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RICE EXPORTING TO AND MACRO-ENVIRONMENT OF JAPAN

PGSM

ASSIGNMENT 1 –MGT620 INTERNATIONAL BUSINESS MANAGEMENT

NAME OF LECTURER: DR. IAN MACKECHNIE

SUBMITTED BY

ZAW HTET AUNG

MBA-F1305-0348

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PGSM MBA-MGT620 INTERNATIONAL BUSINESS MANAGEMENT

Assignment 1

1.0 Introduction

As an expanding of the business for a particular product or service, the

company has to seek for wider market opportunities and prepare to be ready

by its strengths. Exporting is one of the business expansionsinto the

international business with less investment risk than going the whole

operation or production into foreign countries. However, the risk and

attractiveness of a target country (macro-environment) still need to be

accessed for the trade benefits and business achievement. Analyzing macro-

environment of a country includes accessing its political, economic, social,

technological, environmental and legal situations (PESTEL) which favors or

disfavors for specific product/service in trading. Political encouragements and

legal entities laid down will support or burden the trading the product.

Economic situation will decide the consumption of the people. Social and

environmental situation will allow or disallow the style and practice of

consumption. And the mainstreaming of technology for selling a particular

product in that country will need to be adapted in the business.

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2.0 Macro-Environment by PESTLE

Around the world, there are countries where the rice is staple food and 90% of

world’s rice is consumed by Asiaand Japan is a large consumer of rice both in

Asia Region and Globally (Annex I and II). And exporting of long-grain ri ce to

Japan is consideredas a business expansion and increasing market share

into international market. Then, the macro-environment of Japan requires to

be analyzed by PESTEL analysis in order to access potential achievement of

exporting the rice.

2.1 Political Analysis

Political situation of a countryis the first line of interface that a business

from foreign country’s entry.Therefore, political situationassessment

prior to international expansion should be done properly as there may

be potential risks in generating profits. According to Gregory G. Dess et

al (2005: 234-235) said that political instabilities such as social unrest,

demonstrations, violent conflict and terrorism are political risks and

these situations can be hazardous to corporate initiatives.Not only the

instability of politics, the laws enacted/enforced by designated country

and its policies especially related to marketed products should be

analyzed properly.Then, the company can estimateworthiness of

selecting the country after foreseeing of the trade barriers.Actually,

political situation is not stand alone meant that it has strong linkages

among and is the recapitulation of all other situations – economic,

social, environmental, technical and legal situations. Then, it reflects

the overall and general situation of a designated country.

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2.2 Economic Analysis

Aftermath of politics, economic situation of a country will decide the

amount of consumption by the people from designated country on a

traded product or service. And, GDP1 and per capita income of a

country (economic indicators) tell how much a country is rich and

affordable to buy or consume. Apart from the richness, the currency

revolving in its economy should be stable or predictable whether it is

going to devaluation or revaluation.

2.3 Social Analysis

Along with economic judging, customers’ consumption also depends

on cultural/social pattern. It is the combination of values, beliefs,

institutions and artifacts characterizing peoples from a country (Ball et

al, 2010: 138). The name of brand, slogan, pictures & decoration and

color & style of preparation are high in cultural sensitivity. Apart from

those physical issues, the practices of consumption on specific

product/service are also important as it may be good or bad external

factor for a company. Especially for food and beverages industry, the

sales and profitability totally depends on cultural factors: how much the

customers eat and drink generally.

2.4 Environmental Analysis

Besides the economic, social and politics, the environmental situation

of a country should be well known for a business. Although this is not

about financial and social issues, but potential concern to affect those 1 Gross Domestic Product

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all factors. Climate change and global warming are hot issues globally

(Shah, 2013) and thus, the production or operation of a company

should be environmentally sound and feasible.

