Japan Business Environment

Japan’s industrialized, free-market economy is the third-largest in the world. Japan’s productivity is low in agriculture but is it highly competitive and efficient in products that are linked with international trade. The mature industrial economy of Japan is largely due to the well-educated and industrious work force, high savings and investment rates and foreign trade.

Japan’s agricultural economy is highly subsidized and protected because just 14 percent of its land is suitable for agriculture. That is why the primary products of Japan are cars, computers, cell phones, cameras and electronics.

Two of the most significant events in the history of Japan were the earthquake and the tsunami of 201 1 . Japan’s economy was dealt a devastating blow by the 9-magnitude earthquake and tsunami that hit the country on March 1 1, 2011. Around 30,000 people were dead or missing. 11 out of the 50 nuclear reactors, which supplied one third of the country’s electricity, were closed down.

Source: Carl Weinberg, High Frequency Economics). Rebuilding will raise the productive capacity Of Japan but there would be a substantial increase in national debt.

The damage done by the earthquake and tsunami could be seen in figure 1 (next page). Automakers Toyota, Ionians, Honda, Immunities and Suzuki momentarily suspended production. A total of 21 plants; including Sony, were shut in Japan. Japan’s economy had just only started to pick itself up from the deflationary period and recession. These disasters only added to Japan’s economic challenges of rising inflation, government debt and shrinking labor LOL. Source: AR, “Breach in Reactor,” March 25, 2011).

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The World Bank predicted that the total cost of disaster would be around $100-$325 billion and would take around 5 years to rebuild. Now we would compare the economic growth rate from the 1 ass’s to 201 0 and then compare the trend of economic growth in recent years. The real growth rate shown in the above graph demonstrates that growth rate was stable over the years until 2007, in which there was a drastic fall in the GAP of Japan. This drastic fall is associated with the world recession in which the most developed nations suffered.

Japan repaired the damage done in the previous years in 2009. The GAP in 2009 almost increased by 9% from the previous year. Figureheads: Underlying map from U. S. AID. Casualty and damage data from Japan, National Police Agency. Although, countries try to achieve deflation to keep the prices of goods and services in control, but deflation has been persistent in Japan. The policy makers in Japan believe that a higher inflation rate is the only solution for Japan’s fiscal problems but even achieving a 2% inflation target may not seem enough.

The steady rise in the year 2013 is welcomed by countries’ central inks’ governors as part of the Japanese government’s to overhaul the economy and end 15 years of deflation. Several analysts have attributed the recent increase in inflation to higher energy import costs and not due to increase in consumer spending. A big worry for the economy is that there is wage and consumer goods deflation. The policy makers want to come out with a plan for wage inflation because they feel that if people believe their incomes are higher, then they would be willing to spend money, but this wage inflation right now seems highly unlikely.

Japan’s fiscal condition is not quite DOD among major industrialized countries, with public debts, including those owed by local government expected to reach E. 8 trillion at the end of fiscal 2013. The MIFF has called on Japan to adopt a suitable fiscal plan to reduce the debt. The recently elected prime Minister Shinto Babe’s government is pondering over whether to go ahead with a sales tax increase which would double the rate to 10 percent a vital source of new income; however this could seriously halt his economy boosting plan.

The main economic risk follows from the driving force of the new economic program, the “three rows” of Bionics; fiscal expansion, monetary policy and structural reform. The fiscal tightening is a big risk with the Japanese economy still in tentative recovery. Another major risk facing Japan is the shortage of electricity which could be a limiting factor for manufacturing activity. This was when the nuclear reactors were shut down after the earthquake and tsunami. Another important risk associated with Japan is the decline in the economically active population.

A country like Japan which mostly depends on labor force, will suffer tremendously as this decline in economically active population will become a big risk for investors. CULTURAL ENVIRONMENT Culture of any country greatly influences the dealings of any corporation looking to do business there and Japan is no different. Its unique cultural heritage greatly influences how the business dealings are shaped within the country by its people. Hypotheses Culture Dimensions- Japan: At a score of 54 for Power Distance, Japan is a mildly hierarchical society.

Yes, Japanese are always conscious of their hierarchical position in any social setting and act accordingly. However, it is not as hierarchical as most of the other Asian cultures. Some foreigners experience Japan as extremely hierarchical because of their business experience of painstakingly slow decision making process: all the decisions must be confirmed by each hierarchical layer and finally by the top management in Tokyo. Paradoxically, the exact example of their slow decision making process shows that in Japanese society there is no one top guy who can take decision like in more hierarchical societies.

