Why do business in Tokyo?

Source: Exec Digital UK

Date :30/06/2008 12:14:37

Japan has seen huge economic recovery in the past 20 years - so much in fact, that the former “bubble economy” is now the second largest in the world. Exec takes a look at Tokyo, its industry capital

Written by Rebecca Waters

Located on the eastern side of the main island Honshu, Tokyo has been the main engine for the growth of Japan’s economy in recent years.

With state-of-the-art business centres and cutting edge infrastructure, Tokyo is a city of diversity; quick to embrace modern developments and fashions while maintaining traditional tastes. It is a clash of the very modern, high technological buildings, transport and facilities with very traditional housing and restaurants. This is one of the charms of the city.

Even so, over the past 20 years, Japan has attained a high level of economic growth and has become the second-ranking economic power in the world; making it a hotspot for investment.

PROS

Tokyo is modern and advanced which makes it a great place to do business. It also has the largest metropolitan economy in the world which makes it the most appealing to foreign-affiliated companies.

“In order to encourage investment to Tokyo and to activate the Japanese economy, the Japanese government is trying to make it transparent and implement deregulation,” says an officer from the Tokyo Metropolitan Government. Because of this, many foreign investors foreign investors have started to invest in Tokyo.

About 70 percent of foreign companies have their head office in the city; including IBM Japan Ltd, Pfizer Pharmaceuticals Inc, and AXA Life Insurance Co.

Ian Johnson, COO of AXA, helped manage the company’s Tokyo arm from 2000 to 2006 after it bought a struggling local company. He explains that to be a truly global company AXA had to be in the Japanese market. “It would be inconsistent not to be present in such a big economy,” he says.

The other thing that makes Japan attractive is that it is a relatively wealthy economy; one that is also very dynamic, where technology changes very quickly. Technologically, Tokyo is very advanced and there is huge demand for foreign technology, particularly software technology. The financial industry is also a burgeoning market. The other in recent years has been car manufacturing with the tie-up between Nissan and Renault.

Tokyo has an extensive consumer market, standing at twelve million, so there is a wide scope for investment. General merchandising is a very profitable market in the Tokyo area as well as consumer retail goods which has seen many cosmetic and high-end fashion brands set up in the market.

Even so, while Tokyo attracts many blue-chip companies, more than 90 percent of business entities in Tokyo are small-and-medium sized enterprises, whose unique technologies and high productivity greatly contribute to the development of the city.

Because the market is more open and market entry is cheaper it is now much easier now for SMEs - a driving force between economic revitalisation and job creation - to enter the market.

One of the huge advantages of this is that the infrastructure in Japan is very good. The country has a very competitive public transportation system, especially within metropolitan areas and between the large cities. In Tokyo, rail is the primary mode of transport. Inside and around the city JR lines and private railways as well as subway lines extend in all directions which makes doing business in Tokyo and the wider area very efficient.

CONS

Despite this, Japan is one of the last destinations for businesses because it is perceived to be difficult, so a prepared entry into the Japanese market is crucial. “It is important to learn Japanese business practice as well as to research the features of the Japanese market,” says the Tokyo Metropolitan Government.

One of the biggest issues to consider is the cultural difference. While it is a modern and advanced city, the Japanese are still very traditional in their approach and foreign companies have to bear this in mind.

“I think the thing that surprises most people when they get there is how long everything takes to happen,” explains Johnson. Therefore, foreign companies need to find people who are not only bilingual but bicultural; “people who have that experience being with foreign companies and executives who can actually take the foreign company’s business and translate or localise that into the Japanese market,” says Chris Bowd, President of Venture Japan.

Having said that it is expensive to set up a large workforce; if you are a foreign company coming into the market it costs a significant amount of money to recruit people. Japan can be a very expensive country if you don’t know what you are doing however, these issues can be controlled with a foreign partner who can steer you in the right direction and help you avoid any unnecessary costs.

A foreign partner can also help a foreign company compete in the competitive Japanese market. Tokyo has many strong local companies and Japanese companies will develop strategies to compete hard against new entrants - online auction site eBay was forced to withdraw from Japan in 2002 following strong local competition.

It is a very competitive market because it is a small island so there are a lot of people with a lot of good ideas. The Japanese are also extremely good at improving upon existing ideas. “You have to have something that really adds a lot of value or something that is almost unique. If you are going to go in with something you can quickly copy your likelihood of being a success is much slimmer,” Johnson explains.

CONCLUSION

For global corporations and SMEs, Tokyo is a fantastic option for business investment; housing some of the largest, leading and most technologically advanced producers of motor vehicles, electronic equipment and textiles. While it may be expensive compared to some of the other major cities, success for a business will significantly enhance a company’s valuation.

This is down to preparation. A well prepared entry into the Japanese market gives you a better chance of success nevertheless it makes business sense to have a foreign partner who can help you avoid any faux pas - the cultural and social climate is important to consider so do your research!

However, with its high concentration of and urban function advanced technologies, cosmopolitan Tokyo looks set to grow into a mature city with a strong market presence so it seems that now is the perfect time to develop business opportunities and invest in its future.

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