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For foreign enterprises which want to set up businesses in Japan, are there any challenges that they may encounter?

  • Category:
    Law
  • Document type:
    Essay
  • Level:
    Undergraduate
  • Page:
    3
  • Words:
    1620

Establishing business in Japan2

Establishing business in Japan

For foreign enterprises which want to set up business in Japan, are there any challenges that they may encounter?

  1. There are many barriers, obstacles and /or problems in the Japanese legal systems (laws, legal institutions and legal culture) that may cause challenges to foreign enterprises when they set up businesses in Japan.

  2. The reasons why I think there are challenges for foreign enterprises establishing businesses in Japan including the challenges are explained below. The challenges range from the interaction between the Japanese legal system and Japan’s culture, society, economic system and political development among others.

Introduction

Though Japan is world’s third largest economy in the world, it is not even among the top ten countries in the world as far as ease of doing business is concerned. It is important that foreign enterprises wishing to establish operations in Japan consider local help in overcoming the obstacles associated with establishing and doing business in Japan. Japan has for a long time boasted for being a center of innovation with a highly attractive living and business environment. Many investors are attracted to Japan for its research and design capabilities, well developed law including property rights and personnel. Japan is also attractive to investors for its well-developed consumer base with a large market with most investors using it as a test location (agr. gc.ca, 2016). It should however be noted that owing to increased local competition, a large number of regulatory hurdles as well as many cultural factors, Japan becomes difficult to penetrate and operate in. The challenges of establishing and doing business in Japan for foreign enterprises are explained below.

The major challenges of establishing and doing business in Japan are to be found in its regulatory and deregulatory reforms environment. For instance, starting a business in Japan is challenging. This is because in Japan, the procedure for starting a business is rather draining owing to the several bureaucratic layers that an enterprise has to navigate before it can fully establish itself in Japan. The law requires that organizations communicate with the ward office, the ministry of justice’s legal affairs bureau, the district tax office, the labour standards inspection office, the local tax office, the employment security office and the Japan pension service before other procedures are considered. Another challenge rests with dealing with construction permits where it takes 193 days in Japan when one is arranging construction permits based on the World Bank as well as the international finance corporation (eurotechnology.com, 2016). This is far much above several countries including those of the OECD. In securing construction permits, one has to go through a total of fourteen procedures and these have to involve several government departments as well as local authorities which can be discouraging to many foreign enterprises. Another major challenge of establishing business in Japan for a foreign enterprise is as far as getting electricity is concerned. The country’s Tokyo Electric Power Company (TEPCO) is responsible for handling electricity in Japan’s capital as well as the surrounding areas. Connecting the new business to the mains would take 105 days. This is because the enterprises have to arrange construction date, submit applications and still await connection works during this period before the meter is finally installed. This is equally discouraging for foreign enterprises wishing to establish operations in Japan.

Another major challenge is as regards registration of property. In Japan, this is a lengthy process which would call for a certificate of the seller’s seal impression, paying of stamp duty at the post office, applying at the legal affairs bureau as well as payment of real property acquisition tax. For the new businesses, getting credit as well as investor protection is not much of a challenge in Japan. This is because Japan has a modern finance system implying that it easy to obtain credit in Japan. Japan’s legal system also good protection to its investors with the country having very good ratings as far as this is concerned. However, the process of investor protection in Japan is not as streamlined as it is in other nations in its league. Paying taxes is also a challenge to the new business given that Japan’s tax system suffers from Japan’s love for bureaucracy. The World Bank as well as the international finance corporation has given Japan’s corporate tax system poor ratings given that it can consume up to 330 hours every year as far as management time is concerned with 14 payments being required every year. The country’s corporate tax rates is 30% though there are other several levies that such an investor would have to put into consideration (Maniwa, 2006). Another challenge lies in enforcing contracts where in Japan, this takes 360 days with the cost involved being as high as 32.2% of what is being claimed. This involves a total of 30 procedures with most of the time being consumed in court proceedings.

