Japanese Rhqs in Singapore

INTRODUCTION

A large number of multinational enterprises (MNEs) chose Singapore as the location for their regional headquarters (RHQs), which normally covering Southeast Asia, South Asia, and Oceania. Indeed, Singapore’s location, tax incentives, legal institutions, human capital and efficient infrastructure have sustained the country’s competitiveness on this front. As many as 7,000 MNEs have set up operations in Singapore, half of which are RHQs.1 The number of Japanese MNEs with RHQ in Singapore has been growing in recent years, especially after the global financial crisis.2 In 2011, Panasonic transferred its component and raw material procurement as well its logistics headquarters services from Osaka to Singapore. Another example is Mitsui’s decision to transfer its department of oil trading from Tokyo to Singapore in 2012, as have food manufacturers such as Kirin and Suntory, with the aim of strengthening their stature through mergers and acquisitions in the region.

The sporadic media coverage on Japanese RHQs in Singapore does not provide much detail about their operations, and this essay reviews data from two waves of firm-level surveys done in 2011 and 2015 by the Japan External Trade Organization (JETRO) to shed some light on Japanese RHQs in Singapore.

JAPANESE RHQs IN SINGAPORE

There are in fact no comprehensive publicly available data on the total number of Japanese RHQs in Singapore. However, results from the surveys mentioned above do provide some information on the subject. The 2011 and 2015 JETRO surveys covered 213 and 185 Japanese affiliates in Singapore, with a response rate for the surveys of 34.0 percent and 24.2 percent, respectively.

The 2015 Survey revealed that 90 of the Japanese affiliates or 48.6 percent, have RHQ functions (Table 1). The corresponding figure from the 2011 survey was 36.2 percent.

Table 1: Existence of RHQ Functions in Japanese Affiliates in Singapore

ISSUE: 2018 No. 15

ISSN 2335-6677

We have RHQ functions.

We do not have RHQ functions, but are considering having them.

We do not have RHQ functions have no plan to have them.

T ota l

2011

Number Share (%)

77 36.2

57 26.8

79 37.1

213 100

2015

Number Share (%)

90 48.6

52 28.1

43 23.2

185 100

Sources: Third and Fourth Surveys on the Regional Headquarters Function of Japanese Companies in Singapore (JETRO Singapore)

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ISSUE: 2018 No. 15

ISSN 2335-6677

The 2015 Survey also indicated that many of the Japanese affiliates with RHQ functions were recently established (Figure 1). As many as 12 of those surveyed were set up in the 1990s, while the number of the affiliates established in the 2000s and during 2010-2015 were 18 and 44, respectively. In other words, about half of all Japanese affiliates with RHQ functions were established after 2010.

Figure 1. Number of RHQ by Japanese Affiliates in Singapore, by Period of Establishment

50

45

40

35

30

25

20

15

10

5 0

44

12

18

4

1970s

6

1980s

1990s 2000s

2010-15

Sources: Fourth Survey on the Regional Headquarters Function of Japanese Companies in Singapore (JETRO Singapore)

The Japanese RHQ affiliates in Singapore mainly cover Southeast Asia and South Asia. Their businesses in Northeast Asia (e.g., China and South Korea) are likely to come under the purview of regional offices based in China or Hong Kong. The major functions of Japanese RHQs in Singapore include sales, marketing, finance, and foreign exchange. For example, in the areas of sales and marketing, a key function of RHQ staff is to provide group companies based in the region with administrative and other support.

In the area of finance and foreign exchange, RHQs are tasked to improve the financial efficiency and risk management of group companies. One useful function of the RHQ is to control the foreign exchange risks for international trade transactions in multiple currencies. This includes the conduct of trilateral trade in which RHQs purchase products from their group companies in third countries and sell them to customers. The other useful function of RHQs is to reduce the total volume of transactions by countervailing credits and liabilities among companies by means of concentrating commercial flows in various directions. This cuts costs and saves time. In addition, having access to internal reserves, some RHQs also assume the function of lending or providing equity to group companies.

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ISSUE: 2018 No. 15

ISSN 2335-6677

REASONS FOR SETTING UP RHQs IN SINGAPORE

Why do Japanese MNEs choose Singapore as the location for their RHQs? Results from the JETRO surveys provide some answers to this question (Table 2). One reason is the geographical advantage that Singapore provides. Executives/managers of RHQs tend to travel frequently in the region to attend board meetings of group companies and support their businesses. It takes three hours at most to reach major cities in Southeast Asia from Singapore, in comparison to about seven hours from Tokyo. Hence, locating RHQs in Singapore saves travel time and costs. Short distances will also promote frequent and intensive communications between the RHQ and the group companies, leading to a better