Land of the Rising Sun: Doing Business in Japan
ASIA BUSINESS FACTSBUSINESS TIPSJAPAN
Many people from around the world wonder why Japan is called the land of the rising sun. Is this because Japan is the first country to see the sun? In Japanese, the country is called Nihon (Nippon). Both Nihon and Japan originate from the same words; they literally mean “where the sun rises”.
In the past year, the Japanese economy faced a series of challenges including a historic plunge in the yen’s value against the U.S. dollar and decades-high inflation. Despite predictions for major economies, including the U.S., to face difficulties due to a series of rate hike campaigns to contain inflation, the outlook for the Japanese economy is looking quite positive in 2023. Economists suggest that the economic future of Japan is promising, with a favorable outlook in comparison to its international counterparts.
Opportunities for Foreign Businesses to do business in Japan
In terms of foreign investment, inward foreign direct investment (FDI) in Japan amounted to approximately 32.53 billion U.S. dollars in 2022. There are various sectors where foreign businesses have found success in Japan. Among these sectors that attracted the most foreign investment were manufacturing, wholesale and retail trade, and information and communication.
The Benefits of Doing Business in Japan
The benefits of doing business in Japan 1: Strong Economy
Japan boasts the third-largest economy in the world by nominal GDP, making it a powerhouse in terms of economic influence. This offers a promising environment for businesses seeking growth and expansion opportunities.
The benefits of doing business in Japan 2: Technological Innovation
Japan is renowned for its technological prowess and commitment to innovation and the willingness of Japanese consumers to adopt new technologies can offer significant opportunities for companies offering innovative products or services. Relevant article: Will Doraemon be realized within 5 years in Japan?
The benefits of doing business in Japan 3: High Consumer Purchasing Power
Japan's citizens enjoy a high standard of living, which translates into significant purchasing power. Japanese consumers are known for their preference for high-quality goods and services, making it an ideal market for businesses that can meet these high standards.
The benefits of doing business in Japan 4: Stable Business Environment
Ranked 29th out of 190 economies in terms of ease of doing business, Japan offers a stable and reliable business environment. The country's strong legal framework protects businesses and investors, while the government is known for its pro-business policies.
"Nemawashi": Building consensus in Japanese Business Culture
What is "Nemawashi" ?
In the world of Japanese business culture, "Nemawashi (根回し)" is an important concept that foreign entrepreneurs need to understand and appreciate. Directly translated, Nemawashi means "root binding", an agricultural term that refers to the process of preparing a tree for transplant. In the business context, Nemawashi is the process of informal, behind-the-scenes consensus-building before meetings. It's a way to ensure smooth decision-making and execution by securing the agreement and support of all relevant parties beforehand. This cultural practice emphasizes harmony, mutual respect, and avoiding conflict, which are all highly valued in Japanese society.
"Nemawashi" might be unfamiliar to those from cultures where decisions are often made in the meeting room, but understanding this Japanese business culture can be a crucial part of navigating the Japanese business landscape. By taking the time to build consensus informally, foreign entrepreneurs can ensure smoother decision-making processes and foster stronger relationships with their Japanese counterparts, ultimately leading to more successful business outcomes. You can't miss Kaizen as well.
The outlook for Japan's economy in 2023 is generally positive, making it an attractive destination for foreign businesses. Though challenges exist, the potential rewards for those who can effectively navigate and adapt to the country's unique business culture are significant. Japan's robust economy, combined with its unique blend of tradition and modernity, offers a wide range of opportunities for foreign entrepreneurs looking to expand their business horizons.
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Challenges in Japan and How to Overcome Them
Even with its numerous benefits, doing business in Japan presents its own set of unique challenges. However, with adequate preparation and understanding, these hurdles can be overcome.
The challenges of doing business in Japan 1: Language Barrier
Despite the global prevalence of English, Japanese is predominantly spoken in Japan. This could lead to communication barriers. Overcoming this obstacle may involve hiring local bilingual staff, investing in language training, or using professional or AI translation services.
The challenges of doing business in Japan 2: Regulatory Challenges
Japan has stringent regulations and standards, which can be difficult to navigate for foreign businesses. It is advisable to engage local experts or legal counsel to understand these regulations.
The challenges of doing business in Japan 3: High Operational Costs
Japan, particularly Tokyo, is known for its high cost of living. This translates to high operational costs, including office rents and salaries. To mitigate this, consider locating in other Japanese cities where costs might be lower or explore flexible workspace options.
The challenges of doing business in Japan 4: Market Entry Difficulties
Entering the Japanese market can be challenging due to the established local competition and unique consumer preferences. A well-thought-out market entry strategy can help overcome this. This could include partnering with local businesses, conducting thorough market research, or hiring local market entry specialists.
The challenges of doing business in Japan 5: Cultural Differences
When it comes to business culture, Japan presents an intriguing paradox. The country is incredibly advanced in terms of technology and infrastructure, yet it is also deeply rooted in traditional cultural approaches in the corporate world. Japanese companies can be innovative and disruptive while also maintaining a strong alignment with traditional hierarchical structures, risk aversion, and a detail-oriented approach.
Timothy Sze is co-founder of ToAsia.biz with over 15 years of Enterprise IT project experience with Global companies especially Japan.