the 14th survey on business conditions of japanese ... · firms in the seven major latin american...

The 14th Survey on Business

Conditions of Japanese Companies in

Latin America

December, 2013

Japan External Trade Organization (JETRO)

Latin America Division, Overseas Research

Department

[DISCLAIMER]………………………………………………………………………………………………

Please use the information provided in this report at your own discretion and risk. At JETRO, we

aim to provide you with the most accurate data possible. However, we kindly ask for your

understanding that should you, the reader of this report, suffer financial loss, etc., in connection with

the report's contents, neither JETRO nor the authors of the report can be held responsible.

………………………………………………………………………………………………………………………

Preface

This report summarizes the results of the survey conducted between September and October

2013 by the Japan External Trade Organization (JETRO), on the business conditions of Japanese

firms in the seven major Latin American countries (Mexico, Venezuela, Colombia, Peru, Chile,

Brazil, and Argentina).

This is the 14th issue of the periodic survey conducted by JETRO. For each survey, the

Japanese companies in Latin America have given us considerable support, and we sincerely

appreciate their cooperation.

We hope that this report will be informative for Japanese companies in Latin America, as

well as for those looking to do business in the region.

Latin American Offices

Latin America Division, Overseas Research Department

Japan External Trade Organization (JETRO)

Contents

Chapter 1 ............................................................................................................................. 1

1. Response Situation by Country ......................................................................................... 1

2. Ratio of Manufacturing and Non-Manufacturing among Respondent Companies .............. 1

3. Product Category of Manufacturing Respondents ............................................................ 2

4. Business Category of Non-Manufacturing Respondents ................................................... 3

5. Location of Headquarters for Latin American Business................................................ 5

Chapter 2 ............................................................................................................................. 6

1. Operating Profits Forecast for 2013 .............................................................................. 6

Slightly Declining Trend from 2012.............................................................................................. 6

Business Sentiment Bottomed Out, Showing Recovery .................................................................. 7

The Lower the Profit Forecast, the Higher the Business Sentiment ...................................... 8

Expanding Domestic Market Large Factor for Profit Improvement .......................................... 10

Increasing Labor Costs Main Factor for Profit Decrease Forecast ...................................... 11

2. 2014 Forecasts for Operating Profits .......................................................................... 12

2014 Profits Expected to Further Improve ................................................................................ 12

Same Reasons as 2013 for Profit Increase ................................................................................ 14

Operating Profits Depend Greatly on Market Conditions ........................................................ 15

3. Business Outlook for the Future ................................................................................... 16

Business Outlook Varies by Country............................................................................................ 16

Business Expansion Based on Market Potential ......................................................................... 18

Most of Expansion Intended in Sales .......................................................................................... 19

Tighter Regulations Prompt Transfer/Withdrawal ..................................................................... 20

Localization of Labor Force, while Management Remains in Headquarters ........................... 21

Competent Employees Required for Localization ....................................................................... 22

Further Localization of Employees ............................................................................................. 23

Plans for Local Employee Increase Apparent in Mexico and Brazil ...................................... 24

4. Approaches for Market Development ............................................................................... 25

In Latin America Overall, Competition Highest Among Japanese Companies ......................... 25

Intensifying Market Competition ................................................................................................. 26

5. Issues on Business Management ....................................................................................... 27

Challenged with Emergence of Competitors and Price Reduction Requests ........................... 27

Financially Challenged by Exchange Rate Fluctuations and Taxation .................................. 28

Notable Increase in Wages of Employees .................................................................................... 29

Time-Consuming and Complicated Customs Procedure .................................................................. 30

Faced with Difficulties of Local Procurement ......................................................................... 31

Complex Tax and Administrative Procedures Prominent in Mercosur Countries ................... 32

[Reference] Benefits (Strengths) in the Investment Environment ........................................ 34

Concern over Security and Terrorism in Some Countries ........................................................ 35

Comparing Brazil and Mexico—Labor Costs, Taxation, and Administrative Procedures ...... 36

6. Procurement Situation of Raw Material and Parts ...................................................... 37

High Ratio of Local Procurement in Brazil ............................................................................... 37

Procurement Mostly from Japan, Though Less Than Previous Survey ...................................... 39

7. FTA/EPA Utilization and Problems ................................................................................. 40

Mexico: Over 50% FTA Utilization in All Areas ....................................................................... 40

Brazil: High Use of Mercosur, as Well as Auto Sector Agreement with Mexico for Imports

.......................................................................................................................................................... 41

Chile: Over 70% Utilization for Imports in All Regions ....................................................... 42

Argentina: Utilization of Mercosur as Well as Auto Sector Agreement with Mexico ........ 43

Colombia: Used for Exports to the Andean Community, and Imports from Mercosur and Mexico

.......................................................................................................................................................... 44

Peru: High Utilization for Imports............................................................................................ 45

Venezuela: Only Using FTA with Mercosur .................................................................................. 46

Issues on Export FTAs—Receiving Certificate of Origin and Capable Staff Shortage ...... 47

Demand for FTA Conclusion ............................................................................................................ 48

Questionnaire survey tables……………….……………………………….……………....……….49

1

Copyright © 2013 JETRO. All rights reserved

Chapter 1 Outline of the Survey

1. Response Situation by Country

From September to October 2013, we conducted a questionnaire survey on business conditions

of Japanese companies in seven Latin American countries (Mexico, Venezuela, Colombia, Peru,

Chile, Brazil, and Argentina). The questionnaires were sent to 742 companies. We received

responses from a record-high 436 companies, giving a return rate of 58.8%.

Chart: Number of Questionnaires sent, number of responses, response rate

Surveyed Countries Questionnaires

Sent

Respondent

Companies

Response

Rate

Mexico 210 105 50.0%

Venezuela 23 19 82.6%

Colombia 29 22 75.9%

Peru 21 14 66.7%

Chile 54 36 66.7%

Brazil 359 206 57.4%

Argentina 46 34 73.9%

Latin American Total 742 436 58.8%

2. Ratio of Manufacturing and Non-Manufacturing among Respondent Companies

Of those who responded, 181 companies (41.5%) were operating as manufacturers in Latin

America, and 255 companies (58.5%) were non-manufacturers.

Fig 0-1: Breakdown of Respondents by Industry

2


3. Product Category of Manufacturing Respondents

As for the product category of the respondent manufacturers, “Parts for transportation

machinery (car and motor cycle)” had the most respondents, followed by “Electric &

electronic parts,” “Transportation machinery (car and motor cycle),” and “Food,

agriculture & fishery processing.”

Fig. 0-2: Number of Respondents by Product Category in Manufacturing (181 companies)

Manufacturing

41.5% Non-

manufacturing

58.5%

3


4. Business Category of Non-Manufacturing Respondents

Looking at the respondent non-manufacturers by business category, the largest number

belonged to “Sales,” followed by “Trading,” “Other non-manufacturing industries,” and

“Transportation/warehouse.”

Fig 0-3: Number of Respondents by Business Category in Non-Manufacturing (255 companies)

35

20

20

16

12

10

10

8

7

6

5

5

3

3

3

3

2

2

1

1

0

0

9

0 10 20 30 40

Parts for transportation machines

Electric and electronic parts

Transportation machines

Food, agriculture, and fishery processing

Electric machines

Chemical products, oil products

Machines

Steel

Metal goods

Precision machines and apparatuses

Clothes and textiles

Pharmaceuticals

Textiles (yarn, woven fabric products)

Plastic products

Rubber goods

Non-ferrous metals

Timber and wood products (excluding furniture and

interior design products)

Ceramic, earth and stone products

Paper and pulp

Medical instruments

Furniture and interior design products

Printung / Publishing

Other manufacturing industries

（Companies）

4


102

61

23

17

9

9

8

7

7

3

3

2

2

1

1

0

0 20 40 60 80 100 120

Sales

Trading

Other non-manufacturing industries

Transportation/warehouse

Telecommunications/IT

Construction/plant

Banking

Distribution

Insurance

Mining

Hotel/travel/food and restaurant service

Fishing and fisheries

Real estate

Agriculture and forestry

Legal and taxation service

Securities

（Companies）

5


5. Location of Headquarters for Latin American Business

Respondents were asked to choose the location of their headquarters from four options: in

Japan, in North America, in Latin America, and other.

For Latin America overall, the majority of respondents had their business headquarters in

Japan, followed by North America, then Latin America. Looking at each country, companies in

Mexico had the largest ratio of North American headquarters, while many companies in Argentina

had headquarters in Latin America. Since these two countries are neighbored by economic giants

U.S. and Brazil, it is likely that the company headquarters are located there.

Fig. 0-4: Location of Headquarters for Latin American Operations

53.8

45.0

52.6

45.5

42.9

52.8

65.0

23.5

28.1

49.0

10.5

18.2

14.3

16.7

23.3

29.4

16.9

5.0

36.8

36.4

42.9

25.0

10.7

47.1

1.2

1.0

0.0

0.0

0.0

5.6

1.0

0.0

0% 20% 40% 60% 80% 100%

Latin America Total（

n=431）

Mexico（n=100）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）

Headquarters in Japan

Regional headquarters in North America

Regional headquarters in Latin America

Other

6


Chapter 2 Main Survey Results

1. Operating Profits Forecast for 2013

Slightly Declining Trend from 2012

For 2013 operating profits forecast, 57.1% (249 companies) answered they would have profits,

20.9% (91 companies) said they would break even, and 22.0% (96 companies) expected losses.

In the 2012 survey, “Profits” were 64.7% (202 companies), “Breakeven” were 19.9% (62

companies), and “Losses” were 15.4% (48 companies), so a slightly declining trend can be

seen in operating profits.

The percentage of “Profits” was high in Argentina, Colombia, and Venezuela, while low

in Peru and Brazil.

Fig. 1-1: Operating Profits Forecast for 2013

70.6

51.0

61.1

50.0

68.2

63.2

61.0

57.1

20.6

24.3

19.4

28.6

18.2

21.1

14.3

20.9

8.8

24.8

19.4

21.4

13.6

15.8

24.8

22.0

0% 20% 40% 60% 80% 100%

Argentina（n=34）

Brazil（n=206）

Chile（n=36）

Peru（n=14）

Colombia（n=22）

Venezuela（n=19）

Mexico（n=105）


n=436）

Profit Breakeven Loss

7


Business Sentiment Bottomed Out, Showing Recovery

The respondents were asked whether their operating profits will “increase,” “remain the

same,” or “decrease” in 2013 compared to 2012. The diffusion index (DI= “increase” ratio

- “decrease” ratio) calculated from the survey result was 21.1 points. This is 10.5 points

higher than last year’s 10.6 points, and the business sentiment is recovering from the

two-year decline.

