20 Pros and Cons of Doing Business in Japan

Japan provides one of the oldest continually operating economies in the world today. Even when this country encounters environmental or economic challenges, it always remains as one of the most important business destinations for companies large and small.

There are several favorable rankings to consider if you want to start doing business in Japan. It scores well in several areas, especially since the usual working week is 8am-6pm from Monday to Friday. It is a structure that adds an extra hour of productivity when compared to the United States and 2-4 hours more than what Europe provides on average.

If your business can adapt to the unwritten rules of the business culture, like the expectation to have formal business attire, then a company can find success here. Missing just one item can result in long-term problems, even if it is a misapplied greeting. These encounters are formal, usually involving a bow of the head, and then a handshake. Your organization should expect to greet the most senior member of a delegation first.

There are several pros and cons of doing business in Japan that you will want to consider before proceeding with an opportunity that you might wish to pursue.

List of the Pros of Doing Business in Japan

1. It is rather easy to obtain credit in Japan with a strong financial profile.

Japan offers a modern finance system that is accessible to businesses of any size when doing business in this country. That means it is a relatively simple procedure to obtain lending when your organization has an excellent credit score. Although the levels of bureaucracy that everyone follows will slow down the process in comparison to other developed nations, the lack of streamlining doesn’t prevent an organization from securing the funding they need to expand their presence.

2. Imports and exports are easy to manage thanks to Japan’s geography.

Because Japan is an island nation, there are multiple ports that can manage the import/export business of a new company. It only takes five days to complete an import order here, and even the export process only takes ten days to complete on average. Those rates make this advantage an above average experience when compared to the rest of the developed world.

The reason for this advantage involves the relationships that are a vital aspect to the Japanese business culture. Although you must show the correct levels of etiquette at all times, you can leverage your connections to improve domestic and international logistics rapidly.

3. Japan is excellent at resolving insolvency.

When businesses become insolvent for any reason, then Japan is the place where the company will want to be. This country ranks first in the world for resolving insolvencies, with a recovery rate of over 90%. The average in the developed world is closer to 70%. Procedures here can take as little as six months to complete, despite the higher levels of bureaucracy that are present, and it costs about 4% of the estate to complete the work.

4. The business culture in Japan focuses on consistent improvement.

When you start doing business in Japan, then your company will immediately encounter the idea of kaizen in the culture. It is a drive to be constantly improving. It is a reflection of the hard work ethic that you’ll find here, with customer service an expected part of any interaction that your company might have. Although there are costs to consider with an attitude that encourages innovation all of the time, the desire to improve your business practices will make your presence as efficient as possible.

5. You’ll gain a gateway to the rest of the Asian market.

There might be some challenges to the creation of a business in Japan, but it is far easier to establish a presence here than it is in China. You’ll find that not only do you have access to an audience of 127 million people, but there is also a foothold to develop that can take you to the rest of Asia. It is a stable business market that is receptive to foreign direct investment as well if your preference is to create partnerships instead of starting from scratch.

The economy is already home to some of the top companies in the world. By establishing a robust presence here, it becomes a lot easier to keep pushing into Asia when you’re ready to start expanding.

6. The labor force in Japan is highly education.

There are more than 600 colleges and universities in Japan that help to create one of the most education labor forces in the world today. Education is a prized commodity in this economy and the society in general. The students who graduate at the top of their class are held in high regard, with the best jobs often going to them because of the advantages that they can bring to your company.

When you start doing business here, then you will find high levels of expertise waiting for you in the employee pool. These folks bring their knowledge to you, with an attention to detail, that can make your productivity level surge.

7. Japan is an excellent market to consider for product testing.

Because the Japanese culture is affluent and highly education, doing business in the country can give you access to more product testing opportunities than you can find almost anywhere in the world. The levels of household expenditure in Japan are among the highest in the world today. Your customers are well-educated in numerous industries, which means they understand the difference between high-performance products and low-cost items. Most businesses find better feedback waiting for them when they introduce products here before going to the United States or Europe.

8. The work ethic in Japan is exceptionally strong.

Japan provides you with access to a society that is predominantly collective. Each individual feels a strong sense of belonging to the entire group, which extends to the person’s conduct in the workplace. Leadership is a valued trait here. You must be competent, hard-working, and willing to make sacrifices of your personal time to ensure that everyone has a chance to find success.

When you start doing business in Japan, you must remember to consider the group before the individual because of this trait. If you address individuals by themselves, then the results might be less than favorable.

9. You will have access to dedicated employees.

The corporate world of Japan values cooperation and loyalty more than competitiveness and aggression. People here work longer hours and take pride in their jobs as a way to show employers how dedicated they are to the outcomes. If you want to start doing business here, then the benefits of this advantage cannot be overstated. These outcomes allow you to navigate the linguistic, logistical, and geographic challenges that you’ll be facing when embracing Japanese society as a corporation for the first time.

List of the Cons of Doing Business in Japan

1. There are high levels of bureaucracy that you’ll need to negotiate.

The procedures that are necessary to start a business in Japan can be exhausting to navigate if you’re not used to high bureaucracy levels. There are several different layers of government oversight that you must move through before you can even achieve a grand opening with an organization. You’ll need to speak with the District Tax Office, the local tax department, Labor Standards Inspection, the pension service, the Ward office, the Legal Affairs Bureau, and the Public Security Office.

Each division has special rules or procedures that must be incorporated into your corporate structure before receiving permission to move on to the next step.

