For our latest business trip feature, where we look at the UK’s most interesting export markets, Business Leader gives you an in-depth guide into everything you need to know about doing business in Japan.
The Land of the Rising Sun has for decades been one of the world’s leading economies and is currently third on that list, with only China and America boasting a larger GDP.
In the past year, Britain has become a more prominent trade partner and a recent report by the Office for National Statistics (ONS) revealed an increase in trade with Japan, rising by 7.6%, from £13.8bn (2018) to £14.8bn (2019).
Japan is already the UK’s 11th largest trading partner and one of the world’s fastest-growing markets. The government has made it public that one of its main goals post-Brexit is to strike a new Free Trade Agreement, which would solidify and expand the nations’ business relationship.
So, with a strong trade history and a public commitment to build on the partnership between the nations – is now the time to expand your company’s operation into Japan?
The Britain-Japan relationship
British businesses are currently benefitting from record levels of trade with Japan, with exports continually rising over the past three years.
One of the thousands of companies that have found success in Japan is London-based Shadow Robot Company. The firm is Britain’s longest-running robot company and winners of the Queen’s Award 2019 for Innovation.
The company produces the world’s finest anthropomorphic dexterous robotic hands, which have been used as a testing tool for artificial intelligence and machine learning, as well as in research and development at Tokyo and Akita universities.
Shadow Robot is currently participating in a development project with a Japanese corporation that has already brought in £500,000 and is expected to do the same over the next six months.
Rich Walker, Managing Director of the Shadow Robot Company, said: “Japan is a key target market for us. There is a solid business culture and the country has a great respect for investing in exciting and cutting-edge technology, such as that used in our products. We have found the nation takes a very long-term view of business and it is refreshing to see how Japan is open to exporting innovation and expertise from abroad.
“The business relationship between the UK and Japan is certainly strengthening, as both are leaders in the field of innovation and both recognise the importance of cooperation in providing innovative solutions to global problems. It’s a model of continuous development and needs ongoing commitment from both parties.”
But it isn’t just recent opportunities that have made Japan a commercially viable nation to export to. Greg McDonald, Managing Director for Japan at TMF Group, comments: “The UK and Japan share a centuries-long business relationship that is supported by a strong political relationship. This has formed an excellent base for increased cooperation in recent years.
“Both island nations, despite being relatively short on natural resources, have been able to propel themselves by creating economies based on knowledge and technology.”
Why should you start working in Japan?
Both nations have made it clear they are carrying on and developing their business relationship into the future.
With political partners on both sides publicly promoting a bright future for trade, now is the time to break through the Brexit blues and set up a business function in the Far East.
McDonald comments: “Japan is a mature and stable economy with a strong rule of law. It is still the third largest economy in the world and there remains plenty of opportunities for this reason. It also has a high level of technology, a well-educated workforce and strong infrastructure to support business.
“The government is also focused on improving the country as a destination for regional headquarters and hubs.”
However, due to Japan’s position as one of the world’s top economies, British companies looking to navigate a way through the challenges can achieve incredible success.
Walker comments: “Companies looking to have operations in Japan can expect an exciting defining moment for their business, seeing as Japan is an innovation powerhouse. Japan is the world’s third-largest economy and, in the last year alone, trade between the UK and Japan was worth £29.5bn.
“Having said that, expect to market your product differently, geared towards Japanese customers considering the language and cultural differences.
“It might be worth approaching this market through a sound collaboration with a company that is well established in the country rather than approaching it alone.
“Overall, the nation takes a very long-term view of business and it is refreshing to see how Japan is open to exporting innovation and expertise from abroad.”
What sectors are most prevalent in Japan?
Clearly tech is one of the most prominent sectors that comes to mind when thinking of Japan, but there are many other areas of Japanese business which could be fruitful for British companies looking to expand overseas.
According to Export to Japan and TMF Group, after technology, UK companies which have achieved the most success in Japan come from automotive, energy, manufacturing, aerospace, scientific, financial/professional services, media, retail, healthcare and food & drink sectors.
Latest figures from ONS show Atlantic salmon exports to Japan were 1,060 tonnes, worth £8.7m in the 12 months to October 2019; an annual increase of over 71.8%.
One business taking advantage of growing demand is The Scottish Salmon Company. The Edinburgh-based firm has recently secured a deal to supply Japanese sushi chain Genki Sushi with its brand, Tartan Salmon.
Su Cox, Communications and New Business Development Director for The Scottish Salmon Company, said: “Japan and the Far East is a key market and demand for our salmon has helped drive a 25% increase in our exports to the region over the past year. We expect this to increase as more consumers discover this fine Scottish product and experience the great taste and provenance of our quality Tartan Salmon. Our recent success with Genki Sushi is testament to this. We take great pride in our Scottish heritage, and this is demonstrated through our commitment to bringing the finest quality Scottish salmon to worldwide markets.”
However, electronics and technology are still the main export opportunities for British businesses looking at expanding into Japan.
What are the main challenges of working in Japan?
Regardless of the success in its prominent sectors, Japan is in the midst of several economic and employment difficulties.
McDonald comments: “Japan has a rapidly-aging society with a very high unemployment rate, which can make hiring a challenge, especially staff with strong English skills. There also exists several regulatory and licensing requirements, depending on the industry, that many companies may not face in their own jurisdictions.
“These headaches can be varied and complex – but are not insurmountable, so long as local expertise can be procured. For example, many legal and banking processes still rely on traditional methods such as seals, original certificates and hard copies of notarised documents, which adds to the administrative burden. An unwary foreign firm can find adaptation to these processes extremely difficult.”
Walker continues: “One of the main challenges for companies looking at doing business in Japan is that competition can be fierce, especially if your market is reasonably well served by other local providers. There are language, business and cultural challenges too but luckily for Shadow, we had support from our Japanese distributor, Nihon Binary, and the Department of International Trade (DIT) through various language, culture and distance barriers.”
What does the future hold?
Despite the positive business relationship and a commitment to strengthen trade ties between the nations, there are many different challenges for British companies looking at expanding their operations into Japan.
Following the news that Japan’s economy shrunk at a 6.3% annual rate, and with the potential of the coronavirus to impact the prospect of a global economy, Dr Kerstin Braun, President of Stenn Group, comments: “The news that Japan’s economy shrank by 6.3% in the last year is a worrying sign if you are looking for an indicator of the health of the global economy. Japan boasts the third largest economy in the world, so if it contracts again in the next quarter, they will be staring down the barrel of a recession.
“Given the impact the coronavirus has had on the global economy, it is hard to see this being avoided. Already we are seeing Japanese supply chains being hamstrung across the automotive sector.
“The Chinese are also a major driver of the global tourism market, contributing to 15% of global spend on tourism. Coronavirus has already led to clear evidence that the Chinese will be travelling less, and this will have a clear impact on the global economy in the months ahead.”