Wednesday, Jun 26, 2019
Industry & Trade | Asia-Pacific | Japan

Japan External Trade Organization

Talk to JETRO first about Japan’s new business environment


4 years ago

Hiroyuki Ishige, Chairman and CEO of the Japan External Trade Organization (JETRO)
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Hiroyuki Ishige

Chairman and CEO of the Japan External Trade Organization (JETRO)

One of core pillars at the Japan External Trade Organization (JETRO) is connecting overseas companies with Japan, as the nation aims to reinvent itself as the most business-friendly country in the world. JETRO’s Chairman and CEO Hiroyuki Ishige offers his perspective on the organization’s new proactive approach at pursuing new investors, FDI, and where Japan now stands internationally as an investment destination.

 

Where does Japan stand as an investment destination against some of its fast-rising neighbors, such as China and India?

There are a number of points that make Japan an attractive investment destination. First, there is the size of the economy. Japan is the third largest country in the world in terms of GDP. The size of the GDP of the Kanto region is equivalent to that of the UK; the Chubu region, centering around Nagoya, and the Kinki region centering around Osaka and Kyoto both have an equivalent GDP size to that of Indonesia. That represents an enormous market, and it’s something we have to aptly communicate.

Secondly, in terms of the quality of the market, Japan is a very tough market, because the Japanese are the strictest consumers in the world. I will give the example of Proctor and Gamble, which produces diapers. They tested their new diapers in the Japanese market. Why? Because Japanese housewives are discerning and very strict about quality. P&G introduced their new product in the Japanese market because success in the Japanese market means success in the surrounding Asian markets. That is a consensus shared by multinational companies around the world. The level of income of neighboring countries has been increasing substantially, and consumers of those countries wish to purchase made-in-Japan products. This, for us, is another advantage.

Thirdly, for a company that is interested in research and development, Japan offers great advantages. There are 51 R&D researchers per 10,000 people, which is the highest quantity in the world. Both companies and the government provide a great amount of investment for R&D activities, and that investment amount compared to GDP is also the highest level in the world. The environment for R&D activities in Japan is favorable for not only Japanese companies, but also for companies of neighboring countries who wish to form new business alliances with Japanese companies, including SMEs, for developing new products.

The fourth advantage is tourism – this is a truly promising sector. A total of 13.4 million foreign tourists visited Japan last year. This is a big figure from the standpoint of Japan, but not yet from a global perspective. Japan has significant potential in this area, as we still have many, many historical and cultural sights. Also, consumers in foreign countries have a high regard for Japanese cuisine. We welcome investment by foreign companies within that field as well. For example, companies in the tourism sector or foreign airlines such as China’s Shunju (Spring) Airlines increased their number of flights from one to 20 in the past four to five years. This represents a solid growth of incoming Chinese tourists – a very promising market for us.

 

When we met with Irene Inouye, the President of the US-Japan Council, she stated that Japan’s focus should be on structural reform and promotion of women playing a more prominent role in society. What specifically is being done in Japan now to promote women in the work place?

I think that is quite an important point. Prime Minister Abe strongly encourages all organizations and private companies to hire high-ranking female officials. This is a good initiative and I fully agree with that sentiment.

I believe that in a mature economy like Japan’s, further diversification is required in order to create new ideas. So in that respect, female senior officials should be welcomed, and we also need to create new management styles and concepts to take advantage of the effects of diversification.

In the case of JETRO, the number of female staff members in senior positions is still limited. So I intend to increase the number of female staff members at the management level.

 

How do you think a US investor perceives the Japanese business culture and current investment climate?

When I first set out to strengthen activities in this organization, I held meetings and discussions with a number of members of government, foreign investors and company officials, and in my view, they commented on the Japan of the past – which was now old and obsolete.

Japan has changed dramatically in the last two to three years, and this must be recognized. The reason they still have this old mind-set is because we haven’t adequately provided new information on our improved business environment. We therefore need to increase the number of our seminars in the US and to dispatch our staff members to spread the message in America and Europe.

The old image of Japan is that of a closed market with high costs, but we have changed. Prime Minister Abe is a great advocator of our nation’s progress and he has given us an opportunity to strengthen our activities.

 

What in your opinion has been the impact of Abenomics in terms of increasing inward FDI to the country?

After the introduction of Abenomics, we noticed an improvement in the macroeconomic environment, and consequently in the flow of FDI. The business infrastructure of Japanese and foreign companies has also become more integrated. The regulatory reforms induced by the Abenomics have in addition brought noticeable progress. The local monopoly of the power/energy sector will be reformed next year and we are beginning to see many foreign companies starting to invest in Japan.

Adding to this, there are significant reforms taking place regarding regulations of the development of pharmaceuticals and medical devices. I believe that in line with the significant ease of regulations, Japan has become, in terms of development of pharmaceuticals and medical devices, a development-friendly country. US-based companies in these industries are currently looking to increase their investment to Japan. I recently discussed with a CEO of a large pharmaceutical company if communication is a problem when developing pharmaceuticals in Japan, and she stated that the researchers have faced no such problems.

