Policy Measures for
Industrial Transformation
Case Studies from Asia and Africa

August 2016

Japan International Cooperation Agency (JICA)GRIPS Development Forum© GRIPS Development Forum 2016
Contact:
GRIPS Development Forum
National Graduate Institute for Policy Studies
7-22-1 Roppongi, Minato-ku, Tokyo, 106-8677 Japan
Phone: 03-6439-6337
Fax: 03-6439-6010
E-mail: forum@grips.ac.jp
http://www.grips.ac.jp/fourm-e/

Policy Measures for
Industrial Transformation
Case Studies from Asia and Africa

August 2016

Japan International Cooperation Agency (JICA)GRIPS Development ForumContributors to the Report

This report is prepared by the JICA/GRIPS members, who participated in the Ethiopia-Japan Industrial Policy Dialogue (Phase II). Contributors of the report are as follows:• Chapter 1: Izumi Ohno, GRIPS Development Forum• Chapter 2: Izumi Ohno and Kenichi Ohno, GRIPS Development Forum• Chapter 3: Izumi Ohno, GRIPS Development Forum• Chapter 4: Masaaki Hamada, JICA/Foundation for Advanced Studies on International
Development (FASID)• Chapter 5: Toru Homma, JICA
The JICA/GRIPS team is grateful to the Ethiopian government and all the partners concerned for their serious and dedicated policy discussions and collaboration extended to us, aswell as the governments and partners of the Asian and African countries which shared with theJapanese team valuable information and knowledge based on their industrialization experiences.

‒i‒

Contents
Contents
List of Tables
List of Figures
Abbreviations
Introduction ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 1
Chapter 1 Industrial Parks and One-Stop Service ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 5
1-1. Area Development and Management ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 5
1-2. Location and Infrastructure ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 8
1-3. One-Stop Investor Service ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 9
1-4. Additional Support for Japanese SMEs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙11
1-5. Marketing and Promotion ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙14
1-6. Implications for Ethiopia ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙17

Chapter 2 Creating Industrial Linkage between FDI and Local Firms ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙19
2-1. Policy Framework and Core Elements of Linkage Programs ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙19
2-2. Examples of Linkage Programs in East Asia and Africa ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙21
2-3. Thailand’s FDI-Local Linkage Development ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙26
2-4. Lessons and Recommendations for Ethiopia ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙33

Chapter 3 Handholding for Enterprise Capacity Building ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙37
3-1. The Concept of Handholding Programs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙37
3-2. Examples of Selected East Asian Countries ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙38
3-3. Findings from the Selected Handholding Programs in East Asia ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙47
3-4. Recommendations for Future Steps of Ethiopia ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙48

Chapter 4 The Champion Product Approach and Country Branding ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙51
4-1. The Champion Product Approach ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙51
4-2. Country Branding ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙58
4-3. JICA’s Branding Support and Ongoing Practice in Ethiopia ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙60

Chapter 5 Investment Promotion Experience of Asian Latest Comers and JICA ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙69
5-1. JICA’s Experience in Investment Promotion in Developing Countries ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙69
5-2. Asian “Latest Comers” to Manufacturing Investment ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙77
5-3. Implications for Ethiopia ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙82‒ iii ‒

List of Tables

Table 1-1

Different Models of Industrial Parks in Asia ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 7

Table 1-2

Power Supply in Selected Industrial Parks ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 8

Table 1-3

A List of Customer Service for Japanese Investors ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙10

Table 1-4

10 Pledges of Ha Nam Province to Japanese Investors (Vietnam) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙11

Table 1-5

Additional Management Support for Japanese SMEs (Vietnam) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙14

Table 1-6

Costs, Fees and Lease Terms of Selected Industrial Parks ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙16

Table 2-1

Industrial Linkage Program (ILP) ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙24

Table 2-2

Global Supplier Program (GSP) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙24

Table 2-3

Main Activities of BUILD ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙28

Table 3-1

Key Features of JETRO’s Assistance for Overseas Investment of SMEs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙39

Table 3-2

Key Features of JETRO’s Assistance for SME Export ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙41

Table 3-3

Overview of Export Gateway Project ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙43

Table 3-4

KOTRA’s Export Branch Office Project: The Case of Tokyo Office ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙44

Table 3-5

Key Features of MATRADE’s Assistance for SME Support ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙45

Table 3-6

Key Features of Taiwan (SMEA)’s OTOP Program ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙46

Table 3-7

Comparison of Selected Handholding Programs in East Asia ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙47

Table 4-1

Framework of Standard Export Promotion Initiatives ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙52

Table 4-2

CPA Components and Implementation Activities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙53

Table 4-3

Research Items and Indicators for In-Depth Market Research ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙62

Table 4-4

Ethiopian Uniqueness as a Focus of Country Branding ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙65

Table 5-1

Action Plans Proposed for IPA’s Capacity Building in JICA Cambodia Project ∙ ∙∙∙∙∙∙∙∙∙∙∙∙73

Table 5-2

Asian “Latest Comers” and Ethiopia at a Glance ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙78

Table 5-3

Myanmar Reform Ratings in Doing Business, Particularly in the Startinga Business Category ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙79‒ iv ‒

List of Figures
FigureFive-part Industrialization Strategy for Ethiopia ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 2

Figure 1-1

One Stop Service Center and Trouble Shooting Committee (Cambodia) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙10

Figure 1-2

Vie-Pan Model to Minimize Cost and Risk for Japanese Manufacturing SMEs ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙13

Figure 1-3

Layout of Vie-Pan Techno Park within Hiep Phuoc Industrial Park (Vietnam) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙13

Figure 1-4

Anchor Firm and its Suppliers (“Canon Effect” in Vietnam) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙15

Figure 1-5

Flowchart Approach to Industrial Cluster ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙15

Figure 2-1

Policy Framework Conducive to FDI-Local Linkage Development ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙20

Figure 2-2

FDI and Linkage Promotion System and Network in Thailand ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙26

Figure 2-3

Linkage Programs in Mozambique ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙32

Figure 3-1

JETRO Customized Assistance for Overseas Investment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙40

Figure 3-2

KOTRA’s Global Growth Ladder Support System ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙43

Figure 4-1

Brand Promise: Brand Vision + Brand System ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙54

Figure 4-2

Harris Tweed ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙54

Figure 4-3

Imabari Towel Logo ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙56

Figure 4-4

Towel Production in Imabari City ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙58

Figure 4-5

Visual Identity Toolkit ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙60

Figure 4-6

Logo Mark ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙63

Figure 4-7“Ethiopian Highland Leather” Brand Leaflet ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙63

Figure 4-8

Image Movie and Website of “Creativity in Motion” ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙65

Figure 5-1

JICA’s Major Approaches to Investment Promotion Assistance ∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙69

Figure 5-2

JICA Investment Promotion Advisors in Asia (ongoing projects) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙71

Figure 5-3

JICA Investment Promotion Advisors in Africa (ongoing projects) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙72

Figure 5-4

JICA’s Investment Promotion Support through the “Triangle of Hope” Approachin Zambia ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙74

Figure 5-5

Structure of Draft of Myanmar Long-term FDI Promotion Plan (FDIPP) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙76

Figure 5-6

Asian Latest Comers to Manufacturing Investment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙78

Figure 5-7

The CMP Process (Cutting, Making and Packing) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙80

Figure 5-8

Myanmar Industrial Development Vision (MIDV): Balanced Growth Driven by
a Virtuous Cycle between Urban and Rural Development ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙81‒v‒

Abbreviations
A.S.I.A

Alliance for Supporting Industries Association (Thailand)

ADB

Asian Development BankAEC

ASEAN Economic Community

ASEAN

Association of Southeast Asian Nations

BOI

Board of Investment (Thailand)

BSID

Bureau of Supporting Industries Development (Thailand)

BUILD

BOI Unit for Industrial Linkage Development

CEO

Chief Executive Officer

CMP

Cutting, Making and Packing

CMT

Cut, Make and Trim

COE

Center for Entrepreneurial Advice

CPC

Champion Product Approach

CPI

Investment Promotion Center

CSEZB

Cambodian Special Economic Zone Board

DICA

Directorate of Investment and Company Administration

DIP

Department of Industrial Promotion

E&E

Electrical and Electronics

EIA

Ethiopian Investment Agency

EIC

Ethiopian Investment Commission

EKI

Ethiopian Kaizen Institute

ELIA

Ethiopian Leather Industries Association

ERCA

Exporters’ Readiness and Capability Assessment (Malaysia)

FDI

Foreign Direct Investment

FDIPP

FDI Promotion PlanFeSMMIDA

Federal Small and Medium Manufacturing Industry Development Agency

FTI

Federation of Thai Industries

GCL Test

Global Competence Level Test

GIZ	Deutsche Gesellschaft für Internationale Zusammenarbeit (German Corporation for International Cooperation)
GRIPS

National Graduate Institute for Policy Studies

GSP

Global Supplier Program

GTP

Growth and Transformation PlanGTP II

Second Growth and Transformation Plan

HEPZA

Ho Chi Minh City Export Processing and Industrial Zones Authority‒ vi ‒

HIV

Human Immunodeficiency Virus

ICT

Information and Communication Technology

IEAT

Industrial Estate Authority of Thailand

IFC

International Finance Corporation

ILP

Industrial Linkage Program

IMP

Industrial Master Plan

IPA

Investment Promotion Agency

IPEME

Institute for Promotion of Small and Medium Enterprises

JBIC

Japan Bank for International Cooperation

JETRO

Japan External Trade Organization

JFW-IFF

Japan Fashion Week- International Fashion Fair

JICA

Japan International Cooperation Agency

J-SMEsThailand-Japan Business Alliance Center

JTECS

Japan-Thailand Economic Cooperation Society

JV

Joint Venture

KBC

KOTRA Business Center

KOTRA

Korean Trade-Investment Promotion Agency

Lao PDR

Lao People's Democratic Republic

LIDI

Leather Industry Development Institute

M&A

Merger and Acquisition

MATRADE

Malaysia External Trade Development Corporation

METI

Ministry of Economy, Trade and Industry

MFEZ

Multi Facility Economic Zone

MHLW

Ministry of Health, Labor and Welfare

MIC

Myanmar Investment Commission

MIDA

Malaysia Industrial Development Agency

MIDI

Metals Industry Development Institute (Ethiopia)

MIDI

Metal-working and Machinery Industries Development Institute (Malaysia)

MIDV

Myanmar Industrial Development Vision

MITI

Ministry of International Trade and Industry

MJJI

Myanmar-Japan Joint Initiative

MNCs

Multinational Corporations

MOFA

Ministry of Foreign Affairs

MOI

Ministry of Industry

MOT

Ministry of Trade

MOU

Memorandum of Understanding

MPD

Ministry of Planning and Development‒ vii ‒

MSME

Micro, Small and Medium Enterprise

NCDP

National Comprehensive Development PlanNPO

Non-profit Organization

NSU

Nämnden för Sverigefrämjande i Utlandet (Council for the Promotion of Sweden)

ODA

Official Development AssistanceOEM

Original Equipment Manufacturing (Malaysia)

OSS

One-Stop Service

OTOP

One Town One Product (Taiwan)

OVOP

One Village One Product (Japan)

PPP

Public-Private Partnership

PPSEZ

Phnom Penh Special Economic Zone

PSDC

Penang Skills Development Centre

R&D

Research and Development

RM

Ringgit Malaysia

SAGC

Swedish Arts Grants CommitteeSCORE

SME Competitiveness Rating for Enhancement (Malaysia)

SEZ

Special Economic Zone

SME

Small and Medium Enterprise

SME Corp

SME Corporation Malaysia

SMEA

Small and Medium Enterprise Administration (Taiwan)

SMEA

Small and Medium Enterprise Agency (Japan)

SMEELP

Small and Medium Enterprise Empowerment Linkage Program

SMEs

Small and Medium Enterprises

SMI

Small and Medium Industry (Malaysia)

SMIDEC

Small and Medium Industries Development Corporation

STIA

Shikoku Towel Industry Association (Japan)

TICAD V

Fifth Tokyo International Conference on African Development

TIDI

Textile Industry Development Institute (Ethiopia)

TNI

Thai-Nichi Institute of Technology

ToH

Triangle of HopeToH-SAIED

Triangle of Hope, Strategic Action Initiative for Economic Development

TPA

Technology Promotion Association

UNIDO

United Nations Industrial Development Organization

VDP

Vender Development Program

ZDA

Zambia Development Agency

ZIPP-ToH

Zambia Investment Promotion Project-Triangle of Hope‒ viii ‒Introduction

Introduction

This report compiles concrete cases of key industrial policy measures implemented in selected Asianand African countries including good practices and lessons learned, and suggests ways how Ethiopia could
implement these measures during the period of the Second Growth and Transformation Plan (GTP II:
2015/16-2019/20). The report provides case studies of five policy measures: industrial parks and onestop service (Chapter 1), industrial linkage development between foreign direct investment (FDI) andlocal firms (Chapter 2), handholding for enterprise capacity building (Chapter 3), the champion productapproach and country branding (Chapter 4), and investment promotion experiences of Asian latest comers
and the Japan International Cooperation Agency (JICA) (Chapter 5).
The Ethiopian government adopted GTP II in December 2015. GTP II covers the first five years of
the long-term strategy leading up to 2025 when Ethiopia is determined to become a (lower) middle income
country. A notable feature of GTP II is the Manufacturing Vision which states that by 2025 the country will
become “a leader in light manufacturing in Africa and one of the leaders in overall manufacturing globally.” This is a strong national resolve to become an industrialized economy based on the robust growth oflight manufacturing in which Ethiopia has comparative advantage. GTP II also places strong emphasis onenhancing quality, productivity and competitiveness, promoting domestic private sector development, andstrengthening industrial human resource development.
We welcome this strategic direction and have proposed the five-part industrialization strategy to thegovernment as a referential policy framework, at various occasions during the second phase of Ethiopia-Japan Industrial Policy Dialogue. The five-part industrialization strategy consists of: (i) strategic FDI attraction; (ii) enterprise capacity building; (iii) FDI-local firm linkage; (iv) efficient logistics; and (v) industrial
human resources (see Figure next page).
Over the past decade, the Ethiopian government has made serious efforts to promote industrial development and introduced a number of policy and institutional reforms. These include: organizing the
National Export Steering Committee (monthly) and embarking on Economic and Business Diplomacy,
establishing and strengthening industry-specific institutes (such as the Textile Industry Development Institute (TIDI), the Leather Industry Development Institute (LIDI), the Metal Industry Development Institute(MIDI), the Ethiopian Kaizen Institute (EKI)), enhancing the policy framework and institutions for FDI
promotion and industrial park development (such as the Ethiopian Investment Commission (EIC) and theIndustrial Development Parks Corporation (IPDC)), and introducing kaizen and its scaling up to national
movement (supported by JICA), among others. Nevertheless, these are only a part of the entire spectrumof industrial policy, and continuous efforts are needed by the government to strengthen its industrial policy
capability.
The examples contained in this report are those which we discussed extensively with the Ethiopi‒1‒

an authorities during eight series of Ethiopia-Japan Industrial Policy Dialogue (Phase II) and which westrongly recommend the Ethiopian government to implement during the GTP II period, in order to realize
the Manufacturing Vision. The authors of the five chapters of the report are the members of the JICA andthe National Graduate Institute for Policy Studies (GRIPS) team, who participated in the Ethiopia-Japan
Industrial Policy Dialogue (Phase II).

Figure: Five-part Industrialization Strategy for Ethiopia

ManufacturingvisionManufacturing
targets for2019 / 20

Becoming a leader in light manufacturing in Africa and oneof the leaders in overall manufacturing globally– GDP share of 8%– Employment of 758,000– Export share of 25.6%– Quality industrial HR– One or two industrial champion products with high VA

Policy areas (for FDI-linked technology transger):
1. Targeted attractionof FDI & foreign buyers

2. Local enterprise
capacity building– General improvement ofbusiness climate
3. Linkage policy– Good industrial parks– Effective networking– Improve one-stop service &of linkage organizations
follow-up support– Incentives & policy– Strategic marketing: bringsupport for linkage
manuf. FDI from Asia & West
– Matching with buyers,– Hard & soft infrastructure
OEM & JV partners– Reform laws & improve EIC,
ERCA, IPDC, Export Agency... – Handholding for linkage– Management & marketing– Productivity through kaizen,
benchmarking, etc.
– Export promotion (incl.
champion products)– Champion companies– Sector-speciﬁc technology– Enhancing TIDI, LIDI, EKI...
– SME ﬁnance

Policy areas (cross-cutting):
4. Efﬁcient Logistics– Transport infra. &system– Fast & reliable
customs clearance

5. Industrial HR– Mindset chance– Effective training– Univ. & TVET withindustry linkage

Notes: 1) Red-colored measures correspond to those included in the five chapters of this report.
2) For details of the five-part industrialization strategy, please see JICA and GRIPS (2016), Ch.2.
Source: JICA and GRIPS (2016), Main Report of the Study on Industrial Policy Dialogue in the Federal Democratic Republicof Ethiopia (Phase II), Figure 2-1.

It is our belief that low income countries should build up policy expertise by carefully and competently executing a small number of policy measures because the real challenge lies in detailed design andimplementation of each selected measures. We hope that the report will serve as a useful reference for
the Ethiopian government and more broadly, for any governments in developing countries serious aboutindustrial development, to learn good practices and pitfalls of selected policy measures.
‒2‒Introduction

This report is one of the outputs of the Ethiopia-Japan Industrial Policy Dialogue (Phase II), which
took place from January 2012 to July 2016, supported by JICA and with the participation of researchersof GRIPS Development Forum. Those interested in the issues discussed at a series of bilateral policy dialogues are encouraged to read a separate report, Main Report of the Study on Industrial Policy Dialogue
in the Federal Democratic Republic of Ethopia (Phase II) (2016). In addition, the GRIPS team conductedseven policy research missions to third countries during the Phase II period (India, Mauritius, Malaysia,
Indonesia, Rwanda, Thailand, and Cambodia), commissioned by JICA.
Lastly, we would like to express our deep appreciation to the Ethiopian government including thePrime Minister’s Office, the Ministry of Industry, the National Planning Commission, the Ethiopian Investment Commission, and the Ethiopian Development Research Institute, among others, for their serious
and dedicated policy engagement and collaboration extended to the JICA and GRIPS team.
Tokyo, August 2016
Japan International Cooperation Agency
GRIPS Development Forum‒3‒

Chapter 1 Industrial Parks and One-Stop Service

Industrial parks can serve as a valuable instrument for attracting foreign direct investment (FDI) andaccelerate regional and national economic development, in the context of an overall industrial policy. In adeveloping country, they provide an institutional framework, modern administrative services and a physical infrastructure that may not be available elsewhere in the country (UNIDO 2012). However, simply
designating plots of land and announcing priority sectors and incentives is far from sufficient to ensure thesuccessful execution of industrial parks. Empty or poorly-run industrial parks abound in the world.
Moreover, Japanese companies are extremely cautious about new overseas investments comparedto others (Chinese, Indian, Turkish, Korean investors, etc.) and demand high-quality infrastructure andservices for their business operations. Especially, Japanese small and medium sized-enterprises (SMEs)
are severely constrained with capital and managerial resources, while they possess excellent technology
and manufacturing skills. They would take phased approach to overseas business expansion to minimize
costs and risks.1 Therefore, if the Ethiopian government wishes to attract Japanese investors, it is vitally
important to carefully plan, design and efficiently operate industrial parks with sufficient understanding of
the mindset of Japanese companies.
This chapter provides key ingredients for successful industrial parks in Asia, in terms of attracting
Japanese investors (both large corporations and SMEs). It covers such issues as: (i) area development andmanagement; (ii) infrastructure and location; (iii) one-stop investor service; (iv) additional support forJapanese manufacturing SMEs; and (v) marketing and promotion. Specific references will be made to theexperiences of selected industrial parks in Thailand, Vietnam, Cambodia, and (to a limited degree) India,
and implications for Ethiopia will be discussed.
1-1. Area Development and Management
There are various models of development and management of industrial parks, with a different degreeof private sector involvement. One model is that the public sector (central or local government or a specialized agency) assumes full responsibility for development and operation, as well as regulation of industrial
parks. The other model is that the private sector (local, foreign, or joint venture) develops and operates
industrial parks, and the public authority only regulates activities within the confines of the parks. There isalso a public-private partnership (PPP) model as an intermediate option for the above two.
1

Such characteristics are largely due to the Japanese business model, which is strongly manufacturing-oriented and demands
high standards of quality control from every partner at every stage of the process. Japanese companies thoroughly examine thepotential risks associated with their investments. Once a company decides to invest abroad, however, it will remain committed
for the long term and will endeavor to sustain its business operations in the target country. Japanese companies make extensive
efforts to develop local supporting industries, train industrial human resources and transfer technology to their local counterparts.

‒5‒

Japanese industrial park developers typically form a joint venture (JV) consisting of a Japanese trading company (often a majority share in a JV), a construction firm (the builder of the industrial park), and/or a manufacturer. Such joint ventures can be purely private sector alliances or can be based on the PPP
model. Japanese industrial park developers may provide marketing and management services directly tothe tenant firms, or may outsource such services to specialized firms and/or consultants. Likewise, manyindustrial parks in East Asia (e.g., those in Thailand, Vietnam, and Cambodia) are developed and managed
by private companies or as a PPP on a cost-recovery basis. This is because industrial parks incur a large
public expenditure for infrastructure development and operation and also because it is often difficult to
recruit staff with sufficient skills and experience to meet the increasingly sophisticated demands of tenantfirms. If there are no complicated issues that require direct handling by the government, the private sector assumes a main role in industrial park development. For example, in Thailand, the Industrial Estate
Authority of Thailand (IEAT) under the Ministry of Industry (MOI) centrally manages and monitors allindustrial estates. However, the majority of industrial parks are either: (i) developed by private developers
and operated jointly with IEAT; or (ii) developed, owned, operated by the private sector.2
Nevertheless, there are cases where the host government develops, owns and operates an industrial
park. For example, in India, industrial parks are mostly developed by local government (typically, theIndustrial Development Corporation)3 since the inadequate land registration system forces developers togo through lengthy negotiations with land owners to secure industrial land. Moreover, the complexity of
local government procedures makes it difficult for developers to obtain factory construction licenses. For
that reason, Japanese developers hesitate to participate in the development and management of industrial
parks in India. To alleviate those difficulties, the Japan External Trade Organization (JETRO) concludes
Memoranda of Understanding (MOU) with selected local governments and assists Japanese companies insetting up factories in industrial parks by providing information and support for negotiations with local
governments.4 It should be noted that in India, unlike East Asia, it is difficult to secure the services of Japanese-speaking persons, who can provide customer service in Japanese.
In sum, country circumstances differ, and there is no one-size-fits all industrial park model. Table 1-1
shows examples of industrial parks in Thailand, Vietnam, Cambodia, and India, with different development and management models.

