Doing business in Japan

Reasons for doing business in Japan

Economic competitiveness

The World Economic Forum has ranked Japan sixth for global competitiveness in its Global Competitiveness Report for 2019. The country is a strong partner when it comes to international trade and is committed to protecting intellectual property rights.

Japan’s involvement in major trade agreements has contributed to the country’s solid economic performance.

However, Japan’s recent increase in the consumption tax along with global uncertainties (including the ongoing trade disputes between the U.S. and China) could have an adverse effect on the business climate.

Pro-business culture

Business professionals in Japan are known for their strong work ethic and an affinity for teamwork and consensus decision-making. The reason for this may lie in “kaizen”, a philosophy that promotes continuous improvement in all aspects of one’s life. In the business world, you will commonly see an emphasis on cooperation and long-term planning, rather than on individualism and strategies based on disruption.

Innovation and technology

A hub for innovation, Japan ranks third in the world for its spending on research and development. In 2019, the government budgeted 100 billion yen (approximately $920 million) for robotics- and innovation-related programs.

However, there is a need to focus on the softer drivers of innovation—such as entrepreneurship, more creative and critical thinking, and risk-taking—in order for the country to remain an innovation leader.

Infrastructure

Japan’s infrastructure is known for its sophisticated organization and operational efficiency. There is an extensive and well-developed transportation and telecommunications system for the delivery of goods and services. Japan has the second most efficient train service in the world. (Switzerland claims the number one spot.) There are two major airports that support the capital city of Tokyo and two major airports serve the commercial port city of Osaka.

Risks and considerations of doing business in Japan

Ease of doing business

A high level of bureaucracy exists in Japan, which can be frustrating to those who aren’t accustomed to dealing with the red tape. According to the World Bank’s Doing Business report for 2020, Japan ranks number 106 (out of 190 countries) for starting a business. The length of time involved is approximately 11.5 days, and companies must navigate an average of eight different procedures to get their businesses up and running.

Tax system

The World Bank’s Doing Business report ranks Japan number 51 in the area of tax complexity. Conducting business in the Tokyo area, for example, involves 19 tax payments a year, including taxes withheld by the company such as sales tax, VAT and employee-borne labor taxes. The amount of time involved with handling taxes is around 129 hours per year.

Labor

Japan is ranked 104 by the World Economic Forum for hiring and firing flexibility. Low levels of female participation in the workforce, rigid corporate culture and low workforce diversity also play into labor market challenges.

The population is also shrinking. At the current rate, the number of residents is expected to decline from 127 million to under 100 million by 2053 and drop to 88 million by 2065.

Culture

Personal relationships are of high importance in the region, and developing the right connections takes time. A strong existing network can give a business an upper hand in operating in the region.

Politeness is central to the culture, which can often lead to misunderstanding the true meaning behind a remark. For example, Japanese people may not give a clear or direct answer—such as a straightforward “no” —in order to not hurt a person’s feelings or be otherwise perceived as rude. Those unfamiliar with these nuances may take a “yes” at face value, but “yes” may actually mean “I’m undecided” or “I’m not interested”. This scenario has let to many instances of U.S. executives believing their negotiations were successful, only to later learn that the Japanese company did not, in fact, agree to any of their terms.

Cyber risk

Cyber risk is a challenge worldwide and a rising concern in Japan.

“Cyberattacks have been the top international worry among Japanese every year since 2016, surpassing issues such as climate change, North Korea’s nuclear program and neighboring China’s power and influence,” according to The Japan Times.

The frequency of cyberthreats, ransomware and spear-phishing attacks have all increased, according to the National Policy Agency.

There is also a growing need for qualified professionals in the cybersecurity industry to meet service demands in mitigating this threat.

Natural disasters

Japan is located in a major earthquake zone, and natural disasters can create serious disruptions to business. The 2011 earthquake registered 9.1 in magnitude and triggered a major tsunami. Disruptions in the supply chain halted automobile production. The disaster even impacted production in the U.S. because Japan was not able to send the necessary auto parts.

Businesses looking to expand in the region should be aware of the potential impact of a natural disaster and have contingency plans to deal with such an event.

Doing business with greater success

Acquiring enough local knowledge to operate successfully in a new country without difficulty can take many years. That’s why, when you’re ready to expand your business to Japan, it’s essential to work with an experienced partner.

With our experience and global footprint, CT Corporation delivers the products and services you need to keep you compliant as you do business in Japan.