2. You will experience delays in the construction process.

Most companies that want to start doing business in Japan decide to lease rather than purchase real estate and construct new buildings because of the delays that occur in permit issuance. The average amount of time that it takes to issue a construction permit in the country is almost 200 days, which is much higher than the average for the 30+ developed nations in the world right now. There are 14 specific procedures to navigate before you’ll receive permission, with local authorities and government departments all wanting specific outcomes in place.

3. There are delays in the utility work that you need for your company.

Tokyo Electric Power Company, or Tepco if you prefer, handles the electricity for the city and its surrounding areas. Because of the extensiveness of the grid and the number of customers they service, you must arrange a construction date in advance with the utility provider to avoid delays in having a meter installed. That means you’ll need to submit an application and wait for the connection appointment.

It takes Tepco about 100 days on average to connect a new company doing business in Japan to the main power line.

4. The corporate tax system consumes a lot of time in Japan.

The tax code in Japan is another victim of the bureaucracy that exists within the government at all levels. It ranks as one of the worst nations in the developed world for its corporate tax system, and the World Bank lists the country as 123rd for its overall system when considering all nations.

It takes an average of 330 hours each year in management time to prepare the tax returns for a business. There are also 14 payments required each year for a company to stay in compliance with this structure. Even the corporate tax rate is relatively high at 30%, especially since the U.S. dropped their rate in recent years.

5. Domestic transfers of goods or services can be challenging.

Japan’s geography is a natural disadvantage to consider if you want to start doing business in the country. It is an archipelago that consists of over 6,800 islands, which means your domestic infrastructure must be robust to ensure that you can reach all of your potential customers. Drivers are struggling to meet delivery demands, which means delivery fees are increasing across the country. As companies like Amazon put pressure on the local logistics, it is up to each new company that wants to work here to invest in their own delivery systems.

6. Registering property is a lengthy procedure in Japan.

If you want to register property in Japan so that you can start doing business there, then you must begin working with the Legal Affairs Bureau right away to avoid experiencing delays in your project. You must obtain a certificate of the seller’s seal impression before you can proceed with your venture. You must also show evidence of payment for your stamp duty at a post office and pay your real property acquisitions tax.

7. Gender equality can be problematic in Japan.

The equality of men and women in the workplace is improving in Japan, but this culture is further behind the United States and Europe with regards to the overall treatment of each gender. When there is a work function that takes place in this country, then the spouses are not usually invited to the gathering. You will still find places where men tend to get into the leadership positions and women are expected to support them. If your business opportunity places women in the majority of leadership positions, then the traditional elements of society might resist your presence in the economy.

8. English is not a top priority for the Japanese culture.

Although you will find English is spoken more often today in Japan than in the past, it is not a top priority to speak this language in the business culture. You’ll find Japanese is the preferred language in most circumstances. If you don’t know it, then you’ll want to learn at least a few conversational phrases before you start to do business here.

That means you’ll want to create business cards that have Japanese printed on one side of it to ensure that your communication efforts are effective. These cards are seen as an extension of the person, so you should never wave it around, write on it, or flick it. Accept one with two hands and a small bow to treat it with the respect the culture expects.

9. Effective communication in Japan is usually indirect.

Nuances are an essential component of the communication process in Japan. Gestures and non-verbal actions are prized over direct requests. As Stuart Friedman notes for Business Insider, if you find yourself at a dinner where only chopsticks are available, you shouldn’t ask for a fork.

Showing that you’re uncomfortable using the chopsticks will create a visual clue that your business associates will pick up on so that they’ll ask you if you want a fork. There is more meaning left in what is unsaid, relying on context, rather than direct requests. If you’re unwilling to make changes in the way you eat, then what does that say about your approach to business?

10. You will hear the word “No” often in Japanese culture.

You will hear the word “No” in many different contexts when you start doing business in Japan. It is used as a way to avoid confrontation, keep harmony, or save face when there is any sort of disagreement. You’ll get this result if something feels difficult to a potential customer. Even silence can be an indication that what you’re offering isn’t wanted. Some prospects might change the conversation, confirm that they understand what you’re saying, or suggest a different solution to a problem that your product attempts to resolve.

11. Miscommunication can stop a business before it gets a chance to start.

One of the best examples of this issue involves the word “sayonara.” In the United States and Europe, this Japanese word is one of the few of which the average person has some familiarity. The only problem is that most people don’t know what it means. It is more than just a goodbye. When you tell someone this, it is an indication that you’re not going to be in contact with that individual any time soon. That means your business opportunities will go to the competition instead of you.

There is a difference between “farewell” and “goodbye.” That’s why understanding the intricacies of the Japanese language is such an integral part of doing business in this country.

Conclusion of the Pros and Cons of Doing Business in Japan

There are some specific challenges to consider if your business wants to start operations in Japan. Outside of the logistical issues that your company might face, there are several unwritten rules that you’ll need to learn if this effort is to be successful. Proactive planning is helpful as well due to the bureaucratic delays that happen frequently in this country.

Although the amount of administrative work can be oppressive in some situations, the rewards for having an active presence in this economy cannot be overlooked.

The pros and cons of doing business in Japan will create frustrating moments. You’ll have more investment in regulatory oversight, vendors, and distribution networks than in other nations, but there are more opportunities in the import-export market to consider as well. If you don’t mind putting up with the bureaucracy, then owning a company here can be quite rewarding.