Nippon’s Shinzō Abe. Source: U.S. Embassy Tokyo, Wikipedia Green.
Japan’s revitalization strategy for the upturn in the thriftiness has been polarized on invest in Japan operate. Among various reforms, inward abroad investment gained prominence as a strategic path to turnaround the lost paradise of Japan as a fabrication hub in the world. Japan lost its power of fabrication hub after the yen appreciation in the economic war with USA in overdue eighties and the China’s cheap cost on account of late nineties. Powered by market extent and slip in the business costs , owing to downswing in the yen value, hopes are rising for an upward kink in inward foreign investment.
Inward strange investment in Japan , which leapfrogged 19.4 pct up in 2014 and excelled the fence of 20 1000000000000 yen for the first time , was cheered a big success of the revival drive. By 2014, for the first time, the inventory of inward foreign investment reached 23 1000000000000 yen .
Nevertheless, can this momentum ensure Flush Minister Shinzo Abe ‘s dream of 35 zillion yen stock to be achieved by 2020, given the slack pace of world economic growth?
Historically, Nippon has been the only developed nation which was unemotional to foreign investment. Despite it surged the 3rd greatest economy in the world, its’ ratio of inward abroad investment to GDP was 4.8 percent in 2014 – the last in OECD countries.
The average ratio of inbound FDI among the OECD countries is 34.1 percentage. USA and Germany, for instance , have ratios seven-spot to eight times more than Nippon. In other words, inward foreign assets never played a significant role in Altaic economy, or to say, Japan was never a nation of Rise Sun for the foreign investors.
Japan’s turnaround to through foreign investment began with a renewed diversion of Abe government. Various reforms were bewitched to eliminate formal restrictions governing abroad investment in Japan. But, these initiatives remained conflicting , given the prevalent business culture in Nippon.
According to US Department of State, “ the reform components of Abenomics, advised essentials for long term growth and aggressiveness, has been slower to take a shape”. Contrastive with other countries, most of the obstacles and take exception to faced by foreign companies in Japan connect more to prevailing social practices in the concern culture than government regulations . These included provincial and consensual business culture , which acted resistive to Merger & Acquisition, lack of independent Executive in most of the company boards, exclusive dressing in the supplier’s networks and alliances between congregation (popularly known as Keiretsu system), according to US Division of State.
The Abe Government set up a Council of Economy and Pecuniary Policy, with an aim
of promotion of FDI in Japan. To this end, the Proficient Group Meeting made a survey of alien companies in Japan and unveiled the challenges featured by the foreign companies in Japan.
The Expert Cartel Meeting revealed two important obstacles to the alien investors. Low profitability and high costs. Low profitableness was catalyzed by systems and practices , lack in world-wide competitive Human resources and lack in picture in corporate governance compared to foreign fellowship . High costs were factored by knotty distribution system, separate production contour to meet the quality hunger of Japanese client, high taxation and long time enchanted to start –up the business.
Well, all these hitch and challenges are rather relative in terms of extent depending upon the types of foreign investors . They force have been deterrents to foreign investors. But, the bigness of the deterrents are low in case of Japanese investors, who went ubiquitously after yen revaluation. This is because the Altaic affiliates abroad, or say, Non-Resident Japanese corporates, are immunised to these obstacles and challenges. They are good acquainted with typical business sophistication in Japan.
In the pre-Plaza Agreement, these Non-Regional Japanese corporate contributed large to re-collective Japan after World War II, despite the obstruction. They were the major role contender to catapult the Japan ‘s economy as the second greatest global economy before China cutting out Japan.
High yen appreciation, which led Altaic corporate shift from Japan and assemble the country a hollow investment zone , is no many a major obstacle to woo the Japanese affiliates extensively. The high cost of doing business in Nippon slipped from top rank obstacle in 2013 to one-fifth position in 2015, according to a JETRO’s view “ JETRO Invest Japan Report 2015”. The yen has depreciated severely since Mr. Shinzo Abe returned to power end year and promised for weakening yen to reflate the husbandry.
This unleashed an opportunity for the Japanese affiliates forth to return to Japan since Abe’s promise Testament place Japan a new turf for export fight
Given the opportunities on the anvil , which can draw the Japanese affiliates abroad to invest in Nippon, it can be argued that why not they should be pleased to invest in Japan and resurrect the sluggish inwards foreign investment in Japan.
A separate publicity campaign should be made to woo the Non-Resident Altaic investors. Japan is the second biggest alien investor abroad. Its overseas investment inventory was US $ 1,259 .06 Billion at the end of 2015. Of these , the greatest stocks were held in USA and China. Abaft the downturn in cheap cost in Chinese action, Japanese overseas investors resorted to Chinaware +1 strategy or hunting for new nations to adorn , such as India, Africa and South Eastbound Asia.
Against the backdrop of these new object to faced by Japanese overseas investors in the awake of China loosing low cost manufacturing hub, Altaic affiliates abroad should be encouraged to place in Japan with their profits reaped foreign, instead of reinvesting in overseas. To woo the Japanese affiliates overseas, special incentives should be granted to toll them. Followings are some of the incentives which can draw e the Japanese affiliates abroad.
First, prone the high corporate tax in Japan, a dual incarnate tax policy should be introduced. Japanese affiliates confused investing in Japan from their gain earned in overseas should be bracketed in the mark down corporate rate structure and with tax breaks apart initially for the period requiring for start-up.
S, investment subsidy should be given for locale up mega projects like infrastructure, gift , transportation and others.
Third, Japanese affiliates finance in Japan should be given preferences in the Authorities procurement, complying however WTO regulations.
Quarter, Single –Window clearances should be set up to paraphrase the start –up business. Despite Nippon claiming an hassle –free investment direction, Japan ranked 35 th in the global evaluate of Ease of Doing Business by World Trust .
Therefore, Japan’s sluggish inward strange investment can be overturned by the Japanese affiliates foreign only, given the prevalent business suavity in Japan.
*S. Majumder, Adviser, Japan Apparent Trade Organization (JETRO), New Delhi. Prospect expressed are personal.
