What Can Bangladesh Make Out Of Japan’s Recent Interests And Trends?

LightCastle Analytics Wing
November 15, 2015
What Can Bangladesh Make Out Of Japan’s Recent Interests And Trends?

Japan’s Interest In ASEAN countries
Japan’s renewed interest in ASEAN is shown by the 120 percent increase in Japanese investment to reach nearly $24 billion according to a 2014 JETRO report. About 58% of Japan’s FDI is directed toward the four largest ASEAN economies. Japan is the largest source of foreign capital for Thailand and Indonesia and second-largest in the Philippines and Malaysia.
Currently Japanese companies’ preferred regional headquarters are Malaysia and Singapore. However, they have faced several challenges in these countries as well such as cultural differences, business practices, logistical issues and political problems.
In a recent study, it was found that for 70% of Japanese companies said that rising wages is their biggest concern in the ASEAN region. Inadequate infrastructure was 30%; Political risk, problems in social conditions, law and order 25%; and exchange rate risk 15%.
Japanese Investors In India
India’s startups have been mostly looking for western investment, but now this is changing. Last year Mayoshi Son, founder and CEO of SoftBank visited India and announced plans to inject US$10 billion into India’s “information revolution.” Initially the deals took place with fairly well established tech services but now Japanese investors are looking into India’s early stage startups too
“Until now, we invested only in Southeast Asia. But in the last couple of years, we received a lot of fundraising offers from Indian startups. We started to visit India in the last six months and found out that the startup scene in India is phenomenal. So we have decided to be a Southeast Asia-plus-India focused fund now,” said Takeshi Ebhara, founder of Rebright Partners.
“Southeast Asia is a very close market for Indian startups,” says Ebihara. “In terms of culture too, the region is very similar to India. And of course, Japan is the third largest technology market in the world. Some of the startups I met in India, such as TookiTaki, are very keen to enter the Japan market. We can help them get market entry as well as strategic partnerships with large Japanese corporations.”
Masayoshi Son said that he believes the country is at a turning point in its development. India has the third largest user base in the world, but a relatively small online market. As web access becomes faster, cheaper and better this presents huge growth potential.
Flipkart, Snapdeal, and PayTm have already demonstrated the scaling up possibilities of e-commerce and mobile-based shopping in India, as more and more people shop online.
But it isn’t just ecommerce. The smartphone explosion and large numbers of consumers getting online make the whole consumer internet space as well as gaming and communication highly attractive. At the same time, Indian startups like restaurant finder Zomato are showing they can expand rapidly into markets around the world.
The Bangladesh Scene
A survey by Japan External Trade Organization (JETRO) revealed that most Japanese firms operating businesses in China favour Bangladesh as the second best investment destination in the region after India. As per the JETRO report 71.7% Japanese affiliated firms in China said they want to relocate operations in Bangladesh. The survey was based on CEO’s of 10078 Japanese companies doing business in 20 countries.
The choice had been accredited to lowest production cost from its low labour cost. While the labour cost is US $403 in China per month, it is only $100 in Bangladesh and $239 in India.
Bangladesh’s financial sector is stable and resilient, confirmed by favourable ratings of top global rating agencies like S&P and Moody’s.
As a WTO founder member, Bangladesh is fully open to external trade. Furthermore as a low income economy, Bangladesh enjoys favoured access to most of the advanced economy markets.
Japanese businesses would also find Bangladesh attractive as an outsourcing destination for software development and other IT-enabled back office services. Relocation of export manufacturing units in Bangladesh will give Japanese businesses the advantage of favoured access to many advanced economy markets, besides cost efficiency. Manufacturing for Bangladesh’s own large domestic market with a large and growing middle to higher income population segments would also be attractive for Japanese entrepreneurs.
Looking at failures and successes India and Southeast-Asian countries, Bangladesh could further polish itself to appear in Japan’s radar for investment in the tech industry. The major problem in Bangladesh is that, compared to southeast Asian countries like Indonesia or the Philippines Bangladesh does not have a rapidly growing number of internet savvy mobile users. Therefore it cannot prove that its market for tech products has potential to grow.
There are also several constraints in implementing e-commerce in Bangladesh:
Lack of Education
The main issue in implementing e-commerce is to have its perceived usefulness among the people. Because of Bangladesh’s low literacy rare it is extrememly difficult to make the mass people understand the effectiveness of electronic commerce. Implementation of e-commerce would face communication problems in its application phases.
Power Shortage
Among the infrastructure issues, power is an important point of concern. With an unreliable energy supply it becomes hard for people to access e-commerce freely. Still now, large portions of rural areas do not have electricity. Even in urban areas, the power supply is unreliable.
Other major problems include unavailable Internet facility and improper standardization of Bengali software.
What Can We Make Out Of This?
The current scenario suggests that Japan is definitely interested in Bangladesh, but not yet so much in the tech-sector. Bangladesh already has some of the problems mentioned about ASEAN countries earlier, and to top that, the consumer base in the country is not yet “exploitable” for big Japanese tech-interested giants. Only when investors will see that the Bangladeshi market offers prospect for their tech products to grow and expand, will they be interested in the region. This process could be accelerated is to enhance existing communications network and make internet available to a broader mass of people. The fact that Bangladeshis are not internet or social media-savvy acts as a huge hindrance to its ability to attract investment in the market.
This writeup was primarily published here at SDAsia, written by Mustafizur Rahman Khan, Founder & CEO of SDAsia.

WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a systemic and data-driven approach to create opportunities for growth and impact. We are an international management consulting firm which creates systemic and data-driven opportunities for growth and impact in emerging markets. By collaborating with development partners and leveraging the power of the private sector, we strive to boost economies, inspire businesses, and change lives at scale.

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