 CHINA HAS OVERTAKEN UNITED STATES AS MAIN TRADING PARTNER FOR JAPAN International trade with Japan JPY trillions China United States Note: International trade defined as exports + imports. Figures for China includes Hong Kong Source: Ministry of Economy, Trade and Industry

2004 China United States Note: International trade defined as exports + imports.

19 THE INTERNAL ASIAN MARKETS ARE MORE IMPORTANT THAN OTHERS M & A Trends in Asia, No. of deals Asia to US US to Asia Asia to Europe Europe to Asia Intra Pacific Source: M&A Asia

of deals 700 600 500 400 300 200 1999 2000 2001 2002 2003

20 Japan is BIG and an important market Globalisation is changing Japan with mainly positive effects Areas with special Interest for Swedish companies

21 SWEDISH COMPANIES ARE DOING WELL IN JAPAN - Increased attention this year 120 Swedish subsidiaries in Japan No of Employees ~12,000 Export 16,8 BSEK (2006) Total sales in Japan ~40 BSEK (2004) ~1,500 Swedish companies selling through 3rd parties Source: STC Japan survey 2005

22 STILL A LOT OF GROWTH POTENTIAL Wood (saw & timber) Current exports (2004) SEK millions Growth potential (through 2010) SEK millions 750-1,500 Wood manufactures Food Design products* Tourism * Growth potential is an estimate of the potential upside if the government and industry would be dedicated and commit resources to support growth Medical devices * Excluding IKEA and H&M Source: STC analysis

23 STRONG SWEDISH IMAGE OPENS OPPORTUNITIES ON THE WORLD S MOST ATTRACTIVE CONSUMER MARKET The world s largest and richest homogeneous consumer market creates opportunities for consumer oriented products Design products Furniture Fashion Food Strong Swedish image and media exposure

24 ADVANCED CONSUMERS CREATE OPPORTUNITIES IN ICT SECTOR The world s most sophisticated telecom and consumer electronics market creates opportunities in several ICT sectors Mobile phone and mobile internet users Million people Mobile phone subscribers Mobile internet users Telecom equipment ICT applications IT security solutions IP solutions Source: Ministry of Public Management, Home Affairs, Posts and Telecommunications

25 AGING POPULATION IS CREATING OPPORTUNITIES IN HEALTH CARE RELATED SECTORS Share pf population over 65 years Percent Japan Sweden US China Opportunities in health care related sectors Pharmaceuticals Medical devices Functional foods Elderly and handicap care related products Source: Japan Nation Population Lab. 2000

26 JAPANESE TOURISTS REPRESENT A HUGE OPPORTUNITY FOR SWEDEN Japanese spend more than other tourists Average price paid for international trip USD/trip, 2001 Japanese 1650 American % British % German % Note: For reference, exchange rate of 1JPY = SEK in February 2005 Source Japan almanac 2005 & Japan association for travel agents

27 WHY JAPAN? 1. A huge market 2. A quality oriented market 3. A market for sourcing 4. A market for bench marking

28 Japan is BIG and an important market Globalisation is changing Japan with mainly positive effects A lot of growth potential

29 Thank you for your attention Swedish Trade Council

DOMINION GLOBALIZATION WORKSHOP

DOMINION GLOBALIZATION WORKSHOP Financial Sector Dennis Encarnation Harvard University For more information, please contact me at www.encarnation.com SERVICES Financial Services & Capital Markets Topics: