JAPAN and Singapore has enjoyed fruitful trade and business relations over the years that has benefited companies on both sides. Bilateral trade has increased over 20 per cent during the last 10 years, while foreign direct investments (FDI) from Japan has also been steadily rising thanks to the Republic's pro-business environment.
The Japan-Singapore Economic Partnership Agreement (JSEPA), which has been in force since 2002, has played a key part in promoting bilateral trade. The deal has eliminated import duties on a wide variety of products imported from Singapore, making them cost-competitive in Japan. The JSEPA was a major milestone for both nations, as it was Japan's first free trade agreement and Singapore's first with a major trading partner.
Looking ahead, the Trans-Pacific Partnership (TPP) that was signed by 12 countries including Japan and Singapore could further boost trade. Meanwhile, leveraging on Singapore's hub status in South-east Asia and its open economy, many major Japanese corporations have chosen to base their regional operations and headquarters here.
In terms of investments, Singapore-based businesses poured US$1.43 billion into Japan in 2014, up sharply from US$330 million in 2013, according to figures from the Japan External Trade Organisation (Jetro). Only in 2008 (US$2.72 billion) and 2010 (US$1.58 billion) were there bigger investment flows into Japan from Singapore.
The pace did not let up in the first six months of 2015, when Singapore firms pumped a total of US$870 million into the country - over half the total for the 12 months of 2014. Japanese companies, meanwhile, more than doubled their investments in Singapore to US$7.58 billion in 2014 - up from US$3.29 billion in 2013. And in the first six months of 2015, Japan's investments in Singapore were valued at US$2.71 billion.
In the 1970s to the 1980s, the bulk of investments from Japanese companies were in the electronics and petrochemical sectors. This shifted to the telecommunications industry in the 1990s and more recently to higher value-added sectors such as semiconductors and the business services sector.
Companies such as Hitachi and Mitsui Chemical have moved up the value chain to invest in research and development efforts, while Singapore's development of Jurong Island has attracted large investments from companies such as Sumitomo Chemical, Asahi Kasei Chemicals and Zeon Corporation.
"Japanese FDI to Singapore is expected to increase as more companies continue to set up their regional headquarters in the island-state. As a result, companies will look at redeployment of capable talent to effectively execute business decisions in accordance with the in-market culture and business practices," Yuki Kuboshima, executive director at Deloitte and part of the firm's South-east Asia Regional Consulting team, wrote in an article.
He noted that Singapore has become a choice destination for Japanese firms for many reasons, including low corporate income tax; the absence of significant restrictions on foreign exchange transactions and capital movements; government incentives; a strong and transparent legal framework; economic and political stability; a diverse talent pool; and having English as the nation's working language.
Long-term Japanese investments in Singapore
Seiko Instruments is a leading manufacturer of watch movements, scientific instruments and electronic components. Seiko was one of Singapore's earliest investors and has continued to grow its Singapore operations, diversifying from watch assembly in the early years to manufacturing watch movements and other products such as scientific instruments, and continues to be an important location to drive growth for Seiko.
Sumitomo's partnership and trust in Singapore extends to the beginning of Jurong Island in the 70s. Since then, Sumitomo Chemical has consistently made large investments in Singapore that have contributed heavily to Jurong Island becoming the petrochemical hub that it is today. With cumulative investments of over S$3 billion, Sumitomo Chemical is the largest Japanese investor on Jurong Island.
Hitachi carries a diverse range of business products, solutions, services, including information technology solutions, power systems, social infrastructure and industrial systems. The company opened its Singapore office in 1963. It has brought festive cheer each year to Singapore through its sponsorship of the annual Orchard Road Christmas Light-up since 1991.
Nissin is Japan's top instant noodle manufacturer, with a 10 per cent global market share. It started its Singapore operations in 1979; and in 2012, it set up its first regional headquarters here.
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