Foreign financial institutions appear to be turning their back on Japan. According to a recent report by human resources firm Executive Search Partners, between early 2008 and August 2009 some 4,500 full-time staff were cut at foreign banks, securities firms, asset management firms and investment funds in Japan.
This, the report says, reflects foreign firms’ belief that investing in the Japanese market is no longer profitable. Or at least, not as profitable as focusing on other parts of Asia.
But this isn’t a new trend. Pete Millett, director of recruitment firm People Services International, says the relocation of finance industry functions to offshore locations such as Hong Kong, Manila, Singapore and India has been occurring for the past several years. And, he says, it is likely to continue.
One prominent recent example was HSBC, which last year relocated its Japanese stock research and investment business to Hong Kong.
But why is Tokyo losing out to the rest of Asia? Millett says operating costs, staff costs, bureaucratic hurdles and taxes – among other factors – are mostly more favourable for banks in other Asian locales. For a stark example of the high cost of operating in Tokyo, compare Japan’s 40.69 per cent corporate tax rate with Hong Kong’s 16.5 per cent.
Moreover, with the growth of China – where this year Shanghai overtook Tokyo to become Asia’s biggest stock market by trading value – means banks want to have a bigger presence closer to the Chinese market.
And the bad news is that the trend appears to be wide reaching. “Most business and technology functions within the finance industry have been affected during the past ten years,” adds Millett.