The DI value for 2014 (forecast) is even higher at 45.4 points, indicating that companies

have a positive outlook, expecting operating profits to continue to improve after 2014.

Fig. 1-2: Changes in DI Value for Latin America Overall

3.0

22.6

-7.4

10.3

19.9

39.5

26.2

38.3

30.2

-2.1

-10.8

40.8

24.2

10.6

21.1

45.4

-20

-10

0

10

20

30

40

50

8


The Lower the Profit Forecast, the Higher the Business Sentiment

As for the DI value for each country, they were high in Brazil, Mexico, and Peru, while

low in Venezuela, Columbia, Chile, and Argentina. Comparing this result with the “Profits,”

“Breakeven,” or “Losses” ratio of operating profit forecast shown in Fig. 1-1, the

countries with a high ratio of “Profits” had lower DI values, and those with low “Profits”

had high DI values, thus showing a reverse phenomenon.

It seems that the companies with negative forecast consider that the economy has bottomed

out and the worst is over, so even though they currently forecast bad results, they feel that

it’s getting better than the previous year.

Meanwhile, in Venezuela, the regulation on foreign currency acquisition and the resulting

lack of raw materials, and high inflation rate discourage new entry into its market. Since

there is little competition, the companies are currently able to make profits. Yet it is

difficult to foresee the future with unstable politics and economy, which seems to result

in low business sentiments.

Fig. 1-3: DI Value by Country (2013)

21.1 24.8

-21.0 -18.2

21.5

2.8

32.5

8.8

-30

-20

-10

0

10

20

30

40

9


Fig. 1-4: 2013 Operating Profits Forecast Compared to 2012

35.3

50.0

25.0

42.9

18.2

15.8

42.9

41.7

38.2

32.5

52.8

35.7

45.5

47.4

39.0

37.6

26.5

17.5

22.2

21.4

36.4

36.8

18.1

20.6

0% 20% 40% 60% 80% 100%

Argentina（n=34）

Brazil（n=206）

Chile（n=36）

Peru（n=14）

Colombia（n=22）

Venezuela（n=19）

Mexico（n=105）


n=436）

Increase Remain the same Decrease

10


Expanding Domestic Market Large Factor for Profit Improvement

As the reasons for improvement in the profit forecast, “Sales increase in own country”

stand out at 67.6% (123 companies), followed by “Reduction of expenditure (management, energy

costs)” (23.6%, 43 companies), “Improvement of sales efficiency” (20.3%, 37 companies),

“Sales increase due to expansion of exports” (18.7%, 34 companies), and “Effects of

exchange rate fluctuation” (18.1%, 33 companies).

The results show that rather than the corporate efforts such as cost reduction and improved

efficiency, the expansion of the domestic market plays a larger role in profit forecasts.

Fig. 1-5: Reasons for Increase in 2013 Profit Forecast (Latin America overall, multiple

answers by 182 respondents)

8.8

11.0

15.4

17.0

18.1

18.7

20.3

23.6

67.6

0 20 40 60 80

Other

Reduction of labor costs

Improvement of production efficiency* (the

manufacturing industry only)

Reduction of procurement costs in your

country

Effects of exchange rate fluctuation

Sales increase due to expansion of exports

Improvement of sales efficiency

Reduction of other expenditures (e.g.,

management, administrative and energy costs)

Sales increase in your country

(%)

11


Increasing Labor Costs Main Factor for Profit Decrease Forecast

For the reasons of decreased profit forecast, “Increase of labor costs” had the highest

score at 48.9% (44 companies), followed by “Sales decrease in own country” (46.7%, 42

companies), and “Effects of exchange rate fluctuation” (41.1%, 37 companies). Even in the

2011 and 2012 survey, “Increase of labor costs” had the highest score. The issue of labor

cost is considered to be a structural factor affecting corporate earnings.

Looking at each country, Argentina (66.7%), Chile (62.5%), and Brazil (61.1%) had high scores

for “Increase of labor costs,” while Colombia (25.0%) and Mexico (26.3%) had extremely low

scores for that reason, showing that the situation differs by country within Lain America.

As for Colombia, the main reasons for decreased profit forecast are “Sales decrease in own

country” (75.0%), Effects of exchange rate fluctuation” (37.5%), and “Costs insufficiently

passed along in sales prices” (37.5%). For Mexico, “Sales decrease in own country” (52.6%)

is given as the main reason for decreased profit forecast.

Fig. 1-6: Reasons for Decrease in 2013 Profit Forecast (Latin America overall, multiple


31.1

3.3

14.4

28.9

30

31.1

41.1

46.7

48.9

0 10 20 30 40 50 60

Other

Rising interest rates

Sales decrease due to slowdown of exports

Increase of procurement costs in your country

Increase of other expenditures (e.g., management,

administrative and energy costs)

Costs insufficiently passed along in sales prices


Sales decrease in your country

Increase of labor costs

(%)

12


2. 2014 Forecasts for Operating Profits

2014 Profits Expected to Further Improve

The DI value showing the business sentiment for 2014 was 45.4 points for Latin America

overall. This is significantly higher than the 2013 figure of 21.1, reflecting the companies’

expectations for improved profits in 2014.

Looking at each country, all except Venezuela have higher DI values for 2014 compared

to 2013. As we have seen in Fig. 1-1, Venezuela had a high ratio of companies expecting profits

for 2013, but the future outlook is unclear due to political and economic instability,

resulting in low business sentiment for both 2013 and 2014.

Fig. 2-1: DI Value by Country (2014)

45.4

58.1

-21.1

54.6 50.0

30.6

50.9

17.6

-30

-20

-10

0

10

20

30

40

50

60

70

13


Fig. 2-2: 2014 Operating Profit Forecasts Compared to Previous Year

55.5

67.6

10.5

59.1

50.0

38.9

59.2

38.2

34.4

22.9

57.9

36.4

50.0

52.8

32.5

41.2

10.1

9.5

31.6

4.5

0.0

8.3

8.3

20.6

0% 20% 40% 60% 80% 100%


n=436）

Mexico（n=105）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）

Increase Remain the same Decrease

14


Same Reasons as 2013 for Profit Increase

For reasons on operating profits increase, “Sales increase in own country” scored the

highest at 77.3%, way ahead of “Improvement of sales efficiency” (29.8%) and “Sales

increase due to expansion of exports” (21.1%). Although the order is slightly different,

the results are roughly the same as the reasons for increase in 2013 profit forecast.

Fig. 2-3: Reasons for Increase in 2014 Profit Forecast (Latin America overall, multiple


10.7

4.1

9.1

15.3

15.7

16.5

21.1

29.8

77.3

0.0 25.0 50.0 75.0 100.0

Other


Reduction of labor costs

Improvement of production efficiency (the

manufacturing industry only)

Reduction of other expenditures (e.g.,

management, administrative and energy costs)

Reduction of procurement costs in your country

Sales increase due to expansion of exports

Improvement of sales efficiency

Sales increase in your country

(%)

15


Operating Profits Depend Greatly on Market Conditions

The main reasons for decrease in operating profit forecast are “Decrease of sales volume

in own country” (53.5%), “Increase of labor costs” (51.2%), and “Increase of other

expenditures (management, administrative, and energy costs)” (41.9%). As shown in Fig. 2-3,

the major reason for increases in operating profit forecast was “Sales increase in own

country,” while the major reason for decreases is also “Sales decrease in own country,”

showing relations with market conditions. It can be viewed to mean that while market expansion

leads to improved operating profits, the tougher competition reduces sales and weighs on the

operating profits.

We can also see that increases in labor and management costs negatively affect the operating

profits.

Fig. 2-4: Reasons for Decrease in 2014 Profit Forecast (Latin America overall, multiple


37.2

9.3

16.3

25.6

27.9

37.2

41.9

51.2

53.5

0 10 20 30 40 50 60

Other


Sales decrease due to slowdown exports


Increase of procurement costs in your country

Costs insufficiently passed along in sales prices

Increase of other expenditures (e.g., management,

administrative and energy costs)

Increase of labor costs

Sales decrease volume in your country

(%)

16


3. Business Outlook for the Future

Business Outlook Varies by Country

For Latin America overall, concerning the business outlook in the next one or two years,

67.7% (295 companies) answered “Expansion,” far exceeding the answers “Remain the same”

at 27.3% (119 companies) and “Reduction” at 4.1% (18 companies).

Looking at each country, 76.2% in both Brazil and Mexico answered “Expansion,” followed

by 71.4% in Peru. In contrast, “Remain the same” scored the highest in Venezuela (68.4%)

and Argentina (55.9%).

In Venezuela and Argentina, there are many factors of political and economic uncertainty

such as import regulations, exchange control, sales price control due to high inflation, and

unstable government. So it can be assumed that compared to other countries, the ratio of

“Reduction” and “Transferring to a third country/region or withdrawal from own country”

were higher. Especially in Venezuela, although all companies answered “Remain the same”

in the previous survey, this time, some companies answered “Reduction” and “Transferring

to a third country/region or withdrawal from own country.”

In Venezuela, various factors with negative impact on business are becoming apparent, such

as excess social security for the poor, stagnating capital investment in the main oil industry,

the accompanying delays in foreign currency issuance for import settlement with decreasing

foreign reserve, and the resulting goods shortages and inflation. In March 2013, President

Chavez died and the administration was succeeded by President Maduro. Yet the situation shows

no signs of improvement, and some companies may be considering pulling out their business.

However, both Venezuela and Argentina are rich in natural resources with a relatively large

population and market. So many companies still have not decided on reduction or withdrawal,

but are taking a wait-and-see attitude.

17


Fig. 3-1: Business Outlook for the Next 1-2 years

67.7

76.2

10.5

68.2

71.4

55.6

76.2

32.4

27.3

17.1

68.4

27.3

28.6

38.9

21.8

55.9

4.1

5.7

10.5

4.5

0.0

5.6

1.5

11.8

0.9

1.0

10.5

0.0

0.0

0.0

0.5

0.0

0% 20% 40% 60% 80% 100%


n=436）

Mexico（n=105）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）

Expansion

Remaining the same

Reduction

Transferring to a third country/region or withdrawal from your country

18


Business Expansion Based on Market Potential

The main reasons given for business expansion were “Sales increase” (86.8%) and “High

growth potential” (59.7%).

