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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




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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
worlds 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 rice 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 countrys 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, GDP
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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

1
Gross Domestic Product
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about financial and social issues, but potential concern to affect those
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 Japans 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 FDI
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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
WTO
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and regionally, there are 13 RTAs
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, 19 BITs
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and 1 TIT
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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).

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Foreign Direct Investment
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World Trade Organization
4
Regional Trade Agreements
5
Bilateral Investment Treaties
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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
LDCs
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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, Japans 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.


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Least Developed Countries
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Currency and Exchange Rate
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 OECD
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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 peoples 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

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Organization for Economic Cooperation and Development
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University (2013), although rice production declines prominently (annually to
2012), per capita consumption of rice also reduces and countrys self-
sufficiency of food is maintained. Due to Japans 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 worlds 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.
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4.0 Conclusion
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
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global, regional and even GSP. Especially for developing countries and LDCs,
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: Japans 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 Country
Amount 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 Country
Amount 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: Japans Imports by Special Classification of Commodity (2012)
(Thousands of US$, %)
Item Value
Year on
Year
%
Change
Share
Contribution
rate
Total 888,584,133 4.2 100.0 4.2
Food & Direct Consumers 71,938,948 1.1 8.1 0.1
Industrial Supplies 490,752,953 2.9 55.2 1.6
Capital Equipment 192,206,308 7.4 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 Agreement
BIT = 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 Honshu
Earthquake,
Tsunami
1923 Honshu Island Japan
3 Nankai
Earthquake,
Tsunami
1923 Nankai Japan
4 Hyogo
Earthquake,
Tsunami
1923 Hyogo Prefecture Japan
5 Shima
Earthquake,
Tsunami
1944 Shima Peninsula Japan
6
Nihonkai-
Chubu
Earthquake 1983 Akita Prefecture Japan
7 Hokkaido
Earthquake,
Tsunami
1993 Hokkaido Japan
8 Sakurajima Volcano 1999 Japan
9 Miyagi Earthquake 2005 Honshu Island Japan
10 Tohoku
Earthquake,
Tsunami
2011 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

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ng=en
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