Japanese industry will find it hard to forget the year 2011. In March came the earthquake which paralysed production, and rocked investor confidence. The yen, 85 to the U.S. dollar back in April, hit a post-World War II high of 75 in September, and hovered stubbornly in the region for the rest of the year as it wreaked havoc on the country’s export competitiveness. And all through the year, driven by a combination of the above factors and then some, Japanese companies embraced the warmer climes of Southeast Asia like never before as they purchased direct and indirect stakes in local companies, set up factories in and moved production to countries like Thailand, Vietnam and Indonesia.

Japanese interest in Southeast Asia is nothing new; Japanese companies were significant investors in Thailand back in the 1980s, and Japan was one of the earliest countries allowed to invest in newly reopened Vietnam. But observers say this last wave has been different. In Thailand, Cynthia Pornavalai, partner at Tilleke & Gibbins, has noticed a desire on the part of Japanese buyers to acquire majority stakes in companies; occasionally all the way up to 100 percent. “I think it’s become more of a control issue,” she says. “The Japanese want more control; they want more hands-on management.”

In Vietnam, Oliver Massmann,partner at Duane Morris Vietnam,notes that while Japanese companies historically preferred entering the market via direct investment such as starting their business in Vietnam from scratch, they now primarily focus on market entry through M&A activities.“By that means, they can make use of the existing market share of local companies,” he says. Massmann provides the example of Unicharm, a leading Japanese manufacturer of personal care products, which recently acquired a 95 percent stake in Diana, a local company that boasts a 40 percent share of the local hygiene products market.

Similarly, Kirin Holdings indirectly holds a 57 percent stake in Interfoods, one of Vietnam's leading soft drinks producers. In addition, Massmann notes that Japanese companies have also stepped outside their traditional comfort zone of manufacturing, and have diversified into a wide range of business sectors such as finance (for example, Nikko Cordial), real estate (Japan, Asia, Vietnam), telecommunications (NTT DoCoMo),and consumer goods (Kirin Holdings, Unicharm).

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