In addition to regulations, business costs and investment costs in Japan have been greatly reduced. This is not limited to pharmaceuticals, but in a much broader sense. For example, office rental and housing costs for foreigners have been declining and are much below those of Hong Kong or Singapore. Middle-class managers’ salaries are about the same level as Hong Kong and Singapore.

I will provide you with an example of the current situation in Japan which I used recently in an “Investment to Japan” seminar JETRO held in Bangkok and Singapore. The price of a well-known Japanese ramen shop’s noodles in Singapore is 15SGD plus tax and service cost, whereas in Japan, it is 8SGD for the same dish. The audience of the seminar was surprised by this example. It seemed that the reality of reduced costs in Japan was new information to them.

There has also been a reduction in the corporate tax rate. Before it was 35%, and now it is 32.11%. It will be further reduced to 31.33% in FY2016. Moreover, the administration has promised to reduce this corporate tax rate down to the 20% level in the near future.

Another reason for increased FDI into Japan is the living conditions on offer. I believe that for foreigners, Japan is a comfortable place to live. It is safe and has a good education system. According to Monocle, Tokyo rated first in the world in terms of living conditions, Kyoto 12th, Fukuoka 14th.

Another example of the incentives in place to attract FDI into Japan is the tax breaks for investments into certain areas such as Fukushima, which are in the process of recovering from the earthquake.

Added to this, the government decided to offer a so-called “one-stop shop” for FDI. The Tokyo One-Stop Business Establishment Center was founded in the same building as that of JETRO at the beginning of April, and Prime Minister Abe came to celebrate the opening along with Minister Shigeru Ishiba and Tokyo Governor Yoichi Masuzoe. JETRO also operates the Japan Business Support Center on the same floor to provide assistance for foreign companies beginning their integration process into Japan such as offering temporary office space.

 

Where must increased focus now be placed in terms of further deregulation?

To attract FDI, Japan has to continuously conduct regulatory reforms in order to provide a better business environment. Such measures are also being conducted by neighboring countries such as China, Korea, Hong Kong and ASEAN countries.

With regards to attracting foreign companies into Japan, a competitive corporate tax rate is no doubt an important issue. However, we must also be careful to avoid falling into tax wars with other countries providing lower rates one after another. That will cause problems for the entire region.

As I mentioned earlier about the medical equipment and pharmaceutical industries, there have also been regulatory reforms in the regional retail electricity supply. I believe there may be room to further improve regulations in various other sectors in Japan.

 

I’d like to touch a little bit upon Japan’s business environment. The World Bank Group’s recent figures summarizing the ease of doing business in Japan actually show a drop of two places over the last year, to 29th in the world. Its close neighbor Singapore is first in the same ranking. Mr. Abe at the recent ‘Invest Japan 2015’ summit in New York once again emphasized his aims to make Japan ‘the best place to do business’.

Considering the changes in the business environment of Japan, we need to be more enthusiastic about delivering our message promoting investment to the world audience. Prime Minister Abe is the first prime minister to deliver addresses with the specific goal of attracting FDI into Japan. I believe that JETRO has an important role in conveying information regarding our business environment. We must send out a bold and comprehensive message regarding the improvement in business conditions, which are now also being backed-up by the Japanese government. Of course 29th in the rankings is not satisfactory at all, so we have to keep making progress in various industries and a variety of sectors.

 

How would you evaluate the role of JETRO towards supporting Mr. Abe’s vision of increasing investments to Japan and better promoting Japan as a business center in Asia? How are you today concretely promoting Japan and reaching out to international investors?

JETRO was established in 1958 to initially promote exports, but that function has been changing over the years depending on the needs of the times. In the 1990s, we were engaged in import promotion, which was quite unusual, as normally a trade organization would try to promote exports, but at the time our role was to reduce the pressure of trade friction caused by the imbalance in trade. After that, in early 2000, we decided to engage in the business of attracting foreign investment. It was in 2003 that we formally launched operations toward this. Since then, JETRO has supported 12,000 investment projects and 1,200 of them have successfully made investments in Japan. But that figure is not at all satisfactory to me in comparison with other investment promotional organizations such as UKTI in the UK, EDB of Singapore, and Business France.

In order to increase the number of investments made by foreign companies supported by JETRO, I introduced two new measures. Firstly, I insisted on taking a more proactive approach to reaching out to potential investors. In 2013, we made a list of 3,000 companies, and all of them were contacted; 300 of them responded favorably or showed some interest in investing in Japan. Since then we have been communicating with them on how they can successfully invest in Japan. The second point is to support what is called secondary investment, meaning investment expansion made by foreign-affiliated companies already present in Japan. For example, the company Micron acquired a factory and R&D center in Hiroshima and expanded their capacity there. This expansion in capacity can be regarded as a secondary investment. So in addition to approaching companies abroad, we also started approaching foreign-affiliated companies in Japan.