3.0 Macro-Environment of Japan

General Information

Japan is an Asian country located between the North Pacific Ocean and the

Sea of Japan. Japan does not share any land boundaries with another

country, but is close to North Korea, South Korea, China and Russia.The

name for Japan in Japanese is Nippon (sometimes Nihon) which means

“Land of the Rising Sun.” This name was given because of Japan’s location to

the east of China, the direction in which the sun rises.The English name,

“Japan” might have originated from the Malay word “Jepang,” brought to

Europe by Portuguese explorers, who traded all around Asia. The Capital of

Japan is Tokyo and Japan specializes in manufacturing cars and electronic

devices (Maps of World, 2013).

Politics and Political Economy

Japan is still a constitutional monarchy led by an Emperor - Akihito, and the

Emperor is more a ceremonial position than a political one. Political decisions

are made by the Prime Minister – Shinzo Abe and his cabinet (Maps of World,

2013).

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According to Ministry of Foreign Affairs, since January 2003, the Government

of Japan announced to double the FDI2 inward stock of Japan (JPY 6,600

billion as at 2001) within five years. Again in June 2006, the Government has

further declared to increase the FDI inward stock in Japan to achieve the level

of 5% of GDP by the year 2010. In November 2010, Japan approved Basic

Policy on Comprehensive Economic Partnerships which means the

Government determined to open up the country and will take major steps in

promoting high-level economic partnerships with major trading countries

(WTO, 2013).

In supporting the policies and trade among broad ranged countries, Japan

also participates in trade organizations and trade agreements/arrangements

both at global level and regional levels. At global level, Japan is a member of

WTO3 and regionally, there are 13 RTAs4, 19 BITs5 and 1 TIT6 for trading

purposes (See Annex VII). Following the regulations as memberships and

trade agreements, the tax rates varies in Japan according to specific products

and tax rating systems (general tax rate, temporary rate, WTO rate, EPA rate

and applied tax rate). The general rate is tax rate set out for all goods in

customs tariff law. Temporary rate is tax rate for certain period in place of

general rate. WTO rate and EPA rate are tax rates agreed at WTO and set

forth at regional level agreements. The applied rate is actual practicing rate

and it is lower than WTO, EPA and general (temporary) tax rates (Japan

Custom, 2013).

2 Foreign Direct Investment3 World Trade Organization4 Regional Trade Agreements5 Bilateral Investment Treaties6 Trilateral Investment Treaties

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In addition to global and regional trade agreements, Japan affords preferential

tariff treatment unilaterally to certain developing countries under a scheme

called Generalized System of Preference (GSP) which is valid until March

2021. China has the largest share (73.3% in 2011) in GSP of Japan (See

Annex V). According to WTO (2013), there are 138 developing countries and

7 territories for 409 agricultural and fishery products under GSP. And duty-

free tariff lines account for 58.1% of all lines. Since 2011, Japan practices

LDCs7 with quota-free and duty-free treatments. Value imported from LDCs

under that treatment is amount to ¥ 85,851 million in FY2010.

On the large scale, Japan has one of the lowest tax-to-GDP ratios in OECD

and WTO suggested stopping tax deduction. However, the authorities of

Japan do not consider this opinion and even cut in corporation tax rate in April

2012 to improve incentives to invest. Even though the Government is trying to

encourage foreign investment and tax deduction programmes, Japan’s inward

FDI remains substantially lower than outward FDI in 2011 (Annex III). The

reason is high investment costs for businesses accessing limited resources.

According to Business Sweden (2013), Japan gets the rank at 26 (ranking 1

to 30) and showing as high-risk zone (See Annex VI). International bandwidth,

political stability, education and GDP per capita and inflation are at low risks

(between rank 1 to 10) and energy security & cost, corporation tax,

sustainability and natural disaster are at high risks (between 21 to 30). The

high costs and insufficiency in energy results the costly business operations.

Currency and Exchange Rate7 Least Developed Countries

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According to United Nations Statistics Division (2013), GDP of Japan is

5,870,357 million (current US$) and GDP per capita is 46,407 US$ in 2011.