2

3
4

As of 2012, there were a total of 62 industrial estates in Thailand: (i) 11 operated and owned by IEAT; (ii) 37 privately developed and built, and jointly operated by a private developer and IEAT; and (iii) 14 privately built, owned, and operated.
India-related information is based on Igari (2015).
India is the only country where JETRO provides full investor services to both pre- and post- investment in place of private developers. In East Asia, JETRO’s role is to provide general information and facilitate FDI in the initial stages. In India, JETRO
has so far concluded MOUs with local government entities in three statess: (i) Rajasthan State Industrial Development andInvestment Corporation (2006), (ii) Gujarat Industrial Development Corporation, Gujarat Infrastructure Development Board
and INDEXT-B (2011), and (iii) Maharashtra Industrial Development Corporation (2013).

‒6‒

Chapter 1: Industrial Parks and One-Stop Service

Table 1-1: Different Models of Industrial Parks in Asia
Name
Amata Nakorn
Industrial Estate(Thailnad, Chonburi,
Eastern Seaboard)

Developer
Public (IEAT) andlocal private (Amata
Corporation)

Management Service
Marketing
The developer,
One stop services
with the support ofprovided jointly by
Japanese trading
the developer andcompanies (Itochu,
IEAT
Sumitomo, etc.) and• Specialized
services for SMEs Ota-city, actively
engage in marketing(rental factories)and sales.
also available,
supported by
Japanese local
govt. (Ota-city/
Tokyo)The developer
One stop services
Foreign private JV :Long Duc Industrial(esp. Sojitz) actively
Long Duc Investment provided by theParkengage in marketing
Co. Ltd. (Japan 88%, developer(Vietnam , Don Nai
and sales.
• Specialized
Province near Ho Chi VN 12%)
Kansai METI’s pilot
services for SME• Sojitz, Daiwa
Minh City)
project for SME(rental factories),
House, KOBELCO
investors.
provided byexperienced
Japanese SME
Japanese consultant
Local private (VID
One stop services
Dong Van Industrial(BTD Japan) actively
Group)
provided jointly byPark II
engage in marketingthe developer and(Vietnam , Ha Nam
Japanese consultant and sales, working
Province near Hanoi)
closely with Ha Nam• Specialized
province.
services for SME(JASMEC ) alsoavailable
Japan (private)Vietnam (public) JV:
Vie-Pan Techno Park
Co. Ltd. (Japan 55%,
VN 45%).
• Hiep Phuoc IZ(HCMC-owned)• Unika, Seibu
Shinkin (with JBIC
co-financing), etc.
Phnom Penh Special Japan (private)Cambodia (private)
Economic Zone
JV: Phnom Penh
(Cambodia, Phnom
SEZ Co. Ltd. (Camb.
Penh)
78%, Japan 22%)
• LCH Investment
Group (founder of
PPSEZ)• Zephyr, Co. Ltd.
(Japan)Vie-Pan Techno Park
(Vietnam, Ho Chi
Minh City)
Exclusively for small
rental factories forJapanese SMEs

Neemrana Industrial
Area(India, RajasthanState)

Local govt.
(public) RajasthanState Industrial
Development
Investmetn
Corporation, Ltd.
(RIICO)The developer (esp.
One stop services
specialized for SMEs, Unika Holdings)
actively engaged inprovided by themarketing and sales,developer
working closely with
HCMC.

The developer (esp.
One Stop Service
Zephyr / JapaneseCenter (OSSC)CEO) actively
managed jointly
engaged in marketingby the developer(Japanese CEO) and and sales.
the Cambodian SEZ
Administration.
• Cambodian SEZ
A dministration
places the staff
of relevant govt.
agencies to PPSEZ.
JETRO engage in
JETRO concludes
MOU with RIICO and marketing and sales,
provides full advisory working closely withRIICO.
and consultative
services to Japanesecompanies.
RIICO also set up
Japan Desk.

Rental Factories
Designated area for• Rental factories(standard design
factories)• Rental factories
for JapaneseSMEs (one-floor
partitioned type)Desingated area
for rental factories
for Japanese SMEs
(one-floor partitioned
type)

Desingated areafor Japanese SMEs
(JASMEC ):• Rental factories(one-floor
partitioned and/or
separate type)• Standard design
factory can be alsobuilt
All are rental factories
for Japanese SMEs
(one-floor partitioned
type)

N.A.

N.A.

Source: The author’s research, based on information provided by the listed industrial parks. India-related information isbased on Igari (2015).

‒7‒

1-2. Location and Infrastructure
Location must be well chosen. The key determinants of a successful industrial park—from the Japanese investor perspective—are the availability of human resources, logistics and transportation, as well as
the business and living environment. Industrial parks need to be easily accessible to a port and an international airport by road and/or railway, as well as the urban center. Japanese business persons prefer living
in large cities (within a maximum one hour commuting distance).
Industrial parks must have a good physical infrastructure, including transport, power, water, waste
water and solid waste treatment, and internet. Especially, a stable and uninterrupted power supply should
be guaranteed in all industrial parks, by prioritized power supply arrangement, multiple power sources, andother means. In case a blackout is inevitable, it should be well planned, as short as possible, and announced
to all producers far in advance. Sudden and unannounced power stoppages are unacceptable. Table 1-2
shows the efforts made by selected industrial parks to provide high-quality infrastructure services (especially, power supply).
Table 1-2: Power Supply in Selected Industrial Parks
Long Duc Industrial Park (Dong Nai Province, southern Vietnam)•  Developed by JV of Japanese companies and a Vietnamese company, and managed by a Japanese trading company, Sojitz (a majority shareholder of JV).
•  Vietnamese engineers are on duty for 24 hours per day. Any problems in power, water, waste treatment,
etc. will be attended immediately.
•  Especially on power supply, Long Duc Industrial Park has special arrangement with EVN (state-owned
power company). EVN supplies 110MVA to this industrial park via two exclusive lines. The developer has
contracts with tenants for power supply.
Dong Van II Industrial Park (Ha Nam Province, northern Vietnam)•  Developed and managed by a Vietnamese private company (VID Group), with advisory and marketing
services provided by a Japanese business consultant (BTD).
•  The provincial authority has strong commitment to the provision of quality infrastructure and services
to Japanese tenants. Top leadership announces and promises “10 Pledges of Ha Nam Province” on thebusiness environment, which includes “sufficient and stable power supply (24 hours), “hotline to Japan
Desk for any troubles.”Phnom Penh Industrial Park (Phom Penh , Cambodia)•  Developed and managed jointly by JV of a Cambodian private company (a majority share) and a Japanesecompany (Zephyr).
•  There are electricity and security hotlines for 24 hours. To cope with emergency, a modern, power plantis installed on site and staffed (24 hours per day, 7 days per week) to back up the main power supply.
Source: The author’s research, based on information provided by respective industrial parks.

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Chapter 1: Industrial Parks and One-Stop Service

With regard to the living conditions, ideally industrial parks should be equipped with such amenities as housing (including dormitories for workers and apartments for foreigners), clinics, schools, banks,
shops, and even Japanese restaurants (or a canteen offering Japanese food). Some industrial parks in East
Asia (especially those built by Japanese developers) even have golf courses.
Furthermore, Japanese companies carefully examine elevation, flood risk and ground firmness forheavy equipment (where relevant).
1-3. One-Stop Investor Service
An industrial park should have a management center that offers investors efficient one-stop service
and various business services and support. Services should cover:
1. Factory construction and initial operation
2.	Operational support (e.g., logistics, customs, recruiting, banking, courier service, security guards,
fire brigade)3. Quick and effective trouble-shooting (24 hours/365 day)
4.	Exchange and dissemination of information on new laws, wage levels and other common issues
for tenant firms (usually in the form of monthly meetings)
Regarding operational support, officials of the relevant ministries and agencies should be assigned toprovide one-stop service on site. This includes a bonded area within the industrial park where an on-site
customs officer can handle all customs procedures. Regarding information exchange and dissemination,
the management center should organize regular meetings for tenants for: (i) sharing information on new
or revised laws/regulations, wage levels, and any other issues affecting business environment; and (ii)announcing and coordinating the infrastructure maintenance schedule. Some Japanese industrial parks
conduct annual surveys on planned salary levels of national staff at major tenant firms, following thegovernment’s announcement of minimum wages for the subsequent year. They share (anonymous) survey
results and coordinate meetings for major tenants to discuss salary issues.
A useful example in this regard is the Phnom Penh Special Economic Zone (SEZ) in Cambodia. The
Cambodian SEZ Board (CSEZB) provides a One-Stop Service Center in each SEZ, staffed with officials
from the relevant ministries and agencies. In the case of the Phnom Penh SEZ, the Deputy Secretary General of the CSEZB serves as the head of the One-Stop Service Center (not all SEZs have full support likethis). In addition, the SEZ Trouble Shooting Committee chaired by the Prime Minister promptly settles
issues that arise in SEZs (Figure 1-1).
For Japanese investors, additional management support should be provided by a Japanese staff orsomeone who clearly understands Japanese business mindset and speaks fluent Japanese. Table 1-3 showsa list of typical customer services for Japanese investors.
‒9‒

Figure 1-1: One Stop Service Center and Trouble Shooting Committee (Cambodia)

Council for the Development of Cambodia (CDC)(Chaired by Prime Minister H.E. Hun Sen)
CDC functions consist of ODA management (Cambodia Reconstruction and Development
Board: CRDB), FDI administration (Cambodia Investment Board: CIB), both of which were
established in 1994, and SEZ management (Cambodian SEZ Board), which was more
recently established in 2005.

Cambodian SEZ Board (CSEZB)SEZ Trouble Shooting
Committee(Chaired by PM Hun Sen)

The SEZ Administration
One Stop Service Center (OSSC)
Deputy SG of CSEZB is directly responsible for OSSC.

[ Deputy SG of CSEZB serves as headof OSS of PPSEZ.

SEZ 1
OSS 1

SEZ 2
OSS 2

SEZ 3
OSS 3

[ OSS is staffed with the ofﬁcials of
CDC, General Dept. of Customs &Excise, Ministry of Commerce,
Ministry of Labor, Cam Control.

Source: The author’s research, based on information provided by Phnom Penh SEZ.

Table 1-3: A List of Customer Service for Japanese Investors
Before moving in•  Prepare documents for corporate registration on its behalf.
•  Obtain company seal and tax codes.
•  Assist conducting Environmental Impact Assessment.
•  Advise on obtaining visas, work permits for Japanese.
•  Introduce real estate agent.
•  Introduce accounting firms, law firms, etc.
•  Assist local staff recruitment.
•  Provide support to any issues whenever possible.
After moving in•  Professional management by Japanese staff always on site.
•  Stable supply of power and water, operations of a wastewater treatment system around the clock.
•  Staff recruitment center (located within the industrial park).
•  Provide and coordinate various services (IT, logistics, lunch box delivery & catering, etc.)•  Exchange and share latest information on new laws and regulations, staff wage, coping with labor disputes, tax issues personal income tax, etc.)•  Organize social gathering, parties, golf competition, etc.
Source: The author’s research, based on the brochure of Long Duc Industrial Park.

‒ 10 ‒

Chapter 1: Industrial Parks and One-Stop Service

In Vietnam’s Ha Nam Province, the provincial leadership is keen to attract quality investment, especially from Japan, and is strongly committed to the provision of good off-park infrastructure and services
for Japanese investors. The governor has announced “10 Pledges of Ha Nam Province” and instructed all
relevant departments to work hard toward its goals (Table 1-4). Such commitment and effort are highly
appreciated by Japanese investors. As for trouble-shooting, there is a hotline to Japan Desk directly linked
to the provincial top leader. For any trouble, Japanese tenant firms of Dong Van II Industrial Park or otherareas can communicate with the Japan Desk staffed with a Japanese-speaking official and a few Japaneseadvisors (housed in the Department of International Relations of the Provincial Peoples Committee). If
serious problems occur, the top provincial leader will take immediate action.
Table 1-4: 10 Pledges of Ha Nam Province to Japanese Investors (Vietnam)
WE GURANTEE:
1.  Sufficient and stable power supply (24 hours).
2.  Good infrastructure (water, sewerage, internet, banks, etc.).
3.  Free provision of land to be used for dormitories for workers (outside the industrial park).
4.  Efficient administrative procedures (investment license to be approved in a few days).
5.  Sufficient labor supply, developing a university town (1,000 ha secured for universities relocating from
Hanoi).
6.  Facilitating procedures for setting up and operating companies, tax incentives, and subsidies for training Vietnamese staff.
7.  Public security and safety for companies.
8.  Flexible administrative response to accommodate unanticipated changes in investors’ business plans.
9.  Prevention of strikes (local and foreign companies).
10.  Hotline to Japan Desk for any troubles (by assigning Japanese-speaking staff).
Source: The author’s research, based on information provided by the People’s Committee of Ha Nam Province.

1-4. Additional Support for Japanese SMEs
The above applies to all Japanese firms, but Japanese SMEs need special attention. Japanese SMEs
have limited overseas experiences and face severe obstacles, including lack of managerial, administrativeand marketing capability. As a result, they try to minimize initial costs and risks, and only gradually scaleup their operations. Typical options preferred by Japanese manufacturing SMEs include the following:
1.	OEM (Original Equipment Manufacturing)—contracting out manufacturing of products bearing your brand name to a local company (no need to invest or build a factory)
2.	Line Gari (Rent a Line)—creating a production line in a local partner’s factory space with theJapanese firm providing expertise, technology, equipment, and quality control (very small investment required)
3. License manufacturing (involves some contract risk)
4.	Rental factories—small size to start with (e.g., 250m2, 500m2, 1,000m2); if successful, the investor moves out and builds its own factory.
‒ 11 ‒

5.	Collective FDI—a number of Japanese SMEs invest as a group in one area and share space, costs,
information, business services, etc. (while coordination may be difficult, some groups have overcome this problem.)
6.	Nokisaki—renting a small unused factory space from another Japanese FDI firm. However, thisis possible only when local laws permit FDI firms to sublease unused space (some authorities consider it as “service” provision not permitted under a manufacturing license.)
7. Joint venture with a local company (involves some partner risk)
8. M&A (Merger and Acquisition)—purchasing an existing local firm and/or factory
Recently, an increasing number of industrial parks in Vietnam and Thailand offer small-sized rental
factories and other renting options to Japanese manufacturing SMEs. This responds to the key needs ofJapanese SMEs to: (i) minimize initial investment (especially in buildings and equipment); (ii) minimize
risk of failure; and thereby (iii) surely increase the chance of business success. Moreover, these parks often
provide additional management support (fee-based) so that Japanese manufacturing SMEs could concentrate on production, relieved from day-to-day administrative burden (“plug and play” industrial parks).
The support for SMEs is broader in scope and provides more pampering than for larger firms—anythingfrom business matters to personal problems such as health, cable TV setup and house repair. Sometimes
support even extends to marketing, i.e., help in finding Japanese, local, or non-Japanese customers in new
territory.5
Vie-Pan Techno Park, located in Ho Chi Minh City of Vietnam, is a good example of a “plug andplay” industrial park devoted exclusively to Japanese manufacturing SMEs. It provides small-sized rental
factories and special management support (Figures 1-2 & 1-3, Table 1-5). Vie-Pan Techno Park is built
and managed by a JV of Japanese private firms (UNIKA Vietnam and a few others), a Japanese financial
institution, and Hiep Phuoc Industrial Park under Ho Chi Minh City Export Processing and Industrial
Zones Authority (HEPZA). UNIKA is a Japanese SME manufacturing electric cutting tools. The company
started operations in Vietnam in 1996—initially in the form of collective FDI (sharing space and businessservices)—and successfully expanded its business. This experience attracted the interest of Ho Chi Minh
City, and the local authority invited UNIKA to form JV (Vie-Pan Techno Park) by making available 13haout of the total land of 2,000ha of Hiep Phuoc Industrial Park under HEPZA. In the first phase, 3ha wasused for building small-sized rental factories (250m2, 500m2, 1,000m2). Tenant firms can use management
support services (with additional charges) and make sublease or manufacturing contract with Vie-Pan
Techno Park. In the case of a manufacturing contract, the tenant does not need to formally establish acompany in Vietnam.
5

It should be noted that for industrial park operators, the provision of small rental space and intensive support dedicated to Japanese SMEs is not commercially viable. But they still do it because: (i) the existence of skilled SMEs adds to the attractivenessof the industrial park; (ii) they want to support the government’s policy to attract supporting industries; and (iii) they simply
want to help others (no monetary gain is expected).

‒ 12 ‒

Chapter 1: Industrial Parks and One-Stop Service

Figure 1-2: Vie-Pan Model to Minimize Cost and Risk for Japanese Manufacturing SMEs

Japanest SMEs with on
overseas experience

Special support &subleasing company(UNIKA + local authority)
Ho Chi Minh City
government

Vie-PanTechno Park

Hiep Phuoc
Industrial Park
Other tenant
Sublease or
manufacturingcontract with Vie-Pan;no need to formallyestablish a company inVietnam

Other tenant

Land lease
contract       Source: The author’s research, based on information provided by Vie-Pan Techno Park.

Figure 1-3: Layout of Vie-Pan Techno Park within Hiep Phuoc Industrial Park (Vietnam)

Source: Based on Vie-Pan Techno Park brochure.

‒ 13 ‒

Table 1-5: Additional Management Support for Japanese SMEs (Vietnam)
Special Support for Japanese Manufacturing SMEs
•  Obtain work permit for Japanese staff.
•  Recruit Vietnamese staff (managers, interpreters, engineers, workers, etc.) and provide training.
•  Undertake all kinds of administrative work and procedures (labor management, general affairs, accounting, salary calculation, social welfare and benefits, etc.)•  Provide common office space for administrative work and meetings.
•  Undertake import and export procedures.
•  Purchase raw materials.
•  Transport manufactured products and raw materials.
•  Deliver lunch for Vietnamese and Japanese staff.
•  Transport JaPanese staff.
•  Introduce rental apartments, etc.
Source: Based on the information provided by Vie-Pan Techno Park and The Support, a company housed in Long Duc
Industrial Park.

1-5. Marketing and Promotion
To attract Japanese investors, it is desirable to have Japanese marketing staff in the industrial park
management. Greater effort should be made for strategic FDI attraction, rather than general advertisement
and seminars. The Japanese staff should assist in the formulation of marketing strategies and the organization of promotional events, both locally and in Japan.
More specifically, an industrial park should target an anchor firm to create industrial agglomeration
via supply chain. For example, Canon (a large Japanese electronics company) established a printer factoryin Thang Long Industrial Park (northern Vietnam, developed by Sumitomo) in April 2001 and started operation in May 2002. Immediately, seventeen companies moved into Thang Long Industrial Park during
2001-02 to provide parts to Canon (Kuchiki 2009). This phenomenon is called the Canon effect in Vietnam(Figure 1-4).6 A decision by Honda to locate its third factory in Vietnam at Dong Van II Industrial Parkin Ha Nam Province has also stimulated many Japanese companies to come. Similarly, in Cambodia, thepresence of Minebea (small motors and liquid-crystal display backlight panels) prompted other Japanesecompanies to join.
Based on his flowchart approach (Figure 1-5), Kuchiki (2007) stresses the importance of creating
agglomeration as the first step, through the establishment of an industrial park with essential services andsupport and inviting an anchor firm. This should be followed by the second step, innovation, in which tripartite cooperation among industry, government, and universities and research institutions generates highvalue.

6

This is called the Queen Bee effect in Singapore.

‒ 14 ‒

Chapter 1: Industrial Parks and One-Stop Service

Figure 1-4: Anchor Firm and its Suppliers (“Canon Effect” in Vietnam)
SANTOMAS(Plastic products)(Thang Long)ABE AsianTech(Users’ manual)(Thang Long)

Volex(Power code)(Thang Long)

Sumi-Hanel(Writing system)(Saidon B)

Japanese HDQThailand Subsidiary

Inabata Sangyo(Plastic products)(Nomura-Haiphong)Parker Processing(Surface treatment)(Thang Long)

Canon (printer)(Thang Long)

Fuji Mold(Plastic molds)(Nomura-Haiphong)Dragon Logistics(Transportation)(Thang Long)

Nippo Mechatronics(Plastic molds)(Noi Bai)

Source: Kuchiki (2009), p.35

Figure 1-5: Flowchart Approach to Industrial Cluster
Step I:(a)
Agglomeration(b)

Industrial Zone
Capacity building (I)
1. Infrastructure
2. Institutions
3. Human resources
4. Living conditions

Step II:
Innovation(c)Anchor firm(d)Related firms(a)Universities / Research institutes(b)Capacity building (II)
1. Infrastructure
2. Institutions
3. Human resources
4. Living conditions(c)Anchor persons
Cluster

Source: Kuchiki (2007) p.47

‒ 15 ‒

There is always a trade-off between cost and quality in establishing industrial parks. While industrial
parks built and managed by Japanese developers provide guaranteed high-quality infrastructure and services, they tend to be more expensive than those built by local developers. Some SMEs cannot afford expensive industrial parks and may choose locally built ones. Table 1-6 shows the comparison of costs, fees
and lease terms of selected industrial parks (both rental factories for SMEs and general industrial parks).
Dong Van II Industrial Park and Phnom Penh SEZ (PPSEZ) were mainly built by local private developers
and offer relatively inexpensive options among the parks listed.
It should be also noted that even in East Asia, it takes several years or more to completely sell or rentout the industrial park area. For example, Nomura Haiphong Industrial Park, the first foreign industrial
park in northern Vietnam, jointly developed by a Japanese company and the local authority (approvedin 1994), became operational in 1997. However, it took more than 10 years for the park to become fully
occupied. This was due partly to bad luck (an economic slowdown resulting from the 1997 Asian financial
crisis), but also to investor preference at that time for southern Vietnam which had advantages in businessconditions, location and infrastructure.
Table 1-6: Costs, Fees and Lease Terms of Selected Industrial Parks
Name

Space

Fees and Terms

Management Fees

Amata Nakorn Industrial Estate(Thailnad, Chonburi,
Eastern Seaboard)

64,000 baht/m onth (about 33,600 baht/m onth (about
OTA Techno Park: Unit:
1,120 USD ) per unit=3.5
320m2 (one-floor partitioned 1,920 USD ) per unit = 6
type)
USD/m2/month; 3 years
USD/m2/month (including(renewable)various mgt. support)
900 baht/rai/month=0.017
General industrial zone
7 million baht/rai=131.25
USD/m2/month
USD/m20.15 USD/m2/month AddiLong Duc Industrial
5.5-5.9 USD/m2/month 5
Rental factory for J-SMEs
tional mgt. support can be
Park
Unit: 512m2, 768m2, 960m2, years (renewable)
1,024m2 (one-floor partiprovided by The Support(Vietnam , Don Nai(fee-based).
Province near Ho Chi tioned type)
Minh City)
General industrial zone
Land lease fees: 90 USD/m2
N.A.
(~2057)
0.5 USD/m2/month AddiDong Van Industrial
4 USD/m2/month; 10 years
Rental factory for J-SMEs
tional mgt. support can be
Park II
Unit: 250-500m2 (apartment (renewable)type); 1,000-2,000m2
provided (fee-based).
(Vietnam , Ha Nam(separate type)
Province near Hanoi)
General industrial zone
Land lease fees: 58-75 USD/ 0.25 USD/m2/year
m2 (~2056)
5 USD/m2/month; 5 years
3-5 USD/m2/month (includVie-Pan Techno Park
Rental factory for J-SMEs
2
2
2
ing various mgt. support)(Vietnam, Ho Chi Minh Unit: 250m , 500m , 1,000m (renewable)(one-floor partitioned type)City)
Infrastructure O & M
Hiep Phuoc Industrial General industrial zone
Land lease fees: 90-95
0.64 USD/m2/year
Park
USD/m2 (~2058)
Phnom Penh SEZ
General industrial zone
Land lease fees: 70 USD/m2, Infrastructure O & M
50 years (renew able) Rental 0.06 USD/m2/month(Cambodia, Phnom
factory fees: 2.5 USD/m2/
Penh)month (+tax)
Note: Regarding Amata Nakorn IE, fees (USD) are calculated at the exchange rate of September 2013. 1rai = 1,600m2.
The information on PPSEZ is as of March 2015.
Source: The author’s research, based on information provided by industrial zones during 2012-2014.

