Japan 5th most attractive destination for multinational companies for 2017-2019

While Japan’s appeal, compared to other destinations, is very strong, its performance in terms of FDI has been weak at times. After a slowdown following the 2009 global financial crisis, Japan experienced two consecutive years of divestment in 2010 and 2011, and then in 2015.

This is an Executive Summary of an Santander – Foreign Direct Investment in Japan Report you can find here: JAPAN: FOREIGN INVESTMENT

Key Points:

  • Japan is the 5th most attractive destination for multinational companies for the 2017-2019 period
  • FDI Investment picked up following a slowdown in FDI after the 2009 global financial crisis, reaching USD 11.4 billion in 2016
  • Japan ranked 34th out of 190 countries in the World Bank’s 2017 Doing Business report rankings
  • Japan’s main strengths are its position as a leader in advanced technology and R&D
  • Barriers to investment include Language and the country’s unique business culture
  • The situation at the Fukushima Daiichi nuclear power plant, following the Earthquake and Tsunami Disaster in 2011, continue to impact/hold back FDI somewhat
  • The Japanese economy has been financing the reconstruction of the country without too much difficulty, thanks to a surplus of savings accumulated
  • Form of Company Preferred By Foreign Investors: Kabushiki Kaisha (Public Limited Company)
  • Main Foreign Companies: The JETRO website lists investor’s success stories
Foreign Direct Investment 2014 2015 2016
FDI Inward Flow (million USD) 10,612 -2,250 11,388
FDI Stock (million USD) 171,663 170,699 186,714
Number of Greenfield Investments*** 241 185 213
FDI Inwards (in % of GFCF****) 0.9 -0.2 1.0
FDI Stock (in % of GDP) 3.5 3.9 3.8

Source: UNCTAD, Latest available data.


FDI Inflows by Country and Industry

Main Investing Countries  2015, in %   Main Invested Sectors 2015, in %
United States 36 Electrical machinery 35.5
Singapore 13 Finance & Insurance 23.5
Netherlands 12 Transport equipment production 17.4
Hong Kong 9 Transport 11.9
France 8 General machinery 11.8
South Korea 6 Services 10.2
China 4
Taiwan 4
Thailand 2
Italy 2

Source: Japanese Trade and Investment Statistics, JETRO – Latest available data.

Why You Should Choose to Invest in Japan

Strong Points

  • World’s third largest economy
  • One of the highest purchasing power in the world
  • Leader in matters of high technology, research and development
  • Substantial means are devoted to educational system
  • Entering the Japanese market facilitates entrance to other Asian markets
  • Favourable business climate
  • Ageing population opens up new opportunities for products and services tailored to older age groups (health care technology, medical devices, leisure, pharmaceuticals etc.)

Further arguments in favour of investing in Japan can be found on the website of the Japanese investment agency (JETRO).

Weak Points

  • Over-regulation hinders economic growth, raises the cost of doing business, restricts competition and slows entry/exit to markets
  • Highly insular business culture that prefers to do business (especially M&A transactions) with familiar corporate partners
  • Exclusive supplier networks and alliances between domestic business organisations can restrict competition from foreign firms
  • Cultural and linguistic challenges
  • Labour practises that inhibit labour mobility, suppress productivity and negatively affect skill development

Government Measures to Motivate or Restrict FDI

The disasters of March 2011 interrupted consideration of some policy initiatives, including Japan’s New Growth Strategy. However, in the years since the disasters, the Government has put forth a variety of measures aimed at bolstering Japanese growth and investment in the country.

For example, Prime Minister Shinzo Abe’s Japan Revitilisation Strategy, released in 2014, aims to double the 2012 year-end inward FDI stock by 2020.

Reforms carried out in the financial, communications and distribution sectors have encouraged foreign investment in recent years. Japan’s Companies Act, which governs the formation, operation, organisation and management of companies, was revised in 2014.

While some restrictions remain on foreign investors’ ability to penetrate the Japanese economy, modifications of the Companies Act were put in place to encourage foreign investment in Japan by easing some transaction-related regulations and bolstering the corporate governance regime. Further information about this reform can be found in this article from the Daily Journal.

Other interesting points covered in this report:

  • Protection of Foreign Investment
  • Procedures Relative to Foreign Investment
  • Office Real Estate and Land Ownership
  • Investment Aid
  • Investment Opportunities
    • The Key Sectors of the National Economy
    • High Potential Sectors
    • Privatization Programmes
    • Tenders, Projects and Public Procurement
  • Sectors Where Investment Opportunities Are Fewer
    • Monopolistic Sectors
    • Sectors in Decline
  • Where to Find Assistance For Further Information

So I encourage you to check out the full report!  

This Summary was written by Jason Ball, a “Fixer” and people Connector, in Tokyo