Top 10 challenges of doing business in Japan

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Japan is the third largest economy in the world but lies in 114th place for ease of doing business. Having local help on board is essential for overseas ventures to work in the east Asian powerhouse.

The Japanese economy ranks third in the world in terms of gross domestic product (GDP), but 114th for ease of doing business. Despite its domestic competence, having local help on board is essential to the smooth running of an overseas venture.

Japan is a leading centre for innovation, boasting a highly attractive business and living environment within one of the world's largest economies. A survey by the Ministry of Economy, Trade and Industry (METI) found that Japan has a stellar reputation among Western and Asian companies, which are attracted by its R&D capabilities, personnel and well developed laws, such as intellectual property rights.

Many companies are also pulled to Japan’s shores because of its developed consumer base. The huge market is a trend setter among regional economies and is utilised by many businesses as a test location. Some 49% of businesses say Japan is an attractive as a test market, and 40.5% say it offers a good environment for business expansion.

However, a large level of local or third-country competition, the number of regulatory hurdles and cultural factors can make Japan a difficult country to penetrate, which is why having local help can be a big asset when expanding into the country.

Starting a Business 

Procedure can be rather draining when starting a business in Japan, with several layers of bureaucracy to be navigated before a company can get off its feet. Organisations are required to communicate with the Ward office, the Legal Affairs Bureau of the Ministry of Justice, the District Tax Office, the local tax office, the Labor Standards Inspection Office, the Japan Pension Service and the Public Employment Security Office before other procedures can be considered.

Dealing with Construction Permits

It takes 193 days to arrange construction permits, according to the World Bank and International Finance Corporation, which far exceeds the OECD average. Some 14 procedures must be navigated, again involving several governmental departments and local authorities.

Getting Electricity

Tepco, or Tokyo Electric Power Company, handles electricity in the capital and surrounding areas, and takes an average of 105 days to connect the company to the mains. Businesses must arrange a construction date, submit an application and await connection works, before having a meter installed. 

Registering Property

Registering property is a lengthy procedure, and requires a certificate of the seller’s seal impression, payment of stamp duty at a post office, application at the Legal Affairs Bureau and payment of real property acquisitions tax.

Getting credit and protecting investors

A modern finance system means obtaining credit is a relatively simple procedure in Japan. The legal system also offers good protection to investors, although the process certainly isn’t as streamlined as in other nations.

Paying Taxes 

The Japanese tax system is a victim of the country’s love of bureaucracy. The World Bank and IFC rank Japan 123rd in the world for their corporate tax system, which can soak up 330 hours a year in management time, with 14 payments required annually. Corporate tax rates stand at 30%, with a line of other levies also requiring consideration.

Trading Across Borders

Japan is an archipelago of 6,852 islands and is therefore reliant on smooth trading across borders. It takes only ten days to export and five to import, costing slightly under the OECD norm.

Enforcing Contracts 

Enforcing contracts takes 360 days and costs 32.2% of the claim. There are 30 procedures involved, with court proceedings taking up most of the time.

Resolving Insolvency

Japan ranks number one in the world for resolving insolvency, with procedures taking as little as six months and costing a mere 4% of the estate. What’s more, the recovery rate is over 90% compared to the OECD average of 70%.

Culture

Relationships drive business in Japan, and it is important to show the right level of respect and to be polite and diplomatic at all times. Patience is essential when handling business relations, and observing local etiquette in terms of gift buying is important.

TMF Group

We have the local knowledge to help you navigate these minefields. Whether you want to set up in Japan or just want to streamline your Japanese operations, talk to us.