‒ 16 ‒

Chapter 1: Industrial Parks and One-Stop Service

1-6. Implications for Ethiopia
To attract Japanese investors, an industrial park must be carefully planned, designed and operated,with due consideration to Japanese business mindset and manufacturing styles. Location, layout, infrastructure, and customer services are particularly important. Availability of double-subleasing and “nokisaki” further facilitate Japanese manufacturing FDI, especially SMEs.
As a first step, the Ethiopian government should consider establishing a Japanese area within one ofthe planned industrial parks near Addis Ababa. This can be a small area of about 10-15ha, to be developed
in stages. The exact location, size and timing of such an area should be discussed carefully with reference
to government policy, expert opinions and the needs of potential Japanese investors.
Next, a detailed design of the Japanese area should be produced by a Japanese designer or designing
firm. The Japanese side may also make suggestions concerning the design of the industrial park itself or
infrastructure outside it, which should be deliberated by the Ethiopian government based on feasibility anddesirability. FDI marketing and support service for Japanese investors in the designated area should be
conducted by a Japanese individual or a Japanese firm.
Because there are various development and management options for industrial parks, the Ethiopian
government may wish to consider the possibility of: (i) a Japanese area developed by the Ethiopian government with service contracts with a Japanese firm for detailed design as well as for investor services; (ii)
JV between the government and a Japanese firm, with the two sharing the hardware cost while the Japanese
firm being responsible for design and service; (iii) development and management by a private Japanesedeveloper or a group of Japanese firms, if such a developer or group emerges; or (iv) any other arrangementthat simultaneously achieves cost sharing and Japanese design and service.
It is also important that Japanese public support, through the Ministry of Foreign Affairs, the Ministryof Economy, Trade and Industry, JETRO, Japan International Cooperation Agency (JICA), etc., is provided for some of the necessary hard and soft components in and around the Japanese FDI area.
Regardless of the options above, once the Japanese area has been established, it is vitally importantthat the management and operation of the area be assisted by a Japanese expert who has hands-on experience operating industrial parks in Asia and elsewhere. The expert should provide support services to tenantfirms, offer advice on legal procedures and the business environment, and familiarize the Ethiopian staff
with the Japanese business mindset.
Izumi Ohno (GRIPS)‒ 17 ‒

References
Igari, Katsuro (2015). Industrial Zone Development: Key Issues from the Experiences of Japanese Industrial Zone in India. Presented at the 7th High Level Forum for the Phase II of Industrial Policy
Dialogue in Ethiopia , Addis Ababa, January 14, 2015.
Kuchiki, Akifumi (2007). Ajia sangyo kurasuta ron: furochato apurochi no kanosei [Industrial Clusters
in Asia: The Possibility of the Flowchart Approach]. Tokyo: Shoseki Kobo Hayama (in Japanese).
Kuchiki, Akifumi (2009). Lessons from Asian Experiences of Industrial Agglomeration and Trade. Presented at the Initiative for Policy Dialogue (IPD) Africa Task Force meeting, Pretoria, South Africa,
July 10, 2009.
Ohno, Izumi and Kenichi Ohno (2015). Industrial Zone Development: Key Issues from the Experiencesof Japanese Industrial Zone Developers in Vietnam & Thailand. Presented at the 7th High Level
Forum for the Phase II of Industrial Policy Dialogue in Ethiopia, Addis Ababa, January 14, 2015.
United Nations Industrial Development Organization (UNIDO) (2012). Europe and Central Asia Regional Conference on Industrial Parks: as a Tool to Foster Local Industrial Development. Conference
Report. Baku, Azerbaijan, April 17-18, 2012.

‒ 18 ‒

Chapter 2 Creating Industrial Linkage between FDI and Local Firms

Forging industrial linkages between foreign direct investment (FDI) and domestic firms is one of themost effective ways of upgrading local firms in developing countries (UNCTAD 2010). Theoretically,
foreign firms or multinational corporations (MNCs) can bring various benefits to the host country throughFDI. They can facilitate the transfer of technology, knowledge and skills, improve business and management practices, and provide access to finance and markets. However, spillover and learning from FDI
do not occur spontaneously. Benefits must be generated by serious management efforts and appropriate
policy. The government of the host country should make conscious efforts to induce FDI firms to transfer
their advantages in appropriate forms as well as to strengthen local enterprise capacity. This is why linkage
policies and special programs for linkage development do matter.
This chapter aims to: (i) introduce a policy framework and core elements of linkage programs; (ii)show different types of linkage programs implemented in three countries, i.e., Malaysia, Thailand, andMozambique; and (iii) draw implications for Ethiopia based on the findings from these country cases.
While various types of business linkage can be formed between foreign investors and local firms, thechapter primarily focuses on backward industrial linkages with suppliers where FDI firms buy parts andcomponents, materials, or services from local suppliers.1
It is the mutual interests of both FDI and domestic firms to develop such backward linkages and foster
competitiveness for business sustainability. On the one hand, FDI firms can secure efficient supply chainsby enabling local firms to supply goods and services for them. On the other hand, local firms can benefit
from FDI-linked technology transfer and other advantages. For the nation, broader developmental impacts
such as growth and job creation can also be expected.
2-1. Policy Framework and Core Elements of Linkage Programs2
Linkage policies and programs must be designed and implemented as an integral part of a national
industrial policy. It is important that the government of the host country take a systematic approach to
FDI-local linkage development. As Figure 2-1 shows, there are three sets of policies conducive to FDI-local linkage development: (i) an investment-friendly environment; (ii) strategic FDI attraction; and (iii)
local enterprise capacity-building. Under such a policy framework, specific linkage policies and programs
can work effectively and encourage FDI-local firm cooperation.

1

2

Other types of business linkages include: linkage with technology partners where foreign firms engage in joint ventures, licensing arrangements, or strategic alliances with local partners, forward linkage with customers, and broader spillover effects suchas demonstration effects and human capital spillovers.
This section is largely based on UNCTAD (2010), Chapter 1 (especially pp.13-24).

‒ 19 ‒

Figure 2-1: Policy Framework Conducive to FDI-Local Linkage Development

Improving the investment climate
Speciﬁc linkage
policies

Strengthening
absorptive
capacity

Strategic FDI
attraction

Source: UNCTAD (2010), Figure 1, p.14

After attracting high-quality foreign investors to the home country, the government must take supportive measures to help domestic firms link up with FDI firms. Broadly, linkage policy needs to address
two issues: (i) linkage promotion itself such as information provision and matchmaking; and (ii) building
local capability so that local firms can participate in the linkage and new business opportunities.
Specific policy measures include:•	Provision of information—governments can act as facilitators by gathering and disseminating
information on linkage opportunities and guaranteeing the accuracy of the information provided.
•	Matchmaking—governments can play a more active role in facilitating the process of linkagebuilding, focusing on specific capabilities and needs of individual buyers and suppliers and working closely with them to reach supply arrangements; and• Technology upgrading—governments can encourage technology transfer from buyer firms to supplier firms and strengthening technological cooperation between the two. Examples of such measures include technology transfer requirements, using foreign affiliates as partners in technology
upgrading programs, and providing training programs for small and medium enterprises (SMEs)
and local suppliers.
These policy measures need to be concretized and developed into specific linkage programs. In doingso, due consideration must be given to the following core elements:•	Constituting a critical mass of purchasing companies which can create real opportunities for domestic supply—this is the demand-side of the linkage equation. It is normally an aggregate of the
inputs or purchasing requirements of a number of buyer companies that can constitute the criticalmass necessary for backward linkages to occur. This is closely related to strategic FDI attraction.
•	Creating a pool of qualified domestic firms capable of supplying the goods and services that meet
‒ 20 ‒

Chapter 2: Creating Industrial Linkage between FDI and Local Firms

FDI (purchasing companies) requirements for quality, performance, delivery, and standards compliance— this is the supply-side of the linkage equation. Availability of local suppliers with competitive costs and sufficient quality is an important determinant of the outcome of any linkage
program. Domestic firms in developing countries are largely hindered by supply-side constraints,
hence the significance of comprehensive support and development programs to help upgrade theirtechnological and managerial skills and absorptive capacity to ensure they are “partnership-ready”
to capture linkage opportunities.
•	Building an effective selection and matching mechanism to link potential FDI and domestic
firms—generally, foreign investors are reluctant to participate in linkage programs unless they
have some control over the selection of domestic partners which strengthens their confidence inpartnership. Involvement of FDI in the selection process is essential to make a linkage program
sustainable. Selection should be highly focused and specific to ensure only those meeting the criteria are selected to participate in the linkage program while firms without such potential are filteredout.
•	Putting in place supporting mechanisms to help potential domestic firms overcome supply-side
constraints and achieve the standards required to become suppliers to FDI and/or large companies—appropriate design and development of these supporting mechanisms should be based on acomprehensive diagnosis and auditing of domestic firms to understand precisely their deficiencies
and needs so that critical areas for improvement can be identified and addressed. Here, a handholding program for FDI-local linkage development can contribute greatly to such evaluation (seeChapter 3).
Positive spillovers through FDI-local firm linkages are more likely to occur when the technological
gap between foreign and local firms is relatively small. Therefore, it is vitally important to include domestic enterprise capacity building in the business linkage program.
Besides the above-mentioned linkage measures, the host country governments should make additional efforts to support SME development through: (i) promoting supplier associations; (ii) supporting
training programs and industrial human resource development; (iii) fostering entrepreneurial development;and (iv) improving access to financial and non-financial business services.
2-2. Examples of Linkage Programs in East Asia and Africa
This section reviews the experiences of FDI-local firm linkage programs in Malaysia, Thailand andMozambique. The linkage programs of Malaysia and Thailand are more advanced than that of Mozambique. The former two focus on the manufacturing process while the latter is for the extractive natural
resource sector.
Both Malaysia and Thailand introduced linkage programs in the late 1980s when Japanese manu‒ 21 ‒

facturing FDI increased suddenly in Southeast Asia following a sharp yen appreciation of 1985. In thosedays, part and component industries for mechanical assembly such as electronics, automobiles, and various
machinery (so-called “supporting industries”) were undeveloped in the region, and this prompted the two
governments to develop supporting industries from scratch, often with Japanese private and public assistance. In Mozambique, the key driver of linkage development was the Mozal Aluminum Smelter Project
started in 1998 by a joint venture led by BHP Billiton of Australia3. This was the first mega-investment in
the country after a 16-year long civil war which ended in 1992. The local private sector was very weak,
and the Mozambican government and Mozal were concerned that local SMEs could not participate in andbenefit from the supply chain of the Mozal Project. Such recognition led to a joint initiative of the government, Mozal, and the International Finance Corporation (IFC) to develop linkage programs.
2-2-1. Malaysia: Systematic Approach to FDI-Local SME Linkage Development
During the 1980s and the 1990s, the Malaysian government systematically promoted the development of FDI-local SME linkages with a broad objective of fostering the growth of SMEs including supporting industries. This section explains the two major linkage programs supported by the government:
the Vender Development Program (VDP) in 1988 and the subsequent Industrial Linkage Program (ILP)in 1997. It also explains the Penang Skills Development Centre (PSDC), the country’s first industry-led
skills training and education center established in 1989. PSDC is widely regarded as a successful modelof tripartite partnership by the federal and state governments, industry, and academia for the purpose ofindustrial human resource development.
(1) Vender Development Program (VDP)
In 1983, Proton, a state-owned national car company was created and promoted under heavy policy
support and protection of the Malaysian government. As part of this national car policy, Bumiputra (local
Malay) suppliers to Proton were also assisted strongly. VDP was initiated in 1988 as the Proton Component Scheme under the First industrial Master Plan (IMP 1986-1995). The buyer-assembler (Proton) was
called the “anchor firm” which was obliged to purchase as many components as possible from qualified
Bumiputra SMEs, which were called “venders.” The anchor firm was also required to provide technicalassistance to vendors and become the agent of providing government loans to them.
In 1992, the scope of VDP was expanded to include two electrical and electronics (E&E) firms as
anchors, and subsequently more sectors such as furniture, construction materials, and shipbuilding wereadded to targeted sectors. The Ministry of International Trade and Industry (MITI) acted as the coordinatorbetween anchor firms and vendors, whose networks were later expanded to include financial institutions.
3

Investors of Mozal Aluminum Smelter Project was a consortium led by BHP Billiton of Australia (47%) and included Mitsubishi Corporation of Japan (25%), Industrial Development Corporation of South Africa (24%), and the government of Mozambique (4%).

‒ 22 ‒

Chapter 2: Creating Industrial Linkage between FDI and Local Firms

However, some FDI firms were reluctant to participate in VDP due to low technical capability of Bumiputra suppliers. In 1997, VDP was replaced by ILP.
(2) Industrial Linkage Program (ILP) and complementary support programs
ILP was established in 1997 as a new policy instrument to carry out cluster-based industrial development of the Second Industrial Master Plan (IMP2 1996-2005) and further encourage FDI firms to deepen
sourcing from local firms. The Small and Medium Industries Development Corporation (SMIDEC) was
created in 1996 under MITI to assumed primary responsibility for implementing ILP along with othercomplementary programs.4 For the purpose of ILP, Small and Medium Industry (SMI) was defined as: (i)companies with full-time employment not exceeding 150 persons and annual sales turnover not exceeding
RM25 million and involved in the manufacture of intermediate goods or components listed in the List of
ILP Promoted Products and Activities; and (ii) companies whose equity holding by a large (non-SMI)
company did not exceed 25%.
Unlike VDP, ILP extended support to non-Bumiputra SMEs as well provided that their Malay capital
was 60% or more. ILP offered three services: (i) financial incentives; (ii) business matching; and (iii) a support package consisting of factory site provision, research and development (R&D), technology upgrading, export market development, etc. Matchmaking was organized by SMIDEC where approved vendors
were given Pioneer Status (Malaysia’s main privilege status given to enterprises) with 5-year exemptionof corporate income tax or 60% investment tax allowance as stipulated in the Promotion of Investment
Act of 1986. Anchor firms could also apply for allowances for training and technical assistance to SMEs.
For example, SMEs participating in the ILP or the Global Supplier Program (GSP, see below) were able
to receive benefits from collaborating with FDI firms in production, marketing, and R&D activities. To
encourage FDI firms to participate, 100% of expenditure incurred in training employees, developing andtesting local products, improving the quality of local inputs, and renovating facilities at local SME partners
were deductible from corporate income tax (UNCTAD 2010).
The list of promoted products and activities under ILP for consideration of Pioneer Status or investment tax allowance included the manufacture of rubber products; plastic products; clay-based, sand-based
and other non-metallic mineral products; textiles and textile products; iron and steel; non-ferrous metals
and their products; supporting products and other services; transport equipment, components and accessories; machinery and machinery components; and E&E products and components and parts thereof.
Furthermore, SMIDEC launched a series of local enterprise capacity building programs including
GSP, the Factory Audit Scheme, the Annual Showcase, the Enterprise 50 Program, and the SME Expert
Advisory Panel, to facilitate the implementation of ILP. These programs guided SMEs to form strategic
4

In 2009, SMIDEC was upgraded to SME Corporation Malaysia (SME Corp). While SMIDEC focused on the manufacturingsector, SME Corp has a broader mandate covering all SMEs and coordinates policies and programs for SMEs across all thesectors.

‒ 23 ‒

alliance with large MNCs and enable them to benefit from networking, technology, training and market
access (UNCTAD 2010). For example, the Factory Audit Scheme provided assistance to SMEs in undertaking diagnostic audit in manufacturing operations. GSP is designed to train SMEs to become qualified
first-tier suppliers to FDI firms. The details of ILP and GSP are shown in Table 2-1 and 2-2.
Table 2-1: Industrial Linkage Program (ILP)
Goal

ILP encourages large companies to source parts, components and services from SMEs. Intended to promote and nurture local SMEs to become reliable and competitive manufacturesand suppliers to leading industries.

Assistance

ILP is a set of cluster-based industrial development programmes comprising:• Fiscal Incentives (Pioneer Status with 100% tax exemption for 5 years, or Investment Tax
Allowance of 60% on qualifying capital expenditures incurred within a period of 5 years).
• Business Matching.
• Programmes that support industrial linkages such as technology development, skills upgrading, export and market development, and provision of SME industrial sites.

Delivery

SMIDEC administers and coordinates the ILP programmes.
• Targeted at electrical and electronics (E&E), transport equipment, machinery and engineering, and resource based manufacturing SMEs. SMEs must manufacture items in the“Promoted List” and supply to lead companies.
• Lead companies can claim expenses incurred in developing SMEs including training, factory auditing and technical assistance to ensure the quality of vendors’ products.

Source: UNCTAD (2010), Table 7 in Chapter IV, p.87

Table 2-2: Global Supplier Program (GSP)
Goal

Proactive approach by government to further enhance the capacity and capability of SMEs
to provide world-class service and products to large corporations in their operations worldwide. Focus on reducing cost and cycle time.

Assistance

The GSP involves:• Training in critical skills• Linkages with large companies/MNCs• Certification of product

Delivery

Example: Tesco as a Customer• SMIDEC actively promotes links between Tesco and SME by providing funding for certification of product and technology to link to Tesco’s supplier systems.
• Grant for Productivity and Quality Improvement and Certification (Matching grant max. RM
250,000)• Grant for Product and Process Improvement (Matching grant max. RM 500,000)• Factory Auditing Scheme (Diagnostic audit for SMEs with potential to be linked to MNCs
under ILP

Source: UNCTAD (2010), Table 8 in Chapter IV, p.87
Note: RM stands for Malaysian Ringgit. 1 RM is equivalent to 28 Japanese Yen (as of Dec. 23, 2015).

‒ 24 ‒

Chapter 2: Creating Industrial Linkage between FDI and Local Firms

It should be noted, however, that under the Third Industrial Master Plan (IMP3 2006-2020), FDI-local SME linkage development is no longer a major pillar of Malaysia’s SME policy. By now national
policy attention has shifted from FDI-linked capacity building to creation of innovative SMEs which are
independent from FDI or large companies. Strong emergence of innovative SMEs is considered to be
the key to overcoming the middle-income trap and achieving Vision 2020 (becoming a fully developed
high-income country by 2020) but the result of this strategy is yet to be seen.
(3) Penang Skills Development Centre (PSDC)
Penang is an island off the northwestern coast of the Malay Peninsula. It was the first designated Free
Trade Zone that emerged out of the Federal government’s effort to attract FDI. Since the 1970s, the State
government of Penang and the Penang Development Corporation were able to attract a significant numberof foreign and domestic investments into the region by coordinating promotion initiatives at the local level.
It has become a major E&E manufacturing hub in Malaysia.
PSDC is an industry-led initiative for local skills development aimed at integrating Malaysian SMEs
into global supply chains. It was established in 1989 as a non-profit organization (NPO) with strong involvement of FDI firms, in particular American manufacturers which dominated the Penang electronics
sector at that time.5 PSDC is based on a tripartite partnership model with industry working closely withgovernment (both the Federal government and the State government of Penang) and academia. The Federal
government provided the initial set-up and equipment grants, and the State government subsidized land
and infrastructure.
PSDC is operated and administered by the industry with its management council consisting mainlyof FDI representatives. In 2000, PSDC launched GSP (later embedded in the ILP of the Federal government, as explained above) which combined two forms of interventions: (i) ad hoc training programs; and(ii) targeted business deals with FDI firms to upgrade a selected group of local suppliers. The contentsof the training programs designed by FDI representatives have been tailored to meet FDI requirements
and market demands. Training participants were rigorously selected by the criteria decided by FDI firms.
PSDC also acted as a focal point for information exchange and knowledge transfer between domestic and
FDI firms, which in many cases maintained their in-house training centers to provide specialized training
to their employees (UNCTAD 2010).
Currently, PSDC pools resources of four Free Trade Zones and four industrial estates in Penang witha total of 775 factories employing more than 170,000 workers, providing up-to-date training and educational programs in support of operational requirements, as well as to keep abreast of technological prog-

5

Since the 1980s, many FDI firms have taken steps to improve their competitiveness in response to increased pressure to reduce
production costs, and customize products for the growing Asia Pacific market. These challenges encouraged them to engage ingreater intra-firm and inter-firm knowledge and technology transfer, to focus on more complex and higher value-added activities, and to increase local outsourcing (Rasiah 1987).

‒ 25 ‒

ress.6 Additionally, it offers quality tertiary education programs for school leavers and skill enhancement
courses for university graduates. Some programs are funded by the government.
Thus, PSDC contributed significantly to the upgrading of industrial human resources in the State ofPenang. Following Penang, other states in Malaysia also adopted the PSDC model to set up their own skills
centers. However, scaling up of PSDC’s achievement to the national level was less successful due to theabsence of strong private support in other locations (UNCTAD 2010, Ohno 2014).
2-3. Thailand’s FDI-Local Linkage Development
Since the mid-1980s, the Thai government has introduced a number of programs to promote supporting industries especially in the automotive and E&E sectors. FDI-local industrial linkage development was
one of its key programs. Unlike Malaysia, the Thai government has continued to attach high priority to
FDI-local linkage development and supporting industry promotion to date to further strengthen its industrial competitiveness.
Figure 2-2 illustrates the Thai government’s system and network for FDI and linkage promotion. Because of strong economic relationship between Thailand and Japan as well as recent expansion of overseas
investment of Japanese SMEs in Thailand, the illustration highlights service units dedicated to promote
Thai-Japanese business partnership (including “Japan Desks” staffed by Japanese experts). Nevertheless,basic functions of FDI and linkage promotion are commonly available to all investors.

Figure 2-2: FDI and Linkage Promotion System and Network in Thailand

Ministry of Industry:
Industrial Estate
Authority ofThailand (IEAT)BOI Unit for
Industrial Linkage
Development(BUILD)

Ministry of Industry:
Bureau ofSupporting Industry
Development (BSID)
within DIP

Board ofInvestment (BOI)

Alliance for
Supporting Industries
Association (A.S.I.A.)• One-Start One Stop
Investment Center• Japan Desk
• Thai-Japan
investment advisor

Ministry of Industry:
Dept. of Industrial
Promotion (DIP)• Japan Dest/BOC

Source: Based on the information collected by the research mission by the GRIPS
Development Forum in May 2015.