Looking at each country, the answer “Sales increase” was high in Venezuela (100.0%, 2

companies), Mexico (93.8%, 75 companies), and Colombia (93.3%, 14 companies), while “High

growth potential” scored high in Venezuela (100.0%, 2 companies), Colombia (86.7%, 13

companies), and Peru (80.0%, 8 companies).

Overall, many companies are planning to expand their business based on market growth and

high potential, and few consider “Ease in securing labor force” or “Deregulation” as

reasons for business expansion.

Fig. 3-2: Reasons for “Expansion” (Latin America overall, multiple answers by 295

respondents)

4.4

1.4

2.7

9.8

18.6

20.7

25.1

59.7

86.8

0 20 40 60 80 100

Other

Deregulation

Ease in securing labor force

Reduction of costs (e.g., procurement costs,

labor costs)

Reviewing production and sales networks

High receptivity for high-value added products

Relationship with clients

High growth potential

Sales increase

(%)

19


Most of Expansion Intended in Sales

As for the specific area intended for expansion, “Sales function” (71.9%) ranks way at

the top, while “Production (general products)” (26.1%), “Production (high-value added

products)” (25.8%), and “Logistics function” (20.7%) follow far behind.

Looking at each country, high scores in “Sales function” were noted in Peru (90%, 9

companies), Colombia (86.7%, 13 companies), and Chile (80.0%, 16 companies).

For Latin America overall, those who answered they would expand “Production” and

“Logistics” functions remained in the 20% level, showing that strengthening of sales is

the main focus in developing business in the Latin American market.

Fig. 3-3: Areas of Expansion (Latin America overall, multiple answers)

9.2

6.4

8.8

11.9

20.7

25.8

26.1

71.9

0 20 40 60 80

Other

R&D

Function of regional headquarters

Function for service administration (e.g., shared

services, call center)

Logistics function

Production (high-value added products)

Production (ubiquitous products)

Sales function

(%)

20


Tighter Regulations Prompt Transfer/Withdrawal

Although very few, some companies replied business “Reduction” (4.1%, 18 companies) and

“Transfer to a third country/region or withdrawal” (0.9%, 4 companies).

Especially in Venezuela, the answers “Reduction” and “Transfer to a third country/region

or withdrawal” both reached 10.5%. In Argentina, although none replied “Transfer to a third

country/region or withdrawal,” “Reduction” scored 11.8%.

The reasons for these outlooks were “Sales decrease” followed by “Tightening of

regulations.” As previously mentioned, the effects of import regulations, exchange control,

and sales price control in Venezuela and Argentina can be seen.

Fig. 3-4: Reasons for “Reduction” and “Transfer to a third country/region or withdrawal”

(Latin America overall, multiple answers)

31.8

4.5

4.5

4.5

9.1

13.6

31.8

31.8

59.1

0 20 40 60 80

Other

Low receptivity for high-value added products

Difficulty in securing labor force

Relationship with clients

Reviewing production and sales networks

Increase of costs (e.g., procurement costs, labor

costs)

Low growth potential

Tightening of regulations

Sales decrease

(%)

21


Localization of Labor Force, while Management Remains in Headquarters

In relation to the business outlook, we also asked about the localization of the management.

The high scoring answers were “Focusing on the training of local employees” (70.9%, 309

companies), “Hiring director or manager-level employees” (62.4%, 272 companies), “Hiring

experienced employees who can contribute to the localization of management” (53.4%, 233

companies). Within each country, the answers were roughly in the same order as in Latin America

overall.

Meanwhile, “Strengthening the capacity of production and service development in the region”

(23.2%, 101 companies),“Giving the regional Headquarters more power to make strategies”

(18.1%, 79 companies) and “Transferring authority from headquarter to region” (14.7%, 64

companies) scored low. This shows that although the labor force continues to be localized,

the management authority remains at the headquarters.

Fig. 3-5: Efforts Toward Localization (Latin America overall, multiple answers)

2.5

3.7

4.8

14.7

18.1

23.2

27.5

31.4

53.4

62.4

70.9

0 20 40 60 80

Other

Acquiring human resources and management

resources through M&A activities

No actions taken to promote the localization of

management

Transferring authority to make decisions from

the headquarters in Japan to the regional

headquarters

Giving the regional headquarters more power to

make sales strategies

Strengthening the capability of production and

service development in the regional

headquarters

Hiring executive-level employees

Improving the personnel system such as

introducing a merit system

Hiring experienced employees who can

contribute to the localization of management

Hiring director or manager-level employees

Focusing on the training of local employees

(%)

22


Competent Employees Required for Localization

As for the problems in pursuing localization of management, “Difficulty in hiring executive

level employees” (44.7%, 195 companies), “Poor capabilities and motivation of local

employees” (41.5%, 181 companies), and “Slow progress in the training of local employees”

(25.2%, 110 companies) were the top reasons for Latin America overall. But when we look at

each country, the answers come in a different order.

For example, in Peru, 50.0% of the companies gave “Lack of language proficiency (Japanese

and English) in employees” as the highest scoring answer, but it is not a big issue in Colombia

(13.6%) or Mexico (15.2%). In Argentina, “No problems” came in second at 29.4% following

“Difficulty in hiring executive level employees” (35.3%), and there seems to be little

problem in localization.

Fig. 3-6: Problems Concerning Localization of Management (Latin America overall, multiple

answers)

13.1

6.9

3.4

8.5

10.3

14.9

16.7

17.9

23.2

25.2

41.5

44.7

0 20 40 60

No problems regarding the localization of management

Other

Disagreement between the headquarters in Japan and

regional headquarters in the regarding recruitment

Poor production and service development capability in

the regional headquarters

Difficulty in reducing the number of expats from the

headquarters in Japan

Difficulty in transferring authority to make decisions

from the headquarters in Japan to the regional

headquarters

Poor planning and marketing capability in the regional

headquarters

High turnover rate of executive level employees

Language barriers (the lack of Japanese language

proficiency)

Slow progress in the training of local employees

Poor capabilities and motivation of local employees

Difficulty in hiring executive level employees

(%)

23


Further Localization of Employees

In Latin America overall during the past year, the number of local employees increased at

45.4%, and Japanese expatriates increased at 23.4% of the respondents. We can see that the

Japanese companies in the region are proceeding with the localization of employees.

Looking at each country, Venezuela, Chile, and Argentina feature high rates of “No change”

or “Decrease” in numbers for both local employees and Japanese expatriates. Meanwhile,

Mexico, Peru, and Brazil have a relatively high rate of “Increase” for both local employees

and Japanese expatriates. This trend matches with the “Expand” and “Remain the same”

business outlook for the Next 1-2 years, as shown in Fig. 3-1.

Fig. 3-7: Changes in the Number of Local Employees for the Past 1 Year

Fig. 3-8: Changes in the Number of Japanese Expatriates for the Past 1 Year

45.4

51.4

10.5

40.9

64.3

30.6

49.5

32.4

37.6

34.3

68.4

40.9

21.4

66.7

31.1

44.1

17.0

14.3

21.1

18.2

14.3

2.8

19.4

23.5

0% 20% 40% 60% 80% 100%

Latin America Total（n=436）

Mexico（n=105）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）

Increase No change Decrease

23.4

30.5

0.0

9.1

21.4

16.7

26.2

14.7

66.5

61.0

73.7

81.8

71.4

72.2

64.6

73.5

10.1

8.6

26.3

9.1

7.1

11.1

9.2

11.8

0% 20% 40% 60% 80% 100%


Mexico（n=105）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）


24


Plans for Local Employee Increase Apparent in Mexico and Brazil

Concerning future plans on the number local employees, 53.2% answered “Increase” in Latin

America overall. Yet, for the number of Japanese expatriates, only 14.4% answered “Increase,”

and the trend to increase the number of local employees, but not Japanese expatriates, as

shown in Fig. 3-7 and 3-8, are more apparent in the future plans.

For each country, similar to the results on changes within the past year, the ratio of “No

change” is high in Venezuela, Chile, and Argentina. In contrast, although Peru had the highest

ratio of “Increase” of local employees within the past year, it is beaten by Mexico and

Brazil for future plans.

Fig. 3-9: Future Plans on the Number of Local Employees

Fig. 3-10: Future Plans on the Number of Japanese Expatriates

53.2

62.9

10.5

45.5

50.0

38.9

58.7

35.3

38.1

27.6

73.7

40.9

42.9

52.8

33.5

58.8

8.7

9.5

15.8

13.6

7.1

8.3

7.8

5.9

0% 20% 40% 60% 80% 100%


Mexico（n=105）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）


14.4

20.0

0.0

22.7

14.3

13.9

13.6

5.9

75.5

68.6

73.7

77.3

78.6

83.3

76.7

79.4

10.1

11.4

26.3

0.0

7.1

2.8

9.7

14.7

0% 20% 40% 60% 80% 100%


Mexico（n=105）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）


25


4. Approaches for Market Development

In Latin America Overall, Competition Highest Among Japanese Companies

When asked about the main competitors in their business, 28.4% (124 companies) answered

Japanese companies, followed by 17.4% (76 companies) European companies, 13.5% (59 companies)

U.S. companies, 8.0% (35 companies) Chinese companies, and 7.1% (31 companies) South Korean

companies.

Mexico (47.6%), Peru (28.6%), and Chile (25.0%) had the highest ratio of Japanese companies

as main competitors, while in Argentina (26.5%), Brazil (22.8%), and Peru (21.4%), the

competition was mostly with European companies. U.S. companies were the main rivals in

Venezuela (26.3%) and Mexico (20.0%), and the ratio was in the 10% level in other countries.

In general, Chinese and South Korean companies are increasing their presence in the Latin

American market. Venezuela (42.1%) and Peru (21.4%) had the highest ratio of Chinese

competitors, while Peru (14.3%) and Chile (13.9%) showed more competition from South Korean

companies.

