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INTERNATIONAL BUSINESS STUDY OF JAPAN.
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Discusses the potential of doing business in Japan.... More...
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Paper Abstract:
Discusses the potential of doing business in Japan. Reviews the Asian country's demographics, economic performance, international trade, industrial activity, foreign investment climate, marketing, and resouces. Issue of high level of problem loans of the Japanese banking system. Foreign investment climate. Japanese market as consumer driven. Macroeconomic measures for Japan. Two tables.
Paper Introduction:
JAPAN: INTERNATIONAL BUSINESS STUDY
Introduction
This international business study of Japan reviews demographics, economic performance, international trade, industrial activity, foreign investment climate, marketing, and resource issues. The objective of the study is to provide international companies with a sense of the potential of doing business in Japan.
Demographics
Japan is an Asian island nation whose 127 million inhabitants (as of July 2001) occupy four major islands and a number of smaller islands (CIA, 2001). As a political entity, the country dates back to about 500 B.C. (Hunter, 2001).
The Japanese population is remarkably homogeneous in an ethnic context
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percent . The Japaneseconsumer, however, is moving in the direction of dictating where and whenthey buy and from whom (Treece & Yamaguchi, 2 1). The real gross domestic product (GDP) indicatedin Table 1 reflects a .1 percent decline over the past year. Approximately 885 thousand foreigners reside in Japan, whileapproximately 498 thousand Japanese citizens reside outside of the country. Brooks, J. World development report 2 1. The value of the country's total imports was US$355 billion.Japan's balance of trade, therefore, was a positive US$95 billion. The country, however, tends to emphasizesome goods more than others. (2 1). This approach to administering theFECL causes many global corporations and companies to charge that the MOFuses the law as a shield to keep foreign corporations from participating inthe Japanese economy. Fuels . FDI flowing into Japan is subject to prior approval ifit is categorized in one of three groups. Smaller cars carveout bigger share in Japan. percent . The high levels of education and training that characterize thepopulation as a whole, together with the number of people, constitute amajor natural resource for the country. Japan is in recession again, withU.S., as Germany slips. (2 1). Chemicals . Law and Policy in InternationalBusiness, 26(3), 673-717. Proportionately, centralgovernment debt in Japan is 38 percent of the nation's annual GDP, whileproportionately central government debt in the United States is 62 percentof the nation's annual GDP. (1993). (138thed.). The issues that now must be faced are (1) what policies the Japanesecentral government are likely to implement to deal with the near economiccrisis, and (2) the implications of these policies for the Japanese economyand other East Asian economies. Japan'smajor trading partners are as follows (Central Intelligence Agency, 2 1): > Exports . Semiconductors . (2 1b, December 7). Martin's Press. World Bank. Thus, central government debt is not the majorproblem in the Japanese economy (Brooks, 2 1a). Demographics Japan is an Asian island nation whose 127 million inhabitants (as ofJuly 2 1) occupy four major islands and a number of smaller islands (CIA,2 1). Brooks, J. (2 1). Hunter, B. Foods . All most all of its crude oil requirementsmust be imported. Japan is also highlyunified in a religious context (Hunter, 2 1). (2 1, December 1 ). Crude oil prices inearly-August 2 1 remained at the upper limit of the OPEC (Organization ofPetroleum Exporting Countries) target price range. South Korea: 6.4 percent . (2 1, December 1 ). (2 1a, December 1 ). B., & Yamaguchi, Y. As a managerial decision-maker engaged global business, it isimportant to understand both Japan's laws governing FDI and how the countryapplies those laws. Japan does have significantelectrical generating facilities. Marketing Japanese consumers are moving from passive status to involvedparticipants, often dictating design and character of the product. Central Intelligence Agency. Americans urge Japanese to move faston bad loans: Mountain of debt is called a major problem. Its domestic sources of coal, iron, and all otherminerals are also extremely limited. In actual fact, however, FDIflowing into Japan through 1999 approximated only ten percent of the levelof FDI flowing out of Japan (Japanese External Trade Organization, 2 1). ||- .9 ||- .7 ||- .5 || || Trade Balance ($ billion) ||-8.5 ||-6.5 ||-5.3 ||-4.4 || || Source: Mussa, 2 | Summary Japan's economy is in its tenth year of slower than desirableactivity. Office Machinery . There currently are no definitive answersto these questions (Belson, 2 1). Retrievedfrom the Internet 2 1-12-15 at: http://www.cia.gov/cia/publications/factbook/geos/ja.html Collins, T. Table 2: Macroeconomic Effects of a Permanent $5 per Barrel Increase in the Price of Oil on Japan [% change]| ||2 1 ||2 2 ||2 3 ||2 4 || ||Japan Real GDP ||- .2 ||- .3 ||- .2 ||- .1 || || Real Domestic Demand ||- .3 ||- .4 ||- .3 ||- .2 || || Core Inflation || .1 || .1 || .1 ||--- || || CPI Inflation || .2 || .1 || .1 ||--- || || Short-Term Interest Rate || .2 || .2 ||--- ||- .1 || || Real Effective Exchange Rate ||-1. This statement wasformalized in 1995 by the Japan Investment Council (2 ), which issponsored jointly by the Ministry of Finance (MOF) and the Ministry ofInternational Trade and Industry (MITI). Retrievedfrom the Internet 2 1-12-15 at:http://www.jetro.go.jp/it/e/pub/whitepaper/invest2 1/inv1-4. Adjusting for these residence patterns still leaves the residentpopulation of Japan 98.4 percent ethnically Japanese. The country is experiencing its second recession in the pastfive years. Economic Performance The Japanese economy is in a state of near crisis in the late Fall of2 1, with output falling, the financial sector in disarray, and thegovernment unable to act decisively because of the ability of the politicalopposition to thwart government plans through its control of the upperhouse of the Diet (Brooks, 2 1b). Japan. Although Japan has no official state religion, approximately 1 8million Japanese are adherents of Shintoism. Treece, J. Business managers are driven to doconsumers' bidding not by benevolence but by the search for profits in acompetitive marketplace. Japan manufacturers almostevery type of product available. In this context, however, the countrymust import most of the fuels required to run the electrical generatingfacilities. Gaijin at the gate. Japanese External Trade Organization, Ministry of Finance. Consumer Electronics > Major Import Products . In fact, the debt of the central government in Japan is bothabsolutely and proportionately less than that in the United States. South Korea: 5.4 percent . There are a number of explanations for the dichotomy between officialpolicy and outcomes related to FDI. New York: OxfordUniversity Press. japan: international business study Introduction This international business study of Japan reviews demographics,economic performance, international trade, industrial activity, foreigninvestment climate, marketing, and resource issues. New York Times,C2. (2 1).Japanese outward FDI declines while inward FDI increases, 1-38. (2 1, December 13). The Japanese economy. Washington: International Monetary Fund. The Japanese arepartial to luxury items, and they are looking for value (quality items atgood prices). Ethnic Japanese account for 99.5 percent of the country'scitizens, while most of the remaining one-half of one-percent are ethnicKoreans. Japan's natural resource base is limited. A. While a variety of folkways and accents arefound in Japan, these differences are not causes of divisions within thepopulation. Retrieved from the Internet 2 1-12-15 at:http://www.miti.go.jp/info-e/ cFDI1 3e.html Mussa, M. The country's principal natural resource is its population. Expansion to Japan for purposes of consumer marketing may beunwarranted at this time. The consumerprice index (CPI) inflation indicated in the table reflects a deflationaryenvironment in the Japanese economy. The comparatively low level ofconsumption in Japan (51 percent gross domestic product - GDP - compared to63 percent in the United States) acts as a disincentive to FDI flowing intoJapan (World Bank, 2 1). Chemical Specialties . United States: 3 . The objective of thestudy is to provide international companies with a sense of the potentialof doing business in Japan. Indonesia: 4.3 percent . Taiwan: 4.8 percent . The MOF has tended to use a broad interpretative approach whenassessing the effect on the economy. Taiwan: 7. Geist, M. % || || Real Effective Exchange Rate ||127¥:1US$ || || Trade Balance ($ billion) ||US$95 billion || || Sources: Central Intelligence Agency, 2 1 (all except Exchange Rate); ||"Currencies," 2 1 (Exchange Rate) | International Trade The value of Japan's total exports over the past year was US$45 billion. The first group includesinvestments that imperil national security, disturb the maintenance ofpublic order, or hamper the protection of the public. Resource Issues Significant levels of some resources required by Japan must beimported (Hunter, 2 1). World fact book. This official support is accompanied by officialjustifications that are consistent with accepted economic theory related toFDI, such as: (1) inward FDI is essential to reactivate Japan's economy;(2) inward FDI will expand business opportunities in Japan; and (3) inwardFDI will stimulate growth in the domestic economy. The inability tocontrol or influence the prices of an essential resource cause problems forthe Japanese economy. (2 ). Ito, T. Japanese consumers also focus on quality. Toward the promotion of foreigndirect investment in Japan, 1-3. Rather, the Japaneseeconomy is oriented toward the export of a high proportion of the goodsproduced in that country. Hong Kong 5.6 percent > Imports . (1995, Spring). New York Times, E14. html Japan Investment Council. The American economy, by contrast, is heavilyoriented toward domestic consumption. (2 1, December 15). The statesman's year-book: 2 1-2 2. TheFECL defines the term "foreign investor" on the basis of control andincludes in the definition holdings of fifty percent or more of the companyin question or instances where foreign persons comprise a majority of theboard of directors (Geist, 1995). (Ed.). Crude