15 April 2021

Key points

Japan – Experts fear a fourth wave of COVID-19 infections. On 7 April, official sources announced more than 3,000 new coronavirus cases – the highest level in over two months. Osaka Prefecture confirmed a record 878 cases and Tokyo logged a two-month high of 555. The Osaka Prefecture declared a medical state of emergency owing to the increased strain on its health care system.

Japan – Ongoing uncertainty around caps on passenger arrivals is clouding ANA’s future flight plans to Australia. ANA has maintained the only consistent passenger route between Australia and Japan since the pandemic. Japan is also is a key route for Australians returning home from Europe. 

Japan – Dismissals linked to the pandemic have now topped 100,000. The cumulative total, stood at 100,425 on 7 April after reaching 50,000 in August 2020. Employment insecurity is likely to remain high especially among workers in manufacturing, retail and the restaurant business.

Korea – The economy shrank 1% in 2020 – the country’s worst performance since 1998. Korea remains a global high performer, however. Its economy was the third best performing among the world’s largest economies in 2020, according to the OECD.

Korea Weekly IFAM flights from Melbourne to Seoul are to be extended, and are now available on Wednesday and Friday. This will benefit Australian exporters of beef, chilled salmon and kingfish, asparagus and broccolini. Meanwhile, it appears that 13 major defence acquisition programs are now on hold.

Mongolia – China’s ban on coal imports from Australia has increased demand for coal imports from Mongolia. China is planning to import 70 million tons (mt) of coal in 2021 and is looking to increase imports from neighbouring Russia and Mongolia. Mongolia exported 28.7 mt of coal in 2020 and aims to increase exports to around 34 mt. To increase export capacity, the Mongolian Government wants to increase productivity and improve rail capacity. This creates opportunities for Australian METS.

Market opportunities

Japan

Resources

  • According to sources, investment in Japan’s oil and gas exploration sector is dropping precipitously as the country’s de-carbonisation policies force an energy pivot towards renewables. Liquefied natural gas is seen as preferable to the traditional hydrocarbon sector.
  • Japan – Many top tier companies in Japan have started planning a roadmap towards carbon-neutral corporate operations. This is likely to create new momentum for green businesses. It also means that major companies may pursue offsetting strategies, as well as overseas carbon storage.

Fin-tech

  • Japan’s Ministry of Economy, Trade and Industry (METI) says that one of its key priorities during the next fiscal year will be ensuring the digital transformation of Japanese businesses. Concrete policy proposals will be formulated by year end. The announcement underlies an expected surge in demand for ICT and digital solutions in Japan, especially for tools and software that facilitate remote working.
  • The Japanese Bankers Association is considering opening up access to Japan’s bank transfer system to fintech companies. This would encourage competition and potentially lower transfer fees. Access is currently limited to deposit-taking financial institutions (banks and credit unions) operating under strict regulations. This would create a major opportunity for Australian fintech companies that specialise in money transfers and payments.
  • The Financial Services Agency is trying to promote a more efficient financial settlement system in Japan, including through the Zengin Data Telecommunications System. Customers of this interbank money-transfer system have traditionally incurred high commission fees.

Edtech

  • Japanese universities are developing online programs in collaboration with their overseas partner institutions as an alternative to study-abroad programs. For example, Meiji University confirmed it will recognise credits that its students obtain through online courses delivered by partner institutions.

Food

  • Reduced crop yields combined with disruption in global supply chains have increased prices for the raw materials used in cooking oil, according to the Japan Food Journal. The price of buckwheat has also increased. Manufacturers are passing on price increases to consumers.
  • The quantity of beef imports into Japan is decreasing owing to states of emergency. However, beef exports ended 2020 on a high note, with Japan eclipsing China as Australia’s largest export destination. Values decreased by just 3%, year on year. Exports to Korea remained flat, while exports to China fell 28%.
  • Japanese supermarkets have downsized their product portfolios in response to changes in consumer shopping habits. Japanese consumers now spend less time at shops and tend to choose familiar products. This is driving a bias toward well-known brands, according to a recent analysis conducted by Nikkei Asia. This may cause Japanese importers to be hesitant about sourcing new products. Consequently, fresh proposals will require strong market differentiation.
  • Major flour milling companies have recorded a fall in sales and lower profit after sales dropped in the wholesale Wholesale makes up a major portion of milling companies’ business. Milling companies performed well in the retail sector.
  • Cheese sales have soared. This is due to increased alcohol consumption, which apparently triggers increased demand for cheese. Demand has exhibited double digit growth for five consecutive months during 2020.

Food Service

  • Unmanned, ‘no direct customer contact’ food-service options are taking off. Lockers have been established at set locations for ‘no-contact’ take-away food pick-up after pre-ordering and pre-paying via an app.
  • Demand for take-out/delivery products such as fast-food is expected to increase. As a result, the demand for& certain types of imported beef is expected to change.
    • demand from supermarkets will remain strong, with a gradual increase
    • demand for take-out delivery products is likely to increase at a more rapid pace
    • demand for food services is expected to return towards more normal levels in the latter half of 2021.

Foodtech

  • Foodtech is gaining interest from investors. Investment by companies developing alternative protein foods rose by 1.6 times year-on-year in September 2020. In recent years, the number of people who avoid eating meat has increased, particularly among the younger generation. The vegan population in Japan has more than doubled in two years.
  • Retail sales for chilled and frozen meat are on a slight upward trend thanks to an uptake in e-commerce. However, retail is not consuming sufficient volumes to cover the losses in the food service sector. Industry representatives assess that it will take time to clear the huge meat inventory currently sitting in warehouses.