Fig. 4-1: Main Competitors in the Same Business

28.4

47.6

10.5

22.7

28.6

25.0

22.3

23.5

13.5

20.0

26.3

13.6

0.0

13.9

9.2

17.6

17.4

8.6

0.0

13.6

21.4

13.9

22.8

26.5

8.0

2.9

42.1

18.2

21.4

2.8

6.3

8.8

7.1

7.6

5.3

0.0

14.3

13.9

5.3

11.8

2.3

3.8

0.0

9.1

0.0

2.8

1.5

0.0

0.9

0.0

0.0

0.0

0.0

2.8

1.5

0.0

15.6

6.7

0.0

9.1

7.1

13.9

24.3

8.8

2.5

1.0

0.0

9.1

7.1

2.8

2.9

0.0

0.9

0.0

5.3

4.5

0.0

0.0

1.0

0.0

3.2

1.9

10.5

0.0

0.0

8.3

2.9

2.9

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


n=436）

Mexico（n=105）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）

Japanese companies U.S. companies European companies

Chinese companies South Korean companies Other Asian companies

Middle Eastern companies Local companies Other Latin American companies

Other No competition

26


Intensifying Market Competition

Concerning the change in market competition, 55.5% answered that it has increased. This

ratio has risen from the 2011 survey (50.6%) and the 2012 survey (54.4%). Meanwhile, 44.0%

answered “Unchanged”, gradually decreasing from 2011 (47.8%) and 2012 (44.5%) surveys.

The results reveal the fierce competition between Japanese, U.S., European, Chinese, and

South Korean companies in the Latin American market. The ratio of increased competition

was, from the highest order, 86.4% in Colombia, 66.7% in Chile, 57.1% in Peru, 55.8% in

Brazil, and 48.6% in Mexico. Compared to the previous fiscal year, the “Increased” ratio

rose in Colombia (55.6% in 2012), Chile (51.6% in 2012), and Peru (55.6% in 2012), while

Brazil (61.3% in 2012) and Mexico (53.5% in 2012) each showed a slight decrease.

For Japanese companies, Brazil and Mexico are still the main battlefields for developing

the Latin American market. Yet, more Japanese companies may be considering Colombia, Chile,

and Peru as the next market after Brazil and Mexico, thereby intensifying the competition.

Similar to previous surveys, the ratio of “Unchanged” is high in Argentina and Venezuela.

Behind this is the fact that there are few newcomers to the market due to problems in the

business environment.

Fig. 4-2: Change in Competition in the Past 12 Months

55.5

48.6

42.1

86.4

57.1

66.7

55.8

50.0

44.0

50.5

57.9

13.6

42.9

33.3

43.7

50.0

0.5

1.0

0.0

0.0

0.0

0.0

0.5

0.0

0% 20% 40% 60% 80% 100%


Mexico（n=105）

Venezuela（n=19）

Colombia（n=22）

Peru（n=14）

Chile（n=36）

Brazil（n=206）

Argentina（n=34）

Competition increased Unchanged Competition lessened

27


5. Issues on Business Management

Challenged with Emergence of Competitors and Price Reduction Requests

For issues on sales and marketing, the high-percentage answers were “Emergence of

competitors (competition in cost)”at 52.5% (229 companies), followed by “Request for price

reduction from major business partners” at 33.7% (147 companies). These are the top two issues

for all countries except Venezuela, which has “Lack of progress in local deregulation”

(52.6%, 10 companies), and “Delayed collection of accounts receivable” (36.8%, 7 companies)

as the major concerns. The continuance of price controls on basic foods and some medical

products etc. as anti-inflationary measures, and an increase in the number of items for which

it is required to submit certificates of domestic non-production and insufficiency to acquire

foreign currency for import, which makes acquiring foreign currency for import more difficult,

seem to be behind this.

Fig. 5-1: Current Issues on Sales and Marketing (Latin America overall, multiple answers)

6.9

10.8

2.8

13.5

14.0

14.2

14.9

22.7

24.1

24.5

31.4

33.7

52.5

0.0 20.0 40.0 60.0 80.0

No particular issues

Other issues

Decrease of orders from your headquarters

Emergence of competitors (competition in quality)

Delayed collection of accounts receivable

Price decline due to excess in global supply

Decrease of orders from business partners

Inflow of low-price import products to local

markets

Lack of progress in local deregulation

Sluggish sales in major markets (low consumer

spending)

Slow development of new customers

Request for price reduction from major business

partners

Emergence of competitors (competition in cost)

(%)

28


Financially Challenged by Exchange Rate Fluctuations and Taxation

The top issue in the finance, monetary, and foreign exchange fields was “Fluctuation in

the exchange rate between local currency and the dollar” at 61.7% (269 companies), followed

by “Tax burden (corporate tax, transfer pricing taxation, etc.)” at 50.7% (221 companies).

For “Fluctuation in the exchange rate between local currency and the dollar,” Argentina

(73.5%, 25 companies) and Colombia (68.2%, 15 companies) had high scores. As for “Tax burden

(corporate tax, transfer pricing taxation, etc.)”, Brazil (70.9%, 146 companies) and Peru

(57.1%, 8 companies) have high scores. Meanwhile, on “Regulations concerning overseas

remittance,” the two countries Argentina (88.2%, 30 companies) and Venezuela (84.2%, 16

companies) stood out, while all other countries scored low. This is because when securing

foreign currency for transferring profits in Argentina, the central bank’s inspection is

becoming more strict while the inspection criteria is not disclosed. In Venezuela, allocation

of foreign currency needs to be acquired from the Commission for the Administration of Currency

Exchange (CADIVI) when securing foreign currencies. However, allocations for transferring

profits and dividends are hardly ever approved, although they are authorized in CADIVI’s

administrative decision document.

Fig. 5-2: Current Issues on Finance, Monetary, and Foreign Exchange (Latin America overall,

multiple answers)

10.3

5.5

5.7

11.7

12.8

12.8

17.2

23.6

25.0

50.7

61.7

0 20 40 60 80


Other issues

Difficulty in getting financing from local banks

Regulations concerning financing and payment

Fluctuations in the exchange rate between the yen

and the dollar


Fluctuations in the exchange rate between local

currency and the yen

Regulations concerning overseas remittance

Shortage of cash flow required for business

expansion

Tax burden (corporate tax, transfer pricing

taxation, etc.)

Fluctuations in the exchange rate between local

currency and the dollar

(%)

29


Notable Increase in Wages of Employees

For issues regarding employment and labor, “Increase in wages of employees” scored high

at 73.4% (320 companies). This ratio has been increasing, from 58.9% in 2011 and 60.2% in

2012, and accounts for the largest portion of management issues.

This is followed by “Quality of employees” at 44.3% (193 companies), then “Difficulty

in recruiting workforce (middle management level)” at 34.9% (152 companies). Against a

backdrop of a steady economy, the unemployment rate has become lower in Latin America, and

the turnover rate is on the rise. Regardless of positions, there is a strong competition over

talented staff, and Japanese companies seem to be having a hard time in securing the desired

quality and headcount in the workforce.

Fig. 5-3: Current Issues on Employment and Labor (Latin America overall, multiple answers)

4.1

4.8

4.8

6.0

8.7

9.6

10.8

19.7

24.3

28.0

28.7

29.1

34.9

44.3

73.4

0.0 20.0 40.0 60.0 80.0


Other issues

Restriction on hiring foreigners

Difficulty in recruiting workforce (general

workers) (manufacturing companies only)

Restriction on visa issuance for dispatched

Japanese executives (stationed representatives)

Difficulty in appointing local personnel as

managers and supervisors

Difficulty in recruiting workforce (engineers)

(manufacturing companies only)

Difficulty in recruiting workforce (general staff,

office workers)

Retention rate of employees

Labor-related lawsuits

Cost for dispatched Japanese executives (stationed

representatives)

Regulations concerning dismissal and reduction of

personnel

Difficulty in recruiting workforce (middle

management level)

Quality of employees

Increase in wages of employees

(%)

30


Time-Consuming and Complicated Customs Procedure

Regarding the trade system, the highest scoring issues were “Complex procedures for customs

clearance” at 50.9% (222 companies), and “Significant time required for customs clearance”

at 49.1% (214 companies). The ratio for these two were especially high in the Mercosur nations

of Brazil, Argentina, and Venezuela (60% to less than 90%), while in the Pacific Alliance

countries, the figures for Mexico, Colombia, and Peru were at the 30% level, and less than

3% in Chile. The results portray the characteristics of the Mercosur countries, which are

seen as pursuing protectionist policies.

Fig. 5-4: Current Issues on the Trade System (Latin America overall, multiple answers)

24.5

8.9

4.4

5.5

9.6

15.4

17.2

19.3

28.4

36.5

49.1

50.9

0 20 40 60 80


Other issues

Strict or unclear quarantine system

Export restriction and export tax

Rules of origin

High non-tariff barriers

Unclear variation assessment / classification

criteria for tariffs

Unclear inspection system

Inadequate communication and enforcement of

notices and rules

High import tariffs

Significant time required for customs clearance

Complex procedures for customs clearance

(%)

31


Faced with Difficulties of Local Procurement

For issues on production, “Difficulty in local procurement of materials and parts” (55.2%,

100 companies) and “Rising procurement cost” (48.1%, 87 companies) showed high percentages.

Especially on the difficulty of local procurement, the response was in the 60% to 90% range

in all countries surveyed except for Peru and Chile, where very few Japanese companies have

their production base. So the issue can be seen as a common problem among Japanese

manufacturers in Latin America. However, Brazil alone remained at 49.4%. This is probably

due to the fact that Brazil had already set high customs barrier compared to Mexico and other

countries to promote the growth of its domestic industries, and therefore some parts-supply

industries already exist.

Fig. 5-5: Current Production Issues (Latin America overall, multiple answers by 181

manufacturing companies)

2.8

6.6

9.4

12.2

13.3

13.3

20.4

33.1

37.0

41.4

48.1

55.2

0 20 40 60 80


Other issues

Difficulty in changing production items in a short

period of time

High tariffs on imports of capital and intermediate

goods

Low production capacity due to limited facilities

Environmental regulations becoming more strict

Instability of electricity supply and frequent

outages

Inadequate logistics infrastructure

Cost reduction which has nearly reached the limit

Difficulty in quality control

Rising procurement cost

Difficulty in local procurement of materials and

parts

(%)

32


Complex Tax and Administrative Procedures Prominent in Mercosur Countries

For issues on the investment environment, “Complex tax system and procedures” scored 67.7%

(295 companies) for Latin America overall. Yet when looking at each country, the Mercosur

states of Brazil (88.3%, 182 countries), Argentina (64.7%, 22 companies), and Venezuela (63.2%,

12 companies), showed high percentages. Similarly, with “Complex administrative procedures

(permission and licenses, etc.),” the response was 61.9% (270 companies) for Latin America

overall, while the Mercosur countries Venezuela (94.7%, 18 companies), Argentina (76.5%, 26

companies), and Brazil (73.8%, 152 companies) all had higher percentages than the total for

Latin America. In addition to the previously mentioned customs procedure, the Mercosur

countries have noticeably tough investment environments.