6

Based on the information from the website of PSDC: http://www.psdc.org.my/about-us/category-1/history (accessed: November 25, 2015).

‒ 26 ‒

Chapter 2: Creating Industrial Linkage between FDI and Local Firms

The Board of Investment (BOI, an investment promotion agency under the Prime Minister’s Office)7
and the Ministry of Industry (MOI), especially the Department of Industrial Promotion (DIP) of MOI,
are the key official actors for FDI-local linkage development and industrial capacity building. DIP is responsible for promoting supporting industries through various official and non-official bodies such as the
Bureau of Supporting Industries Development (BSID), several sector-specific technical institutions, and
the Alliance for Supporting Industries Association (A.S.I.A.), which is an apex organization for twelve
industrial associations.8
A salient feature of Thailand’s linkage promotion is the fact that the network is informal and flexible
rather than rigid and hierarchical. While BOI and DIP of MOI are the key official coordinators, no institution dominates nor is the system governed by explicit rules. Each member organization performs its tasks
separately and refers clients to other institutions when necessary. Personal rapport among officials andexperts at various institutions matters greatly in ensuring speedy and effective service. Such loose working
style is typical of the Thai government.
Below, two main activities related to linkage programs supported by the Thai government are explained—(i) BOI Unit for Industrial Linkage Development (BUILD) charged with sourcing services andmatchmaking; and (ii) BSID that helps to enhance industrial associations focusing on supporting industry promotion. Additionally, activities of selected private sector organizations engaged in FDI-Thai firm
matching and linkage development are also discussed.
(1) BOI Unit for Industrial Linkage Development (BUILD)
As an investment promotion agency, BOI is the first contact point for foreign investors. In 1992, BOI
established BUILD to meet the demand of FDI companies for procuring domestic inputs and finding suitable Thai partners for joint venture or Original Equipment Manufacturing (OEM) arrangement. BUILD
provides these one-stop services by identifying the needs of FDI manufacturers and matching them withlocal suppliers. Through industrial linkage development, BUILD also contributes to the transfer of production technology and the growth of supporting industries in Thailand.
Table 2-3 summarizes main activities undertaken by BUILD, which consist of sourcing service, business matching, database and information services, and overseas visits (Vender-Meet-Customer Roadshow).
BUILD is run by one director and ten staff members, with each staff assuming responsibility forsourcing service for different buyers. BUILD arranges various types of business partnership for FDI cus7

8

BOI was originally under the Prime Minister’s Office but was placed under MOI during the time of former Prime Minister
Yingluck Shinawatra (August 2011-May 2014). Under the current government of Prayuth Chan-ocha, BOI was moved back to
the Prime Minister’s Office.
A.S.I.A. is a network of the following twelve associations: the Thai Machinery Association, the Thai Composites Association,
the Thai Foundry Association, the Thai Embedded Systems Association, the Thai Plastic Industries Association, the Thai Logistics and Production Society, the Thai Tool and Die Industry Association, the Thai Air Conditioning Traders Association,
the Association of Thai Software Industry, the Thai Subcontracting Promotion Association, the Hazardous Substance Logistics
Association, and the Association of Thai Small and Medium Entrepreneurs.

‒ 27 ‒

tomers (Joint Venture (JV), OEM, patent use, production contract, etc.) According to the BUILD Director,
business matching is not an easy task, with partner search being more difficult than finding local inputs.9 It
sometimes takes more than one year to look for suitable partners.
Table 2-3: Main Activities of BUILD
BUILD Activities

Content
Provide free services to help both Thai and foreign buyers source parts and components in Thailand.
• When an inquiry is received from a buyer, BUILD identifies potential suppliers
that meet the buyer's requirements.
• Normally, BUILD announces the specification and volume requirements of for-

Sourcing Service

eign buyers in the website and solicits expression of interest from Thai suppliers.
• One-on-one meetings can also be arranged for a buyer to discuss individuallywith each potential supplier.
• There are various channels through which BUILD receives inquiries from buyers.
In some cases, buyers directly contact BUILD via email or phone.
   In other cases, the One Start One Stop Investment Center or the overseas offcesof BOI transfer inquiries by foreign buyers to BUILD.
Largest industrial subcontracting exhibition for industrial parts and businessmatchmaking in the ASEAN region (started in 2007).

SUBCON Thailand• Organized jointly by BOI, the Thai Subcontracting Promotion Association, andUBM Asia (Thailand) in May every year.
• Held to conincide with Intermach, the largest machinery exhibition in Southeast
Asia.
Information service of ASEAN that lists manufacturers of parts and components
in the ten member countries on the internet for global access.

ASEAN Supporting
Industry Database(ASID)• BUILD is responsible for maintaining this database in Thailand, by consolidating
and updating information.
• For each entry, the database includes company profile, investment profile, andinformation on employment, customers, products, capacity, processes, rawmaterials, and machinery and equipment.
• The BUILD team asks registered companies to update their information annually.

Vender-Meet-Customer Provide opportunities for Thai parts manufacturers to participate in overseas exhi(VMC) Roadshow
bitions and trade fairs with the aim of widening their vision and knowledge.
Source: Based on the information collected by the research mission by the GRIPS Development Forum in 2015.

9

Based on the interview with BUILD officials by GRIPS Development Forum at BOI in May 2015.

‒ 28 ‒

Chapter 2: Creating Industrial Linkage between FDI and Local Firms(2) Bureau of Supporting Industry Development (BSID) under DIP/MOI
BSID under DIP of MOI assumes the main responsibility for promoting supporting industries. The
history of BSID goes back to 1988, when the Metal-working and Machinery Industries Development Institute (MIDI) was established within DIP as an agency to implement promotion measures for metal-related
supporting industries with the assistance of the Japan International Cooperation Agency (JICA). At thattime, there was a strong need to strengthen Thai firms as reliable partners for Japanese FDI production, in
the wake of massive relocation of Japanese manufacturers to Thailand following a sharp yen appreciation.
In 1996, MIDI was upgraded to BSID with a higher organizational status and a broader scope of work.
Throughout the 1990s, more industrial institutes were established by DIP and made responsible for drafting and implementing industrial master plans in respective sectors, acting as the hub for business, government (BSID), experts, and other organizations.10
BSID has taken a step-by-step approach to strengthening the capacity of Thai supporting industries.
Initially, when the private sector was weak and the number of supporting industry firms was limited, BSID
directly provided technical and managerial support to individual companies. When the number of companies grew to approximately 1,000, BSID established and managed thematic forums of supporting industries(design, metal, machinery, foundry, etc.) serving as their coach and secretariat. Gradually, these forums
have gained experience and developed into truly privately-run industrial associations. Currently, there are
twelve such industrial associations fostered by BSID. Increasingly, those associations are beginning toprovide technical support and human resource development to member companies without BSID’s help.
In 2008, A.S.I.A. was established with the support of BSID/DIP, to promote networking among theexisting supporting industry associations. There are more than 15,000 companies covered by A.S.I.A.
It plans and conducts activities related to all industry associations thereby producing synergetic effects.
Compared to the Federation of Thai Industries (FTI) established in 1987, A.S.I.A is a young apex organization focusing on domestic supporting industries, and its capacity needs to be further strengthened.
Nevertheless, this is a good way to promote cooperation among different supporting industry firms toward
a common goal of becoming competitive regionally and globally.
As this history shows, the degree of government’s direct involvement in enterprise support was strong
at first, but decreased over time as the private sector developed its capacity. Now, BSID’s role in enterprise
support is indirect, primarily working through A.S.I.A. and its industrial associations. Likewise, shindan(SME management consultant system) service was initially provided by the government, but it is now
implemented by individual firms that have come to understand its benefits. Currently, the main role of
BSID in shindan is normative, which includes setting the criteria for enterprise diagnosis and establishinga mechanism in which shindan reports can be used effectively to address concrete problems. A few years
10

These industrial institutes include: the Thai-German Institute (TGI, 1992), the Thailand Automotive Institute (TAI, 1998),
the Electrical and Electronics Institute (EEI, 1998), the Iron and Steel Institute (ISI, 2000), and so on. They were initiallyestablished with the government budget or foreign aid, but are currently required to operate as autonomous, non-profit, andfinancially self-supportive organizations.

‒ 29 ‒

ago, Thai companies became obliged to present shindan reports when applying for BSID support or financial support from the SME Bank. BSID also manages a database for supporting industries in Thai language.
(3) Technology Promotion Association (TPA) and Thai-Nichi Institute of Technology (TNI)
TPA is a Thai NPO established in Bangkok in 1973 by former Thai students who studied scienceand technology in Japan. For over four decades, it has provided management and technical education andtraining, language courses, and book publication with a strong focus on Japanese manufacturing. Based on
its accumulated experience and expertise, TPA established TNI in 2007, a private university for teaching
Japanese style manufacturing in theory and practice, with a strong emphasis on the latter. TNI was financed by TPA’s accumulated profits and a bank loan. Japanese businesses in Thailand have assisted TPA
and TNI from the sideline by dispatching experts, accepting student internship, providing equipment andscholarship, and so on. The Japan-Thailand Economic Cooperation Society (JTECS) was an organization
established in Tokyo to coordinate and provide private and public assistance to TPA from the beginning.
However, management and financial resources of TPA and TNI have been local with strong Thai ownership.
TPA has been offering three core programs: (i) culture and language (with an emphasis on Japanese
but also other languages); (ii) shindan consultancy for companies; and (iii) calibration (setting or correcting measurement on precision-requiring equipment).
In addition, building on its strong Japanese network, TPA established the Thailand-Japan Business
Alliance Center (abbreviated as J-SMEs) in August 2013 to conduct business matching between Thai companies and Japanese SMEs. Its activities include: (i) arranging business trips and business matching forJapanese investors interested in Thailand or other Southeast Asian countries as well as for Thai investors
interested in Japan; (ii) organizing workshops for both Thai and Japanese SMEs; and (iii) offering businesscoordination functions such as business advice, market research service, local business trip arrangement,
and market development support. TPA has assigned three permanent officers to run J-SMEs and collaborates with Tokyo Higashi Shinkin Bank which has dispatched two staffs to J-SMEs, from January 2014,
to promote business matching and exchange between Japanese SMEs (clients of Tokyo Higashi Shinkin
Bank) and Thai companies.
2-3-1. Mozambique: Donor and FDI-Supported Linkage Programs
In Mozambique, a pilot linkage project started in 1998 by a joint initiative of the government, IFC,
and Mozal, which is a foreign joint venture for the Aluminum Smelter Project. Mozal being the country’s
first major commercial investment after the end of civil war in 1992, there was a need to create technicaland business capacity for local firms to become more competitive and participate in this development by
supplying quality goods and services, increasing purchasing power, and promoting job creation (OECD2013). This need was keenly felt because the size of the investments by Mozal was very large and also
‒ 30 ‒

Chapter 2: Creating Industrial Linkage between FDI and Local Firms

because linkage creation would not occur automatically in extractive industry mega-projects. Linkage
programs implemented by the Mozambican government, donors, and foreign investors, as well as current
challenges in sustaining and institutionalizing the initial effort, are explained below.
(1) From a pilot project to Mozlink Programs
The Investment Promotion Centre (CPI) is an investment promotion agency under the Ministry ofPlanning and Development (MPD). In 1998, the government of Mozambique approved a linkage programand established the Linkage Division in CPI. CPI also began to require “linkages provision” when it negotiated investment project agreements between MNCs and the government.
In 1998, CPI started a pilot linkage project during the construction phase of the Mozal Aluminum
Smelter Project. The pilot project focused on familiarizing all stakeholders with the linkage program and
FDI’s standard practices, and promoting joint ventures between foreign firms/contractors and local SMEs
through market efforts. However, the result was mixed. Mozal found that local SMEs were too weak tomeet international trade standards. They lacked capacity to: (i) participate effectively in bidding, tendering,and post-tendering, which were relatively complex processes; (ii) meet stringent technical quality, safety,
and environmental requirements; (iii) meet deadlines and ensure a regular supply; and (iv) set up appropriate financial management and organizational internal controls (USAID 2012).
To overcome these problems, during the expansion phase of the Mozal project (2001-2003), the SME
Empowerment and Linkages Program (SMEELP) was introduced jointly by CPI, IFC (Africa Project
Development Facility), and Mozal. Key components of SMEELP included: (i) reserving 30 tenders exclusively for Mozambican firms (e.g., package supply was allocated solely to local SMEs); (ii) pre-assessmentof local SME capabilities; (iii) training programs before and after tenders for Mozambican suppliers; and(iv) technical orientation programs to mitigate eventual gaps (Niven 2003). Under SMEELP, 15 SMEs
successfully delivered contracts amounting to $5 million (IFC PEP Africa n.d.).
Building on the SMEELP’s achievement, the Mozambique SME Linkage Program (Mozlink Phase 1:
2003-2007) was implemented during the operational phase of the Mozal project. The Mozlink I Program
was largely the replication of SMEELP and supported by the IFC, the World Bank (Mozambique Private
Sector Development Project) and Mozal. Under the Mozlink I Program, 25 SMEs were trained and $15
million in contracts were delivered (IFC PEP Africa n.d.).
Subsequently, the Mozlink II Program was designed and implemented during 2007-2010 with thesupport of IFC and the Dutch government. Mozlink II expanded corporate partners to include Sasol, Coca-Cola, and SAB Miller/CDM (Cervejas de Moçambica). Key components of the Mozlink II Program
were to: (i) improve technical and management capacity of SMEs through training and mentoring; (ii) integrate linkage processes among four corporate partners (Mozal, Sasol, SABMiller/CDM, Coca-Cola); (iii)
facilitate critical information flows between SMEs, industry, government, and new markets; (iv) increase
access to finance for SMEs; and (v) provide workplace compliance training to help reduce new cases of‒ 31 ‒

HIV/AIDS, malaria, and tuberculosis infections at companies and in surrounding communities. Under the
Mozlink II Program, 77 SMEs were selected to participate in the capacity building program and implement
individual improvement plans. $15 million in contracts were signed, and over $53 million of new revenuesof SMEs were generated by Mozlink corporate partners (USAID 2012).
Figure 2-3: Linkage Programs in Mozambique

Programs

SMEELP

Mozlink Phase 1

Mozlink Phase 2(Mozal expansion phase)
15 SMEs$5m in contacts(Mozal operations phase)
25 SMEs$15m in contacts(Extension of the program toinclude new corporate partners)
75SMEs > $20m

2001

2003

2004

2006

2007

2008

Source: BHP Billion (n.d.)(2) Challenges of sustainability and institutionalization
The SMEELP and Mozlink Programs were important initiatives by the government, donors, and
MNCs to create business linkages in the extractive-industry value chain. Especially, Mozlink I & II arewidely publicized and regarded as the Mozambican “flagship” programs for linkage development (IFCn.d.).
Despite such initial achievements, there remain challenges of sustainability and institutionalization.
First, the linkage program is not yet internalized or systematized within the Mozambican government. So
far the government has largely relied on technical and financial support from donors and FDI firms, andits involvement in the implementation of linkage programs has been limited. For example, the enterprisediagnosis and technical support have been undertaken by external advisers. IFC has started the handoverprocess of Mozlink II to CPI, but some concerns have been raised on the capacity of CPI to manage linkage programs (USAID 2012). Second, each linkage program is implemented separately by FDI projects
with different external funding sources. The government needs to take a coordinated approach and develop a common platform to work with foreign investors. Third, there is a sign of declining commitmentof top FDI management. Although there was a high level commitment by Mozal’s management during
the SMEELP and Mozlink I Programs, this was not the case with the Mozlink II Program when multiple
partners from different industry sectors joined (USAID 2012). Again, this suggests the need to establish acommon platform to work with various foreign investors.
Fourth, the linkage program managed by CPI needs to be coordinated and complemented by thegovernment’s SME support program, which started recently with the creation of the Institute for Promotion of Small and Medium Enterprises (IPEME) under the Ministry of Industry and Commerce. In 2008,‒ 32 ‒

Chapter 2: Creating Industrial Linkage between FDI and Local Firms

the government established IPEME to strengthen SMEs’ capacity in management, finance, and access tomarket and information. In 2010, IPEME created the Center for Entrepreneurial Advice (COE) in Maputo,
the capital city, and several provinces to disseminate information on investment opportunities, training,and marketing (IPEME 2012). These efforts need to be further enhanced and coordinated with CPI in thecontext of linkage programs.
2-4. Lessons and Recommendations for Ethiopia
The experiences of Malaysia, Thailand, and Mozambique in FDI-local firm linkage development
offer useful lessons for Ethiopia and other developing countries when they design and implement linkage
programs in the future.
First, industrial linkage development must have two components: (i) creating linkages between FDI
and domestic companies through various types of business matching programs; and (ii) capacity buildingof domestic SMEs. The linkage programs of Malaysia and Thailand have duly integrated these two components. On the other hand, the Mozambican program so far has addressed (i) only, largely because thecountry’s SME policy and support system are still at the early stage of formation. Although it is importantto adopt policy measures to encourage FDI to produce linkages, unrealistic demand without promoting local capability drives FDI away. Therefore, simultaneous implementation of both components is necessaryfor effective linkage development.
Second, the government needs to take a coordinated approach to implement linkage programs. At thesame time, it should recognize that there are various institutional options for coordination. In Malaysia,
SMIDEC was the lead agency for implementing ILP and charged with both business matching and SME
capacity development. SMIDEC also introduced a series of complementary programs, including GSP, toenhance local enterprise capacity. In Thailand, business matching is handled mainly by BUILD of BOI,
which is the first contact point for foreign investors, while SME capacity development is assumed by BSID
of MOI, industry institutes, and industrial associations belonging to A.S.I.A. These organizations form aloosely coordinated investment promotion and linkage network, which is quite different from a very systematic approach taken by the Malaysian government. Meanwhile, both countries produced some results,
and Thailand in particular succeeded in creating strong automotive supporting industries that supply to
globally competitive foreign giant car firms. The experiences of Malaysia and Thailand show that there isno single model of coordination. Each country should find a suitable institutional arrangement for linkage
programs tailored to country-specific circumstances.
Third, linkage programs can be started with financial and technical support of donors and foreign
investors. But the government of the host country must make step-by-step efforts to institutionalize externally-supported programs and consolidate and integrate them as country-owned programs. Malaysia offersa good example of establishing a country-led platform for industrial linkage development. Linkage policies
and specific programs under them were an integral part of national industrialization policy, and various com‒ 33 ‒

plementary measures were introduced under ILP. Over the years, the Thai government has also made efforts
to develop institutional mechanisms for promoting supporting industries (e.g., upgrading MIDI into BSID,
creating industrial associations and later their apex organization, A.S.I.A.), by taking full advantage of Japanese technical cooperation. On the other hand, the experience of Mozambique is more passive and mixed,
fraught with challenges in institutionalizing initial achievements made under donor-supported programs.
Fourth, NPOs and private organizations can also play an important role in business matching, enterprise capacity building, and management and technical education and training. In Malaysia, PSDC isa good model of tripartite partnership under the strong leadership of industry and local ownership. Whileits management council mainly consists of FDI representatives, the government and affiliated institutions
also participate actively as advisory members. PSDC is fully operated by national staff. In Thailand, BSID,
industrial institutes, A.S.I.A., and industrial associations collectively work to strengthen supporting industries. Now, A.S.I.A. and its industrial associations are the initial point of contact for member companies for
information, training and other capacity development activities, business matching, and so on. In addition,some Thai industrial NPOs, such as TPA and TNI, are self-supporting private bodies that provide various
programs for business matching and industrial capacity building.
The Malaysian and Thai models are relatively advanced forms of FDI-local firm industrial linkage
development and supporting industry promotion in comparison with other developing countries. This is
the result of decades of efforts made by both public and private players. It is not easy to replicate fully
what these two countries practice. Ethiopia may wish to start with a pilot linkage project, bearing the above
points in mind. A pilot project is useful to help define realistic targets, eligible sectors, program design, andmechanisms before committing large resources for a full-fledged program.
As a first step, the Ethiopian government should prepare a list of competent Ethiopian firms—
component suppliers, producers, and distributors of agro inputs and raw materials, service providers, andso on. This may take the form of an enterprise database or, more informally and realistically, prompt andprecise information provided collectively by the Ethiopia Investment Commission (EIC), the Ministry ofIndustry (MOI), the Ethiopia Kaizen Institute (EKI), the Textile Industry Development Institute (TIDI),
the Leather Industry Development Institute (LIDI), the Metal Industry Development Institute (MIDI), etc.
An information referral and matching network should be set up among these institutions, and initiation ofa handholding program for FDI-linked technology transfer should be seriously considered (see Chapter 3).
Izumi Ohno and Kenichi Ohno (GRIPS)

References
BHP Billiton (n.d.). Mozlink Program and Impact on the Local Economy. Retrieved November 15, 2015,
from https://www.icmm.com/document/737‒ 34 ‒

Chapter 2: Creating Industrial Linkage between FDI and Local Firms

Buur, Lars (2014). The Development of Natural Resource Linkages in Mozambique: The Ruling Elite
Capture of New Economic Opportunities. DIIS Working Paper 2014:03. Copenhagen: DIIS ReCom
Publication.
International Finance Corporation (IFC) (n.d.). The IFC Mozlink Program: Supporting Small Business
Growth in Mozambique. Retrieved November 15, 2015, from http://www.commdev.org/userfiles/
Mozlink_Factsheet.pdf
IFC PEP Africa (n.d.). Mozal Linkages Program. Retrieved December 23, 2015, from http://www.google.
co.jp/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwis-oviovHJAhUEI6YKHRbwANcQFggiMAE&url=http%3A%2F%2Fsiteresources.worldbank.org%2FMOZAMBIQUEEXTN%2FResources%2F382130-1181143041672%2F3853168-1181372124001%2FPEP_Africa_MozlinkII.ppt&usg=AFQjCNGH5bLbCyA2d98cJs9NdogXnKYkWg
Institute for Promotion of Small and Medium Enterprises (IPEME) (2012). IPEME: SME Support Programs. Presented at the Seminar on Mozambican and East Asian Experiences, Maputo, Mozambique, November 8, 2012.
Investment Promotion Centre (CPI) (2012). Business Linkages: Programs/Challenges and Perspectives.
Presented at the Seminar on Mozambican and East Asian Experiences, Maputo, Mozambique, November 8, 2012.
Niven, Rex (2003, April 23). Mozal Aluminium Smelter Expansion Project: SME Empowerment and Linkages Programme (SMEELP). BHP Billion presentation materials. Retrieved November 15, 2015,
from http://www.bhpbilliton.com/~/media/bhp/documents/investors/reports/2003/
rnivensmeelp23apr03.pdf
Ohno, Kenichi ed. (2014). An Approaching Middle Income Trap: How Vietnam Can Escape It. By Vietnam Development Forum, National Economics University, Hanoi: Vietnam Education Publishing
House.
Organisation for Economic Co-operation and Development (OECD) (2013). OECD Investment Policy
Reviews: Mozambique 2013. OECD Publishing. http://dx.doi.org/10.1787/9789264203310-en
Rasiah, Rajah (1987). The International Division of Labour: Semiconductor Industry in Penang. MSocSc
thesis approved at University Science Malaysia (in Malay): Published in Bahasa Malaysia. Kuala
Lumpur: Malaysian Social Science Association.
United States Agency for International Development (USAID) (2012). Mozambique Business Review:
An Overview of Key Experience, Issues, and Lessons.” Prepared by DAI and Nathan Associates,
October 2012.
United Nations Conference on Trade and Development (UNCTAD) (2006). Business Linkages Programme
Guidelines. UNCTAD/ITE/TEB/2005/11. New York and Geneva: United Nations Publication.
UNCTAD (2010). Creating Business Linkages: A Policy Perspective. UNCTAD/DIAE/ED/2009/1. New
York and Geneva: United Nations Publication.
‒ 35 ‒

Chapter 3 Handholding for Enterprise Capacity Building

Handholding is an important program for enterprise capacity building. It offers hands-on, comprehensive assistance to selected high-potential firms, to succeed and become a model for other firms to follow.1
This chapter aims to: (i) introduce the concept of handholding; (ii) show concrete examples of handholding
programs in East Asia (Japan, South Korea, Malaysia, and Taiwan); and (iii) suggest future steps for Ethiopia, based on the analysis of the East Asian experiences.
3-1. The Concept of Handholding Programs
Enterprise capacity building is a standard industrial policy menu item, and the support can cover
multiple areas including management, technology, kaizen, finance, Information and Communication Technology (ICT), labor issues and recruitment, marketing, foreign direct investment (FDI) linkage, testing andcertification, networking, start-up support, innovation, and so on.
Broadly, there are two different ways to enhance enterprise capacity. One way is to provide these
support services to firms broadly with minimum screening and on as-needed basis. Here, the final results
are up to each firm’s planning and effort. The other way is to provide such services in a comprehensive andintegrated manner to a small number of selected firms that show will and potential. In this case, the government works with firms until they achieve final results.2 Handholding programs belong to the latter type.
More specifically, a handholding program must satisfy all of the following conditions.
•	It is an officially provided service for small and medium enterprises (SMEs) with no or little fee
charged.
• A clear business goal (only one) is set in advance.
• There is a screening mechanism to select eligible firms.
• Duration of assistance is 2-3 years (usually non-renewable).
•	Multiple and customized help is offered with the content based on the diagnosis and consultationof individual companies.
• A high success rate is expected.
In Ethiopia-Japan industrial policy dialogue, Prime Minister H.E. Hailemariam Desalegn shared with
the Japan International Cooperation Agency (JICA) and the National Graduate Institute for Policy Studies(GRIPS) team his strong commitment to transforming short-term traders and distributors into true manu1

2

The term “handholding” derives from an analogy that a mother gives all necessary support to her baby, by holding hands until
he/she starts walking by his/her own feet. It is also called hands-on or yorisoi assistance (yorisoi in Japanese means staying
close as a friend or a helper).
The handholding approach is commonly practiced in East Asia. But under the laissez-faire policy, this approach may be condemned as too selective and “picking winners.” Some Western economists justify only general help for all.

