8 October 2021

Key insights from Northeast Asia

Japan – Japan lifted its state emergency restrictions on October 1. The restrictions had applied to Tokyo and 18 other prefectures since April. According to Nikkei Asia the Japanese Government plans to ease restrictions in stages, so that normal social and economic activities resume. The tourism sector is already experiencing a rise in reservation, in anticipation of increased domestic travel (Source, Nikkei Asia, Japan’s COVID-19 state of emergency lifted as infections decline, October 1).

Japan – The Government plans to start issuing vaccine certificates from November when all those who want to be vaccinated should have received two doses. It is anticipated that the use of certificates will ease restrictions on travel and dining for vaccinated people.  

Korea –  Daily confirmed cases have averaged 2,048 cases over the past week. This infection rate remains high in comparison to Korea’s very low infection rates since the onset of the COVID-19 pandemic. The Korean Government is maintaining maximum (Level 4) social-distancing restrictions for the Seoul area.

Korea – Interruptions to international air and sea freight are at their worst since the pandemic broke out. Rising airfreight costs, container shortages and 8-week delays on trans-shipments are posing serious barriers to Australian exporters looking to ship goods to Korea.

Mongolia – Case numbers in Mongolia are rising. Double dose vaccinations, however, are high at 89.7%. Schools returned on 13 September.

Market opportunities

Japan

Transport & logistics

  • Australian exporters are increasingly notifying their customers in Japan of additional freight surcharges. They say increases are becoming hard to absorb within current price structures. One client has reported a 46% increase in the freight surcharge for shipments of pet food to Japan, starting from July 2021.

Resources

  • There is considerable interest across corporate Japan in working with overseas partners on clean energy projects to offset domestic emissions. This is driven by Japan’s adoption in April of a 46 per cent emission reduction target by 2030 (over 2013 levels).
  • Many top tier companies have developed or are working on roadmaps to reach carbon-neutral corporate operations that meet Japan’s 2050 target for net zero emissions. This is creating significant momentum for green businesses.

Fin-tech

  • Approximately 1,000 branches of major Japanese banks face planned closure over the next few years, according to research by the Daiwa Research Institute.  This is equivalent to 10% of branches operated by those banks. Japanese banks have accelerated plans to digitalise their banking operations as a result of the COVID-19 pandemic. 
  • Japan’s Ministry of Economy, Trade and Industry (METI) says that one of its key priorities is 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.

Technology

  • COVID-19 is alerting companies to the need to invest in digital solutions. While there are large-scale trends in investing in electric vehicles, semiconductors and materials for pharmaceuticals, traditional Japanese companies are also switching their business models. For example, Ajinomoto – which has a 112-year history as a food maker – has seen its share price reach record highs. This is because Ajinomoto has become a supplier of a high-tech film for the computer chip industry.  

Education

  • 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

  • Austrade Japan has launched an online ‘Australian Food & Beverage Showcase’ as a response to the ongoing pandemic. It will run until 31 December 2021. The virtual B2B platform features over 400 premium new-to-market products from 116 Australian exporters. Japanese customers will be invited to view the platform and request further information or meetings with companies of interest.
  • Competition in the frozen food sector is intensifying as a result of COVID-19. Increased consumption at home has led major supermarkets such as Aeon to refresh their offerings of processed foods, and expand their range of healthy products using fresh fish and meat. In 2020, household sales exceeded industrial sales for the first time. 
  • Cheese sales have soared. This is due to increased alcohol consumption, which apparently triggers increased demand for cheese.

Food Service

  • Analysis from research specialist Tokyo Shoko Research found that the total number of COVID-induced bankruptcies from January to August reached 1,026, accounting for around 26% of all business failures in Japan over the period. Restaurant and bar businesses were hardest hit with 20% of all bankruptcies. Industries such as construction, apparel, and food-producing and processing have also been severely affected by COVID-19. 
  • 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 remains high. As a result, the demand for certain types of imported products is expected to change: 
    • demand from supermarkets will remain strong, with a gradual increase
    • demand for take-out delivery products will increase at a more rapid pace 
    • demand for food services is expected to return towards more normal levels in the last quarter of 2021.

Foodtech

  • Foodtech continues to garner interest from investors, in particular investment by companies developing alternative protein foods. The number of people foregoing eating meat is increasing, 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.

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%.

Other

  • The Government is focussing on super/smart city technologies it can incubate, test and accelerate to achieve greater safety and security for citizens. This includes technologies that allow citizens to conduct their lives in a non-contact and non-face-to-face environment. Approximately 350 projects related to super cities are being co-developed between 260 corporations and the Japanese government. 
  • The average land price in commercial districts in Japan fell 0.5% in the year to July, according to the Land Ministry. This was an increase on the 0.3% drop recorded in the previous year. The decline reflected falling demand for store openings in shopping districts and tourism destinations. Meanwhile, the average price of land in industrial areas rose 0.8%, up for the fourth straight year. This reflects the growing demand for facilities that support online shopping.
  • Suzuki expects to reduce production by approximately 350,000 units for the 2021 fiscal year (April 2021 to March 2022) owing to the shortage of automotive semiconductors and other factors. Subaru and Mazda are also stopping automotive production lines and factories from late August to mid-September because of supply chain issues. 

KOREA

Health

  • The Korean government has formed the Global Vaccine Production Hub Task Force. Its objective is to encourage vaccine manufacturing in Korea. Austrade is seeking opportunities for collaboration with the Australian biotech industry in research and development, including mRNA vaccines. 
  • Austrade is planning an Australia-Korea Vaccine Roundtable in October. It will be supported by the Korea Health Industry Development Institute (KHIDI) and mRNA Victoria. The events will explore opportunities for joint research and development into mRNA technologies, COVID-19 and other infectious diseases.

Food & Agriculture

  • Korean importers who have traditionally distributed to on-trade premises are now pivoting to retail business and looking to source new brands and products. On-trade premises have been negatively impacted by stricter enforcement of Level 4 COVID-19 restrictions. On-trade food service outlets are not looking to introduce new ingredients or stock new brands.
  • Major distribution channels are looking to introduce more vegetarian and plant-based products and brands. This is because Korean consumers are keen to adopt healthier alternatives in everyday eating habits.
  • The size of Korea’s online grocery shopping market has grown by 45.4% year-on-year because of COVID-related factors. The value of packaged food and beverage transactions increased by 33.8%, agricultural products by 36.1% and food-delivery services by 63.4%.  
  • South Korea's wine imports more than doubled in the first half of 2021, reaching new highs. This is due to people drinking wine at home during the pandemic. Australia was the 6th largest source of imports of red wine during this period.
  • 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

  • Korea's Sommelier Times recently reported on the rapid and significant growth of Korea's imported wine market during COVID. This growth is driving a micro-level restructure in Korea's wine distribution channels where more buyers are opting to combine the importation and distribution functions. This means new Australian wine exporters looking to enter Korea will be dealing with fewer intermediaries.
  • 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.

Technology

  • 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.
  • 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 consulting firms in Korea. 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.

Mongolia

  • Higher freight costs and delays at borders mean that importers are looking for alternative sources of supplies. This is expected to impact Australia’s food and beverages sector particularly wine.
  • The Mongolian government now requires arrivals from countries where the Delta variant has occurred to undertake 14 days’ quarantine. This change will impact FIFO workers at Rio Tinto’s OT operations.

Contact:

For more information, please contact: Liz Cox (Tokyo) or Sharon Bignell (Osaka)