March 21, 2013

Local demands at overseas locations is the strongest trigger for companies to expand their operations there, show the results of an Internal Affair Ministry’s survey.

As the main reason for establishing a production base in foreign countries, the largest number of companies surveyed (45.8%) answered that they do so because they find substantial demand or growth potential, while the second largest (23.1%) indicated lower labor costs.

According to the survey, the percentage of companies which have manufacturing sites outside Japan in 2012 amounted to 68.0%, up nearly 20 percentage points from the 47.4% in 1993.

An increase in overseas production will continue to hollow out domestic industries. The government has used this as an excuse to decrease corporate taxes.

No companies, however, cited that foreign governments carry out taxation measures and financial support favorable to Japanese corporations as the reason.

If demand affects companies’ selection of location for manufacturing, to raise people’s income and boost domestic demand will be an effective tactic to decrease the hollowing out of Japan’s industry.