There are also numerous cultural challenges that face foreign enterprises willing to establish operations in Japan. It is worth noting that in Japan, relationships drive businesses and hence the right level of respect has to be shown with the requirement to be polite and diplomatic whenever engaging in business in Japan. Establishing business in Japan also calls for patience in handling business relations while observing local etiquette as far as gift buying is concerned. Thus, there exist a number of cultural challenges which create friction and misunderstanding and indirect and direct costs to foreign enterprises establishing operations in Japan if they ignore them. When setting up in Japan, organizations will for instance find rules and etiquette challenging. It is to be noted that Japan has low tolerance to uncertainty and hence the society strictly adheres to rules and regulations as evidenced by low crime rates as well as high level of behavioural conformity. Etiquette for instance of paramount importance in Japan as evidenced by extensive vocabulary and grammar in communication, codified practices for receiving and giving as well as principles for borrowing and exchanging name cards (export.gov, 2016). Japanese culture also entails hierarchical systems and responsibility and authority are rewarded on the basis of age, experience and status. One has to pay attention of the face when communicating with damaging face via overt confrontation or criticism shaking the foundation of Japanese hierarchy and could be disastrous for business relationships. Thus, when establishing business enterprise in Japan, foreign enterprises stand to lose a lot if they do not understand this.

Also to be noted is the gender role aspects in Japan when though women continue to increasingly gain more visibility in the work place; offices continue to be male dominated. For women, their role or social participation is largely influenced and reflected by the Japanese language that diverges in to a more formal and polite style of speech when being used by women. Another cultural factor includes harmony given that Japanese value group sentiments over individual ones. A great significant is placed on group loyalty. Companies still provide lifelong employment to people who devote their long hours often sacrificing personal gains for community good. Thus, it is not good in conducting business in Japan to recognize and praise or prioritize an individual at the expense of the group as this will be deemed embarrassing and it is unlikely to further ones business goals. What this implies is that if a company is unaware of this may lose business by behaving to the contrary (expatarrivals.com, 2016). Japanese also value time being a monochronic culture and they prioritize issues depending on their importance. Thus, in entering the market, punctuality has to be observed at all times regardless of who one is dealing with since this is a sign of respect in Japan with being late requiring a forewarning as well as an apology. Most new businesses find it hard to understand Japan communication style and hence this is a challenge to establishing a new business in Japan. This is since Japanese mainly use indirect high context language in their communication. For instance, Japanese rarely say any meaning that international enterprises establishing operations in Japan may end up being confused and end up losing business opportunities and be unable to meet their business objectives.

Conclusion

This essay has explored the challenges that foreign enterprises are likely to encounter in establishing themselves in Japan. However, the greatest challenge that has been observed is cultural barriers. This is because there exists a lot of cultural differences between Japanese culture and other nation’s cultures including ours. Thus, recognizing cultural differences existing when establishing a business in Japan would be a step in the right direction. This should enable the organizations develop strategies for overcoming these barriers hence ensuring their success in the market. Another challenge would exist in the country’s regulatory regime as established above. Thus, a company ought to acquaint itself with Japans legal environment before establishing operations in Japan. However, it should be noted that there are no major challenges to establishing operations in Japan as far as the other environmental aspects are concerned. The political, economic and technical environments for Japan have features that are in most cases similar to the challenges one would expect to find in other similar countries.

References:

agr. gc.ca, 2016, Business environment-Japan, Retrieved on 6th June 2016, from;

http://www5.agr.gc.ca/resources/prod/Internet-Internet/MISB-DGSIM/ATS-SEA/PDF/6506- eng.pdf

eurotechnology.com, 2016, Difficulties in doing business in Japan: What can we do about it? Retrieved on 6th June 2016, from;

http://www.eurotechnology.com/doing-business-in-japan/what-can-we-do-about-it/

Maniwa, T2006, Challenges to doing business in Japan discussed at the EDAC emerging companies’ panel, Retrieved on 6th June 2016, from;

http://www.gabeoneda.com/node/19

export.gov, 2016, Doing business in Japan, Retrieved on 6th June 2016, from;

http://www.export.gov/japan/doingbusinessinjapan/index.asp

expatarrivals.com, 2016, Doing business in Japan, Retrieved on 6th June 2016, from;

http://www.expatarrivals.com/japan/doing-business-in-japan