Another example of not so high power distance is that Japan has always been a meritocracy society. There is a strong notion in the Japanese education system that everybody is born equal and anyone can get head and become anything if he works hard enough. Japan scores 46 on the Individualism dimension. Certainly Japanese society shows many of the characteristics of a collectivist society: such as putting harmony of group above the expression of individual opinions and everyone has a strong sense of shame for losing face. However, it is not as collectivist as most of her Asian neighbors.

The most popular explanation for this is that Japanese society does not have extended family system which forms a base of more collectivist societies such as China and Korea. Japan has been a paternalistic society and the family name and asset was inherited from father to the eldest son. The younger siblings had to leave home and make their own living with their core families. One seemingly paradox example is that Japanese are famous for their loyalty to their companies, while Chinese seem to job hop more easily. However, company loyalty is something which people have chosen for themselves, which is an individualistic thing to do.

You could say that the Japanese in-group is situational. While in more collectivist culture, people are loyal to their inner group by birth, such as their extended family ND their local community. Japanese are experienced as collectivist by Western standards and experienced as individualistic by Asian standards. They are more private and reserved than most other Asians. At 95, Japan is one of the most masculine societies in the world. However, in combination with their mild collectivism, you do not see assertive and competitive individual behaviors which we often associate with masculine culture.

What you see is a severe competition between groups. From very young age at kindergartens, children learn to compete on sports day for their groups (traditionally red team against white team). In corporate Japan, you see that employees are most motivated when they are fighting in a winning team against their competitors. What you also see as an expression of masculinity in Japan is the drive for excellence and perfection in their material production (monotonous) and in material services (hotels and restaurants) and presentation (gift wrapping and food presentation) in every aspect Of life.

Notorious Japanese workaholics is another expression of their masculinity. It is still hard for women to climb up the corporate ladders in Japan with their masculine norm of hard and long working hours. At 92 Japan is one of the most uncertainties avoiding countries on earth. This is often attributed to the fact that Japan is constantly threatened by natural disasters from earthquakes, tsunamis (this is a Japanese word used internationally), typhoons to volcano eruptions. Under these circumstances Japanese learned to prepare themselves for any uncertain situation.

This goes not only for the emergency plan and precautions for sudden natural disasters but also for every other aspects of society. You could say that in Japan anything you do is prescribed for maximum predictability. From cradle to grave, life is highly radicalized and you have a lot of ceremonies. For example, there is opening and closing ceremonies of every school year which are conducted almost exactly the same way everywhere in Japan. At weddings, funerals and other important social events, what people wear and how people should behave are prescribed in great detail in etiquette books.

School teachers and public servants are reluctant to do things without precedence. In corporate Japan, a lot of time and effort is put into feasibility studies and all the risk factors must be worked out before any project can start. Managers ask for all the detailed facts and figures before taking any decision. This high need for uncertainty avoidance is one of the reasons why changes are so difficult to realize in Japan. At 80 Japan scores as one of the long term oriented societies. Japanese see their life as a very short moment in a long history of mankind.

From this perspective, some kind Of fatalism is not strange to the Japanese. You do your best in your life time and that is all what you can do. Notion of the one and only almighty God is not familiar to Japanese. People live their lives guided by virtues and practical good examples. In corporate Japan, you see long term orientation in the constantly high rate of investment in R&D even in economically difficult times, higher own capital rate, priority to steady growth of market share rather than to a quarterly profit, and so on.

They all serve the durability of the companies. The idea behind it is that the companies are not here to make money every quarter for the shareholders, but to serve the stake holders and society at large for many generations to come (e. G. Matthias). Business Dealings in Japan: Firstly, the Japanese community thrives on the principle of community based vying and group orientation is ingrained deep into the roots of all Japanese. Altruism, team-work and group cohesiveness are all areas greatly stressed.

Individual identity is defined by the social group. Consequently, when doing business, the Japanese stress compromise and self-discipline. Community gains are deemed to be better than individual gains in Japanese culture. With its roots in Confucianism, hierarchical structures in the country classify an individual’s position within a group and in society. Status is determined by factors such as age, employment, company and family background. The aerographical system dictates that due respect be afforded to those of higher status.

Behavior of Japanese is varied in accordance with the hierarchical structure of the community. In order to preserve harmony in society and to maintain the clarity of the hierarchical structure, showing respect to others acts as a crucial social lubricant. Respect is conveyed through language, behavior, etiquette, body language and other subtle forms of non-verbal communication. For example, the bow is an integral part of Japanese society. It is used when meeting, getting attention, to show gratitude, to express sympathy or as an apology.

There is heightened sense of formality in Japanese interaction. It is important to use proper titles when addressing someone, so as to establish the position of the other person. The exchanging of business cards when doing business in Japan involves a degree of ceremony. The card is seen to represent the individual, and so is treated with respect. When exchanging the card is offered with both hands or just the right hand. Care must be taken to ensure there is no barrier between the giver of the card and its recipient such as a table, chair or plant.