Meanwhile, those who answered “Rising labor cost” were 85% (175 companies) in Brazil,

79.4% (27 companies) in Argentina, followed by 68.4% (13 companies) in Venezuela, 61.1% (22

companies) in Chile, and 40.9% (9 companies) in Colombia, showing that the issue is a common

problem for all Japanese companies in Latin America, regardless of location.

33


Fig. 5-6: Current Risks (Issues) in the Investment Environment (Latin America overall,

multiple answers)

2.8

6.9

3.0

6.7

8.3

14.7

20.4

23.2

23.4

36.9

39.4

42.4

43.8

47.9

51.1

61.9

65.1

67.7

0.0 20.0 40.0 60.0 80.0


Other

Consumer campaigns and boycotts (consumer

boycotts, public protests, etc.)

Restrictions on foreign investment such as foreign

equity restrictions

Lack of intellectual property protection

Insufficient accumulation of related industries

Transaction risks (collection risk, etc.)

Limited workforce and difficulty in recruiting

personnel

Limited land/office spaces and increasing land

prices/lease fees

Instable political and social climates

Labor disputes and labor-related lawsuits

Inadequate and unclear legal system

Unclear policy administration by the local

government

Inadequate infrastructure (electricity supply,

logistics, communications, etc.)

Currency volatility

Complex administrative procedures (permission

and licenses, etc.)

Rising labor cost

Complex tax system and procedures

(%)

34


[Reference] Benefits (Strengths) in the Investment Environment

The percentage of “Market scale and potential for its growth” stands out at 75.2% (328

companies). The high-scoring countries were Colombia at 90.9% (20 companies), Mexico at 85.7%

(90 companies), and Brazil at 84.0% (173 companies). “Stable political and social climates”

came in second at 31.0% (135 companies), with high percentage in Chile at 83.3% (30 companies)

and in Colombia at 59.1% (13 companies).

Fig. 5-7: Benefits (Strengths) in the Investment Environment (Latin America overall, multiple

answers)

8.3

1.6

1.8

2.1

4.4

4.8

5.0

6.4

6.7

6.7

7.3

7.6

7.8

9.2

12.6

13.8

31.0

75.2

0.0 20.0 40.0 60.0 80.0

Other

Prompt clearance of procedures

Substantial investment incentive scheme

Concentration of supporting industries

(convenience of local procurement)

Easy recruitment of employees (specialists and

engineers, middle management level, etc.)

High retention rate of employees

Developed infrastructure (electricity supply,

transportation, communications, etc.)

Abundant land/office spaces and low land

prices/lease fees

High quality of employees (specialists and

engineers)

Tax incentives (corporate taxes, export and import

tariffs, etc.)

Low language and communication barriers

High quality of employees (middle management

level)

High quality of employees (general workers)

Comfortable living environment for representatives

stationed from headquarters

Easy recruitment of employees (general workers,

general staff and office workers, etc.)

Concentration of partner companies (customer

companies)

Stable political and social climates

Market scale and potential for its growth

(%)

35


Concern over Security and Terrorism in Some Countries

Regarding security issues, “Security and terrorism” ranked top at 63.5% (277 companies).

By country, Peru (85.7%, 12 companies), Colombia (81.8%, 18 companies), Venezuela (78.9%,

15 companies), and Mexico (75.2%, 79 companies) had the highest percentages.

In contrast, the ratio of “Discord or ethnic/religious conflicts” (4.1%, 18 companies)

and “Diseases (serious contagious illnesses)” (2.8%, 12 companies) were low.

Fig. 5-8: Current Issues on Security (Latin America overall, multiple answers)

4.6

0.7

1.6

2.8

4.1

7.1

8.3

13.3

16.3

23.6

27.5

41.7

58.0

63.5

0.0 20.0 40.0 60.0 80.0

Other and specific risks unique to the country

Oversight of foreigners by authorities

Cyber terrorism (hacking, etc.), industrial spies, etc.

Diseases (serious contagious illnesses)

Discord or ethnic/religious conflicts

Political conflicts

Trouble related to civil affairs

Environmental pollution

Natural disasters

Trouble with housing and living standards of

representatives stationed from headquarters and their

families

Accidents in which many foreigners have frequently

been involved

Crimes targeted at foreign people and companies

(killings and injuries, kidnappings, robberies and

theft, fraud, etc.)

Demonstrations and strikes

Security and terrorism

(%)

36


Comparing Brazil and Mexico—Labor Costs, Taxation, and Administrative Procedures

We have compared Brazil and Mexico where many Japanese companies are located, by the

previously described management issues. In Brazil, “Complex administrative procedures

(permission and licenses, etc.),” “Rising labor cost (in the investment environment),”

“Complex tax system and procedures,” “Rising procurement cost,” “Complex procedures for

customs clearance,” and “Increase in wages of employees (in the field of employment and

labor)” are given as the main problems. In particular, the constant upward pressure on wages

in Brazil’s labor market seems to be one factor behind the “Rising labor cost” response.

Meanwhile in Mexico, “Security and terrorism,” “Quality of employees,” “Difficulty

in recruiting workforce (middle management level),” “Retention rate of employees,” and

“Difficulty in local procurement of material and parts” are given as the main problems.

The percentage of “Security” continued to be high in Mexico similar to the previous year,

while in Brazil, the figure jumped to 66.5% from 14.9% in 2012. This is seen as the effect

of a large-scale demonstration demanding improved educational and medical services and

anti-inflationary and corruption prevention measures, which was triggered by the bus and metro

fare increase in June 2013.

Fig. 5-9: Current Issues (Comparison between Brazil and Mexico, multiple answers)

0.0

20.0

40.0

60.0

80.0

100.0Security and terrorism

Complex

administrative

procedures (permission

and licenses, etc.)

（In the investment

environment）Rising

labor cost

Complex tax system

and procedures

(In the field of

production）Inadequate logistics

infrastructure

Rising procurement

cost

Difficulty in local

procurement of

materials and parts

Complex procedures

for customs clearance

Retention rate of

employees

Difficulty in recruiting

workforce (middle

management level)

Quality of employees

（In the field of

employment and labor

） Increase in wages of

employees

Fluctuations in the

exchange rate between

local currency and the

dollar

Brazil

Mexico

37


6. Procurement Situation of Raw Material and Parts

High Ratio of Local Procurement in Brazil

For Latin America overall, the local procurement rate of “25% to less than 75%” garnered

the highest response at 35.4%, followed by “Less than 10%” at 24.3%. We have compared Brazil

(83 respondents to this question) and Mexico (58 respondents to this question) where many

manufacturing companies are located. In Brazil, “75% to 100%” rose to 32.5% from 32.1% in

2012, and “25% to less than 75%” rose to 43.4% from 35.8% in 2012. In Mexico, the ratio

of “75% to 100%” fell to 10.3% from 16.2% in 2012, and “25% to less than 75%” fell to

31.0% from 35.1% in 2012. In Brazil, the “Less than 10%” response fell to 13.3% from 18.9%

in 2012, and “10% to less than 25%” also decreased to 10.8% from 13.2% in 2012. In contrast,

Mexico’s figures for “Less than 10%” fell to 37.9% from 45.9%, while “10% to less than

25%” showed a notable increase to 20.7% from 2.7% in 2012.

The local procurement rate is low in Mexico. This is because Mexico can utilize preferential

duties such as FTAs and The Program of Sectoral Promotion (PROSEC) when importing raw materials

and parts. Yet in recent years, Japanese supplier chains are being built to Tier2 and Tier3

levels, mostly in the auto industry. So in the medium term, local procurement is expected

to expand.

Fig. 6-1: Local Procurement Ratio for Products Manufactured at Local Plant (181 manufacturing

companies)

42.9

13.3

12.5

33.3

16.7

16.7

37.9

24.3

42.9

10.8

0.0

16.7

50.0

0.0

20.7

17.1

14.3

43.4

25.0

0.0

33.3

66.7

31.0

35.4

0.0

32.5

62.5

50.0

0.0

16.7

10.3

23.2

0% 20% 40% 60% 80% 100%

Argentina（n=14）

Brazil（n=83）

Chile（n=8）

Peru（n=6）

Colombia（n=6）

Venezuela（n=6）

Mexico（n=58）


n=181）

Less than 10% 10% to less than 25% 25% to less than 75% 75% to 100%

38


Fig. 6-2: Local Procurement Rate of Raw Materials/Parts for Products Manufactured in Local

Plants (Comparison between Brazil and Mexico, changes from 2012 to 2013)

13.3

10.8

43.4

32.5

18.9

13.2

35.8

32.1

0.0 10.0 20.0 30.0 40.0 50.0

Less than 10%

10% to less than 25%


75% to 100%

2012 Brazil 2013 Brazil

37.9

20.7

31.0

10.3

45.9

2.7

35.1

16.2

0.0 10.0 20.0 30.0 40.0 50.0

Less than 10%



75% to 100%

2012 Mexico 2013 Mexico

39


Procurement Mostly from Japan, Though Less Than Previous Survey

For Latin America overall, procurement from Japan is the highest at 70.7% (128

companies,-1.4 points from 2012), followed by the U.S. and Canada at 41.4% (75 companies,

+3.6 points from 2012), China (including Hong Kong) at 35.9% (65 companies, +1.7 points from

2012). Procurement from China has increased from two years ago, and we can see that Japanese

companies are starting to seek the optimum regions for procurement, not only Japan

(globalization of procurement). This trend is especially notable in Brazil, where 63.9% (53

companies, -14.5 points from 2012) of Japanese companies procure from Japan, 36.1% (30

companies, +10.6 points from 2012) from China, and 31.3% (26 companies, +1.9 points from

2012) from the U.S. and Canada.

Fig. 6-3: Foreign Procurement of Raw Materials/Parts (multiple answers from 181

manufacturers)

9.4

0

3.9

9.4

12.7

13.3

14.9

28.2

35.9

41.4

70.7

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0

Other

Other Latin American countries

Argentina

Mexico

South Korea, Taiwan

Brazil

EU

ASEAN countries

China (including Hong Kong)

U.S. or Canada

Japan

(%)

40


7. FTA/EPA Utilization and Problems

Mexico: Over 50% FTA Utilization in All Areas

The most utilized FTA in Mexico is NAFTA. Among the companies exporting to the NAFTA region

(U.S. and Canada), 80.0% (77.3% in 2012) utilize NAFTA. Also, out of the 60 companies (42

in 2012) importing from the NAFTA region, 43 companies (35 in 2012) use NAFTA. As for other

free trade agreements, the Mexico-Mercosur Auto Sector Agreement, Mexico-Five Central

American Countries FTA, Mexico-Chile FTA, and Mexico-EU FTA are widely utilized for export,

and Mexico-EU FTA and the Japan-Mexico FTA are the ones most utilized for import.