oil prices in November 2 rose to their highest level(measured in 1996 dollars) since the Gulf War in 1991. References Belson, K. Itremains so in 2 1. Thedebt of the Japanese central government of ¥24 trillion, or US$1.8trillion, compares to a central government debt approximating US$6.1trillion in the United States (World Bank, 2 1). The impact of higher oil prices on the globaleconomy. A far more important problem related to debt is the massive level ofproblem loans held by the entities within the Japanese banking system.These problem loans threaten the stability of the country's banking system(Brooks, 2 1a). Some people tend to think that the central government in Japan has adebt problem. Japan's principal resource imports are (1)mineral fuels, (2) metal ores and scrap metals, and (3) textile fibers(Hunter, 2 1). Further, profits are notsought primarily for stockholders, but rather to serve as a source ofgrowth that the Japanese see as an integral part of nation building (Ito,1993). Business Week(3761), 4 -44. Approximately 7O percent ofJapan's population is of working age - 15-to-64 years of age (World Bank,2 1). The FECL does not distinguish betweenGreenfield-investments and acquisitions, provided that the acquisitionconstitutes a minimum of 1 percent of the domestic company's shares. Table 1: Macroeconomic Measures for Japan 2 1| ||2 1 || ||Japan Real GDP ||US$3.1 trillion || || GDP Real Growth Rate ||- .1% || ||GDP Per Capita ||US$29,4 || || CPI Inflation ||- .7% || || Short-Term Interest Rate ||2. China: 14.5 percent . China 6.2 percent . Thus, a cultural bias in Japan tends to deter incoming FDI. Labor force growth is less than one-percent per year. New York Times, C7. Toward a general agreement on theregulation of foreign direct investment. In Japan, however, priorityderives to the producer, not to the consumer. To serve their stockholders, they must serve thepublic by innovating and holding down costs. Cambridge, Massachusetts: TheMIT Press. The Japanese economy is not as heavilyconsumption-oriented as is the American economy. Conventional western economic wisdom holds that the economic systemexists to serve the wants of consumers. By the late fall of2 1, however, crude oil prices had fallen dramatically. percent . Currencies. The second groupinvolves investments in those industries for which Japan has lodged areservation with the Organization for Economic Cooperation and Development(OECD), including agriculture, forestry, fisheries, mining, oil, andleather. Sentiment on Japan's economy worsens.New York Times, W1. Thepopulation of approximately 127 million has a very low growth rate (Hunter,2 1). For the global executive, the implications of thissituation are that any proposal for FDI in Japan must be structured in away that clearly addresses the concerns of the Japanese and emphasizes boththat the proposed FDI will stimulate overall growth, as opposed to aredistribution of existing markets between established players and newplayers (Collins, 2 1). Table 2 (below on this page) presents theseprojections. Obviously, a significantoverlap exists between the country's Shinto and Buddhist adherents. TheJapanese market is becoming a consumer-driven marketplace, although theevolution has not reached the point where the Japanese marketplace iscomparable to that in the United States within this context. As a political entity, the country dates back to about 5 B.C.(Hunter, 2 1). Table 1 (on the following page) presents macroeconomic measures forJapan as of November 2 1. Its domesticcrude oil reserves are minimal. Recognized brand names and labels are important to the Japaneseconsumer. New York: St. (2 ). Textiles . The third group applies to foreign investors from a country thatdoes not grant Japanese investors reciprocal investment rights (Geist,1995). This emphasis is reflected in the export(greater emphasis on domestic production) and import (lesser emphasis ondomestic production) trade of Japan, as indicated below: > Major Export Products . An OECD study estimated the macroeconomic effectsthat a permanent increase of $5 in the price per barrel of crude oil wouldhave on the Japanese economy. The principle of face-to-face business transactions has long beenconsidered an essential ingredient for success in the Japanese market. Building Materials Foreign Investment Climate The government of Japan officially supports foreign direct investment(FDI) into Japan. Ratherthan divide the country's population, however, the Shinto/Buddhist overlapfurther unifies the country. Australia: 3.9 percent Industrial Activity Services account for 63 percent of Japan's GDP, while industrialactivity including manufacturing accounts for 35 percent, and agricultureaccounts for two-percent (World Bank, 2 1). Automotive News, 76(5961), 3-4. Foreign direct investment (FDI) in Japan is regulated primarily by theForeign Exchange and Foreign Trade Control Law (FECL) administered by theMinistry of Finance (MOF). Thus, approximately 85percent of the Japanese population share the same religious orientation.Buddhism is not incompatible with Shintoism, and approximately 93 millionJapanese practice Buddhism (Hunter, 2 1). The Japanese population is remarkably homogeneous in an ethniccontext. Motor Vehicles . United States: 19.
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