‒ 37 ‒

facturers that take risks for long-term investment in technology and equipment. During the period of thenext five-year development plan (Second Growth and Transformation Plan (GTP II): 2015/16-2019/20),
the Ethiopian government places high priority on domestic private sector transformation. The industry
chapter of GTP II discusses the government’s resolve to introduce a handholding program to this end.
3-2. Examples of Selected East Asian Countries
This section reviews five examples of handholding programs practiced in four East Asian countries—i.e., Japan, South Korea, Malaysia, and Taiwan. As for policy objectives, these handholding programs can be classified into three groups: (i) promoting outward FDI of SMEs (Japan); (ii) penetrating
into a foreign market (Japan, South Korea, Malaysia); and (iii) creating a local industry cluster (Taiwan).
Needless to say, many other goals can be set in accordance with country-specific industrial policy objectives. But, each handholding program should serve only one policy goal.
3-2-1. Japan: JETRO’s assistance for overseas investment of SMEs
The Japan External Trade Organization (JETRO), affiliated with the Ministry of Economy, Trade andIndustry (METI), is charged with the promotion of mutual trade and investment between Japan and therest of the world. Helping outward FDI of Japanese SMEs is one of the highest priorities of the Japanese
government today (“Japan Revitalization Strategy,” 2013), and JETRO introduced a new handholding
program during March 2013 - March 2015.
The background behind this is that Japan has been experiencing a new wave of “internationalization”
in recent years. Particularly, the 2008 Lehman Shock and harder global competition have forced large
firms to go abroad aggressively and procure parts globally. Now, the Japanese traditional production system where manufacturing SMEs bound in subcontracting relationships with larger firms is disintegrating.
These SMEs have lost their regular customers and are urged to find new markets abroad by themselves. As
a result, an increasing number of manufacturing SMEs have started to seek overseas business expansion
independently of large parent companies. But, these SMEs are severely constrained with financial andmanagerial resources (despite their possessing superior technology and skill), and this is the reason why
the Japanese government decided to introduce a JETRO-assisted handholding program to transform theminto global players. Key features of this handholding program are as follows.

‒ 38 ‒

Chapter 3: Handholding for Enterprise Capacity Building

Table 3-1: Key Features of JETRO’s Assistance for Overseas Investment of SMEs
• Transform Japanese SMEs into global players through overseas investment
Goal• Target was to assist 1,500 firms in any sector during three years (overachieved, exceeding
the initial target).

Duration

Eligibility• About two plus some years at maximum (from March 2013 to March 2015 at the latest).
Exact duration must be agreed among a firm, JETRO and an expert.
• "Chuken" (large but not very large) firms and SMEs seriously considering investing or expanding locations abroad (ODA recipient countries).
• The costs of experts and JETRO services are free.

Costs• SMEs assume actual expenses only (e.g., travel, laywer and accountant fees, costs incurred for establishing a company abroad)

Screening• Open selection process. Applications are reviewed, selected and aproved by JETRO (interviews included).

Source: The author’s research based on information provided by JETRO (interviews, website, etc.).

Under this program, one JETRO staff and one outside expert jointly work for a selected SME, providing comprehensive and intensive assistance in realizing outward FDI.3 While an outside expert provides
specialized technical and knowledge support, JETRO staff act as a coordinating hub, by mobilizing JETRO’s internal services and overseas networks, giving due attention to the needs of individual firms. The
more detailed information is given below (Figure 3-1).

3There are cases where after the completion of this assistance program, it is concluded that the firm does not need to invest
abroad.

‒ 39 ‒

Figure 3-1: JETRO Customized Assistance for Overseas Investment

Source: Translated from JETRO website(https://www.jetro.go.jp/ext_images//news/announcement/20130301699-news/new.pdf)‒ 40 ‒

Chapter 3: Handholding for Enterprise Capacity Building

3-2-2. Japan: JETRO’s assistance for promoting SME export
Since 2005, JETRO has been providing a handholding program for assisting promising SMEs in penetrating into global markets. Priority is given to SMEs which possess excellent technology and “only one”
products (champion products), but have little or no experiences with exports, as well as those which are
exploring a possibility of entering into new export markets. Eligible sectors cover machinery and parts, environment and energy, agriculture and fishery and food-processing products, design and traditional products, household goods, and fashion.
Under this program, one JETRO staff and one external expert provide comprehensive assistancesuch as formulating export strategy, gathering market and customer information, accompanying to trade
fairs, facilitating business negotiation, entering into contracts, and settling accounts. In the same way as
the handholding program for overseas investment promotion, one expert offers specialized technical andknowledge support, and one JETRO staff coordinates various JETRO services. Key features of this handholding program are shown below.
Table 3-2: Key Features of JETRO’s Assistance for SME Export
Goal
Duration
Eligibility

Costs• Penetrate into global market, "only one" technology and products preferred.
• Target is to assist 150–200 firms per year.
• Two years.
• SMEs engaged in producing goods, wanting to export directly to a new market (not througha trading company).
• The costs of experts and JETRO services are free.
• SMEs assume actual expenses only.
• Invitation basis. Initial internal screening made by JETRO based on daily contacts, expert

Screening

opinions and evaluation reports from other organizations• Applications are reviewed, selected and approved by JETRO (interviews included).

Source: The author’s research based on information provided by JETRO (interviews, website, etc.).

JETRO regards the program as successful, if the firm has achieved one of the two criteria: (i) exporting to the same buyer three times or more; or (ii) receiving payments from customers through a sales
agent. If the firm successfully penetrates into two new markets overseas, JETRO terminates the assistanceeven before the two-year period ends (the maximum program duration is two years). Viewed from thesecriteria, JETRO considers that about 30% of firms “succeed” three years after the end of JETRO assistancefor SME export. Most of the remaining firms make progress, even if they are not evaluated as “success” inlight of the above criteria.
Based on the experiences of the above two handholding programs, JETRO considers it essential thatits staff and an external expert work together and provide complementary assistance to a firm. JETRO staff
have good understanding of various services and institutional networks that JETRO possesses, while ex‒ 41 ‒

ternal experts have specialized knowledge of countries, regions, specific sectors, technologies, etc. JETRO
staff also monitors expert activities. Furthermore, JETRO facilitates information sharing among experts
because these experts have distinctive strengths and mutual learning can contribute to enhancing the quality of their advices.4
3-2-3. Korea: KOTRA’s Global Growth Ladder support system for SME export5
The Korea Trade-Investment Promotion Agency (KOTRA) is the government’s organization charged
with supporting trade promotion, investment between Korean and foreign firms and support of industrial technology cooperation (affiliated with the Ministry of Trade, Industry and Energy). KOTRA assists
Korean SMEs in expanding overseas business (both trade and investment). It also promotes the entry andestablishment of foreign businesses in Korea (Invest KOREA).
Under the Park Geun-hye administration, KOTRA has set a goal of increasing Korean exports from$1 trillion (2011) to $2 trillion by 2020. To achieve this goal, KOTRA has established the “Global Growth
Ladder” support system to strengthen export competencies of domestic sales-oriented SMEs and beginning export SMEs, by offering customized one-on-one support services (Figure 3-2). KOTRA conducts
the Global Competence Level (GCL) Test to evaluate export preparedness of individual SMEs and identify
their weaknesses. Based on the GCL Test results and the export value, (i) SMEs with little or no export
experience (with annual export less than $500,000) are invited to receive KOTRA’s customized support
under the Global Gateway Project (free of charge), and (ii) promising SMEs (with annual export morethan $500,000, but less than $5 million) are invited to use the Export SMEs’ Branch Office Project (feebased). For those SMEs which already demonstrate strong performance (exporting more than $5 million,
but less than $100 million annually), KOTRA can offer one-on-one support to make them become world
champions.

4

5

There were about 250 experts who advised the handholding program for FDI promotion, and about 30 experts who currently
support the handholding program for export promotion (as of November 2013, based on the author’s interview with JETRO).
This section is largely based on KOTRA (2015).

‒ 42 ‒

Chapter 3: Handholding for Enterprise Capacity Building

Figure 3-2: KOTRA’s Global Growth Ladder Support System

Source: KOTRA (2015)(1) Export Gateway Project
More specifically, under the Export Gateway Project, SMEs with no or little export experiences
are classified into three categories: (i) domestic sales-oriented; (ii) export ready, and (iii) export start-up.
KOTRA provides systematic support to these SMEs (free of charge), based on joint work between thehead office and overseas offices (called KOTRA Business Centers: KBCs) (see Table 3-3). Export specialists (often retired trade professionals) are hired as mentors to assist them in the entire process—ranging
from finding overseas buyers, trade consultations, export contract signing to follow-up measures. In 2014,
KOTRA supported 1,408 domestic sales-oriented SMEs, of which 336 firms secured export contracts
worth $41.9 million, and 308 export start-up SMEs, of which 270 firms recorded exports worth $55.5
million (KOTRA 2015).
Table 3-3: Overview of Export Gateway Project
Category

Head Office

Overseas KBCs

Domestic sales-oriented (annual
export less than USD 1,000)

Product concepts, selection ofoverseas target markets, tradepractice

Identification of target markets,competition status, certifications,marketability

Export ready (annual export lessthan USD 100,000)

Providing overseas inquiries andbuyers consulting service

Search for promising buyers andinquiries

Export start-up (annual export
less than USD 500,000)

Support for negotiations withbuyers and follow-up management services

Consulting service during local
business trips, contract-related
follow-up management

Source: KOTRA (2015)‒ 43 ‒

(2) Export Branch Office Project
The Export Branch Office Project focuses on helping promising SMEs with further export expansion.
It provides fee-based, customized marketing support to eligible SMEs, including the utilization of the infrastructure of KOTRA’s overseas offices. An interesting feature here is that KOTRA’s overseas offices
act as local sales representatives of Korean SMEs. The scope of support services includes collecting market information, identifying potential buyers, business matchmaking, and so on. The period of support isone year but it can be extended up to three years with a reduced scope of services if the firms are unable toachieve the objective.
Regarding the selection process, KOTRA (both head office and relevant overseas offices) reviews
applications filed by firms and select suitable proposals. In doing so, the staff of KOTRA overseas offices
assesses market potential of products proposed by firms in light of the local market conditions and thecapacity of respective offices for service provision. Once the details are agreed between KOTRA and thefirm and the service fee is paid by the firm, a contract agreement is concluded.
The Export Branch Office Project is implemented globally where KOTRA has overseas offices.
About 2,400 SMEs received support in 2014. The KOTRA office in Tokyo provides about 50-60 SMEs
annually under the Export Branch Office Project.6 The following summarizes a case study of the Export
Branch Office Project, implemented by the KOTRA office in Tokyo.
Table 3-4: KOTRA’s Export Branch Office Project: The Case of Tokyo Office
Goal
Duration
Eligibility

Costs

Screening• Penetrate into global market. About 50–60 SMEs per year (This is the number supported
by KOTRA office in Tokyo).
• One year (renewable up to three years).
• SMEs engaged in producing goods, exploring entry into new export markets.
• All sectors are eligible.
• 2.5–3.5 million won per year (equivalent to 2,000–3,000 USD). (This is the case of exports
to Japan. Different fees may be charged depending on country.)• Participating firms in the GCL Test. Applications are reviewed, selected and approved by
KOTRA (reviewd by both headquarter and overseas offices).

Source: The author’s research based on information provided by KOTRA (interviews, website, etc.).

As necessary, KOTRA overseas offices can provide additional marketing support services (extra fees
charged). These include: (i) hiring local sales representatives on behalf of firms (“Sales Representative
Service”); and (ii) providing firms with rental office space, which can be used for marketing activities(“My Office Service”).

6

Based on the author’s interview with KOTRA Tokyo office in December 2013. Besides Tokyo, KOTRA has offices in Osaka,
Nagoya, Fukuoka in Japan.

‒ 44 ‒

Chapter 3: Handholding for Enterprise Capacity Building

3-2-4. Malaysia: MATRADE’s assistance for SME export
The Malaysia External Trade Development Corporation (MATRADE) is the government’s organization affiliated with the Ministry of International Trade and Industry and charged with developing andpromoting Malaysia’s exports to the world.
MATRADE has been implementing a handholding program called “New Exporters Development
Program” since April 2003. This program aims at creating competitive and sustainable exporters, focusing
on companies owned by Malay (Bumiputra) or women-owned companies, or those where Malay or womenserve as Chief Executive Officer (CEO) or Managing Directors. To be eligible, the office or factory must
be located in Malaysia. SMEs selected into the program are entitled to receive customized business coaching, and additional training and seminars including export strategy formulation, branding, international
business communication, negotiation skills, bookkeeping, as well as participation in trade fairs and business missions. Besides these, selected firms can exhibit their products for one year at Malaysia Export Exhibition Centre, and list them on the website managed by MATRADE. All costs are born by MATRADE
including foreign travels.
Participation in the New Exporters Development Program is on an invitation basis in which firms
are identified through their profile submissions to MATRADE. MATRADE also identifies high potential
firms through sources such as trade events, SME directories and other government agencies. For example,
MATRADE uses Exporters’ Readiness and Capability Assessment (ERCA) model to assess companies
for selection into the program. Also, SME Corp. Malaysia has a diagnostic tool to rate performance andcapabilities of SMEs, called SME Competitiveness Rating for Enhancement (SCORE). Shortlisted firms
are subject to factory audit visit and assessment by MATRADE. Selected firms will undergo the program
for three years. Key features of this handholding program are shown below.
Table 3-5: Key Features of MATRADE’s Assistance for SME Support• Penetrate into global market, firms with high-value creating and high technology and knowlGoal

edge are prioritized.
• All sectors are targeted.
• Target is 24 firms per year (12 Malay SMEs and 12 women SMEs).

Duration
Eligibility
Costs• Three years (non-renewable).
• Malay or women-owned companies, or CEO/Managing Directors are Malay or women. At
least three year in operation with a certain level of domestic market presence.
• All costs are paid by MATRADE, including foreign travels.
• Invitation basis. Internal selection is made based on MATRADE database and the informa-

Screeningtion provided by SME Corp Malaysia, and candidate firms are invited to submit firm profiles.
The MATRADE Technical Committee evaluates (including factory audit visit) and selects
appropriate firms.

Source: The author’s research based on information provided by MATRADE (interviews, website, etc.).

‒ 45 ‒

Two MATRADE staff—one trade expert and one program officer—jointly provide handholding support. There are about 20 trade experts in MATRADE. Customized business coaching is facilitated by
MATRADE officers who act as coaches and focal point for reference to the firms in their export venture.
Coaches are experienced officers with extensive knowledge and experiences in export promotion. This
arrangement is supported by MATRADE officers who serve as project officers responsible for the firms’
files and records.
3-2-5. Taiwan: Helping to create local industrial clusters
In 1989, SME Administration (SMEA) under the Ministry of Economic Affairs started “One Town,
One Product (OTOP)”. OTOP is based on “One Village One Product (OVOP)” of Japan,7 and aims tocreate high-value, high-image local cultural products for tourists and export markets under the “Taiwan
OTOP” brand name. The program helps each town or city to develop local cultural products with history,
culture, or uniqueness. Examples of industries and products include tea, ceramics, glass, pastry, bamboo,
and so on.
The scope of support services covers Research and Development (R&D), remaking traditional products, workflow re-engineering, branding, packaging, store display, tourism linkage creation, marketing (4OTOP shops, website, media, advertisement, trade shows, etc.). There are Taiwan OTOP Series Awards
including the OTOP Product Design Awards, the OTOP Select Tours Awards, and the OTOP Quality
Business Awards.
The SMEA dispatches a group of experts to target communities for three years. These experts areengaged in identifying local needs and assessing existing resources and missing factors, then conducting local consensus building and training for the development of specialty industries. Once the direction
is agreed, the experts provide comprehensive assistance to strengthen business and promote products.
Achieving growth and sustainability under community ownership is the ultimate goal of the OTOP program. Key features of this handholding program are as follows.
Table 3-6: Key Features of Taiwan (SMEA)’s OTOP Program• Promote and develop local cultural industries. Especially, aimed at creating high-value,Goalhigh-image local cultural products for tourism and export markets.
• So far, 286 featured towns have been sucessfully coached.

Duration• Three years

Eligibility/
Screening• SMEA dispatches a group of experts to target communities for three years.

Costs

N.A.

Source: The author’s research based on the information on SMEA’s OTOP (website).
7

Japan’s OVOP program is a community-centered and demand-driven regional economic development approach, initiated by
Oita Prefecture.

‒ 46 ‒

Chapter 3: Handholding for Enterprise Capacity Building

3-3. Findings from the Selected Handholding Programs in East Asia
Table 3-7 compares the above mentioned handholding programs practiced in four East Asian countries. Although these programs differ in terms of goals, target sectors and duration etc., they share key
features which make handholding programs work.
Table 3-7: Comparison of Selected Handholding Programs in East Asia
Country/
AgencyGoal

Target Sector

Duration

Screening

Fee

Service
ProvidersJapan/JETRO

Overseas FDI
promotion of
SMEs

All sectors

2 + years

Yes

Actual expenses 1 JETRO officer + 1
only (Expert costs business expert
paid by JETRO)Japan/JETRO

SME export
promotion"Only one"technology& products
preferred

Preparation
period + 2
years

Yes

Actual expenses 1 JETRO officer + 1
only (Expert costs business expert
paid by JETRO)

Korea/KOTRA

SME export
All sectors
promotion1) Increase
global export
competence2) Export
expansion1) NA2) 1 year (upto 3 years)

Yes1) Free
KOTRA HQ +2) Yes (2.5m–3.5m overseas offices
won/year)1) 1
 trade expert(hired by HQ)2) overseas offices(main role)

All sectors(high-value,high-tech &knowledge
preferred)

3 years

Yes

Free (All costs
paid by MATRADE)

2 MATRADE officers(1 program officer +1 trade expert)

One Town, One High-value,
Product
high-image
local cultural
products

3 yearsYes

N.A.

