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As the third-largest economy in the world, Japan offers international businesses a considerable market opportunity – one which is made even more significant by the country’s proximity to major Asian nations such as South Korea and China.
“It has an advantageous geographic location that lets any foreign investor operating in the Japanese market facilitate entry to other Asian markets,” explains Daisuke Yamada, Partner, Grant Thornton Taiyo.
Japan’s political stability is another key selling point, Daisuke adds, and the government is committed to maintaining a three-pronged economic policy framework: this comprises bold monetary policy, agile fiscal policy and a national growth strategy.
Japan’s excellent domestic infrastructure and global connections also make it an ideal location for businesses engaging in international trade.
One of Japan’s key strengths, Daisuke adds, is its position as a leader in advanced technology and research & development. “Japan welcomes foreign companies by providing incentives to new R&D and setting up of headquarters in Japan by global companies.”
These incentives include assistance in fund raising, the acceleration of patent examinations and shortened investment procedures.
Daisuke says: “There is also the Regional Business Conference, a project with the aim of facilitating direct investment by foreign and foreign-affiliated companies; and Japan Innovation Bridge, a business platform to facilitate collaboration or alliances between Japanese companies and overseas startups and businesses.”
The most significant growth sectors at present are information and communications technology (ICT), life sciences, energy and the environment, advanced manufacturing and tourism.
Japan has a unique business culture which places an emphasis on values such as punctuality, responsiveness and hospitality, Daisuke explains. “This aspect of the Japanese culture is often misunderstood by foreigners but once they get a good grasp of it, doing business in Japan will greatly contribute to their company’s market share,” he says. “Trust and loyalty are considered as core business virtues in Japan. But this may be considered as a double-edged sword: if one does not earn the trust and loyalty of one’s partners, it would be very difficult to penetrate the Japanese market.”
The country ranks 24th overall on the 2021 International Tax Competitiveness Index. “There are some weaknesses in the tax system,” Daisuke says. “For example, there are poor cost recovery provisions for business investments in machinery and buildings. And it has a hybrid international tax system with a 95% exemption for foreign dividends and no exemption for foreign capital gains, while many OECD countries have moved to a fully territorial system.
“Furthermore, companies are severely limited in the amount of net operating losses they can use to offset future profits.”
Setting up an entity in Japan can also be a drawn-out process: “Organisations are required to communicate with a lot of government offices,” Daisuke says. However, some initiatives are being developed to address this issue. In Tokyo, for example, the One-stop Business Establishment Centre unifies the procedures for foreign companies and start-ups.
Japan meanwhile rates favourably in terms of corruption: the 2019 Corruption Perceptions Index published by Transparency International found it to be the 20th least corrupt nation out of 180 countries.
Financial sector reforms are creating a number of new opportunities for international businesses in Japan, Daisuke adds. “In order to expand Japan’s role as an international financial centre, the government is committed to making its capital markets more attractive with strategic initiatives. It also aims to create an environment that attracts foreign businesses and highly-skilled foreign professionals.”
Japan’s ageing population is a potential source of further opportunities: the government has recently developed a strategy to address this demographic challenge, one element of which is increased usage of new technology to deal with problems associated with ageing.
“Office rental in Japan is cheaper compared to major cities around the world and has the most efficient public transport in the world,” Daisuke points out. “And from the point of view of expatriates, Japan is ranked first in the world as with regard to city safety, while the cost of living is comparable to other well-developed countries.
He adds: “It is also an excellent good tourist destination as it houses the greatest number of Michelin-starred restaurants in the world; and its landscapes and cities are aesthetically beautiful and culturally rich.”
Access a world of resources, connections and expertise to help your international plans
Selling into, supplying or setting up operations in Japan can be a step into the unknown. At Grant Thornton, we have the experience to guide you. Our Japan International Business Centre director can co-ordinate access to international teams, resources and global delivery, while also helping you forge valuable trading relationships in the Japanese market.