Expanding your business into Japan

Thinking about expanding your business into Japan? Learn more about the cultural differences, benefits and challenges involved with entering this market.

2022-08-30

Japan is the third largest economy in the world, making it quite eye-catching to business owners wishing to make their way into the Asian market. With being in the perfect location for trade, good economic status and fantastic food, who wouldn’t want to expand to the island?

We will discuss the benefits of doing business in Japan, and touch on some challenges that companies will need to consider before venturing into the Japanese market. With this, there are tax rates and regulations that need to be considered as well as the ethics and business culture which will be discussed below.

Benefits of Doing Business in Japan

Besides the beautiful scenery and interesting culture, Japan offers many benefits to businesses wishing to expand into the country. These are the top 4 benefits of doing business in Japan:

1. Open access to the Asian market. Expanding to Japan will allow companies access to numerous flight markets.
2. The Japanese government has recognized the lack of FDI (foreign direct investment) and has taken steps to become more supportive of foreign companies wishing to start their business there.
3. Low Corruption
4. Consumer Loyalty

Access to the Asian Markets

Japan is situated in the northwest Pacific Ocean and is bordered on the West by the Sea of Japan while extending from the Sea of Okhotsk in the North toward the East China Sea, the Philippine Sea, and Taiwan in the South. The country allows businesses access to the biggest parts of the Asian market based on its geographical location alone. Having the third largest economy in the world, Japan offers extensive access to Asian flight markets.

Government Support

Japan is business-friendly when it comes to all formalities. Japan ranked 29th in the world when it comes to ease of doing business in 2021. To promote FDI in Japan, the Japanese government established “Invest Japan Business Support Centers (IBSCs)” within JETRO (Japan External Trade Organisation) to serve as support centres and information on investment. The IBSCs provide information on investment procedures to foreign businesses starting in Japan.

Low Corruption

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.

Consumer Loyalty

The Japanese have very high standards, and this is a constant throughout their lives, including with who they do business. However, once they have established that your company is reputable and adds value, they will appreciate the work that is done. It is important to keep this in mind, as their consumer loyalty extends far and wide.

Challenges of Doing Business in Japan

Many companies are weary about making the move to the Japanese market. Here are the top 4 challenges businesses should consider:

1. Higher standards than what companies are used to
2. Low levels of English outside of the big cities
3. There are some weaknesses in the tax system
4. Recruitment of highly Skilled Japanese employees

Key challenges of entering the Japanese market

High Standards

Many businesses find it difficult to integrate effectively into the Asian markets due to the high standards that they hold. Being a country based on integrity, loyalty and hard work, they hold higher standards to what goods and services are provided to them. If a company does not conduct the proper research into their new consumer base and is not aware of what is expected of them, they may fall victim to their business failing before it has even started. It is imperative to meet these standards and build loyal relationships with clients.

English Outside of the Big Cities

Even though surviving in Japan without speaking Japanese is possible, this may not be as achievable outside of the main cities. Across Japan, 30% of the population is able to speak and understand English, the majority of which is situated in more developed areas such as Tokyo, for example, if you are wishing to move your business to a more remote part of Japan, you should consider adapting your business accordingly or learning the language. (there’s probably an app for that!)

Tax Gaps

Companies are severely limited in the amount of net operating losses they can use to offset future profits.

Recruitment of Highly Skilled Japanese Employees

Incorporating or expanding a business in Japan has traditionally been difficult due to the difficulty of recruiting high-quality Japanese employees. Despite this, foreign companies are perceived as having a more performance-oriented culture, as opposed to the traditional Japanese culture of seniority.

Business Culture in Japan

As a society, the Japanese are technologically advanced and keen to adopt new innovations. Despite the formality and hierarchical nature of Japanese society, decision-making can be much more complicated and time-consuming. This can cause issues during business negotiations. In Japan, punctuality, responsiveness, and hospitality are values that distinguish the culture of business

Japanese Business Ethics

Reputation is critical to doing business in Japan. Everything revolves around personal relationships. Integrity and ethical leadership are key to building trust with the community and your customers.

Tax Rates and Regulations

Domestic and foreign corporations are subject to different rules under the Corporation Tax Act. The country ranks 24th overall on the 2021 International Tax Competitiveness Index.

In conclusion, it is important for businesses that are considering expanding to Japan to do their research to understand Japanese markets. Centuro Global can assist companies with their global expansion strategy and help provide immigration, tax and legal advice to companies who are looking to expand into new markets.