A group of experts

Malaysia/ SME export
MATRADE promotion

Taiwan/SMEA

Source: The author’s researchFirst, the four East Asian countries already possess basic functions for supporting industrial development and enterprise capacity building. They have specialized agencies and a number of industrial experts.
For example, JETRO, KOTRA, and MATRADE constantly organize trade missions, business matching,exhibitions and seminars and disseminate market information and survey results, to strengthen export
capability and promote overseas investment of SMEs in respective countries. Taiwan’s SMEA also havestandard support services for local SMEs. Handholding programs fully utilize the agencies’ existing functions and provide comprehensive support to high-potential firms to achieve policy objectives.
Second, there exist mechanisms for evaluating enterprise capability (e.g., databases, enterprise diagnostic tools, frequent contacts with firms) so that agencies can properly screen high potential and willingfirms. In some cases, agencies select candidate firms through an open competition process; in other cases,
they invite shortlisted firms to apply for handholding. Regardless of such differences, it is important thatagencies have access to reliable data and information on individual SMEs.
‒ 47 ‒

For example, JETRO has close contacts with nationwide SMEs through JETRO offices located inalmost all prefectures in Japan. JETRO also utilizes information provided by other organizations, suchas METI and the Organization for Small & Medium Enterprises and Regional Innovation (SMRJ). In theselection process, they always interview general directors of candidate firms to examine their commitment.
KOTRA uses the results of the GCL Test to provide customized support to match the export preparednessof individual SMEs. MATRADE has a database of SMEs and an enterprise rating assessment system (suchas ERCA). It also utilizes information provided by SME Corp. Malaysia, which has day-to-day contacts
with local SMEs. In the selection process, MATRADE staff visits candidate firms to verify their businessactivities.
Third, many handholding programs are implemented by joint teams composed of the agency’s program officer and specialized experts (either internal staff or outside specialists). The program officer plays
an important role in linking the need of a particular SME with the agency’s existing support functions andinstitutional networks. For example, JETRO forms joint teams consisting of a JETRO staff and an external
specialist when it implements its two handholding programs. KOTRA’s “Global Growth Ladder” support
is managed jointly by the head office and overseas offices, with the latter specializing in the knowledge of
local markets and infrastructure/logistic support. MATRADE’s “New Exporters Development Program” isalso implemented by joint teams consisting of two officers, i.e., a program staff and a trade specialist, withthe latter having extensive global knowledge and overseas experiences.
As such, handholding is one of the most advanced and labor- and knowledge- intensive forms ofenterprise assistance. To implement full-fledged handholding programs, there must be a sufficient numberof industrial and global business specialists, as well as functioning agencies which can provide basic enterprise assistance. It also requires rigorous coordination, both internally and externally. In Japan and South
Korea, there are many industry specialists in the private sector (including retired professionals), with richexperiences of overseas businesses. They have deep knowledge of specific countries, regions, and/or technical matters, and this is why JETRO and KOTRA actively utilize external advisors as mentors.
Nevertheless, as the Malaysian experience suggests, it is possible to design handholding programs
step by step, starting with limited scope, in accordance with the country’s institutional capacity. The number of target firms under MATRADE’s “New Exporters Development Program” is 24, much smaller thanthose of JETRO and KOTRA. MATRADE mobilizes internal trade specialists as mentors and uses existing support services within the organization. By comparison, JETRO and KOTRA provide all types ofcustomized support and advisory services to targeted SMEs by mobilizing a number of external specialists.
3-4. Recommendations for Future Steps of Ethiopia
Ethiopia is yet to have a sufficient number of industry experts or functions like Japan and Korea.
Therefore, handholding needs to be introduced in proper speed and steps without overburdening existing
human and institutional resources. At the same time, it should be noted that over the past decade, Ethio‒ 48 ‒

Chapter 3: Handholding for Enterprise Capacity Building

pia has made important progress in strengthening industrial capacity in priority sectors—for example, by
establishing technical institutes such as the Leather Industry Development Institute (LIDI), the Textile
Industry Development Institute (TIDI), the Metals Industry Development Institute (MIDI), and so on.
Furthermore, in 2011 the Ethiopian Kaizen Institute (EKI) was created to promote Kaizen concepts andconduct company diagnosis and consultation, and training of Kaizen experts. In 2014, the Ethiopian Investment Agency (EIA)8 was restructured and upgraded to the Ethiopian Investment Commission (EIC)
to improve its services for promoting private investment, particularly inviting FDI to Ethiopia. In early
2016, the Federal Small and Medium Manufacturing Industry Development Agency (FeSMMIDA) was
placed in the Ministry of Industry to upgrade the manufacturing capacity of local SMEs. Building on suchachievements, Ethiopia should start handholding in a small and pragmatic way, using existing industrial
consultative services.
The following issues may be worth considering for the Ethiopian government in introducing handholding programs.
First, handholding should be started on a pilot basis during GTP II, by helping a limited number ofcarefully chosen firms and by combining the existing industrial services (e.g., TIDI, LIDI, MIDI, EKI,
EIC, FeSMMIDA). If successful, the pilot program can be scaled up to dozens of firms or more. Foreign
experts may be initially mobilized to assist in planning and operation of a pilot program. Over time, theirexpertise must be transferred to Ethiopians (they should not just teach firms and leave).
Second, a database of high-potential firms should be created to systematically evaluate enterprise
capacity and screen candidate firms for handholding. The list of good kaizen-practicing firms, the list of
productivity award winning companies in the past, and the list of firms evaluated highly by TIDI, LIDI,
MIDI, EKI, EIC, FeSMMIDA, and other institutions should be integrated. For example, it would be nice tocreate a database of Excellent Ethiopian Companies for facilitating enterprise matching as well as choosing
candidate firms for handholding. It is also important to update the information contained in the databasethrough regular contacts and visits to firms. EKI, EIC, FeSMMIDA, TIDI, LIDI, and MIDI already continuously monitor and support companies in their responsibilities, which is a great asset in Ethiopian industrial policy. Creating and operating a database that is used widely is a challenge. A proper agency should be
assigned for institutional coordination and database maintenance.
Third, it is vitally important to further enhance existing industrial support services. EIC, EKI, FeSMMIDA, TIDI, LIDI, MIDI and other technical support institutes should be strengthened continuously interms of functions, staff and budget. The scope of enterprise support should be also broadened to strengthen additional institutions and cover management, external networking activities, and financial support to
SMEs. When basic support for management, kaizen, technology, and finance become all available up to8

EIA was created in 1992 under the Ministry of Industry. Subsequently, major restructuring took place in 2014 to enhance its
service quality, and the new EIC has become an autonomous government institution accountable to the country’s Investment
Board chaired by the Prime Minister.

‒ 49 ‒

certain standards and a number of industry experts are nurtured, Ethiopia should begin handholding by
combining these support services. It should be possible to think of various policy objectives such as: breaking into new export markets, creation of FDI/buyer linkage, import substitution, transformation of local
service companies into manufacturers, and creation of champion products/companies. A lead agency canbe assigned for each handholding program. Joint teams should be formed to intensively support selected
Ethiopian firms, with the lead agency coordinating the existing support services in collaboration with othertechnical institutes.
Izumi Ohno (GRIPS)

References
Japan External Trade Organization (JETRO) (n.d.). Senmonka ni yoru shinkokoku shinshutsu kobetsu shien [Customized Support Service for Overseas Investment to Emerging Economies by Experts]. Retrieved December 26, 2013, from https://www.jetro.go.jp/ext_images//news/announcement/20130301699-news/new.pdf (in Japanese)
JETRO (n.d.). Yushutsu yubo anken shien [Promising Export Support Service]. Retrieved November 10,
2015, from https://www.jetro.go.jp/services/export.html (in Japanese)
Korea Trade-Investment Promotion Agency (KOTRA) (2015). KOTRA Integrated Sustainability Report
2014: Global Business Platform. KOTRA Report 15-022.
Malaysia External Trade Development Corporation (MATRADE) (n.d.). New Exporters Development.
Retrieved November 10, 2015, from http://www.matrade.gov.my/en/malaysian-exporters/services-for-exporters/exporters-development/new-exporters-development
Ministry of Economic Affairs (n.d.). Taiwan OTOP International Marketing Alliance. Republic of China.
Retrieved from http://global.otop.tw/
Prime Minister of Japan and His Cabinet (2013, June 14). Japan Revitalization Strategy: JAPAN is BACK
(Provisional). Retrieved from https://www.kantei.go.jp/jp/singi/keizaisaisei/pdf/en_saikou_jpn_
hon.pdf‒ 50 ‒

Chapter 4 The Champion Product Approach and Country Branding

Export promotion is a top priority in national development efforts in Ethiopia. Since the early 2000s,
the government has introduced a number of policy measures, such as targeted support of a few export-oriented sectors, creation of sector-specific institutes, and monitoring of export performance by the Monthly
Export Steering Committee, chaired by the Prime Minister. While these are important and laudable efforts,
they have largely focused on supply-side measures. In the future, Ethiopia needs to broaden the scope of
its export promotion, paying greater attention to market demand and product quality.
During the course of the second phase of bilateral industrial policy dialogue, the concept of champion
products was presented by the Japan International Cooperation Agency (JICA) in 2012, and a series of pilot initiatives were launched jointly by the Ethiopian and Japanese teams. ‘Champion product’ is defined asa premium good, unique to Ethiopia and difficult for other countries to copy. Product uniqueness must be
rooted in Ethiopian life and culture (Yuzawa 2012). A champion product is created when these conditions
are met in a product that responds appropriately to foreign market demand.
This chapter discusses (i) the concept of champion products and an approach to creating such products; (ii) an approach to the enhancement of country branding, and (iii) lessons learned from JICA’s experience of providing ongoing support of champion product creation in Ethiopia, including brand development of “Ethiopian Highland Leather.” The chapter also discusses related successful experiences of threeother countries: the UK (Harris Tweed, Scotland), Japan (Imabari Towel, Ehime), and Sweden (country
branding) and identifies useful implications for Ethiopia.
4-1. The Champion Product Approach
4-1-1. The Champion Product Approach: Export Promotion Through “Champion Products”
The Champion Product Approach (CPA) is strongly customer-oriented export promotion strategy.
A champion product is a unique, world-best product which embodies a country’s culture and historicalbackground. More specifically, the main features of CPA are as follows.
•	Focus on branding and promotion: CPA mainly focuses on branding and promotion activities
which provide private companies (exporters) with readily available market information. CPA enables private companies to understand the market situation and identify sales opportunities throughthe analysis of consumer reaction to their products.
•	Market-oriented approach: CPA supports private companies in their efforts to improve their products through the iterative process of gaining an understanding of the market and adapting to consumer demand. It is important to change the mindset of private companies from “sell what you
make” to “make what can be sold.”•	Dealing with product group or sector: CPA focuses on product group or sector rather than individ‒ 51 ‒

uals. In most cases, individual private companies in developing countries are not strong enough topenetrate the export market by themselves. Group branding enables them to create visualizationsof the value of the products, which individual companies could not do. In that light, champion
products must be selected in an integrated manner, and they should be coordinated under the identified concept of the group brand (FASID 2014).
Table 4-1 shows a framework of standard export promotion initiatives, and Table 4-2 shows the
position of CPA and related components and activities in that framework. CPA focuses on the branding
and promotion of champion products to identify sales opportunities for those products. However, after aperiod of continuous pilot implementation of CPA in Ethiopia with JICA support (see section 4-3), it has
become clear that there is a need for concurrent work on other aspects of export promotion initiatives (e.g.,technical assistance on production management to improve quality, export deal support for inexperienced
exporters) in parallel with CPA activities. In addition, it is important to work on overall country branding
which provides a foundation for export promotion for champion products by means of the improved country image. This is explained in detail in subsequent sections.
Table 4-1: Framework of Standard Export Promotion Initiatives
Framework
Upstream

TargetImproving
the enabling
environment· All

Raisingawareness· Non-intender

Building
export readiness

Examples of export promotion initiatives· Developing market information services· Developing certiﬁed export advisors· Optimizing customs procedures· Improving access to ﬁnancial services· Organizing seminars on general understanding andbeneﬁts of export (e.g., by introducing successful cases)· Providing information on available export promotion support· Providing ﬁnancial support / technical assistance to· Intenderimprove production management· New exporter · Providing ﬁnancial support/technical assistance forcompliance with certiﬁcation required by importing countries

Identifying sales
opportunities

Closing
export deals
Downstream· Intender
Providing ﬁnancial support for participation in trade shows· New exporter ·· Dispatching/receiving trade missions· Experienced · Setting up and running showrooms
exporter· Providing technical support for business talks· Intender· New exporter · Providing learning opportunities regarding export procedures

ExportSource: FASID (2014) based on Nathan Association Inc. (2004)‒ 52 ‒

Chapter 4: The Champion Product Approach and Country Branding

Table 4-2: CPA Components and Implementation Activities

UpStream

Framework

Components

Activities

Improving
the enabling
environment

Developing a
CP concept· Decide on a CP concept that is “Only One, Best

Raisingawareness

Building
export readiness

Organizing an
Implementation
Body
Develop
brandcomponents

Select CP
candidates
Identifying sales
opportunities
Conduct apromotion
Closing
export deals
Downstream

ExportReview theﬂowOne, with Unique Story”· Organizing a taskforce with members including

government, chamber of commerce and private
enterprises· Creation of brand promise, brand name, logo, andcopy, based on the concept developed· Selection of CP candidates according to theselection criteria and the CP concept· Creation of promotion tools such as booklets andwebpages, and dispatch of a mission to othercountries to participate in tradeshows andconduct test marketing· Review and evaluation based on the issues identiﬁed
through marketing activities and research, andreporting of proposals for further implementation

Source: Revision based on FASID (2014)

4-1-2. Essence of Good Brand: Brand Name, Logo and a Promise to the Consumer
In today’s globalized world, consumers can choose freely from the wide variety of products on themarket. If a product is to survive in such a competitive market, it must have a message with powerful consumer appeal.
Generally, a brand has components including brand name, logo, design, and trademark. However,
CPA recognizes that the essence of a good brand is not those brand elements, but rather a promise to consumers that is inherent in the brand. A brand promise is based on various supporting brand assets, which
are unique aspects of the products. It is important to communicate brand promise to consumers.
A brand promise has two components, brand vision and brand system (Figure 4-1). The brand visionconsists of the aspects that the brand wishes to convey to the consumer, for example, unique historicalbackground, craftsmanship and the passion behind the product. The brand system consists of the rules
for brand operation, including quality standards, guidelines and brand management organization. Brand
system may in some cases be certified by government or other institutions as laws or public regulations.

‒ 53 ‒

Figure 4-1: Brand Promise: Brand Vision + Brand System

Source: FASID and Dentsu Inc.(2015a)

Harris Tweed is a famous hand woven pure virgin wool textile originating in Scotland. It is a typicalexample of a good brand with a strong message, and its branding strategy is in alignment with the conceptof CPA. Harris Tweed’s brand promise is the continuing production of the highest quality hand woven
tweed by the authentic craftsmen of the Outer Hebrides of Scotland.
Harris Tweed has a long history, over 100 years, passed down through the generations. Its production
process remains unchanged so as to protect the traditional techniques, and no mass-production machinerymay be used in any process. Only the products produced by the islanders in their homes in the Outer Hebrides of Scotland can be authorized as Harris Tweed. These brand assets relating to the history, the people,
and the passion behind the products frame the brand vision of Harris Tweed.
There is also a concrete Harris Tweed brand system. Harris Tweed is the only textile in the worldthat is officially protected by an Act of Parliament (the 1993 Harris Tweed Act of Parliament). Means ofprotection for the production area and the cultural tradition are specified in the act. To maintain quality,
the Harris Tweed Authority, the body governing the brand, was established and strict rules and conditions
were imposed. (FASID and Dentsu Inc., 2015d)
Figure 4-2. Harris Tweed

Source: Website, “Harris Tweed Authority” from http://www.harristweed.org/‒ 54 ‒

Chapter 4: The Champion Product Approach and Country Branding

4-1-3. Case Study: Imabari Towel Project for Sectoral Brand Development
in Japan– Hospitality and Customer Satisfaction
4-1-3-1. Background
Imabari City is a small city located in the northern part of Ehime Prefecture on Shikoku Island inJapan. The city has been in the towel manufacturing industry for 120 years. Thanks to its abundant groundwater, mild climate, and location suitable for international trade, Imabari City developed into a major towel production center in Japan. However, since the late 1980s, the import of cheap mass-produced towels
imported from China to Japan has increased drastically. Towel production volume decreased significantly,
and many Japanese manufacturers closed down because of the intense cost competition from imported
towels and because of the shrinking domestic market. Towel manufacturers demanded that the government implement Textile Safeguard1 to protect the local towel industry, but the government did not comply.
Responding to the challenging circumstances, local towel manufacturers united to overcome the crisis. In
2006 the Ministry of Economy, Trade, and Industry (METI), adopted the Imabari Towel Project under theJapan Brand Development Assistance Program. The project was implemented by Imabari City’s Chamberof Commerce in cooperation with the local government and the Shikoku Towel Industrial Association(STIA).
The Japan Brand Development Assistance Program is a government program started in 2004 for the
purpose of supporting small and medium enterprises (SMEs). It is implemented by the Small and Medium Enterprise Agency (SMEA) under METI. The program assists SMEs to develop overseas market byenhancing their local products and related technologies and then promoting “Japan Brand.” To that end, it
provides financial support to SMEs for such activities as marketing strategy formulation, product development and participation in overseas exhibitions (SMEA n.d.).
STIA, established in 1952, provides a variety of services to local towel manufacturers, including
training, research, group purchasing, and banking. At present, 112 companies and 2,488 employees (anaverage of 22 employees per company) are members of STIA and the total yearly production of member
companies is 17.2 billion yen (in recent years, a yearly average of 150 million yen (about $1.3 million))(STIA 2014, 2015).
4-1-3-2. Branding work
(1) Identification of brand vision, brand system and brand promise
The project focused on heartfelt hospitality and customer satisfaction, emphasizing the long history of
the industry, the abundant nature of the region, and the people working in the towel manufacturing industry
in Imabari City. This emphasis yielded the brand vision of Imabari Towel, developed with the support of
STIA and the government (see the following sections). The brand system includes rules and regulations
1

In accordance with the WTO Textile Agreement, Textile Safeguard restricted the import of textile products so as to protect thedomestic textile industry, though there was no precedent for such an action in Japan.

‒ 55 ‒

for maintaining quality, a variety of promotional tools, and the brand management organizational structure.
Reflecting the brand vision and brand system, the brand promises were fashioned so as to offer consumers positive emotions and customer satisfaction. Imabari Towel promises its consumers sustained originality, quality and technology and ongoing exploration for new materials and design.
(2) Brand mark and logo
The brand mark, developed for the purpose of sending the Imabari Towel message to the world, symbolizes originality, quality, and technology. It also expresses the strong will of the towel manufacturers
to consistently fulfil their brand promise. The brand mark was created by a well-known professional art
director. Red (passion, innovation, and the rising sun), blue (quality, reliability, and shining ocean), andwhite (gentleness, cleanliness, and clouds in the sky) were selected as the symbolic image colors.
Figure 4-3: Imabari Towel logo

Source: Imabari Textile Resource Center Co., Ltd. (2015)(3) Quality assurance
Only products that fulfill the conditions set by STIA may use the Imabari Towel brand: they must be
produced by STIA member companies, the weaving and dyeing processes must be carried out in Imabari
City, and the set standard of quality must be met so as to ensure customer satisfaction. STIA has establishedthe detailed criteria for inspection, including water absorbency, thread loss rate and pile tear resistance.
Regarding water absorbency, a one centimeter test piece floated on water must sink within five seconds.
Each company is required to submit quality inspection reports to STIA.
In Japan, private manufacturing companies often have their own in-house certification systems. If
an in-house certification system is deemed to satisfy standard criteria and is acknowledged as worthy ofpromotion for industrial skills development, the Ministry of Health, Labor and Welfare (MHLW) officiallyauthorizes that certification system, and the company is permitted to indicate that authorization on its products. This serves to motivate workers and contributes to further skills development (MHLW n.d.). STIA
is implementing its In-house Certification Testing system in order to sustain the capability of local towelindustry, and thus maintain the image of the Imabari Towel brand.

‒ 56 ‒

Chapter 4: The Champion Product Approach and Country Branding(4) Human resource development: the Towel Sommelier / Towel Meister system
This project has paid great attention to human resource development. The “Towel Sommelier” system
was launched in 2007. Towel Sommeliers, who play an important role in marketing, are certified towel
advisors with specialist knowledge about towels. STIA regularly provides towel sommelier training andpublishes newsletters for certified sommeliers.
The “Towel Meister” system was established in 2008. Towel Meisters, selected from among skilled
engineers of STIA member companies, must have more than 20 years of experience in the towel industry
and must have a vocational training instructor license. They are expected to contribute to technology transfer and the fostering of young engineers for the local towel industry.
(5) Marketing and promotion
The active use of media tools such as TV and newspaper has enabled Imabari Towel to attract consumer interest. STIA and member companies have attended various foreign exhibitions, including Habitare (Helsinki, 2009), Macef Fair (Milan, 2011-2013), International Gift Fair (Shanghai, 2011), Japanese
Sweet Fair (Taipei, 2013) and 100% Design Show (London, 2014) (Imabari Textile Resource Center Co.,
Ltd. 2015).
4-1-3-3. Achievements and lessons learned
Imabari Towel production rose by 18.6% between 2009 and 2013, and sales increased accordingly.
Investment in related industries such as dyeing, sewing and printing also increased, and local industry
experienced an overall revival. The variety of activities for the branding and promotion of Imabari Towel
increased coordination in the sector and had a positive impact on the reconstruction of the industry value
chain; costs were reduced and local towel manufacturers were able to add value to their products. The
export volume also increased, especially for exports to the United States and Europe. Three main factors
contributed to the success of the Imabari Towel Project. Firstly, Imabari Towel products are by naturechampion products, given their high quality and uniqueness. Secondly, the towel manufacturers participating in the project recognized each other not as competitors but as partners. Thirdly, this project was
not a one-off effort, but an ongoing one with active participation by various stakeholders under the strong
leadership of STIA (STIA 2014, 2015).

‒ 57 ‒

Figure 4-4: Towel Production in Imabari City
(ton)

15000
14000
13000
12000
11000
10000
9000

12207

10546
in 1991: 50,456
in 1998: 31,515

11298
10276
9381

11146

10014
9851

10020

8000
1991 1998 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Shikoku Towel Industrial Association (STIA) (2015)

4-2. Country Branding
4-2-1. Country Branding: Transforming the Country Image to Improve Export Competitiveness
The CPA concept is based on the premise that every country has potential champion products. However, especially for developing countries, it is difficult to change a negative country image such as a placeof hunger and poverty. Even if a country has a variety of unique, high quality products with the potential to
be champion products, the majority of consumers in the global market may have difficulty distinguishingthat country from others. In that regard, overall country branding is important for differentiating a country
from others so as to improve its export marketing competency through an enhanced country image.
There are numerous cases of country branding in different countries. While some of those branding
efforts were not aimed directly at export promotion, they serve to illustrate ways of changing a country’s
image. For example, Spain’s “Everything under the Sun” campaign in the 1980s and the “100% Pure New
Zealand” campaign in the 2000s significantly raised tourist numbers and contributed to an increase in tourism-related foreign currency earnings in those countries. In each case, the improved country image would
clearly have a positive impact on the country’s export competitiveness.
4-2-2. Case Study: Swedish Country Branding—Society, Innovation, Creativity andSustainability
4-2-2-1. Background
The Swedish government’s view of its culture and people can be seen in Swedish policy, establishedin 2009 (Proposition 2009/10:3), which states that all the people have the opportunity to participate in cultural life. Creativity, variety and quality of arts are considered to be essential parts of social development.
Culture is defined as the dynamic, challenging and independent force of a country (Swedish Arts Counciln.d.).
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Chapter 4: The Champion Product Approach and Country Branding

The Council for the Promotion of Sweden (Nämnden för Sverigefrämjande i Utlandet: NSU) is composed of five government agencies: the Ministry of Foreign Affairs (MOFA); Visit Sweden; the Ministryof Enterprise, Energy and Communications; Business Sweden; and the Swedish Institute.2 NSU’s main
work is the country branding of Sweden. NSU developed “Strategy for the Promotion of Sweden Abroad,”which identifies four profile areas of focus in the strategy, namely, society, innovation, creativity and sustainability. The Swedish government has a policy of respect for the individual and freedom of expression;
this supports people’s innovative and creative activities which are rooted in the country’s history of sophisticated arts and design (Board for promoting Sweden abroad 2014).
4-2-2-2. Branding work
(1) Twitter campaign
In 2011 the Swedish Institute and Visit Sweden launched a social media campaign called “Curators of
Sweden.” During that campaign, the government’s official twitter account (@Sweden) was handled by thegeneral public. A different spokesperson managed the account each week, presenting the life and views ofvarious persons as manifestations of the country’s creativity and innovativeness. A variety of people wereselected as spokespersons, including designers, engineers and farmers. The government fully entrusted thecontents of the posts to the spokespersons, reflecting the belief that the country image of Sweden is decided
by the people themselves, and that government intervention in the country image is not appropriate. The
Curators of Sweden campaign was broadcast all over the world and received many public relations awards,
including a Clio and a Cannes Lion in 2012 (Swedish Institute n.d.).
(2) Visual identity toolkit
In 2013, the NSU developed its Visual Identity Toolkit based on a design that could be shared nationwide for the purpose of promoting Sweden. A guideline on the use of the graphic profile, including
primary colors, typeface and logo, was published on the website. This toolkit can and should be used in
all communications related to the country image of Sweden. There are only a few simple rules because the
NSU, with its policy of respecting the people’s creativity and innovativeness, wants people to express thecountry image of Sweden themselves (Council for the Promotion of Sweden n.d.)2Visit Sweden is Sweden’s tourism and travel information agency. Business Sweden is Sweden’s agency for trade and investment. The Swedish Institute is an agency for the promotion of and exchange about various issues, including culture, society,research, higher education, business, innovation, democracy and global development.