And Japan is a member of OECD8 country with the average household net-

adjusted disposable income is 24,147 USD a year, more than the OECD

average of 23,047 USD a year (OECD, 2013).

The currency used in Japan is Japanese Yen (JPY or ¥) however, JPY is third

most traded money after US$ and Euro (Maps of World, 2013). Annual

exchange rate is 79.8 ¥ per US$ in 2011 (Annex III) and it continued to

appreciate in 2011-2012 (WTO, 2013).

Socio-Cultural Aspects

Major religions in Japan are Shinto and Japanese Buddhism; these two

religions were usually been practiced together as complex one. And the

religion of Christian and Islam are practiced by minority (Maps of World,

2013). The rice is staple food for people’s consumption and also used to

make religious offerings. Wojtan (1993) said that “Rice is more than food in

Japan” and is a deeply embedded in cultural concept. Even the terms of

breakfast, lunch and dinner are composed with the name of rice in Japanese

Language.

Japan, itself, has agricultural production including rice therefore; there are two

portions – production and consumption. According to presentation of Kobe

University (2013), although rice production declines prominently (annually to

2012), per capita consumption of rice also reduces and country’s self-8 Organization for Economic Cooperation and Development

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sufficiency of food is maintained. Due to Japan’s geographical situation

(composed of islands but with many mountains and forests), agricultural

production is not in mass except rice (Maps of World, 2013). And the

occurrences of natural disasters deteriorate the soil (Toews, 2012). Although

the production reduces, food is self-sufficient in Japan because of changing in

practice of consumption. Simply, the people from Japan reduce the amount of

consumed rice. Then, why the rice still needed to get is other forms of

preserving (including rice-related foods & snacks and beverages such as

wine) other than raw food. As a trading material, the imported value of food &

direct consumers is 71,938,948 (thousands US$) in 2012 which is only 8.1%

share of overall imported commodity (See Annex IV).

Environmental Situation

In Japan, pollution started since Meiji Period (1868-1912) and currently, global

warming, conservation of atmospheric environment, water & soil pollution,

waste management, recycling of chemical substances and participation in

international corporation are major issues (Environment and Ecology, 2010).

According to Nations Encyclopedia (2010), Japan is the world’s fourth largest

carbon emission country as of industrialization with 1.09 billion metric tons of

carbon dioxide. In addition to air pollution, water pollution and soil erosion are

followed because of disaster occurrences. The Annex VIII - “Largest Natural

Disasters Occurred in Japan” shows the potentiality of Japan to disasters. It

also notifies that the big disasters usually come in every 6 years starting from

1993 Tsunami.

4.0 Conclusion

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The macro-environment of Japan is high in both attractiveness and risks for a

business to invest in. As of risks, there are few but important issues in

general. Japan stands at the rank of 26 (out of 30) with the high risks in

energy sufficiency and potentiality to natural disasters. And ease of doing

business and cost of labor are not in interesting range too. The environmental

situation and the resources are potential and critical limitations to firms. And

these two factors also interrelated as the resources may be destroyed by

disasters. Moreover, the environmental threatening directly affects the

business too by means of affecting both the product (infrastructures and

physical operations) and the market (the social situation and practice of the

people may be altered). Exception is to materials and related equipment for

responding disaster relief activities.

In addition to the risks, the currency is not in supportive condition for

companies to some extent. The reason is that the exchange rate is steady in

appreciation. In these regards, operating a business in Japan for the purpose

of exporting is unfavorable and risky because of less profit for high cost of

investment. Even for business operating in Japan for the purpose of in-

country distribution, the environmental risk (disasters) and high-cost of

operation (high price labor and fuel) will surely be serious.

From the other side, there are also series of attractiveness. Principally, the

Government of Japan wants to encourage inward FDI and has measures to

invite by various programs. Also, Japan has arranged trade agreements at

global, regional and even GSP. Especially for developing countries and LDCs,

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Japan provides various interventions on trade like relieving tax for their

exports, special tax rates for specified products, tax-free lines and quota-free

lines. These are great incentives and chances for developing countries in

exporting their specialized products. Not only for developing countries, but

also for major export countries (EU and US) because Japan is practicing the

applied tax rates which are lower than the specified WTO, EPA and general

tax rates.

