JETRO Invest Japan Report is a comprehensive report covering recent trends in inward FDI into Japan, related policies of the Japanese government, operations of foreign-affiliated companies in Japan and their perception of Japan’s business environment and JETRO’s FDI promotion activities.
The content of the report is divided into 5 chapters:
I. Recent Situation of Inward FDI in Japan
At the end of 2017, inward FDI stock in Japan was 28.55 trillion yen, an increase of 322.7 billion yen (1.1%) in annual terms. According to the Ministry of Finance, the increase can be attributed to:
A. Overall transaction during 2017, commensurate with inward FDI in the international balance of payments(2.12 trillion yen increase);
B. Exchange rate fluctuations (11 billion yen reduction);
C. Adjustments to accommodate movements such as fluctuations in share and debenture prices and discrepancies between balance of payment figures and foreign asset and liability balance figures (1.79 trillion yen reduction)
Europe accounted for roughly half of inward FDI stock in Japan in 2017 and the bulk of the investment came from the manufacturing sector. Within Europe, the largest single investor country was the Netherlands, where around 80% of investment was in electrical machinery. Then it is followed by France, where over 70% of investment was in transportation equipment. North America contributed 6.85 trillion yen in inward FDI stock (down 6.1% from the previous year). Around 80% of the stock was from the non-manufacturing sector, with the majority coming from finance and insurance industry.
II. Toward Improvement of Business Environment
The following are the initiatives by the government in contributing to the improvement of the business environment in Japan and attraction of foreign companies cored around “Growth Strategy 2018 approved by the Cabinet in June 2018 and other related measures.
A. Further improving the business environment and contributing to more inward FDI into Japan by establishing of project-based “Regulatory Sandbox” system. This is a mechanism to lead to deregulation using demonstrated data gathered by “try first” approach. To alleviate the burden from administrative procedures on enterprises and enhance productivity, the government decided to reduce the cost (work time of enterprises) for administrative procedures by 20% by March 2020. The government is also putting a lot of effort into inviting more highly skilled foreign professionals, including the establishment of a “Japanese Green Card for Highly Skilled Foreign Professionals”. The Support Program for Regional Foreign Direct Investment in Japan on May 17, 2018 aims to add some power to the promotion of regional revitalization through the expansion of Japan’s inward FDI out into regional areas. By establishing a tax system pertaining to the promotion of information collaboration investment, it can be used to stimulate business by encouraging technical innovation, improving company productivity and strengthening competitiveness. Finally, enhancement of corporate governance will lend itself to improvements in profitability for Japanese companies, which will result in making Japanese companies more attractive as investment targets.
B. Business environment improvement efforts till now
Measures for promoting inward FDI into Japan include the “Five Promises for Attracting Foreign Business to Japan”, “Policy Package for Promoting FDI into Japan a Global Hub”, Final Report of Working Group for Revising Regulations and Administrative Procedures” which includes the following:
• Simplify establishment of companies by foreigners
• Make online application for status of residence possible
• Greatly shorten the residence period required for permanent residency application of highly skilled foreign professionals
• Boost info dissemination in foreign languages
• Simplify import procedures
• Expansion of services at the Tokyo One-Stop Business Establishment Center
III. Trend in Inward FDI in Japan-Foreign Investment Contributing to the Emergence of Innovation. Changes occurring along with rapid progress of the Fourth Industrial Revolution include:
A. New value emerging thanks to the introduction of innovative business models and services
• “Connecting” with loT to make normally hidden info “visible”
• FinTech bringing change to Japanese financial services
• Foreign-affiliated companies working with existing companies to produce sharing services unique to Japan
• Technologies of foreign-affiliated companies adopted by industries predominately developed in Japan
B. The spread of open innovation
• Moves aiming to use and commercialize research seeds and address social issues
• Moves aiming to use date to address social issues
• Moves to make use of research seeds via the fostering of Japanese startups
• Moves to fuse together specialty fields on both sides to develop new products
C. Increasing focus on the start-ups as the bearers of innovation
D. Foreign investment for creating innovation in local regions
IV. Perception of the Business Environment in Japan among Foreign-affiliated Companies
The results of the “Survey on Japan’s Investment Climate” show that foreign-affiliated companies perceive Japan as a highly profitable market.
• Greatest appeal lies in the Japanese market, with high profitability also seen as a major selling point
• High level of business confidence among foreign-affiliated companies and a positive outlook on the future
• 70% of foreign-affiliated companies plan to expand their business operations and employment
• Focus on Japan’s SMEs as partners for open innovation
• The biggest obstacle to doing business in Japan is difficulty in finding human resources
• Japan’s improving business environment
V. JETRO Efforts to Promote Investment in Japan
A. Achievements of JETRO: More than 190 success stories. In 2003, since JETRO established its Invest Japan Business Support Center (IBSC) and these have successfully attracted about 1,800 investments to this date. Results show an increasingly high ratio of investments from Asia in recent years, with China in particular taking on a major role.
B. Growing investment in Japan: A focus on Asia, high added value and innovation. These efforts include information provision and promotional activities, discovery of companies interested in investing in Japan and supplying of market information, individualized support for companies establishing new operations in Japan, and business expansion support for foreign-affiliated companies operating in Japan, among others.
C. Highlights: JETRO’s 2017-18 foreign investment promotion efforts
• Visas for Coworking Space Users: Special Government Measure in Response to JETRO Requests
• Network Events between Foreign-affiliated companies and Students in Collaboration with Universities
• First Exchange Student/Global Talent and Foreign-affiliated Company Networking Event
• 2nd JETRO Invest Japan Networking Event
• Launch of the JETRO Global Acceleration Hub
• First Japan Investment Seminar in Taiwan Targeting Startups