Risks and considerations of doing business in Japan
Ease of doing business
A high level of bureaucracy exists in Japan, which can be frustrating to those who aren’t accustomed to dealing with the red tape. According to the World Bank’s Doing Business report for 2020, Japan ranks number 106 (out of 190 countries) for starting a business. The length of time involved is approximately 11.5 days, and companies must navigate an average of eight different procedures to get their businesses up and running.
The World Bank’s Doing Business report ranks Japan number 51 in the area of tax complexity. Conducting business in the Tokyo area, for example, involves 19 tax payments a year, including taxes withheld by the company such as sales tax, VAT and employee-borne labor taxes. The amount of time involved with handling taxes is around 129 hours per year.
Japan is ranked 104 by the World Economic Forum for hiring and firing flexibility. Low levels of female participation in the workforce, rigid corporate culture and low workforce diversity also play into labor market challenges.
The population is also shrinking. At the current rate, the number of residents is expected to decline from 127 million to under 100 million by 2053 and drop to 88 million by 2065.
Personal relationships are of high importance in the region, and developing the right connections takes time. A strong existing network can give a business an upper hand in operating in the region.
Politeness is central to the culture, which can often lead to misunderstanding the true meaning behind a remark. For example, Japanese people may not give a clear or direct answer—such as a straightforward “no” —in order to not hurt a person’s feelings or be otherwise perceived as rude. Those unfamiliar with these nuances may take a “yes” at face value, but “yes” may actually mean “I’m undecided” or “I’m not interested”. This scenario has let to many instances of U.S. executives believing their negotiations were successful, only to later learn that the Japanese company did not, in fact, agree to any of their terms.
Cyber risk is a challenge worldwide and a rising concern in Japan.
“Cyberattacks have been the top international worry among Japanese every year since 2016, surpassing issues such as climate change, North Korea’s nuclear program and neighboring China’s power and influence,” according to The Japan Times.
The frequency of cyberthreats, ransomware and spear-phishing attacks have all increased, according to the National Policy Agency.
There is also a growing need for qualified professionals in the cybersecurity industry to meet service demands in mitigating this threat.
Japan is located in a major earthquake zone, and natural disasters can create serious disruptions to business. The 2011 earthquake registered 9.1 in magnitude and triggered a major tsunami. Disruptions in the supply chain halted automobile production. The disaster even impacted production in the U.S. because Japan was not able to send the necessary auto parts.
Businesses looking to expand in the region should be aware of the potential impact of a natural disaster and have contingency plans to deal with such an event.
Doing business with greater success
Acquiring enough local knowledge to operate successfully in a new country without difficulty can take many years. That’s why, when you’re ready to expand your business to Japan, it’s essential to work with an experienced partner.
With our experience and global footprint, CT Corporation delivers the products and services you need to keep you compliant as you do business in Japan.