‒ 59 ‒

Figure 4-5: Visual Identity Toolkit

Source: Website, “Identitytool for Sweden” from http://sweden.identitytool.com/(3) Financial support for artists
Public financial support for cultural institutions and individual artists, which is the responsibility ofboth central and local governments, is another important aspect of Swedish policy. For example, the Swedish Arts Grants Committee (SAGC) is a government agency that provides financial support for artists anddesigners so that they can pursue their work. Such governmental support also contributes to the creativity
and innovativeness of the country.
4-2-2-3. Achievements and lessons learned
Sweden has developed a powerful country brand anchored in the country’s creativity and innovativeness. Sweden has been always ranked among the most creative countries in global rankings such as theMartin Prosperity Institute’s Global Creativity Index. The government’s recognition of the importance ofcountry branding and its efforts to work with the people reflect its belief that country image also contributes to the country’s export competitiveness, as exemplified by many Swedish global companies, including
Ikea, H&M, Volvo and Ericsson.
4-3. JICA’s Branding Support and Ongoing Practice in Ethiopia
To support the adoption of the concepts of CPA and country branding, JICA is conducting a varietyof activities in cooperation with the Ethiopian government and private companies in Ethiopia. These activities are still developing; the following is a summary of the progress and results of the branding support
as of January 2016.

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Chapter 4: The Champion Product Approach and Country Branding

4-3-1. Preparatory Phase: Study of the Champion Product Approach
In January 2012, during the first High-Level Forum of the second phase of Ethiopia-Japan industrial
policy dialogue, the concept of champion products was presented by a Japanese expert, Mr. Saburo Yuzawa (Executive Managing Director, Institute for International Trade and Investment) as an example of astrategic and market-oriented approach to export promotion. Subsequently, in July 2012, JICA organized aseminar in Addis Ababa on the CPA concept, in collaboration with the Ministry of Industry and the Addis
Ababa Chamber of Commerce and Sectoral Association. The seminar was received enthusiastically by the
Ethiopian participants. A follow-up survey to identify potential champion products was conducted by ajoint Japan-Ethiopia team. After field research and interviews with international buyers, some candidate
champion products were identified in various sectors, including textiles, agro-products and leather.
A series of CPA seminars were held local private companies participating. There was discussion ofvarious issues, including the importance of human resource development and the need for government
support. In order to promote exports to Japan in the future, JICA provided selected local companies withinformation on marketing know-how and the quality requirements of the Japanese market.
In May 2013, a number of Ethiopian private companies cooperated in the display of candidate champion products at African Fair 2013, a side event of the Fifth Tokyo International Conference on African
Development (TICAD V), held in Yokohama. In addition, test marketing was conducted at prominent
Japanese department stores.
Through these activities, three main challenges were identified: (i) the difficulty of CPA implementation without a specific implementation entity; (ii) the need for clarification of the target market and a focus
on prioritized sectors, and (iii) the necessity of working on overall country branding in parallel with thepromotion of champion products. JICA and Ethiopian partners then began work on two initiatives: “Ethiopian Highland Leather” and “Creativity in Motion.” After several discussions, the Ethiopian Investment
Commission (EIC), as a governmental institution, took the overall initiative in implementing CPA andcountry branding.
4-3-2. Brand Development of Ethiopian Highland Leather
4-3-2-1. Branding work
(1) Quick review and market research
The target sector for pilot branding and CPA promotion activities was decided by means of the following two-step approach.
Step 1: Quick review
As a starting point, five sectors (leather, textile, jewelry, agro-products and coffee) selected as candidates in the preparatory phase were analyzed, based on the following three criteria.

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1.	Uniqueness and originality: Products in this sector must be unique and original so that they can be
distinguished from the products of other countries.
2.	Suitability for branding approach: It must appear likely that branding activities could increase thevalue of these products.
3.	Competitive environment: It must be possible to penetrate the target market, so there is a need todetermine whether or not an oligopoly is present.
Based on the results of the quick review, leather and textile sectors were selected. Agro-products andcoffee sectors were thought not suitable for the branding approach. The jewelry sector seemed likely tohave problems in terms of the competitive environment. In-depth market research was conducted for thetwo sectors selected.
Step 2: In-depth market research
The two sectors selected were evaluated in terms of the research items listed in Table 4-3 through aliterature review, interviews and field research.
Table 4-3: Research Items and Indicators for In-Depth Market ResearchStand Point

MarketCompetitor

Research Items

Main indicators

Industry structure and value chain

The situation of entities including manufacturers,
wholesalers and retailers

Market size and growth

Demand by target customers, consumption, import
volumeMarket characteristics

Consumer needs, demand for QCD (Quality, Cost
Delivery)Competitive environment

Number of competitors, market share

Entry barriers

Trade barriers, legal barriers

Source: FASID and Dentsu Inc. (2015a)

Results of the analysis indicated that the Ethiopian textile sector was less competitive in the Japanesemarket than the Chinese and Indian sectors. Due to the good evaluation of Ethiopian sheep leather and thepossibility of penetration of the Japanese market, the leather sector was selected as a target for branding
and promotion activities.
(2) Identification of brand promise
Ethiopian sheep leather is unique in its lightness, thinness, softness and durability. It can only bemade in the highlands of Ethiopia. To make the most of these characteristics, a brand promise was chosenthat had the potential to change the conventional image of leather (e.g., hard, heavy) through the presentation of this high quality sheep leather which offers new value to consumers.
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Chapter 4: The Champion Product Approach and Country Branding

Ethiopian people’s creativity and long history of leather industry are existing brand assets that contribute to the framing of the brand vision. JICA and Ethiopian partners are now working to establish abrand system for brand management and quality assurance.
(3) Brand name, logo mark and trademark registration“Ethiopian Highland Leather” was decided as the brand name, and the logo mark, shown in Figure
4-6, was developed to express the originality of Ethiopian sheep leather by focusing on the highland geographical form.
Figure 4-6: Logo markSource: FASID and Dentsu Inc. (2015b)

To support the marketing of Ethiopian Highland Leather, a brand leaflet was produced for use as apromotion tool.
Figure 4-7: “Ethiopian Highland Leather” brand leaflet

Source: FASID and Dentsu Inc. (2015b)

With the aim of protecting the brand developed and to ensure further expansion of Ethiopian Highland Leather products, JICA and the Ethiopian government decided to register Ethiopian Highland Leather
as a trademark in both Japan and Ethiopia.
(4) Trade fair participation and follow-up
In July 2015, selected private companies (leather products and tannery) from Ethiopia participated inJapan’s biggest fashion fair, the JFW International Fashion Fair (JFW-IFF), together with representativesof the Leather Industry Development Institute (LIDI), a governmental institution under the Ministry ofIndustry (MOI).
‒ 63 ‒

During the 3 days of JFW-IFF, Ethiopian companies had about 150 business meetings. As a result,some companies have entered into official business negotiations with Japanese buyers. However, many
challenges arose related to the actual conduct of business because the Ethiopian companies lacked experience. They often could not satisfy Japanese buyers because of difficulty responding to buyer demands ina timely manner. The JICA team supported the Ethiopian companies in their negotiations with Japanesebuyers by coordinating responses to these challenges in a flexible manner so as to strengthen the companies’ business capability.
4-3-2-2. Achievements and lessons learned as of January 2016
During the JFW-IFF, Ethiopian private companies successfully attracted many Japanese buyers. Ethiopian Highland Leather proved worthy of promotion as a champion product. Since then, actual businessnegotiations have continued with the support of the JICA team. Private companies and the Ethiopian
Leather Industries Association (ELIA) are now actively involved in CPA activities. The positive change ofmindset is particularly visible in the private sector.
On the other hand, Ethiopian private companies still face many challenges related to initiating business with Japanese buyers, including insufficient product quality, mismatch of lot size and buyer demand,lack of experience in international trade and difference in business mindset between Ethiopia and Japan. It
is important that private companies take responsibility for developing their own capability. However, it isalso necessary that the government develop a support system for private sector initiatives.
More specifically, there is a need to establish a brand system for the management of the Ethiopian
Highland Leather brand through cooperation between the private sector and the Ethiopian government. A
brand guide providing instruction in the management of developed brands is planned for publication. The
guide would include the roles and functions of stakeholders for brand management and specific ways ofestablishing ongoing branding and promotion activities.
4-3-3. The Ethiopian Country Brand: “Creativity in Motion”
4-3-3-1. Branding work
(1) Identification of the concept
In parallel with the branding and promotion of Ethiopian Highland Leather, JICA and its Ethiopian
partners have also begun work on country branding. After discussions among stakeholders, Ethiopia’s
uniqueness was clarified, as shown in Table 4-4. In order to improve the image of Ethiopian as a country,
the concept “Creativity in Motion” was established as the country brand. The concept serves as a reminder of the fact that Ethiopia is the birthplace of humanity and has a long history of craftsmanship. It also
symbolizes the dynamic economic development taking place in Ethiopia today. It represents Ethiopian
creativity and dynamism and capacity to generate new creations.

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Chapter 4: The Champion Product Approach and Country Branding

Table 4-4: Ethiopian Uniqueness as a Focus of Country Branding
History/origin• Ethiopia’s unique geographical features• Where human beings originated• Ethiopia, among African countries, stands out for its history and culture.

Tradition/culture• Stock seeds/origins of various agricultural products (e.g., coffee, honey,
ginger)• Traditional wisdom and techniques

People/Human resources• Enthusiasm and honesty• Craftsmanship (proficiency)

Vision• A strong vision as a foundation for the growth of the country• Leadership among African countries

Light manufacturing industry • Textile industry
showing a remarkable growth • Leather industryrate• Jewelry goods• Agricultural produce• Processed food products
Source: FASID and Dentsu Inc. (2015b)(2) Creation of country image movie and website
JICA supported the creation of a country image movie based on the concept of “Creativity in Motion.” This movie features in the in-flight entertainment program of the Ethiopian Airline, which began
regular flights between Ethiopia and Japan in April 2015.
To introduce Ethiopian champion products and the brand concept of “Creativity in Motion” a website
was also launched. This website can be updated by all the stakeholders in Ethiopian champion products,
including the government and private companies, and it is expected to serve as a platform in which everyone can participate. In that sense it could support the dissemination of the story behind each champion
product, and could function as a collective showcase for the Ethiopian manufacturing sector, continuously
attracting the attention of global consumers.

Figure 4-8: Image Movie and Website of “Creativity in Motion”

Source: Website, “Creativity in Motion ETHIOPIA” from http://ethiopiancreation.com/‒ 65 ‒

4-3-3-2. Achievements and lessons learned as of January 2016
“Creativity in Motion” activities surely contributed to the improvement of Ethiopia’s country image.
For example, when the movie was screened at trade fairs and other events, many people reported that theirimage of Ethiopia had changed for the better. As well, the movie appears to have motivated Ethiopian
stakeholders to work on country branding. For example, the Ministry of Trade (MOT) made a similar
movie for promotion in an international coffee event.
Nevertheless, challenges remain. While the concept of “Creativity in Motion” received positive recognition, it has not yet been fully utilized. The status of the Ethiopian country image is still uncertain. The
image movie should be used at more events, and the website should be actively updated by the Ethiopian
manufacturers of champion products, with public support when necessary. Ongoing efforts are necessary
for successful country branding. A country image cannot be improved without the active engagement of
the government; there is a need to strengthen coordination among government institutions, including EIC,
MOT and the Ministry of Foreign Affairs (MOFA), to ensure the continuation of these activities.
Masaaki Hamada (JICA/FASID)

References
Board for promoting Sweden abroad (2014). Strategy for the Promotion of Sweden Abroad. Board for
promoting Sweden aboard. Retrieved December 1, 2015, from http://sharingsweden.se/wp-content/
uploads/2015/06/Sverigefoldern-engelska-i-A5-format.pdf
Council for the Promotion of Sweden (n.d.). Identity Tool for Sweden. Retrieved December 1, 2015, fromhttp://sweden.identitytool.com/
Foundation for Advanced Study on International Development (FASID) (2014). Introduction of Champion
Product Approach Case of Ethiopian Export Strategy.
FASID and Dentsu Inc. (2015a). Champion syohin apurochi jissen shien chosa [Implementation Supportof Champion Product Approach] (Phase 2) Progress Report (in Japanese).
FASID and Dentsu Inc. (2015b). Champion syohin apurochi jissen sien chosa [Implementation Support ofChampion Product Approach] (Phase 2) Interim Report (in Japanese).
FASID and Dentsu Inc. (2015c). Echiopia hikaku seihin no hompo shijou deno ryutsu ni muketa chosabunseki [Research and Analysis for Ethiopian Leather Products to Penetrate in Japanese Market] (inJapanese).
FASID and Dentsu Inc. (2015d). Realization of the Brand. Presented at the training program implemented
in the Implementation Support of Champion Product Approach, Tokyo, July 17 2015.

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Imabari Textile Resource Center Co., Ltd. (2015). About us: imabari towel flavored by the heartfelt hospitality that only Japanese can materialize. Retrieved December 1, 2015, from http://imabaritoweljapan.com/about/index.html
Ministry of Health, Labour and Welfare (MHLW) (n.d.). Shanai kente ninte sedo ni tsuite [In-house Certification Testing System]. Retrieved December 1, 2015, from http://www.mhlw.go.jp/stf/seisakunitsuite/bunya/koyou_roudou/shokugyounouryoku/ability_skill/syanai/index.html (in Japanese)
Nathan Association Inc. (2004) Best Practices in Export Promotion. USAID. Retrieved April 1, 2016,
from http://pdf.usaid.gov/pdf_docs/Pnadf539.pdf
Shikoku Towel Industrial Association (STIA) (2014). Imabari taoru burandeingu-purojekuto ni yoru sanchi no fukkatsu to aratana torikumi [Rebirth of Local Industry and New Action by Imabari Towel
Branding Project]. Document distributed at the forth “Growth and Development working group”
of Cabinet Office, Government of Japan, Tokyo, July 30, 2014. Retrieved December 1, 2015, fromhttp://www5.cao.go.jp/keizai-shimon/kaigi/special/future/wg1/0730/shiryou_03_2.pdf (in Japanese)
STIA (2015). Imabari taoru purojekuto: kishikaisei no burando senryaku [Imabari Towel Project: Miracle
Brand Strategy]. Presented at the training program implemented in the Implementation Support ofChampion Product Approach, Tokyo, July 17, 2015 (in Japanese)
Small and Medium Enterprise Agency (SMEA) (n.d.) Japan Burando ikusei shien jigyo [Japan Brand Development Assistance Program]. Retrieved December 1, 2015, from http://www.chusho.meti.go.jp/
shogyo/chiiki/japan_brand/ (in Japanese)
Swedish Arts Council (n.d). Cultural Policy in Sweden. Retrieved December 1, 2015, from http://www.
kulturradet.se/en/In-English/Cultural-policy/
Swedish Institute (n.d.). Curators of Sweden. Retrieved December 1, 2015, from http://curatorsofsweden.
com/
Yuzawa, Saburo (2012). What’s Champion Product & Why it Promotes Ethiopia’s Exports. Presented at
the Seminar on Strategic Export Promotion, Addis Ababa, Ethiopia, July 31, 2012. Retrieved fromhttp://www.grips.ac.jp/forum/af-growth/support_ethiopia/document/2012.08_ET_GH/SEM/
120731_1_MrYuzawa.pdf‒ 67 ‒

Chapter 5
Investment Promotion Experience of Asian Latest Comers and JICA

It is widely accepted that foreign direct investment (FDI) contributes to national development in developing countries in various ways—not only through inflow of foreign capital, but also through aspects
including employment creation, technology transfer and export promotion. In this ever more interconnected world, the positive effects of FDI on the development of developing countries have been intensifying,especially since the turn of the millennium.
This chapter (i) provides an overview the experience of the Japan International Cooperation Agency(JICA) in supporting investment promotion for developing countries; (ii) identifies some distinct practices of the so-called Asian “latest comers”; and (iii) draws implications for Ethiopia based on the lessons
learned from examination of those practices.
5-1. JICA’s Experience in Investment Promotion in Developing Countries
To maximize the benefits of FDI for national development, JICA has been providing investment
promotion assistance to private companies in developing countries in Asia, Africa and elsewhere, taking
the “private sector development” approach to economic development, that leverages private sector vitality(JICA 2016 forthcoming).
5-1-1. Basic approach to assistance in investment promotion
JICA’s investment promotion assistance consists of three main approaches (Figure 5-1): (i) investment policy reform; (ii) investment climate improvement; and (iii) capacity building for effective investment promotion. These three interrelated approaches are aimed at contributing to increased investment indeveloping countries, and in turn contribute to the development of those countries.
Figure 5-1: JICA’s Major Approaches to Investment Promotion Assistance

Effective
investment
promotion
Increased
investment
Quantity

Quality

Investment Climate
improvement
Source: Homma (2013)‒ 69 ‒

IPA’s
capacitybuilding

JICA’s assistance

Development

Investment policy reform(1) Investment policy reform
Investment promotion requires a comprehensive approach. It must be supported by national policy
planning and be backed by a sound legal and regulatory policy framework. Investment policy reform isnecessary for the creation of that policy framework, which constitutes the upper stream of the comprehensive approach and is essential to the direction of investment promotion in developing countries; at the sametime, the framework needs to be pragmatic rather than ideological.
A good example of JICA’s support for national policy planning is the Ethiopia-Japan Industrial Policy Dialogue program. In the second year of Phase 2 of that program (2011-2015), strong emphasis wasplaced on investment promotion. Later, practical issues such as FDI-linked technology transfer and industrial zone development were discussed.
Another recent example of JICA assistance in investment policy and planning is the program in
Myanmar, aimed at supporting the establishment and implementation of the “Long-term FDI Promotion
Plan” (FDIPP). FDIPP is intended to provide input for, or to be integrated into, the country’s National
Comprehensive Development Plan (NCDP) 2010-2030. The FDIPP was drafted by Myanmar’s Directorate of Investment and Company Administration (DICA) of the Ministry of National Planning and Economic Development, supported by JICA in 2013-2014. It is now in the implementation stage with the support
of a JICA investment promotion advisor, dispatched to DICA in 2014.
Regarding legal and regulatory policy framework, Myanmar is again a good example of JICA assistance. For example, JICA supported the drafting of the new Special Economic Zone Law (enacted in 2014)
and the associated Special Economic Zone Rules.
(2) Investment climate improvement
While there are various approaches to investment climate improvement, this section focuses on two
fundamental aspects, hard and soft. The hard aspect is mainly concerned with infrastructure development
for investment, and the soft aspect is related to the creation of a platform for bilateral public-private sector
dialogue (often referred to as “joint initiative”).
Economic infrastructure, in particular electric power, transportation (roads, railways, ports and aviation), telecommunication, water and sewage, and industrial parks, is indispensable for attracting investment. Insufficient provision of infrastructure, in either quantity or quality, is normally regarded as thelargest obstacle to investment in developing countries. JICA/JBIC (2008) emphasizes that in many Asian
countries, investment in infrastructure by government and in the form of Official Development Assistance(ODA) by Japan and other donor countries significantly contributed to the creation of a foundation forindustrialization, and in turn to long-term economic growth.
In terms of the soft aspect, in several Asian countries where Japanese investment is active, joint initiatives for public-private sector dialogue between the investment host country and Japan have been set
up. These joint initiatives regularly discuss prominent investment climate issues such as taxation, customs,‒ 70 ‒

Chapter 5: Investment Promotion Experience of Asian Latest Comers and JICA

labor, human resources and government procedures. Vietnam is the host country most widely recognized
as having such a dialogue platform, and similar platforms have been established in Indonesia, Cambodia,
Lao People’s Democratic Republic (Lao PDR) and Myanmar.
(3) Capacity building for effective investment promotion
At the implementation stage, an investment promotion agency (IPA) should be the key governmentalorganization charged directly with investment promotion activities. IPAs often serve to coordinate multiple organizations in efforts towards investment promotion and the framing of regulations.
Capacity building such as that by IPAs is a typical JICA approach to effective investment promotion.
Investment promotion advisors (sometimes referred to as investment policy advisors, investment advisorsor similar titles) are dispatched to major Asian countries on a long-term basis (Figure 5-2). Some countries,
for example Indonesia, have been hosting such advisors since the 1980s. As well, the number of investment promotion advisors dispatched by JICA to the African continent is rapidly increasing, honoring acommitment made at the Fifth Tokyo International Conference on African Development (TICAD V) in2013 (Figure 5-3).
Figure 5-2: JICA Investment Promotion Advisors in Asia (ongoing projects)

Source: JICA (2016 forthcoming)‒ 71 ‒

Figure 5-3: JICA Investment Promotion Advisors in Africa (ongoing projects)

Source: JICA (2016 forthcoming)

In some countries, depending on needs and timing, larger scale cooperation takes the form of technical cooperation projects. Cambodia is a case in point: its long list of actions at the early stages of the JICA
project present a possible model for capacity building for effective investment promotion by the Cambodian IPA (Table 5-1). The Cambodian IPA’s capacity building approach consists of five activities: (i)investment information provision; (ii) public relations activities; (iii) investment consultation and aftercare
service; (iv) policy advocacy; and (v) organization and management.
Many IPAs offer one-stop service (OSS) and host OSS centers to simplify investment procedures andprovide efficient investor service by bringing representatives of related ministries and governmental agencies together in one place. JICA’s IPA capacity building assistance often includes this OSS functionality.