When accepting two hands should always be used as this shows deference. When doing business in Japan a successful relationship with a Japanese colleague or client is based on three factors: sincerity, compatibility and trustworthiness. Sincerity means that you are compromising; understanding and you want to conduct business on a personal level. Compatibility is established when you are seen to be concerned about the personal relationship, the well-being of the company and not just focused on financial gain. Trustworthiness relates to the faith put in you to protect from loss face.

The emphasis in Japanese culture on maintaining harmony has developed in such a way as to allow very ague forms of expression. The cultural logic behind this is that by avoiding direct or explicit statements one has a better chance of not causing offense. The term “say one, understand ten” applies perfectly to Japanese communication. The Japanese are implicit communicators and expect business partners to have a thorough understanding of the background information pertaining to the topics that are being discussed.

Ignorance is usually viewed as sign of disinterest and lack of commitment; factors which can severely undermine business relations in Japan. Business meetings in Japan are also shaped by cultural influences. In line with group orientation, meetings are done by teams rather than individuals. Each member is part of the team to bring forward their own expertise on a certain area. A senior member in the hierarchical chain is present ceremoniously to represent the company which is in line with the Japanese cultures emphasis on hierarchies and stature.

In meetings, it is expected that greetings be done in descending order with the senior most employee greeted first. Meetings usually take place for only one of three reasons: to build rapport, exchange information or confirm previously made decisions. Decisions are rarely made in a meeting. LEGAL ENVIRONMENT IN JAPAN Import Requirements and Documentation Japanese customs regulations can be cumbersome, difficult to understand, and duplicative, but they are largely mechanical. Nearly all customs difficulties result from first time applications.

Japanese customs officials are generally helpful when it comes to explaining procedures and regulations, and once these are understood and followed, difficulties are usually minimal. It may be necessary to employ an import agent or customs broker to help facilitate customs entry. Certain items may require a Japanese import license. These include hazardous materials, animals, plants, perishables, and in some cases articles of high value. Import quota items also require an import license, usually valid for four months from the date of issuance.

Other necessary documents for IS. S. Exporters may include an Import Declaration Form (Customs Form C-5020) and a certificate of origin if the goods are entitled to favorable duty treatment determined by preferential or h,VETO rates. In practice, shipments from the United States are routinely assessed using WTFO or “temporary/’ rates without a certificate of origin. Any additional documents accessory as proof of compliance with relevant Japanese laws, standards, and regulations at the time of import may also apply.

Correct packing, marking, and labeling are critical to smooth customs clearance in Japan. Straw packing materials are prohibited. Documents required for customs clearance in Japan include standard shipping documents such as a commercial invoice, packing list, and an original and signed bill of lading, or, if shipped by air, an air waybill. Air shipments of values greater than must also include a commercial invoice. The commercial invoice should be as descriptive as possible on each item in the shipment.

The packing list should include the exact contents and measurement of each container, including the gross and net weights of each package. The Japanese Measurement Law requires that all weights and measures on packing list be reflected in Metric System values. Japan prohibits the importation of certain items including narcotics, firearms, explosives, counterfeit currency, pornography, and products that violate intellectual property laws. Temporary Entry Japan is a member of the International Convention to Facilitate the Importation of Commercial Samples and Advertising Materials under the ATA Carnet System.

Use of a carnet allows goods such as commercial and exhibition samples, professional equipment, musical instruments, and television cameras to be carried or sent temporarily into a foreign country without paying duties or posting bonds. Advertising materials, including brochures, films, and photographs, may enter Japan duty free. Articles intended for display – but not for sale – at trade fairs and similar events are also permitted to enter duty free but only when the fair or event is held at a bonded exhibition site.

After the event, these bonded articles must be re- exported or stored at a bonded facility. A commercial invoice for these goods should be marked “no commercial value, CUstomS purposes only ‘ and “these goods are for exhibition and are to be returned after conclusion of the exhibition. ” It is also important to identify the trade show or exhibition site, including exhibition booth number (if known), on shipping documents. Labeling and Marking Requirements For most products there is no requirement for country of origin labeling, though some categories such as beverages and foods do require such labeling.

If labels indicating origin are later determined to be false or misleading, the labels must be removed or corrected. False or misleading labels which display the names of countries, regions or flags other than the country of origin, and/or names of manufacturers or designers outside the country of origin are not permissible. Japanese law requires labels for products in four categories: textiles, electrical appliances and apparatus, plastic products and miscellaneous household and consumer goods. Because the relevant regulations apply specifically to individual products, it is important for U. S. Exporters to work with a prospective agent or importer to ensure the exporter’s product meets applicable requirements. Generally, cost labeling laws are not required at the customs clearance stage, but at the point of sale. Consequently, it is most common for Japanese importers to affix a label before or after clearing customs. Food and agricultural products are subject to a number of complex labeling regulations in Japan. The Ministry of Agriculture, Forestry and Fisheries (MIFF) has established mandatory quality labeling standards that all producers, distributors and other operators must follow.