And in reviewing macro-environment, Japan has stable in political situation -

no social unrest, no political reforms and civil war; steady economic growth -

approximately 1.8% growth in annual average during 2002-2007 (WTO,

2013); and steadiness in currency – the exchange rate is appreciating but

steadily and foreseeable.

In summary, the business expansion to Japan by means of entering the

operation either for exporting or in-country distribution is not relevant because

of uncontrollable risks with uncertain profitability. However, exporting the

specialized product or service to Japan is favorable due to tax deductions and

global/regional trade agreements. Therefore, exporting of rice from Myanmar

to Japan is appropriate because of 3 factors: 1) rice is one of the specialized

products from Myanmar, 2) Myanmar is one of LDCs and 3) although the

consumption of rice in Japan is reduced, rice is used in other forms of

preservations.

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5.0 Annexes

Annex I: Rice Consumption in Asia Region (2007)

Annex II: World Rice Consumption (2003-2004)

Annex III: Selected Macroeconomic Indicators of Japan (2007-2011)

Annex IV: Japan’s Imports by Special Classification of Commodity (2012)

Annex V: Ten Largest GSP Beneficiaries of Japan (FY2011)

Annex VI: The Index Ranking Comparison by Country (2013)

Annex VII: Regional Trade Agreements of Japan

Annex VIII: Largest Natural Disasters Occurred in Japan

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Annex I: Rice Consumption in Asia Region (2007)

Rank CountryAmount of Rice Consumed

(metric tons)

1 China 102,640,324

2 India 82,602,265

3 Indonesia 28,146,034

4 Bangladesh 25,196,763

5 Vietnam 14,255,523

6 Philippines 11,470,307

7 Myanmar 7,710,029

8 Japan 7,214,929

9 Thailand 6,904,528

10 Brazil 6,318,838

Data Source: International Rice Research Institute (IRRI)

http://www.irri.org/index.php?option=com_k2&view=item&id=12109&lang=en

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Annex II: World Rice Consumption (2003-2004)

Rank CountryAmount of Rice Consumed

(thousand metric tons)

1 China 135,000

2 India 85,250

3 Indonesia 36,950

4 Bangladesh 26,400

5 Vietnam 17,700

6 Myanmar 10,200

7 Thailand 10,200

8 Philippines 9,700

9 Japan 8,658

10 Brazil 8,100

11 South Korea 5,016

12 United States 3,882

13 Egypt 3,300

14 Iran 3,100

15 North Korea 1,640

16 Taiwan 1,150

17 South Africa 675

Data Source: Nation Master (Organized from US Department of Agriculture)

http://www.nationmaster.com/graph/agr_gra_ric_con-agriculture-grains-rice-

consumption

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Annex III: Selected Macroeconomic Indicators of Japan (2007-2011)

2007 2008 2009 2010 2011

(% change, unless otherwise indicated)

National accounts

Real GDP 2.2 -1.0 -5.5 4.5 -0.8

Domestic demand 1.1 -1.3 -4.0 2.8 0.1

Exports of goods and services

(% of GDP)17.8 17.7 12.7 15.2 15.2

Imports of goods and services

(% of GDP)16.1 17.5 12.3 14.0 16.1

Prices and interest rates

Consumer prices (CPI)(% change) 0.0 1.4 -1.4 -0.7 -0.3

GDP deflator (% change) -0.9 -1.3 -0.5 -2.2 -2.1

Basic discount rate and basic loan

rate (%)0.8 0.3 0.3 0.3 0.3

Exchange rate

(annual average, ¥ per US$)117.8 103.3 93.5 87.8 79.8

(% of GDP)

