Fewer than 20% of respondents answered ‘Yes’, and more than 60% selected either ‘Probably’ or ‘Probably not’, indicating a low level of confidence and a high degree of uncertainty. These results not only reflect the declining international competitiveness of Japanese companies on the technological front, but also the uncertainty of an era of VUCA (volatility, uncertainty, complexity and ambiguity) rife with rapid and unprecedented change.
Next, we asked which factors the respondents’ companies were focusing on in order to advance their overseas business strategy in this era of uncertainty (Figure 14).
Over 50% of respondents indicated the importance of overseas business expansion based on alliances with partners, including M&A. This seems to indicate that in these uncertain times, companies are investing greater management resources in their own areas of strength and are shifting to mutually cooperative strategies in which alliance partners can be used to bolster their capabilities in other areas.
The next most common response was the streamlining of overseas business operations by utilising external outsourcing. This likely reflects the increasingly sophisticated and specialised aspects of areas such as compliance and IT in recent years. It also seems to indicate that, based on the concept of ‘concentration in core competence’, companies have started to perceive the limitations of maintaining all of their business functions (particularly functions for handling routine administrative tasks) in house. Outsourcing routine functions such as bookkeeping and the filing of tax returns, as well as processes that require compliance with local laws and regulations, can enable a company to focus on strategic planning, while also increasing the resilience of business operations.
The third most common responses were ESG-related initiatives, which are discussed in detail below, and building value chains based on local production and local consumption. As we touched upon in the second on US-China decoupling, this latter response might indicate the view that localised supply chains could serve, for example, as an effective way to avoid or minimise the impact of tariffs and sanctions among the US, China and the EU. Efforts to localise supply chains in the automotive industry, where companies are shifting toward local production models, are particularly well known. However, we anticipate that an unprecedented and much higher level of local procurement and supply chain strategy, incorporating more localisation factors during the supplier selection process, will be necessary especially for businesses related to US federal budget projects or those subject to the Buy American Act, for example.