Geographically distinct and culturally unique, Japan’s natural predisposition leans toward isolation. Yet, by virtue of its trailblazing innovation and manufacturing muscle, it continues to warrant special attention from global corporations that view the Asia-Pacific region in terms of Japan and “ex-Japan.”
But for a country that can’t wait more than three minutes for noodles to cook, Japan isn’t a place where foreign investors can make an instant profit. Harking back to its agricultural past, Japanese relationships require patient cultivation before any fruits of labor can be reaped.
Those in a hurry may favor the allure of China, which prides itself on doing things faster and cheaper. And much in the same way that the Shanghai Maglev Train—which can achieve a record speed of 501 km per hour by magnetic levitation—makes Japan’s Shinkansen seem like a snail’s crawl by comparison, China’s booming economy is threatening to surpass Japan as the world’s second largest economy.
But as in any race, maintenance is the hard part. Like the Shinkansen’s impeccable reputation for punctuality and safety over the past half century since it first began operation, Japan’s track record as an orderly and efficient business venue should keep it a natural destination for foreign investors looking to expand in Asia.
Inevitably feeling the heat of the global economic meltdown, Japan’s real Gross Domestic Product for 2009 back-wheeled 5 percent from the previous year, marking the steepest decline since records began in 1955. China, on the other hand, powered ahead to hit 8.7 percent real GDP growth over the same period.
Thus, Japan’s need to ensure a constant infusion of capital from overseas to remain robust on the world stage—or risk degenerating into an insular economy wistful for the good old days of self-sufficiency.
As part of the bitter pill to recovery, the government has set a target of attracting Foreign Direct Investment (FDI)—a key driver of globalization as businesses invest overseas to access markets, technology and talent—to the tune of 5 percent of its GDP by 2010.
However, Japan’s balance of payments data for 2009 shows that FDI in Japan slid by 55.7 percent compared to the previous year. According to a 2008 survey on Japan’s attractiveness to businesses conducted by the Japanese External Trade Organization, China is by far the largest host country for FDI projects in Asia.
In 2007, 38 percent of the FDI projects in Asia were directed to China, followed by India, while Japan ranked fifth with a market share of 5 percent. FDI in Japan amounted to 3 percent of its economy, compared with between 17-20 percent of GDP in the U.S. and the European Union respectively.
Mirroring this global tussle for investment dollars on a local level are Japan’s regional cities, which are engaged in a fierce domestic rivalry for foreign investment dollars, gamely hoping to challenge Tokyo’s hegemony as the city of choice for the headquarters of foreign business interests.
City Scan
Illustrations by Phil Couzens
While Tokyo may be Japan’s capital city, it certainly isn’t the only city attracting foreign capital.
Responding to the Journal, the Japan External Trade Organization said, “Where to base your business depends on the function of the company or the type of industry the company belongs to.”
To the west, Osaka, the second most densely-populated city in Japan, touts itself as Japan’s center of enterprise and innovation.
Neighboring Kyoto, the capital of Japan for over 1,000 years from 794, is where consumer electronics and tech giants like Nintendo, Murata, Kyocera and Nidec call home, cultivating a Silicon Valley-style ecosystem with over 40 universities working in close contact, along with the Kansai Science City located in south Kyoto as well as the Kyoto Research Park.
Nagoya, in the central mountains of Honshu, is gaining traction as a value-for-money business center. Fukuoka in the south, said to be one of the oldest cities in Japan, has the largest population west of Osaka and has gained repute for being very livable while heavily industrialized.
So while Japan has a reputation for being a very homogenous society, there are regional subtleties and differences to bear in mind. Of course, business ethos aside, a major deciding factor for business location is cost.
Rent, labor, and other costs of living and doing business in Tokyo are prohibitively expensive, explaining the preference of SMEs to set up shop outside the capital.
Osaka claims to be 30-50 percent cheaper than setting up a business in Tokyo. Indeed a cost comparison by JETRO revealed—among the cities featured here—Tokyo to be the most expensive followed by Osaka, Nagoya, Kyoto and Fukuoka.
