AMMAN, 27 October 2003 — A strong and broad economic relationship exists between Japan and the Arab countries based on a two-way flow of trade reaching around $60 billion in 2002. The relationship between the two regions embraces as well Arab capital seeking investment in Japan’s financial markets, joint venture projects between Japan and the various Arab countries, as well as, mutual political understanding. Japan relies on the region for around 60 percent of its crude oil imports and has allowed petrochemical products from the Gulf states to penetrate its markets.
Japan is the second largest exporter of goods to the region including, among others, vehicles, consumer durables, electronics, home appliances, specialized industrial machinery and plant equipment, metals and metal products among others. Japanese companies and institutions are also major exporters of services to the region including construction and consulting services, maintenance and training, shipping and a wide spectrum of other business services.
In spite of the strong trade relationship that exists between Japan and the Arab countries, there are nevertheless several constraints hindering the expansion of this relationship into other spheres of economic cooperation. At the same time, there exists limited mutual awareness of the importance and significance of the two regions to one another. Japanese in general do not fully comprehend the conservative traditions and values of the Arab countries. The region is perceived to be generally unstable at a time when the guidance policies of the Japanese government and business institutions call for avoiding risk.
Some of the obstacles cited by the Japanese when doing business with the region include bureaucratic constraints and hindrances when dealing with certain government institutions, cumbersome visa requirements by some Arab states and long delays to clear immigration procedures in most of the region’s ports and airports. The obligation to meet specifications and standard forms that are not clearly spelled out is cited as another obstacle restricting commercial trade. The lack of adequate legislations that protect patents and intellectual property rights in most Arab countries and the fact that Japanese trading houses need a local sponsor to be able to do business are also considered hindrances to the expansion of economic relations between Japan and the Arab countries. On the other hand, Arabs seem to lack adequate understanding of the Japanese culture and mentality. They tend to be more familiar with the Western style of management and approach to business than they are with that of Japan. Very few of them speak the language or have lived in Japan for an extended period of time to acquire more than a superficial understanding of the culture.
Arab businessmen complain that Japanese exporters tend to treat the Arab region as a residual market, with priority of shipment given to the larger markets of the US, China, Southeast Asia and Europe. This leads sometimes to delays in receiving orders past the agreed upon date. Arab importers of Japanese products would like to establish long-term relationships with their Japanese counterparts on equal footing with major clients elsewhere in the world. Arab businessmen find it difficult to understand Japanese management style and approach to business. The consensus approach that dominates the decision making process in Japan is perceived to delay things and tends to be frustratingly long sometimes.
The Japanese are perceived to be lagging behind the Americans and Europeans in establishing joint venture projects in the region. What the Arab countries need is not only the establishment of production units but the transfer, adaptation and acquisition of Japanese technology and Japanese managerial know-how. A long-term commitment to the region from Japan is still lacking. The relationship between the two regions is dominated by commercial rather than strategic interests. The only way to expand relations between the Arab countries and Japan is to establish better mutual understanding between the two regions and address the obstacles facing trade and investment flows between them. On the Japanese side, a greater effort should be made to better understand the culture of the Arab states. These countries have rich social values that are expressed and manifested differently from the way they are in the US or Japan.
The Arab countries, including the Gulf States, are still developing countries. Infrastructural, legal and bureaucratic bottlenecks are bound to exist but they are far less restrictive today than it was the case few years ago. Comprehensive regulatory measured have been introduced, aimed at strengthening and simplifying the rules governing contracts and financial disputes. Bureaucratic procedures are being streamlined to create a more attractive investment environment. Japanese businessmen should take a long-term view of the Arab countries. The economies of the region, in common with others, will have their ups and downs and Japanese investors should be prepared to weather the occasional storm. Only those with long-term commitment will be able to reap the benefit of their investment. However, even combined with reservations over the bureaucratic operating environment and impatience for economic reform, security concerns have failed to disturb soaring confidence. Almost 88 percent of CEOs of large Arab companies expect the regional economic climate to improve next year.
Several Middle Eastern based IT companies have shown that quality work can be performed in the region and few of them were able to sign outsourcing agreements with major counterparties abroad. Salaries of graduates in IT related fields in various Arab countries are quite competitive by international standards, and there is a sizable pool of well trained English speaking people in these fields.
Cooperation between Japanese and Arab businessmen should ideally be built on a satisfactory previous trading relationship, whereby trading partners evolve to become industrial partners. Besides, we believe that Japanese power is not dominant only in the industrial area but also in various services such as education, culture, tourism, financial, commercial and trading, etc. Japan should be able to build a new bridge with the Arab countries utilized this soft-power and to start exporting hope of better things to come in contrast to US’s export of fear of terrorism that has so far derailed finding viable solutions to the region’s problems.
There is a need for some Arab countries to complete the necessary measures concerning intellectual property rights and patents, with rules for supervising the application of trademark regulations to avoid any trade in counterfeit products that hurt the interest of Japanese companies. Arab businessmen should work on reinforcing the trust between them and the Japanese exporters. They need to understand better the Japanese culture and the way business decisions are made. Living up to one’s financial commitments is very important in this respect. This will help importers of Japanese products to acquire better payment conditions from their counterparts in Japan and develop their trade relationship into a much wider business relationship.
(Henry T. Azzam is chief executive officer at Jordinvest.)