Mexico is considered one of the advanced FTA nations in Latin America, actively building

FTA networks with various countries and regions. The results of this survey reveal that

Japanese companies in Mexico are making full use of these networks in developing their

business.

Fig. 7-1: Mexico (Exports)

Fig. 7-2: Mexico (Imports)

50.0

66.7

77.8

80.0

80.0

47.4

16.7

0.0

0.0

0.0

0.0

5.3

33.3

33.3

22.2

20.0

20.0

47.4

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EU27（n=6）

Chile（n=3）

Five Central American

Countries（n=9）

Mercosur（n=10）

NAFTA（n=35）

Japan（n=19）

Utilizing Considering utilization Not utilizing (No plan to utilize)

83.3

0.0

50.0

71.7

62.9

0.0

0.0

0.0

6.7

12.9

16.7

100.0

50.0

21.7

24.3

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EU27（n=6）


Countries（n=1）

Mercosur（n=2）

NAFTA（n=60）

Japan（n=70）


41


Brazil: High Use of Mercosur, as Well as Auto Sector Agreement with Mexico for Imports

The free trade agreement mostly used by Japanese companies in Brazil is Mercosur, utilized

by 51.8% (29 companies) for exports and 41.4% (12 companies) for imports. FTAs are highly

used for imports from Mexico. This is probably due to the utilization of auto sector

agreements which define the customs-free amount for finished cars etc. between Mexico and

Mercosur.

Fig. 7-3: Brazil (Exports)

Fig. 7-4: Brazil (Imports)

(Note: FTAs with India, Peru, Chile, Mexico, and the Andean Community are concluded within

the Mercosur framework. Agreements with Mexico consist only of those related to automobiles

and auto parts.)

14.3

23.5

21.1

22.2

28.6

51.8

0.0

5.9

5.3

5.6

0.0

10.7

85.7

70.6

73.7

72.2

71.4

37.5

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

India（n=7）

Peru（n=17）

Chile（n=19）

Andean Community

（n=18）

Mexico（n=14）

Mercosur（n=56）


12.5

0.0

0.0

0.0

45.8

41.4

12.5

0.0

0.0

0.0

12.5

6.9

75.0

100.0

100.0

100.0

41.7

51.7

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

India（n=8）

Peru（n=5）

Chile（n=7）

Andean Community

（n=5）

Mexico（n=24）

Mercosur（n=29）


42


Chile: Over 70% Utilization for Imports in All Regions

The Japanese companies in Chile are mainly using FTAs for imports. They seem to be using

FTA as a tool for surviving Chile’s price-competitive market. The Japan-Chile EPA utilization

is 37.5% for exports and 72.7% for imports.

Fig. 7-5: Chile (Exports)

Fig. 7-6: Chile (Imports)

0.0

50.0

50.0

25.0

20.0

66.7

33.3

50.0

100.0

33.3

37.5

0.0

50.0

0.0

25.0

20.0

0.0

0.0

0.0

0.0

33.3

6.3

100.0

0.0

50.0

50.0

60.0

33.3

66.7

50.0

0.0

33.3

56.3

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EU27（n=1）

India（n=2）

Korea（n=2）

China（n=4）

US（n=5）

Peru（n=3）

Andean Community（n=3）

Five Central American Countries

（n=2）

Mexico（n=1）

Mercosur（n=3）

Japan（n=16）


100.0

100.0

100.0

77.8

75.0

100.0

72.7

0.0

0.0

0.0

11.1

0.0

0.0

0.0

0.0

0.0

0.0

11.1

25.0

0.0

27.3

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EU27（n=5）

India（n=1）

China（n=6）

US（n=9）

Mexico（n=4）

Mercosur（n=4）

Japan（n=22）


43


Argentina: Utilization of Mercosur as Well as Auto Sector Agreement with Mexico

The trade agreement utilized by Japanese companies in Argentina is Mercosur, used by 75.0%

for exports, and 92.3% for imports. The auto sector agreement with Mexico is also being used,

mostly for imports, utilized by three companies (one company for exports).

Fig. 7-7: Argentina (Exports)

Fig. 7-8: Argentina (Imports)

(Note: FTAs with Peru, Chile, Mexico, and the Andean Community are concluded within the

Mercosur framework.)

0.0

33.3

0.0

50.0

75.0

0.0

0.0

0.0

0.0

8.3

100.0

66.7

100.0

50.0

16.7

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Peru（n=2）

Chile（n=3）

Andean Community（

n=1）

Mexico（n=2）

Mercosur（n=12）


50.0

0.0

0.0

60.0

92.3

0.0

0.0

0.0

20.0

0.0

50.0

100.0

100.0

20.0

7.7

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Peru（n=2）

Chile（n=1）

Andean Community（

n=1）

Mexico（n=5）

Mercosur（n=13）


44


Colombia: Used for Exports to the Andean Community, and Imports from Mercosur and Mexico

The free trade agreements utilized by Japanese companies in Colombia are the FTAs with the

Andean Community and Mercosur. With the Andean Community, the FTA is utilized for exports

by 72.7%. With Mercosur, the FTA is mainly used for imports at 83.3%. The FTA utilization

for imports from Mexico is also high. Three companies (75.0%) were utilizing FTAs for exports

to the five Central American countries.

Fig. 7-9: Colombia (Exports)

Fig. 7-10: Colombia (Imports)

0.0

72.7

75.0

0.0

100.0

100.0

9.1

0.0

0.0

0.0

0.0

18.2

25.0

100.0

0.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Chile（n=1）

Andean Community（

n=11）


Countries（n=4）

Mexico（n=1）

Mercosur（n=2）


100.0

66.7

83.3

0.0

0.0

0.0

0.0

33.3

16.7

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Chile（n=1）

Mexico（n=6）

Mercosur（n=6）


45


Peru: High Utilization for Imports

Japanese companies in Peru mainly utilize FTAs for imports. As is the case in Chile, the

FTAs are being used as a tool for surviving the price-competitive market in Peru. The

Japan-Peru EPA is used by two companies (40.0%) for export, and four companies (50.0%) for

import. There are also three Japanese companies (100%) utilizing the China-Peru EPA for

imports.

Fig. 7-11: Peru (Exports)

Fig. 7-12: Peru (Imports)

100.0

0.0

100.0

50.0

50.0

50.0

40.0

0.0

0.0

0.0

0.0

0.0

0.0

20.0

0.0

100.0

0.0

50.0

50.0

50.0

40.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EU27（n=1）

China（n=1）

US（n=1）

Chile（n=2）

Andean Community

（n=2）

Mercosur（n=2）

Japan（n=5）


0.0

100.0

66.7

100.0

100.0

100.0

100.0

50.0

0.0

0.0

33.3

0.0

0.0

0.0

0.0

25.0

100.0

0.0

0.0

0.0

0.0

0.0

0.0

25.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EU27（n=2）

China（n=3）

US（n=3）

Chile（n=1）

Andean Community

（n=2）

Mexico（n=4）

Mercosur（n=2）

Japan（n=8）


46


Venezuela: Only Using FTA with Mercosur

Among Japanese companies in Venezuela, those utilizing the trade agreement with Mercosur

were two for exports, and just one for imports.

Fig. 7-13: Venezuela (Exports)

Fig. 7-14: Venezuela (Imports)

40.0 20.0 40.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Mercosur（n=5）


14.3 28.6 57.1

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Mercosur（n=7）


47


Issues on Export FTAs—Receiving Certificate of Origin and Capable Staff Shortage

In utilizing the FTAs for exports, there currently seems to be no serious problems. Yet,

the same issues pointed out in the last survey, “Procedures for certificates of origin take

too long” at 17.2% (16.1% in 2012) and “Shortage of capable personnel in company” at 10.1%

(9.5% in 2012) still remain. Other relatively high responses include “Rules of origin for

existing FTAs/EPAs are different from each other causing confusion” at 9.7% and “FTAs/EPAs

do not exist with major export destinations” at 8.8%.

Fig. 7-15: Problems in Utilizing FTAs for Exports

5.9

50.8

7.1

2.1

2.9

7.6

8.4

8.8

9.7

10.1

17.2

0 20 40 60

Other

No problem in particular

Expensive issuance costs of certificates of origin

Tariff quota systems of FTAs/EPAs are not

functioning

Difficulty in getting cooperation from suppliers in

utilizing FTAs/EPAs

Rules of origin cannot be met or are very difficult to

meet

Complicated procedures in getting certificates of

origin

FTAs/EPAs do not exist with major export

destinations

Rules of origin for existing FTAs/EPAs are different

from each other causing confusion

Shortage of capable personnel in our company

Procedures for certificates of origin take too long

(%)

48


Demand for FTA Conclusion

As with exports, there currently seems to be no serious problems in utilizing FTAs for

imports. However, “FTAs/EPAs do not exist with major import sources” garnered the most

response at 22.5%, showing a growing demand for the conclusion of FTAs for the import and

sales business in Latin America.

Fig. 7-16: Problems in Utilizing FTAs for Imports

7.6

55.7

5.5

7.3

7.6

22.5

0 20 40 60

Other

No problem in particular

Difficulty in getting cooperation from suppliers in

utilizing FTAs/EPAs

Overly strict inspection for preferential tax approval

at the customs of the importing country

Merits do not exist due to little difference between

preferential tariffs based on FTAs/EPAs and

general tariff rates

FTAs/EPAs do not exist with major import sources

(%)

49


2013 JETRO Survey on Business Conditions of

Japanese Companies in Latin America

Thank you very much for your kind cooperation in these JETRO surveys. Estimated

time to complete this survey is about 20 – 30 minutes.

1. Every year, JETRO conducts this survey focusing on the activities of Japanese

companies operating in Latin America, to assess and to understand the business

situation in Latin America.

2. Throughout the survey, "Your Company" refers to the company in Latin America.

Please base your responses solely on the business activities/performance/

management issues of the company in Latin America.