Investment promotion organizations in other countries have already been doing this for some time, whilst we had restrictions on our budget and human resources. However due to the importance of attracting foreign companies and investment to Japan, I decided to prioritize and reallocate more resources into this wing of the organization.

 

What sort of promotional events are you using to target the international community?

We have supported 12,000 companies, and 1,200 of them have invested in Japan. A third of them are from the US, another third are from European countries, and the other third are from Asian countries.

Recently, investments from Asian companies are rapidly increasing. This is phenomenal. So, in order to address the growing number of Asian investors, this fiscal year we have planned 30 seminars in Asia, whereas last year we only had a few. This doesn’t mean that we will not organize them in European countries and in the US; this is an additional measure.

 

Japan has internationally recognized expertise across a wide number of sectors and Mr. Abe has been using recent state visits especially in the US to promote Japan’s brand and business abroad. How do you see the marketability of Japanese companies in the US and on the world stage?

Depending on the market, the strategy will be different. As for the Asian market, I believe the products made by Japanese companies are very much appreciated, as when Chinese tourists come to Japan, they purchase huge amounts of products made in Japan. These products fit their needs and taste. For North America or Europe, however, it is not so easy to determine which brand will be successful in the market. It depends on the actual precise, individual market sectors, but even if it is a tiny market, in this fast-moving world of e-commerce, it can still represent great potential. This is different from what we used to experience prior to the internet.

 

How is JETRO assisting Japanese companies integrate in what is today a more global market place?

Japanese companies follow a policy of producing high-specification products despite the high cost. The engineers would not like to compromise in that respect, but this in my view does not represent sound business sense. Managers should be much more market-oriented. Depending on the consumers’ needs of a certain market, we have to provide lower-priced products while maintaining the expected quality. That is the sort of attitude that must be strengthened.

I believe that the Japanese automobile industry has been successful in that respect. They are now addressing the Indian market and have introduced low-priced automobiles. This represents quite an important change. If a product is sold in a particular market – for example, India – that product must be developed in India by hiring researchers and developers from India. US companies have already done that. Now Japanese automobile companies are doing the same, and I think this sets a good example for other industries to follow.

 

How would you evaluate the importance of the US for Japan’s future? What’s the current US-Japan trade and what future prospects does the Trans-Pacific Partnership deal when ratified provide?

I think the actual business activities such as trade and investment between the two countries will be enhanced substantially.

What is important is that the Trans-Pacific Partnership provides new trade and investment rules, which often is described by the US administration as “the trade agreement for the 21st century”. Ever since the Doha Round negotiations became stagnant in the summer of 2008, no such comprehensive, region-wide trade and investment framework has been made.

The Uruguay Round negotiations were completed in December 1993. This was more than 20 years ago. Despite the drastic development and changes in the international trade and investment environment since then, the multilateral trade negotiation system could not reach an agreement to address adequate changes on important rules and issues such as intellectual property rights, competition policy, SME issues, technical regulations and sanitary inspection issues.

Under such circumstances, the TPP is an epoch-making approach to create regional comprehensive trade and investment rules. Its impact may even accelerate other economic partnership negotiations, and may hopefully bolster discussions on rule-making under the WTO.

 

How is JETRO preparing for the eventual implementation of the TPP?

The TPP will provide its member countries with opportunities to expand their business in the region. To maximize the opportunities that will arise, Japanese companies need to enhance their ability to generate revenue overseas. I believe that many SMEs have missed an opportunity to do this despite their advanced technology and know-how. The TPP will encourage these companies to launch such operations abroad. JETRO is seeking to make excellent Japanese products and services available across the world.

The TPP is a very unique agreement with a separate chapter aiming to accelerate its use by SMEs. Its rules, which can be easily utilized by SMEs such as unified rules of origin and a self-certification system, are held in high regard and should be publicized to these companies. JETRO established the Taskforce for Promoting TPP Utilization on October 15 to do this. We have bolstered efforts to provide information and support for SMEs to tap into the markets of TPP member countries, aiming to promote their active utilization of the accord.

Meanwhile, in a global age, regional revival cannot be achieved without developing the overseas market. Assistance from foreign companies is imperative and the TPP will facilitate this. As mentioned earlier, we are looking to further support SMEs, which have sustained the regional economy, to develop their overseas business. The agriculture industry also faces the need of advancing into foreign markets more than ever before, considering the issues that Japan is tackling such as its aging society with fewer children. JETRO has made its best efforts to increase exports of Japanese agricultural products utilizing its network of 43 domestic offices and 73 overseas offices across 54 countries. We will be providing even further fundamental support to promote Japan’s exports.

 

What would be your final message to the readers of USA Today?

Japan has changed due to the new economic policies.

We have a slogan we use to promote our activities which I would like to share also with the readers of USA Today: please “TALK TO JETRO FIRST”. 



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