Food retail & consumption habits

  • Unmanned retail stores are becoming more popular. NTT DoCoMo will enter the unmanned store business and develop food vending machines for this purpose. Seven-Eleven Japan aims to set up unmanned sales offices in 1,000 locations nationwide, including in schools, by the end of 2025. 
  • There is growing demand for ultra-local grocery shopping. For example, Cookpad Mart provides pre-ordered grocery pick at apartment buildings, office blocks and various types of stores.
  • Eating habits have changed significantly since the onset of COVID-19. Spending on frozen foods, pasta and instant noodles has increased by around 20% year-on-year. Meanwhile, spending on dining out has decreased by 33%. Spending on drinking outside the home has decreased by 65%.

Manufacturing

  • Manufacturers are shifting production capacity and personnel to non-aerospace manufacturing. This follows an announcement by MHI that it will pause the development of its first domestically produced jetliner, the SpaceJet. Local parts manufacturers have been impacted. This may trigger a permanent withdrawal from aerospace parts manufacturers for the approximately 150 suppliers in the Kansai region.

Other

  • Japan's land prices dropped for the first time in six years in 2020 as the coronavirus pandemic impacted demand for hotels and houses. Prior to the pandemic, an influx of foreign tourists and low interest rates had helped boost land prices in big cities and regional areas. Average land prices slipped 0.5% last year, according to the land ministry's survey.

KOREA

Food & Agriculture

  • A major hospitality venue has advised that Australian fresh salmon is losing competitiveness in Korea owing to limited flights and therefore deliveries. Norway is flying fresh salmon into Korea two-to-three times per week – ensuring continuity of fresh produce.
  • Hort Innovation Australia (HIA) advises that the supply of Australian table grapes this season will be limited because of:
    • a lack of pickers in Australia (owing to travel restrictions)
    • a shortage of refrigerated containers (owing to COVID vaccine rollout across the globe)
    • delays at major ports (owing to COVD-related shipment delays across the globe).
  • Austrade Seoul is working with HIA to manage Korean importers’ expectations and mitigate quality claim risks. Austrade Seoul will partner with HIA to maintain positive relationships with major importers and distributors, and build anticipation for the next season – expected to commence in December 2021.
  • There may be timeline delays and/or potential quality issues arising from the shortage of refrigerated shipping containers and some oversupply at seaports. This could impact initial shipments of Australian table grapes this season.
  • Consumer sales of US beef are increasingly executed via e-commerce sites. According to local sources, this trend will likely persist after current pandemic-related dislocations have ceased.

Food retail & food service

  • Korean conglomerates are exiting family restaurant businesses and focusing more on home meal replacement (HMR) offerings. Demand for HMR and new F&B services models such as shared kitchens will continue to increase.

Edtech

  • Korean demand for edtech is growing and the Korean Government plans to invest KRW 1.3 trillion (A$1.5 billion) to digitalise Korean education delivery by 2025. So far, content quality, server issues and copyright have been bottlenecks. According to EdTechX Global, Korea’s edtech market was worth KRW 4.0 trillion (A$4.6 billion) in 2019. Korean edtech is projected to grow substantially in the next three years. 

Energy

  • Under the Green New Deal project action plan, the Korean government pledged to invest KRW 73.4 trillion (A$85.5 billion) in renewable energy infrastructure and eco-friendly businesses. However, there’s a concern that local companies are relatively new to the green industry and may not be competitive against foreign firms. Australian service providers with expertise in offshore wind, electric vehicle (EV) infrastructure and green building could benefit.

Transport & manufacturing

  • E-scooter and e-bikes are gaining popularity in Korea. The country’s major mobility players – which range from manufacturing (Hyundai Motors), internet (Kakao Mobility) to car-sharing (SoCar) – are investing continuously and conducting trial services to find new business opportunities. Korea’s micro-mobility market is expected to grow 20% on average per year and reach KRW 600 billion won (A$700 million) by 2022.
  • A total of 13 defence acquisition programs are on hold owing to defence budget cuts. These programs are worth KRW 5.6 trillion (A$6.9 billion). If the trend continues, the total number of defence projects on hold is expected to reach 36. Some of the leading programs on hold include P-8A Patrol Aircraft (A$2.3 billion) and B Batch Navy vessels (A$1.5 billion).
  • Korean factories are seeking smart manufacturing technologies. On July 23, the Korean government announced a plan to build 1,000 5G and AI-equipped smart factories by 2025. This follows a 2018 plan to build 30,000 smart factories by 2022, in partnership with the nation’s major manufacturers and telcos. However, there have been concerns that to date, over 80% of the planned transformation related to basic automation as opposed to technologies such as connected data, predictive and prescriptive analytics, and AI-driven automation.
  • Korea is actively looking for investment opportunities that will help the country to diversify input sources for its three key manufacturing industries – semi-conductors, cars and ship-building. The Korean Government’s investment-promotion agency, Invest Korea, is actively helping Korean companies to strengthen the supply security of key materials – especially in the field of mergers and acquisitions.

Other

  • COVID 19 lockdowns have triggered huge demand for Korean consulting firms. The root cause is that major conglomerates are restructuring and devising new growth strategies. There is currently a boom in companies requesting digital transformation advice, and ESG (environmental, social, governance) management-related strategic roadmaps.