3. Your individual response to this survey will not be made public. Data on individual

companies will be strictly held confidential. JETRO will only publicize aggregate

data of this survey. General information such as your headquarters name and

address will be used only to keep JETRO and your company in touch.

4. If you have any technical problems while filling out the survey, please contact the

following person in charge. (For inquires about contents of the survey or the way to fill

in your answers, please contact the JETRO overseas office which sent you this survey.)

Latin America Division, Overseas Research Department, Japan External Trade

Organization (JETRO)

6F, Ark Mori Building, 12-32, Akasaka 1-chome, Minato-ku, Tokyo 107-6006 Japan

Tel: +81-3-3582-4690, Fax: +81-3-3587-2485, E-mail: [email protected]

If the direct or indirect Japanese ownership of your company is less than 10%, or your corporate status is an “expatriate office” or “liaison office”, your company is NOT subject to this survey. In this case, please click the “Cancel” button below to terminate the survey.

Cancel

Please reply no later than 15/10, 2013

mailto:[email protected]

50


Please fill in the blanks below.

Country of operation for Your Company (or factory)

□ Mexico □ Colombia □ Venezuela □ Peru □ Chile □ Argentina □ Brazil

Company name

Your name

Your title

Address

Phone

Fax

E-mail

Name of Japanese parent company

<Regional headquarters for business in Latin America>

(Please select, from the following options, the organization taking primary responsibility for

business in the region.)

□ 1. Headquarters in Japan

□ 2. Regional headquarters in North America

□ 3. Regional headquarters in Latin America, （Country name ）

□ 4. Other

Industry (In the case that Your Company is a sales company owned by a manufacturer and does

not engage in manufacturing in Latin America, please answer with “sales company” )

<Manufacturing in Latin America: Please check the category below that best describes your

main products.>

□ 1. Food, agriculture, and fishery processing

□ 2. Textiles (yarn, woven fabric products)

□ 3. Clothes and textiles

□ 4. Timber and wood products (excluding furniture and interior design products)

51


□ 5. Furniture and interior design products

□ 6. Paper and pulp

□ 7. Chemical products, oil products

□ 8. Pharmaceuticals

□ 9. Rubber goods

□ 10. Ceramic, earth and stone products

□ 11. Steel

□ 12. Non-ferrous metals

□ 13. Metal goods

□ 14. Machines

□ 15. Electric machines

□ 16. Electric and electronic parts

□ 17. Transportation machines

□ 18. Parts for transportation machines

□ 19. Precision machines and apparatuses

□ 20. Other

<Non-manufacturing in Latin America: Please check the category below that best describes

your business.>

□ 1. Fishing and fisheries

□ 2. Agriculture and forestry

□ 3. Mining

□ 4. Distribution

□ 5. Trading

□ 6. Sales

□ 7. Banking

□ 8. Insurance

□ 9. Securities

□ 10. Transportation/warehouse

□ 11. Real estate

□ 12. Legal and taxation service

□ 13. Hotel/travel/food and restaurant service

□ 14. Telecommunications/IT

□ 15. Construction/plant

□ 16. Other

Company size (Please check either large-scale or small- and medium-sized company regarding

your parent company in Japan.)

□ Large-scale company □ Small- and medium-sized company

52


*Your parent company in Japan is categorized as a “small- and medium-sized company” if it

satisfies any of the following conditions stipulated by the Small and Medium-sized Enterprise

Basic Act of Japan.

1) Manufacturing, construction, transportation and all other industries not listed under items 2) –

4): capital of 300 million JPY or less, or employs 300 or fewer people

2) Wholesale industry: capital of 100 million JPY or less, or employs 100 or fewer people

3) Service industry: capital of 50 million JPY or less, or employs 100 or fewer people

4) Retail industry: capital of 50 million JPY or less, or employs 50 or fewer people

■ Employees in your company

Total number of employees: Of that number, how many employees are full time?

Number of managers: Of that number, how many are locally hired?

1. Status of operations

Q1. What is your operating profit forecast for 2013 (from January to December)?

□ 1. Profit □ 2. Breakeven □ 3. Loss

Q2. How will your operating profits for 2013 (from January to December) change compared to

2012?

□ 1. Increase □ 2. Remain the same □ 3. Decrease

→Go to Q3 →Go to Q5 →Go to Q4

Q3. (This question is only for those who answered “Increase” in Q2.)

What are the reasons for increased operating profits forecast for 2013

(Choose as many as apply)

□ 1. Sales increase due to expansion of exports

□ 2. Sales increase in your country

□ 3. Effects of exchange rate fluctuation

53


□ 4. Reduction of procurement costs in your country

□ 5. Reduction of labor costs

□ 6. Reduction of other expenditures (e.g., management, administrative and energy

costs)

□ 7. Improvement of production efficiency* (the manufacturing industry only)

□ 8. Improvement of sales efficiency

□9. Other

* “Improvement of production efficiency” here includes improvement of manufacturing

procedures (e.g., introduction of a cell production system) and computerized production management.

Q4. (This question is only for those who answered “Decrease” in Q2.)

What are the reasons for decreased operating profits forecast for 2013?


□ 1. Sales decrease due to slowdown of exports

□ 2. Sales decrease in your country


□ 4. Increase of procurement costs in your country

□ 5. Increase of labor costs

□ 6. Increase of other expenditures (e.g., management, administrative and energy costs)

□ 7. Rising interest rates

□ 8. Costs insufficiently passed along in sales prices

□9. Other

Q5. What is your operating profit forecast for 2014 compared to 2013?

□ 1. Increase □ 2. Remain the same □ 3. Decrease

→Go to Q6 →Go to Q8 →Go to Q7

Q6. (This question is only for those who answered “Increase” in Q5.)

What are the reasons for increased operating profits forecast for 2014?


□ 1. Sales increase due to expansion of exports

□ 2. Sales increase in your country


□ 4. Reduction of procurement costs in your country

54


□ 5. Reduction of labor costs

□ 6. Reduction of other expenditures (e.g., management, administrative and energy

costs)

□ 7. Improvement of production efficiency* (the manufacturing industry only)

□ 8. Improvement of sales efficiency

□9. Other

* “Improvement of production efficiency” here includes improvement of manufacturing

procedures (e.g., introduction of a cell production system) and computerized production management.

Q7. (This question is only for those who answered “Decrease” in Q5.)

What are the reasons for decreased operating profits forecast for 2014?


□ 1. Sales decrease due to slowdown exports

□ 2. Sales decrease volume in your country


□ 4. Increase of procurement costs in your country

□ 5. Increase of labor costs

□ 6. Increase of other expenditures (e.g., management, administrative and energy costs)

□ 7. Rising interest rates

□ 8. Costs insufficiently passed along in sales prices

□9. Other

2. Future business outlook

Q8. What is the outlook of your business in the next one or two years?

□ 1. Expansion □ 2. Remaining the same □ 3. Reduction

→Go to Q9, 10 →Go to Q12 →Go to Q11

□ 4. Transferring to a third country/region or withdrawal from your country

→Go to Q11

Q9. (This question is only for those who answered “Expansion” in Q8.)

What are the reasons for the future expansion of business?


□ 1. Sales increase

55


□ 2. High growth potential

□ 3. High receptivity for high-value added products

□ 4. Reduction of costs (e.g., procurement costs, labor costs)

□ 5. Deregulation

□ 6. Ease in securing labor force

□ 7. Reviewing production and sales networks

□ 8. Relationship with clients

□9. Other

Q10. (This question is only for those who answered “Expansion” in Q8.)

What function would you like to expand?


□ 1. Sales function

□ 2. Production (ubiquitous products)

□ 3. Production (high-value added products)

□ 4. R&D

□ 5. Function of regional headquarters

□ 6. Logistics function

□ 7. Function for service administration (e.g., shared services, call center)

□ 8. Other

Q11. (This question is only for those who answered “Reduction” or “Transferring to a third

country/region or withdrawal from your country” in Q8.)

What are the reasons for the future reduction, transfer or withdrawal?


□ 1. Sales decrease

□ 2. Low growth potential

□ 3. Low receptivity for high-value added products

□ 4. Increase of costs (e.g., procurement costs, labor costs)

□ 5. Tightening of regulations

□ 6. Difficulty in securing labor force

□ 7. Reviewing production and sales networks

□ 8. Relationship with clients

□ 9. Other

56


Q12. Localization of management

How do you carry out the localization of management? Please answer based on your efforts toward localization since the establishment of the local office. (Choose as many as apply)

□ 1. Focusing on the training of local employees

□ 2. Hiring experienced employees who can contribute to the localization of management.

□ 3. Improving the personnel system such as introducing a merit system

□ 4. Hiring executive-level employees

□ 5. Hiring director or manager-level employees

□ 6. Strengthening the capability of production and service development in the regional

headquarters

□ 7. Giving the regional headquarters more power to make sales strategies

□ 8. Transferring authority to make decisions from the headquarters in Japan to the

regional headquarters

□ 9. Acquiring human resources and management resources through M&A

activities.

□ 10. No actions taken to promote the localization of management

□ 11. Other

Q13. What are problems in pursuing localization of management (if you are pursuing

localization)?


□ 1. Difficulty in hiring executive level employees

□ 2. High turnover rate of executive level employees

□ 3. Disagreement between the headquarters in Japan and regional headquarters in the

regarding recruitment

□ 4. Language barriers (the lack of Japanese language proficiency)

□ 5. Poor capabilities and motivation of local employees

□ 6. Difficulty in reducing the number of expats from the headquarters in Japan

□ 7. Slow progress in the training of local employees

□ 8. Difficulty in transferring authority to make decisions from the headquarters in Japan

to the regional headquarters

□ 9. Poor production and service development capability in the regional headquarters

□ 10. Poor planning and marketing capability in the regional headquarters

□ 11. Other

□ 12. No problems regarding the localization of management

57


Q14. Changes in the number of employees

Number of local employees Number of Japanese

expatriates

Increase No

change

Decrease Increase No

change

Decrease

This year compared to

last year

□ □ □ □ □ □

Future plans □ □ □ □ □ □

3. Issues with business management

What issues involving business management does your company recognize as particularly

serious? Please select all applicable answers to each question below.

