Japan is typically considered an elusive place to do business, with a highly regulated, perhaps introspective market, and impenetrable traditions and business conventions. However, with Japanese multinationals dominating the electronics sector and increasingly the auto industry, the second largest GDP in the world (World Bank, 2008) and a programme of financial reform, are the old assumptions still valid?
Challenges and opportunities
According to World Bank criteria, Japan is already the 12th easiest country in the world to do business (World Bank, Doing Business 2009, figure 1) with many European countries trailing behind, such as Belgium (19) Germany (25) Netherlands (26) and France (31). However, within this statistic, there are some hidden challenges which have been particularly apparent during the current period of economic stress. Over the past year, commentators have focused on government support of banking institutions and decisions to lower interest rates as indications of a country’s ability to weather the crisis. In the case of Japan, which already had interest rates scraping zero, reducing rates further was not an option available to the central bank. Furthermore, companies based in, or operating in Japan, have additional challenges. Firing costs are relatively high, making it more difficult for these firms to flex their workforce in line with market demand for their goods and services. Cross-border trade is far more difficult than in many other countries, primarily due to the amount of bureaucracy required and the cost and amount of time taken to import and export goods. While the costs need to be considered relative to GDP, these issues pose additional challenges for a country so dependent on cross-border trade, particularly for key industries such as electronics and automotive, where margins are already narrow and demand has been shaken.
These challenges are in addition to a complex fiscal and regulatory environment, with less flexibility than in other OECD economies. However, despite the complexities and nuances in Japanese business culture, organisations are increasingly taking advantage of the opportunities that exist today for doing better business, and those that are evolving over time.
Domestic and international integration
Companies – and banks – operating in Japan are seeking to become more competitive and adapt the way they do business. This applies to both multinational companies operating in Japan, and Japanese companies. As Ricky Kaura, Head of Treasury Services – Japan at J.P. Morgan explains,
“Over the past six to twelve months in particular, we have seen some significant changes amongst corporates in Japan. Companies are becoming more aggressive in reviewing and revising their treasury activities and the structures they have in place.”