Fiscal balance

Revenue 31.2 31.6 29.6 29.6 30.6

Expenditure 33.3 35.7 40.0 39.0 40.7

Balance -2.1 -4.1 -10.4 -9.4 -10.1

Source: World Trade Organization: Trade Policy Review Report

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Annex IV: Japan’s Imports by Special Classification of Commodity (2012)

(Thousands of US$, %)

Item Value

Year on

Year

%

Change

ShareContribution

rate

Total888,584,13

34.2 100.0 4.2

Food & Direct Consumers 71,938,948 1.1 8.1 0.1

Industrial Supplies490,752,95

32.9 55.2 1.6

Capital Equipment192,206,30

87.4 21.6 1.6

Consumer Non-Durable Goods 57,120,699 4.2 6.4 0.3

Consumer Durable Goods 57,659,477 9.0 6.5 0.6

Others 18,905,749 2.6 2.1 0.1

Source: Japan External Trade Organization (JETRO)

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Annex V: Ten Largest GSP Beneficiaries of Japan (FY2011)

Beneficiaries

Import value of

preferential treatment

(¥ million)

Share

(%)

World 1,015,186 100.0

People's Republic of China 744,480 73.3

The Union of Myanmar 41,564 4.1

The People's Republic of Bangladesh 39,679 3.9

Republic of South Africa 35,056 3.5

Federative Republic of Brazil 27,474 2.7

Kingdom of Cambodia 21,416 2.1

India 19,404 1.9

Islamic Republic of Mauritania 14,162 1.4

Republic of Peru 6,919 0.7

Democratic Socialist Republic of Sri Lanka 6,393 0.6

Source: World Trade Organization: Trade Policy Review Report

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Annex VI: The Index Ranking Comparison by Country (2013)

2013 Rank 1 11 26

Index Score (1st = 100) 100 77.11 55.12

Risk Index Low Medium High

Country US Switzerland Japan

Tier 1

Energy Cost 3 9 29

Int'l Bandwidth 1 15 8

Ease of Doing Business 3 17 16

Tier 2

Corporation Tax 30 1 29

Cost of Labor 18 29 17

Political Stability 20 5 8

Sustainability 20 9 25

Natural Disaster 29 13 30

Education 1 18 3

Energy Security 17 11 27

Tier 3

GDP per Capita 8 3 10

Inflation 10 1 2

Water Availability 11 13 17

2012 Rank 1 10 20

Position Change 0 -1 -6

Each index is ranked from 1 (lowest risk) to 30 (highest risk)

Data Source: Extracted from Data Center Risk Index (2013) of Business Sweden

http://www.business-sweden.se/PageFiles/9118/DCRI%202013.pdf

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Annex VII: Regional Trade Agreements of Japan

RTA BIT

1 Japan-ASEAN 1 Bangladesh

2 Japan-Brunei Darussalam 2 Cambodia

3 Japan-Chile 3 China

4 Japan-Indonesia 4 Egypt

5 Japan-Malaysia 5 Hong Kong

6 Japan-Mexico 6 Republic of Korea

7 Japan-Philippines 7 Lao PDR

8 Japan-Singapore 8 Russia

9 Japan-Switzerland 9 Sri Lanka

10 Japan-Thailand 10 Turkey

11 Japan-Vietnam 11 Mongolia

EPA 12 Pakistan

12 India 13 Vietnam

13 Peru 14 Uzbekistan

15 Peru

TIT 16 Papua New Guinea

1 China 17 Kuwait

2 Republic of Korea 18 Iraq

19 Colombia

RTA = Regional Trade Agreement, EPA = Economic Partnership AgreementBIT = Bilateral Investment Treaties, TIT = Trilateral Investment Treaties

Source: World Trade Organization: Trade Policy Review Report

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Annex VIII: Largest Natural Disasters Occurred in Japan