Q15. What issues does your company have in the field of sales and marketing? (Multiple

answers allowed)

1. Decrease of orders from your headquarters

2. Decrease of orders from business partners

3. Request for price reduction from major business partners

4. Sluggish sales in major markets (low consumer spending)

5. Slow development of new customers

6. Price decline due to excess in global supply

7. Inflow of low-price import products to local markets

8. Emergence of competitors (competition in quality)

9. Emergence of competitors (competition in cost)

10. Lack of progress in local deregulation

11. Delayed collection of accounts receivable

12. Other issues (specify:___________________)

13. No particular issues

Q16. What issues does your company have in the field of finance, monetary and foreign

exchange? (Multiple answers allowed)

1. Shortage of cash flow required for business expansion

2. Difficulty in getting financing from local banks

3. Fluctuations in the exchange rate between local currency and the dollar

4. Fluctuations in the exchange rate between local currency and the yen

5. Fluctuations in the exchange rate between the yen and the dollar

6. Regulations concerning financing and payment

58


7. Regulations concerning overseas remittance

8. Tax burden (corporate tax, transfer pricing taxation, etc.)

9. Rising interest rates



Q17. What issues does your company have in the field of employment and labor? (Multiple

answers allowed)

1. Increase in wages of employees

2. Difficulty in recruiting workforce (general staff, office workers)

3. Difficulty in recruiting workforce (middle management level)

4. Difficulty in recruiting workforce (general workers) (manufacturing companies only)

5. Difficulty in recruiting workforce (engineers) (manufacturing companies only)

6. Retention rate of employees

7. Quality of employees

8. Cost for dispatched Japanese executives (stationed representatives)

9. Restriction on visa issuance for dispatched Japanese executives (stationed

representatives)

10. Regulations concerning dismissal and reduction of personnel

11. Difficulty in appointing local personnel as managers and supervisors

12. Restriction on hiring foreigners

13. Labor-related lawsuits



Q18. What issues does your company have in the trade system? (Multiple answers allowed)

1. Complex procedures for customs clearance

2. Significant time required for customs clearance

3. Inadequate communication and enforcement of notices and rules

4. Unclear variation assessment / classification criteria for tariffs

5. High import tariffs

6. Unclear inspection system

7. High non-tariff barriers*

8. Strict or unclear quarantine system

9. Export restriction and export tax

10. Rules of origin



59


*Non-tariff barriers are measures to protect domestic industries from imported products by

restricting imports through means other than tariffs. Examples of this measure include

quantitative restriction and subsidies for production and consumer tax not directly related to

trade.

Q19. (This question is only for manufacturing companies. For non-manufacturing companies,

please go to Q20) What issues does your company have in the field of production? (Multiple

answers allowed)

1. Low production capacity due to limited facilities

2. Cost reduction which has nearly reached the limit

3. Rising procurement cost

4. Difficulty in local procurement of materials and parts

5. Difficulty in changing production items in a short period of time

6. Difficulty in quality control

7. High tariffs on imports of capital and intermediate goods

8. Instability of electricity supply and frequent outages

9. Inadequate logistics infrastructure

10. Environmental regulations becoming more strict



4. Benefits and risks in the investment environment

Q.20 What benefits (strengths) does your company see in the investment environment?

(Multiple answers allowed)

1. Stable political and social climates

2. Market scale and potential for its growth

3. Abundant land/office spaces and low land prices/lease fees

4. Developed infrastructure (electricity supply, transportation, communications, etc.)

5. Concentration of supporting industries (convenience of local procurement)

6. Concentration of partner companies (customer companies)

7. Easy recruitment of employees (general workers, general staff and office workers, etc.)

8. Easy recruitment of employees (specialists and engineers, middle management level, etc.)

9. High retention rate of employees

10. High quality of employees (general workers)

11. High quality of employees (specialists and engineers)

12. High quality of employees (middle management level)

13. Tax incentives (corporate taxes, export and import tariffs, etc.)

60


14. Substantial investment incentive scheme

15. Prompt clearance of procedures

16. Low language and communication barriers

17. Comfortable living environment for representatives stationed from headquarters

18. Other (specify:___________________)

Q.21 What risks (issues) does your company see in the investment environment? (Multiple

answers allowed)

1. Instable political and social climates

2. Inadequate infrastructure (electricity supply, logistics, communications, etc.)

3. Unclear policy administration by the local government

4. Complex administrative procedures (permission and licenses, etc.)

5. Complex tax system and procedures

6. Inadequate and unclear legal system

7. Restrictions on foreign investment such as foreign equity restrictions

8. Lack of intellectual property protection

9. Insufficient accumulation of related industries

10. Currency volatility

11. Limited workforce and difficulty in recruiting personnel

12. Limited land/office spaces and increasing land prices/lease fees

13. Rising labor cost

14. Labor disputes and labor-related lawsuits

15. Transaction risks (collection risk, etc.)

16. Consumer campaigns and boycotts (consumer boycotts, public protests, etc.)

17. Other (specify:___________________)


Q.22 What risks (issues) does your company have in the field of security? (Multiple answers

allowed)

1. Discord or ethnic/religious conflicts

2. Political conflicts

3. Demonstrations and strikes

4. Natural disasters

5. Environmental pollution

6. Diseases (serious contagious illnesses)

7. Security and terrorism

8. Cyber terrorism (hacking, etc.), industrial spies, etc.

9. Oversight of foreigners by authorities

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10. Crimes targeted at foreign people and companies (killings and injuries, kidnappings,

robberies and theft, fraud, etc.)

11. Accidents in which many foreigners have frequently been involved

12. Trouble related to civil affairs

13. Trouble with housing and living standards of representatives stationed from headquarters

and their families

14. Other and specific risks unique to the country (specify:_____________)

5. Challenges to explore market and source of competitive power

Q23. Regarding competition between your company and companies in the same business

categories (Please select only one.):

(1) Which of the following competes most intensively with your company?

Japanese companies U.S. companies European companies

Chinese companies South Korean companies Other Asian companies

Middle Eastern companies Local companies

Other Latin American companies Other No competition

(2) How has the competition with companies selected in (1) above changed in the last 12

months?

Competition increased Unchanged Competition lessened

<Procurement of raw materials and parts (Only for companies engaged in manufacturing

activity locally)>

Q.24. What was the ratio of the local procurement of raw materials/parts for products

manufactured in your local plant? (Based on the price as of September 2013)

Less than 10% 10% to less than 25% 25% to less than 75%

75% to 100%

Q25. What foreign country is your company mainly purchasing raw materials and parts from, if

any? (Choose as many as apply)

62


Japan U.S. or Canada EU China (including Hong Kong)

ASEAN countries South Korea, Taiwan Mexico Brazil

Argentina Other Latin American countries Other

* Please answer for procurement from countries other than the country in which your

company is located.

In Latin America, multilateral and bilateral free trade agreements (FTAs), economic

partnership agreements (EPAs), ACE (the Economic Complementary Agreement, auto

agreements, etc.) and preferential trade agreements and tariff reduction have developed.

Please answer the following questions on your utilization of these FTAs/EPAs/ACE. (Prior

tariff reduction measures and/or Early Harvest* are included.)

* Early Harvest refers to an early tariff reduction undertaken on specified products.

Q26. How has your company been utilizing existing bilateral or multilateral FTAs/ EPAs/ACE ?

Please fill any other countries in parentheses if they are not listed.


Please select all of

your export/import

destinations.

Utilization of preferential tax rates

provided by FTAs in exports

Utilization of preferential tax rates

provided by FTAs in imports

Exporting

to

Importing

from Utilizing

Considering utilization

Not utilizing (No plan to

utilize) Utilizing

Considering utilization

Not utilizing (No plan to

utilize)

Japan □1 □2

□3 □4 □5 □6 □7 □8

NAFTA* □1 □2 □3 □4 □5 □6 □7 □8

Mercosur** □1 □2 □3 □4 □5 □6 □7 □8

Five Central

American

Countries***

□1

□2

□3 □4 □5 □6 □7

□8

Chile □1 □2 □3 □4 □5 □6 □7 □8

EU 27 □1

□2 □3 □4 □5 □6 □7

□8

( ) □1

□2 □3 □4 □5 □6 □7 □8

( ) □1

□2 □3 □4 □5 □6 □7 □8

63


*NAFTA: US, Canada and Mexico

**Mercosur: Brazil, Argentina, Paraguay, Uruguay and Venezuela

***Five Central American Countries: Guatemala, El Salvador, Honduras, Nicaragua and Costa

Rica

Q27. What problems are you facing in utilizing FTAs/EPAs in exports? (Only for companies

engaged in exporting)(Choose as many as apply)

□ 1. Expensive issuance costs of certificates of origin

□ 2. Procedures for certificates of origin take too long

□ 3. Rules of origin cannot be met or are very difficult to meet

□ 4. Rules of origin for existing FTAs/EPAs are different from each other causing confusion

□ 5. Complicated procedures in getting certificates of origin

□ 6. Difficulty in getting cooperation from suppliers in utilizing FTAs/EPAs

□ 7. FTAs/EPAs do not exist with major export destinations

□ 8. Tariff quota systems of FTAs/EPAs are not functioning

□ 9. Shortage of capable personnel in our company

□ 10. No problem in particular

□ 11. Other

Q28. What problems are you facing in utilizing FTAs/EPAs in imports? (Only for companies

engaged in importing)


□ 1. Difficulty in getting cooperation from suppliers in utilizing FTAs/EPAs

□ 2. Merits do not exist due to little difference between preferential tariffs based on FTAs/EPAs

and general tariff rates

□ 3. FTAs/EPAs do not exist with major import sources

□ 4. Overly strict inspection for preferential tax approval at the customs of the importing country

□ 5. No problem in particular

□ 6. Other

64


Q29. If there are any problems which you consider to have had an impact on your business

development in the country Your Company is located, other than those chosen in above

questions, please let us know the details and its impacts on Your Company.

Thank you very much for your cooperation.

The 14th Survey on Business Conditions of Japanese Companies

in Latin America

Issued December 2013

Written by Overseas Research Dept. Satoshi Yoshida

Latin America Div. Overseas

Research Dept.

Yusuke Uchio

Takao Nakahata

Akira Ito

Collaborators Mexico Office Nobuhiro Nakajima

Caracas Office Kentaro Matsuura

Bogota Office Fumihiro Shimizu

Lima Office Masayuki Fujimoto

Santiago Office Takaharu Horinouchi

Sao Paulo Office Toshio Kii

Japan External Trade Organization(JETRO)

an Independent Administrative Institution

Ark Mori Bldg., PO Box 528

1-12-32 Akasaka, Minato-ku, Tokyo 107-6006

Phone: +81-3-3582-4690

(Overseas Research Department, Latin American Division)

Copyright © 2013 JETRO. All rights reserved.

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