As the economy staggers under the weight of the strong yen, businesses in Japan are receiving much-needed offers of help, with a chance to reduce rent, pay fewer taxes and cut utility costs.Simple math: Employees monitor currency rates at a foreign-exchange office in Tokyo on Aug. 4. Strained by the rising yen, businesses are relocating to overseas markets out of necessity. AP PHOTOThe problem is that these offers are coming from Japan's neighbors, particularly China. Delegations from across Asia have spent recent months hosting seminars in Tokyo's upscale hotels and conference rooms, hoping to pluck away Japanese business by offering incentives that companies find increasingly difficult to resist.Since June, recruiters from at least seven Chinese provinces have hosted events in Japan. Vietnam came with a 20-member mission. Myanmar sent more than 300 representatives. One official from Zheziang Province in China described it as a "rare opportunity" to lure Japanese businesses that are strained by the rising yen, high corporate taxes and a shrinking domestic market.The prospect that companies big and small will relocate amplifies concerns about the world's third-largest economy as it tries to break a two-decade run of stagnation and rebuild its disaster-hit northeastern coastline.Politicians and business leaders fear a scenario in which major manufacturers, though maintaining a baseline presence in Japan, will build factories overseas and depend increasingly on local suppliers in their new countries; then, the smaller Japanese companies that once depended on those manufacturers will cut costs to compete or move overseas themselves.In his first major speech, Prime Minister Yoshihiko Noda said last month that the soaring yen and the rise of emerging economies had created "an unprecedented industrial hollowing-out crisis" that could lead to lost jobs and weakened Japanese competitiveness."Japan is on the verge of suffering a major loss of national credibility due to the hollowing-out of its industries," Noda said.Many companies say they have been approached with offers to begin operations overseas. The invitations, according to government data, come mainly from China and several Southeast Asian countries — especially Thailand and Singapore.Firms have also received offers from provinces in South Korea, even though Seoul tried this summer to curb the recruitment of Japanese companies, thinking it inconsiderate in the aftermath of the March 11 disaster.Attempts to poach Japanese companies is hardly new. Neither is Japanese interest in Asia's developing markets, with many export-reliant giants — Toyota, Panasonic and Sony — building regional networks. What was once a business opportunity, though, has turned into a business necessity; firms now relocate to China and Southeast Asia not merely to reach new markets but to offset the pain in Japan.That pain comes largely from the yen, which has soared in value this year amid concern about the U.S. and European economies. Investors see the yen as a safe bet, and they have managed in a short time to transform its worth.In April, the yen was valued at about 85 against the dollar. On Sept. 19, it was 75.94 against the dollar, a post-World War II high, and Japanese policymakers have been helpless to stem the rise. The strong yen makes Japanese exports more expensive overseas, and it pinches foreign-made profits when they are repatriated.In a recent government poll of major manufacturers, one-third said they would face "serious profit decline" if the exchange rate held steady for the next six months.The poll, conducted by the industry ministry, suggested Japanese companies will flee — quickly — if the Noda administration can't soon provide help. Of the 61 manufacturers surveyed, 28 said they would transfer production plants and research centers overseas if the yen held its value. One in five smaller businesses reported that they were already seeing a decline in demand because trading partners had moved overseas."The worst case is, a greater percentage of business will be done overseas," said Koichiro Otake, deputy director of the macroeconomic affairs division at the Ministry of Economy, Trade and Industry. "And that will lead to big, big problems for small and medium-size companies. They have two options. Either they follow suit and move overseas, or they go out of business."Many economists in Tokyo say the hollowing-out process is already under way — and gaining momentum. They say a growing number of companies are finalizing plans not just to outsource their production, but to open new factories in foreign countries.This summer, some of the biggest Japanese companies signaled their intention to bulk up beyond Japan, with Panasonic announcing a new procurement center in Singapore and telecommunications giant Softbank launching a data center in South Korea, citing the country's lower electricity costs.But the woes go beyond the yen. Japan's corporate tax far exceeds levels in China and South Korea. So do its energy costs.
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