Japan’s Ministry of Health, Labor and Welfare (MALL) administers separate voluntary and mandatory standards such as nutritional labeling and DOD additive/allergen labeling for processed foods and beverages. Prohibited and Restricted Imports Japan strictly prohibits entry of narcotics and related utensils, firearms, firearm parts and ammunition, explosives and gunpowder, counterfeit goods or imitation coins or currency, obscene materials, or goods that violate intellectual property rights.

Other restricted items include but are not limited to certain agricultural and meat products, endangered species and products such as ivory, animal parts and fur where trade is banned by international treaty. In addition, Japan imposes restrictions on the sale or use of certain reduces including those related to health such as medical products, pharmaceuticals, agricultural products and chemicals. For these products, Japanese Customs reviews and evaluates the product for import suitability before shipment to Japan.

The use of certain chemicals and other additives in foods and cosmetics is severely regulated and follows a “positive list” approach. Regarding importation of products for personal use, Japan restricts more than two months’ supply of medicines (drugs or quasi-drugs) or more than 24 units (of normal size) of similar cosmetic products. Please note that DOD (hand) soaps, shampoos, toothpastes, hair dye and other toiletries fall under the category Of quasi-drugs or cosmetics.

Veterinary drugs are subject to import restrictions in accordance with Japan’s Pharmaceutical Affairs Law. Quality Standards Overview Many domestic and imported products alike are subject to product testing and cannot be sold in Japan without certification of compliance with prescribed standards. Knowledge of, and adherence to, these standards and their testing procedures can be the key to making or breaking a sale. Product requirements in Japan fall into two categories: technical regulations (or mandatory standards) and non-mandatory voluntary standards.

Compliance with regulations and standards is also governed by a certification system in which inspection results determine whether or not approval (certification/ quality mark) is granted. Approval is generally required before a product can be sold in the market or even displayed at a trade show; unapproved medical equipment may be displayed at a trade show if accompanied by a sign indicating that the product is not yet approved for sale. To affix a mandatory quality mark or a voluntary quality mark requires prior product type approval ND possibly factory inspections for quality control assessment.

Regulated products must bear the appropriate mandatory mark when shipped to Japan in order to clear Japanese Customs. Regulations may apply not only to the product itself, but also to package Eng, marking or labeling requirements, testing, transportation and storage, and installation. Compliance with “voluntary” standards and obtaining “voluntary” marks of approval can greatly enhance a product’s sales potential and help win Japanese consumer acceptance. There are two ongoing trends in Japan regarding standards.

One s a move toward reform of such standards, and the other is a move toward harmonize them with prevailing international standards. While reform is underway, there are numerous laws containing Japan-specific mandatory standards and most have not been translated into English. Therefore, it is important that a Japanese agent or partner be fully aware of the wide variety of standards in effect that could impact the sale of the exported product. Major laws stipulating standards that apply to products in Japan include Electrical Appliance and Material Control Law, Consumer Product Safety Law,

Gas utility Industry Law Food Sanitation Law, Pharmaceutical Affairs Law, Road Vehicles Law and Building Standards Law Product Liability Insurance Japanese business entities are subject to various laws and product safety standards, which vary depending upon the industry or product segment. Japanese importers/distributes of foreign products, in general, cover product liability risk through the product liability clause in their own liability insurance. The covered items and exemptions may vary from underwriter to underwriter and among industry segments. Whether the U. S. Exporter will be required to u product liability insurance to cover worldwide or specific overseas markets for their exports will be subject to negotiation with the firm’s Japanese business partner and the advice of legal counsel. Accreditation The Japan Accreditation System for Product Certification Bodies of IIS Mark (JAGS) is an accreditation program defined by the Japanese Industrial Standards (IIS) Law, and operated by the JAGS office in MEET. JAGS accredits product certification bodies in the private sector and allows them to certify companies so that they may place the IIS Mark on their products.

A limited umber of testing laboratories in the united States above have also been designated by various Japanese government agencies to test and approve U. S. Products for compliance with Japanese mandatory certification systems and laws. Products not covered by these arrangements must be tested and approved by Japanese testing labs before these products can be sold in Japan. Labeling and Marking The “voluntary” Japan Industrial Standards (IIS) mark, administered by the Ministry of Economy, Trade and Industry (MEET), applies to nearly 600 different industrial products and consists of over 8,500 standards.