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Chapter 5: Investment Promotion Experience of Asian Latest Comers and JICA

Table 5-1: Action Plans Proposed for IPA’s Capacity Building in JICA Cambodia Project
Actions for Investment Information Services
Action 1

Periodical update of investment guidebook

Action 2

Periodical update of website

Action 3

Periodical update of QIP manual for investors

Action 4

Establishment of a library of investment-related information & data

Actions for PR Activities
Action 5

Set-up if units specialized in investment promotion of target countries

Action 6

Improvement of investment seminar management

Action 7

Training of provincial governments on investment promotion

Actions for Investment Consultation and Aftercare Services
Action 8Upgrading of reception desk (Investors Desk)

Action 9

Introduction of an investment approval tracking system

Action 10

Establishment and capacity development of aftercare service

Actions for Policy Advocacy
Action 11

Formulation of a proposal for investment climate improvement

Actions for Organization and Management
Action 12

Preparation and implementation of organizational reform

Action 13

Preparation of job description & job flow to enhance investment promotion function

Action 14

Introduction of task management system for effective provision of service

Action 15

Introduction of annual planning and budgeting mechanism

Action 16

Planning and implementation of training program

Source: Homma (2013) and JICA and KRI (2010)(4) Comprehensive approach toward ultimate target
The three approaches presented in the sections above are closely related. For example, the legal
framework considered as a necessary part of investment policy can be also considered an important foundation element for a sound investment climate. Enforcement of such a legal framework requires IPA capacity building.
As indicated in Figure 5-1, JICA takes three approaches to increasing FDI (in terms of both quantityand quality) in a host country: (i) investment policy reform, (ii) investment climate improvement and (iii)capacity building for effective investment promotion. “Quality investment” often refers to FDI that maximizes the benefits of investment for the host country’s development, for example, employment creation,technology transfer, new industry creation, and environmental/social benefits.
In conclusion, the above three approaches to FDI promotion are considered essential. They involve
activities including preparation of a sound environment for investors to do business in the country, publicizing the country’s attractiveness and providing investment-related information for potential investors.
In reality, however, country-specific factors strongly influence investors’ decisions regarding investment
in a particular country. These factors include geographical and geopolitical position, demographic market
potential, availability of natural resources, global economic conditions and commodity demand, specificeconomic conditions such as exchange rate and oil price, and peace and security.
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5-1-2. Good practices and recent updates(1) Investment promotion: the “Triangle of Hope” approach in Zambia
Zambia has been making efforts to reduce its dependency on mineral resources and to diversify its
economic structure. The Zambian government regards investment promotion in various sectors as one ofthe primary means of achieving those goals. To contribute to the country’s economic diversification, JICA
has been providing comprehensive investment promotion support through a project called “Triangle ofHope” (TOH).1 The triangle, symbolizing a combination of (i) government will, (ii) streamlined public
administration, and (iii) private sector participation (Figure 5-4), was devised by the former Deputy Headof the Malaysian Industrial Development Agency (MIDA),2 who served as JICA consultant for the project.
Figure 5-4: JICA’s Investment Promotion Support throughthe “Triangle of Hope” Approach in Zambia

Source: Homma (2013)

Contributions and achievements of the project can be summarized as follows (JICA 2012; Homma
2013). First, the project brought 9 investment projects to Zambia, one of them worth over $200 million.
These projects include Africa’s first mobile phone factory; a large-scale university with investments by
Malaysian investors; and a hospital project created with investments from an Indian medical enterprisegroup. Second, the project diversified investment away from the mining sector towards non-traditional
investment sectors such as education and health. Third, the project contributed to the improvement of thecountry’s business environment: Zambia was identified as the world’s number 7 reformer in Doing Busi1

2

JICA’s assistance, first initiated as the “Project for Triangle of Hope, Strategic Action Initiative for Economic Development(TOH-SAIED)” (referred to as the Phase 1 Project), was implemented from 2006 to 2009. The Phase 2 Project, the “Zambia
Investment Promotion Project – Triangle of Hope – (ZIPP –ToH),” was implemented from 2009 to 2012.
MIDA was renamed the Malaysian Investment Development Authority in 2011.

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Chapter 5: Investment Promotion Experience of Asian Latest Comers and JICA

ness 2011 (World Bank and IFC 2010). Fourth, the project contributed to a dramatic increase of FDI inflow
into Zambia (FDI inflow in 2011 was 4 times that in 2006). Finally, the project enhanced the IPA capacityof the Zambia Development Agency (ZDA)3 and improved its investor services.
These results reflect the strong will of the government led by the late President Dr. Levy Patrick
Mwanawasa. Under his direction, 12 taskforces were formed, and 12 Action Agendas were prepared forenhancements in 12 diversified areas.4
Throughout its period of cooperative involvement, the JICA project focused on capacity building
for the Zambian government, in particular ZDA, in the form of streamlining public administration forinvestment approval by reforming the investment application process, preparing manuals and guidelines,
establishing one-stop shops, monitoring processes by tracer studies and others. The project also supported
promotional activities, for example, dispatching targeted investment promotion missions for Malaysia,
India, South Africa and Japan and preparing promotional materials such as guidebooks, websites and sector/project profiles. Some missions were implemented in the form of public-private joint missions. These
activities contributed to the encouragement of private sector participation in investment in Zambia, even in
sectors traditionally not considered to be associated with private investment.
The success of the TOH approach illustrates the importance of integrated investment promotion efforts at the policy-making level and the implementation level. This innovative approach is substantiallydifferent from that taken in earlier efforts in this area. It is suggested that the TOH approach, including
investment diversification, presents a potential solution for natural resource-rich African countries in needof economic diversification.
(2) Myanmar Long-term FDI Promotion Plan (FDIPP)In Myanmar in 2013-2014, JICA assisted DICA in drafting the Long-term Foreign Direct Investment
Promotion Plan (FDIPP). Assistance took the form of a series of surveys, interviews, document analyses
and workshops for consultation with various stakeholders (details in 5-1-1. (1)).
The objectives of FDIPP are to determine the direction of Myanmar’s first comprehensive policy for
FDI promotion and to outline a transparent roadmap for the achievement of the overall goals of the government, thus contributing to Myanmar’s further development and integration into the global economy.
FDIPP aims to streamline its vision, goals and strategies by means of a framework corresponding tothat of the National Comprehensive Development Plan (NCDP) 2010-2030. FDIPP will not give priority
3

4

ZDA was established under Zambia’s Ministry of Commerce, Trade and Industry through a merger of five governmental
agencies, Zambia Privatisation Agency, Zambia Investment Centre, Export Board of Zambia, Zambia Export Processing Zones
Authority and the Small Enterprises Development Board. Although the ZDA has multiple functions, the basic function ofpromoting inward FDI as an IPA does not significantly differ from that of IPAs in other countries, which are established exclusively for investment promotion purposes.
The 12 areas are as follows: education, medical and health, tourism, agriculture, cotton, banking and finance, air cargo hubs
and inland ports, government streamlining, information and communication technology (ICT), Multi Facility Economic Zone
(MFEZ), mining and micro, small and medium enterprises (MSME).

‒ 75 ‒

to any specific sector; rather, each sector’s strategy should be respected and the efforts of DICA and therelevant line ministries should be coordinated.
FDIPP is utilized as an input for the next 5-year national development plan. Implementation of the
FDIPP action plans is already under way. The first inter-ministerial task force team was officially appointed in September 2015 to launch one of those action plans, Public-Private Partnership (PPP). The task force
team, headed by the Director General of DICA, involves more than 10 relevant ministries/organizations.
Currently, the team holds a number of regular opportunities for learning about PPP with the support of
JICA, and conducts intensive discussions to lay a foundation for PPP framework.
Figure 5-5: Structure of Draft of Myanmar Long-term FDI Promotion Plan (FDIPP)VISION:
Dyanmic economic growth led by FDI worth
USD140 billion during the period of 2014–2030

VISION

Short-Term (2015) with Target Amount :US$ 4 billion/year
In crease of FDI to achieve access to the Global Supply Chain for
Myanmar’s economy and to contributes to the development of thedomestic market as well as export.

Mid-Term (2016–2020): with Target Amount :US$ 6 billion/year

GOALS
with
TARGETS

NCDP]

Ofﬁcial paper to support
NCDP• FESR]• Five year plan (2011–15)• Economic framework by
National Transport Master
Plan

Achievement of comparative advantages in the AEC withinternationally-recognized requtation and realization of demestic
industrial diversiﬁcation.

Long Term (2021–2030): with Target Amount :US$ 8 billion/year (2021–2025),
US$ 11 billion/year (2026–2030)

Sector Plans

Development of industrial agglomeration through continuous
FDI-led industrial development with sophisticated infrastructure
and multi-layered supporting industries that contributing as thecore driver of Myanmar’s sustainable economic growth

Strategy 1: Strengthening of the Legal Foundation
I) Relaxing the Restrictive ProvisionsII) Improvement of Legal Provisional Consistency
III) Improvement of Transparensy and Efﬁciency in Law enforcement

STRATEGIES
followed by
ACTION
PLAN

Strategy 2: Investment Facilitation for Industrial Development
I) Facilitation of FDI’s Portfolio Needs for Global Supply Chain (GSC)
II) Facilitation of FDI in Diversiﬁcation of Industry
III) Facilitation of Infrastructure (hard and soft) DevelopmentIV) Facilitation of Technology Transfer and Human Resource Development
Strategy 3: Widening Investment Opportunities
I) Wider opportunities for FDI in public sectors
II) Extensive dialogue among stakeholders
NCDP: National Comprehensive Development Plan, FESR Framework for Economic and Social Reform]

Source: JICA, ALMEC, IDCJ, and DIR (2014)‒ 76 ‒

Chapter 5: Investment Promotion Experience of Asian Latest Comers and JICA

(3) Myanmar-Japan Joint Initiative (MJJI)
The Myanmar-Japan Joint Initiative (MJJI) is a forum for bilateral discussions between Myanmar andJapan, involving both public and private sectors, to identify concrete measures for promoting investment
and trade, and to lead to a “quick win” in Myanmar through accelerated improvement of the investment
environment. MJJI has met 2-3 times a year since its inception in 2013.
A wide range of issues is discussed at MJJI (Japanese draft of “Action Plan”), including concretemeasures and the target schedule for necessary efforts in the following 9 areas.5i) 	 Visas and stay permits (visa issuance rules, simplified operation)ii)	Trade policy (further relaxation of trade regulations, reduction of import-related tax, tax exemptions and speedy customs clearance)iii)	Investor-friendly environment (legal measures for investor protection and development of thefinancial and security markets)iv) Taxation (review of various tax systems)v)	Infrastructure improvement (improvement of urban transportation, power supply and telecommunication; review of relevant rules governing the construction business)vi)	Abolition of unfavorable treatment of foreigners and foreign companies (foreigners’ price issues, enlargement of sectors for foreigner access)vii) Appropriate insurance system and opening of market to foreign companiesviii) Ensuring resettlement schemes after labor disputesix) Improvement of other administration procedures
5-2. Asian “Latest Comers” to Manufacturing Investment
While some Asian countries, such as Myanmar, Cambodia and Bangladesh, are still in the early stages of economic development, as “latest comers” they have seen rapid growth of inward FDI, particularly
for manufacturing. These countries are currently taking advantage of the competitiveness of their labor(cost and quality) and successfully attracting labor-intensive FDI. They often have schemes to encourage
labor-intensive FDI, as seen in the garment sector (and recently in other labor-intensive manufacturingsectors as well), to support charged-basis processing, in Myanmar in the form of “CMP” (Cutting, Making
and Packing) and in Cambodia as “CMT” (Cut, Make and Trim).
These countries, while enjoying advantages as the major hosts of labor-intensive FDI, are consideringmeans of moving up to the next stage of industrialization so as to sustain inflow of manufacturing FDI, andthus take advantage of regional connectivity.

5

Website of Embassy of Japan in Myanmar (2013). Retrieved December 2015 from http://www.mm.emb-japan.go.jp/profile/english/press/2013-10-02.html‒ 77 ‒

Table 5-2: Asian “Latest Comers” and Ethiopia at a Glance
GDP(Mil USD)

Population(Thousand)GDP per capita(USD)

Doing Business
2016

Myanmar56,40864.932869

167

Cambodia

15,65915.407

1,016

127

Bangladesh

141,275

156.298

904

174

Ethiopia

48,14588.850542

146

Source: IMF (2014) and World Bank Group (2015)

These Asian latest comers may be in similar situations and have similar policy, which can be summarized as follows (Figure 5-6):
i)Establishing a sound legal and regulatory framework;ii)

Enhancing labor-intensive advantage;iii) Exploring industrialization beyond labor-intensive production; andiv) Extending regional investment promotion.
Figure 5-6: Asian Latest Comers to Manufacturing Investmentiii) Exploring industrialization beyond labor-intensiveiv) Extending regional investment promotionii) Enhancing labor-intensive advantagei) Establishing sound legal and regulatory framework
Source: Author prepared.

5-2-1. Establishing a sound legal and regulatory framework
There is a strong need for a sound legal and regulatory framework for the promotion of FDI. These
countries are making great efforts to catch up with other countries through framework reform.
Myanmar made a disappointing debut in the esteemed World Bank Group’s Doing Business ranking.
In the 2014 edition, Myanmar was ranked 182nd among the 189 countries surveyed, and in the heavily
watched “Starting a Business” category was ranked 189th, the bottom of the rankings. Myanmar made extensive reforms, and in the 2016 edition rose to 167th overall and 160th in the Starting a Business category.
In the 2016 edition of the Doing Business Report, Myanmar was identified by the World Bank Group as
the most reformed country in the world in the Starting a Business category. Myanmar almost tripled its‒ 78 ‒

Chapter 5: Investment Promotion Experience of Asian Latest Comers and JICA

previous year’s score in that category. Table 5-3 shows how the country has improved its score throughaccelerated reform.
How did Myanmar manage to move out from the bottom of the bottom? It is important to note theefforts of DICA, which is responsible for investment promotion and business startup procedures. First,
Myanmar learned from the recommendations of previous studies and began implementing the recommendations in a prompt and straight-forward manner. The recommendations included abolishing minimum
capital requirements and reducing processing time. Second, Myanmar listened to the voice of the private
sector and made the reform process more transparent by providing multiple opportunities for consultation
with the private sector. Third, Myanmar utilized international support effectively. Apart from JICA, IFC
assisted Myanmar in the reform of the Investment Law and in formulating a response to the Doing Business report; ADB assisted in reform of the Company Law, and the German Corporation for International
Cooperation (GIZ) assisted in the preparation of procedure flows, guidebooks and capacity building.
Table 5-3: Myanmar Reform Ratings in Doing Business,
Particularly in the Starting a Business Category
Doing Business2016

Doing Business2015

Ranking (overall)

167

177

Ranking (Starting a Business category)

160

189

70.02/100

23.97/100

11

12

7.0

Time (days)

13.0

72.0

25.9

Cost (% of income per capita)

97.1

131.1

23.0

Paid-in min. capital (% of income per capita)

0.0

6,190.1

9.8

MyanmarScore (Starting a Business category)
Procedures (number)

East Asian andPacific average

Source: World Bank Group (2014, 2015)

5-2-2. Enhancing advantage of labor-intensive production
This section presents “CMP” as the well-known scheme for full utilization of labor advantage in
the garment and other industries. In Myanmar, the garment sector—the country’s leading manufacturingindustry—is based on a system of processing, referred to in Myanmar as CMP (for Cutting, Making andPacking). (In Cambodia, it is called CMT: Cut, Make and Trim.) The CMP System is a form of production
on consignment in which main raw materials (fabrics and ancillary materials such as interlining cloth,lining material, buttons and fasteners) are provided by overseas buyers and imported free of charge; thesematerials are then cut, sewn and packed in domestic factories, and finally all of the finished products areexported (Kudo 2012).
Currently, almost half of the FDI projects approved under the Myanmar Investment Commission(MIC) are CMP projects. They are clearly identified as “CMP-basis FDI” at the time of approval. CMP-ba‒ 79 ‒

sis FDI goes mostly to the garment industry, which includes the manufacture of footwear, bags and purses.
This type of FDI is now expanding to other manufacturing sub-sectors such as medical needles and digital
camera parts, although the majority is still in the garment sector.
Figure 5-7: The CMP Process (Cutting, Making and Packing)Overseas buyers (Japan, Korea, China etc.)
Supply raw
materials
free ofcharge(import tax
exemption
allowed)Paymentof CMPcharge(8–10%of FOBvalue)

Exportﬁnishedproducts

X

No needtoprepareforeigncurrency
for buying
materials

CMP businesses (factories)
Cutting, making & packing
Source: Homma (2015)

The CMP consignment processing business emerged when the Asian financial crisis hit the Southeast
Asian countries in 1997 and those countries (including Myanmar) faced rapid deterioration of their foreignexchange positions. The only payment required for this process is the “processing charge” (CMP charge)
from the overseas buyers to the garment factories in Myanmar. The system made it possible for the local
garment manufacturers to import raw materials without export earnings. The system provided a way to
avoid foreign exchange settlement, which is the most difficult issue concerning importation to Myanmar.
5-2-3. Exploring industrialization beyond labor-intensive production
While CMP can be an effective scheme for using labor-intensive advantage, it brings the risks of creating excessive dependency on the import of materials and of crowding out domestic upstream industries
such as textiles and fabric. Furthermore, in global economic history, no country has managed to sustain
competitive labor cost for more than a few decades; Myanmar is unlikely to be an exception. Myanmar
needs to have a strategy for making a smooth transition from CMP-type, labor-intensive production to thenext phase of industrialization by creating a domestic value chain and integrating into the global supply
chain.
Such scenarios and notions are found in Myanmar Industrial Development Vision (MIDV), which
was prepared under MJJI and handed to Myanmar President H.E. Thein Sein by Japanese Prime Minister
H.E. Shinzo Abe in July 2015. MIDV focuses on balanced growth driven by a virtuous cycle between‒ 80 ‒

Chapter 5: Investment Promotion Experience of Asian Latest Comers and JICA

urban and rural development, which essentially can support the creation of an effective linkage between
manufacturing and agriculture. MIDV also takes domestic market expansion into consideration and suggests promising industries for the next five years. These industries include construction material, foodprocessing, textiles, plastic processing and chemicals such as fertilizers.
Figure 5-8: Myanmar Industrial Development Vision (MIDV): Balanced Growth Driven
by a Virtuous Cycle between Urban and Rural Development
Rural Areas

ExportLabor Productivity

Pop. Over 60%
GDP30%

1 : over 3

Industrial growth based oncomparative advantage:
Globally competitive agriculture
with improved productivity
Proper use ofagrochemicals(Eco-friendly agriculture)

Surplus Labor〔

Urban Areas(including SEZs)
Pop. Less than 40%
GDP70%

ExportIndustrial growth based oncomparative advantage:
Labor-intensive industries
with labor supply expansion
Improved urban & industrial
infrastructure (e.g. Electricity)(Environmental / social
consideration up to global
standard)

Reinforced Connectivity:
Improved logistics
Expandingeach other’s market

High Growth Booster〕

Source: METI (2015)

5-2-4. Extending regional investment promotion
Considering further development through investment promotion, it is important to pay due attention
to the “regional” approach, in two senses: (i) regional approach beyond the country’s borders for regional
integration; and (ii) regional approach within the country for balanced national development.
(1) Regional approach beyond the country’s borders for regional integration
Regional integration of the Association of Southeast Asian Nations (ASEAN) is under way, and theASEAN Economic Community (AEC) was inaugurated at the end of 2015. Connectivity can be reinforcedby the development of transport infrastructure and logistics networks. Benefitting from such reinforced
connectivity, the “Thailand+1” approach offers numerous opportunities for neighboring countries including Cambodia, Lao PDR and Myanmar to join the global supply chain via inter-process division of laborwith Thailand, where labor costs have already increased. For example, Minebea (a Japanese precision
machinery parts giant which also produces mobile phone components) in Cambodia and Nikon (a major
Japanese optical instruments manufacturer) in Lao PDR set up their factories to perform some of the la‒ 81 ‒bor-intensive processes previously done in their mother factories in Thailand and deliver semi-finishedproducts back to Thai mother factories after the labor-intensive processes are complete. Although thisinvolves logistics costs, the competitive labor cost advantage of those countries compared to Thailand canoffset those costs and even generate profits.
(2) Regional approach within the country for balanced national development
Firstly, Thailand, Vietnam and a number of other countries have taken a zone-based approach which
offers better fiscal incentives for investment in remote areas. Myanmar is also about to adopt the zoning
approach and plans to create three zones. Myanmar’s main intention is to attract investors for untapped
opportunities in the outlying states/regions and thus achieve balanced national economic growth.
Secondly, a number of countries, including Vietnam and Indonesia have attempted decentralizationof investment approval authority to outlying regions. Such decentralization could lead the regions to compete to provide the best conditions for potential investors. This would create a need for enhanced administrative capacity in regional governments and regional IPAs, whose capacity is generally lower than thatof national organizations.
However, the timing and phasing of the above-mentioned two approaches must be considered carefully. The aforementioned Asian countries created a firm foundation for attracting FDI in the commercial
center city and established industrial areas before extending their scope to outlying regions.
5-3. Implications for Ethiopia
As discussed in this chapter, there are various approaches to promoting investment, in particular FDI,
and the experiences of JICA and Asian “latest comers” offer useful lessons for Ethiopia’s ongoing industrialization efforts.
Firstly, in order to attract FDI and create sound conditions under which FDI can contribute effectively to national development, multiple components of investment promotion must be taken simultaneously
and coordinated, ranging from policy making to investment climate improvement, capacity building, andeffective implementation. The TOH approach (introduced in 5-1-2) emphasizes this comprehensivenessand serves to bring national resources into investment promotion, even in sectors previously consideredunrelated to private investment (Figure 5-4). The experience of JICA’s basic approach has made it clearthat investment policy reform, investment climate improvement and capacity building of IPAs need to becoordinated effectively (Figure 5-1). Such coordination requires strong initiative at high levels of government (as in the TOH case) and effective guiding documents (e.g., FDIPP). Ethiopia has already takena strong initial step by reorganizing the Ethiopian Investment Agency (EIA) as the Ethiopian Investment
Commission (EIC), under the leadership of the highest level of government. The next step should likely
be the creation of a guide for the formation of investment promotion policy, based on the Second Growthand Transformation Plan (GTP II).
‒ 82 ‒

Chapter 5: Investment Promotion Experience of Asian Latest Comers and JICA

Secondly, policy and its implementation should be carefully designed in terms of timing and order,reflecting the country’s unique comparative advantage and national agenda. For example, while CMP is a
powerful scheme for boosting investment in labor-intensive industry, careful consideration is needed as tohow and with what timing to exit and take a phased approach to encourage the shift from labor-intensive
downstream industries to upstream industries. When the Zambian economy needed to exit from over-dependency on mineral resources, the timing was right for economic diversification under the TOH program.
In the case of Ethiopia, the time is now right to focus on light manufacturing, which should be the primary
focus of the Ethiopian economy in the coming decades.
Thirdly, where domestic capacity is insufficient, development cooperation is called for. Investment
promotion requires the involvement of a wide variety of governmental and other organizations and theirpersonnel, which in many developing countries are generally lacking capacity. Each development partner
has unique programs and experience. The example of Myanmar, which achieved the status of world’s best
reforming country, points to the usefulness of multi-sourcing of development cooperation. Japan and JICA
have accumulated several decades of experience in investment promotion in Asian countries, and more
recently in African countries. This experience is of great benefit, as seen in the Ethiopia-Japan Industrial
Policy Dialogue program. In Ethiopia, EIC has been given high level authority, but it still has insufficient
staff and organizational capacity. Capacity building of EIC—both quantitatively and qualitatively—is urgently required.
Finally, this kind of learning exercise must be sustained as other countries accumulate experience,and good practices and lessons emerge over time. Learning is not a static, but a dynamic process. Ethiopia
is rapidly developing, and each lesson learned will take on different values over time.
Toru Homma (JICA)

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6

Published before October 2008 when the new JICA was launched as a merger of the former JICA and the ODA loan functionof the former JBIC.

‒ 84 ‒