Sr Name Disaster Type Year Location

1 Uzen Volcano 1792 Kyushu Island Japan

2 HonshuEarthquake,

Tsunami1923 Honshu Island Japan

3 NankaiEarthquake,

Tsunami1923 Nankai Japan

4 HyogoEarthquake,

Tsunami1923 Hyogo Prefecture Japan

5 ShimaEarthquake,

Tsunami1944 Shima Peninsula Japan

6Nihonkai-

ChubuEarthquake 1983 Akita Prefecture Japan

7 HokkaidoEarthquake,

Tsunami1993 Hokkaido Japan

8 Sakurajima Volcano 1999 Japan

9 Miyagi Earthquake 2005 Honshu Island Japan

10 TohokuEarthquake,

Tsunami2011 Tohoku Japan

Source: E List 10: Top 10 Natural Disasters in Japanese History

http://www.elist10.com/top-10-natural-disasters-in-japanese-history/

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6.0 References

Ball, Donald A., Geringer, J. Michael, Minor, Michael S. and McNett, Jeanne

M. (2010), International Business: The Challenge of Global

Competition, 12th Edition, NY: McGraw-Hill.

Business Sweden (2013), Data Center Risk Index (2013): The Index Ranking

by Country, [Online], Available:

http://www.business-sweden.se/PageFiles/9118/DCRI%202013.pdf

Dess, Gregory G., Lumpkin, G. T. and Taylor, Marilyn L. (2005), Strategic

Management, international edition, NY: McGraw-Hill.

Environment and Ecology (2010), Environmental Issues in Japan, [Online],

Available:

http://www.environment-ecology.com/environment-writings/478-

environmental-issues-in-japan.html

IRRI (2007), Which Countries Consume the most rice? [Online], Available:

http://www.irri.org/index.php?

option=com_k2&view=item&id=12109&lang=en

Japan Customs (2013), Outline of Tariffs and Duty Rates System, [Online],

Available: http://www.customs.go.jp/english/summary/tariff.htm

JETRO (2013), Japanese Trade and Investment Statistics (2012), [Online],

Available:

http://www.jetro.go.jp/en/reports/statistics/data/gaikyo2012e.xls

Kobe University (2013), Trend of Rice Consumption in Japan, [Online],

Available: http://worldfood.apionet.or.jp/kankoku/Japan/5Kako.ppt

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Maps of World (2013), Fast Facts of Japan, [Online], Available:

http://www.mapsofworld.com/pages/fast-facts/japan/

Ministry of Foreign Affairs, Japan (2013), Invest Japan, [Online], Available:

http://www.mofa.go.jp/policy/economy/japan/invest/index.html

Nation Master (2004), Agricultural Statistics: Grain - Rice Consumption (most

recent) by Country, [Online], Available:

http://www.nationmaster.com/graph/agr_gra_ric_con-agriculture-

grains-rice-consumption

Nations Encyclopedia (2010), Environment of Japan, [Online], Available:

http://www.nationsencyclopedia.com/Asia-and-Oceania/Japan-

ENVIRONMENT.html

OECD (2013), OECD Better Life Index: Japan, [Online], Available:

http://www.oecdbetterlifeindex.org/countries/japan/

Shah, Anup (2013), Climate Change and Global Warming Introduction,

[Online], Available: http://www.globalissues.org/article/233/climate-

change-and-global-warming-introduction, [11 Nov 2013].

Toews, Jenifer (2012), Rice in Japan: Beyond 3.11, [Online], Available:

http://irri.org/index.php?option=com_k2&view=item&id=11677:rice-in-

japan-beyond-311&lang=en

United Nations Statistics Division (2013), Economic Indicators: Japan,

[Online], Available: http://data.un.org/CountryProfile.aspx?

crName=JAPAN

Wojtan, Linda S. (1993), Rice: It is more than food in Japan, [Online],

Available: http://spice.stanford.edu/docs/145

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World Trade Organization (2013), Trade Policy Review Report: Japan,

[Online], Available:

http://www.wto.org/english/tratop_e/tpr_e/s276_e.zip

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