Macroeconomic and Political Factors: Japan

Executive Summary

The report evaluated the macroeconomic and political factors that affect the business of overseas firms in Japan. It has been identified from the overall analyses that numerous factors are responsible for influencing the success rate of overseas firms. The analysis revealed that restrictions on direct investments, high taxes, highly established local businesses, and many more affect overseas companies. It has also been identified that long terms strategy and comprehensive knowledge of the Japanese market is required in order to succeed in the most effective manner. Lastly, some suggestions have been provided that may improve the functioning of overseas firms in Japan.



Macroeconomic factors

Restrictions on Foreign firms

Legal Regime

Political changes

Trade Barriers

Communication Style





Japan is the world’s third major market, competitors, and collaborator. The country is known as the modernization powerhouses as a large amount of current international technology revolutions are taking place in Japan. Even though Japan holds huge business opportunities, overseas firms find it complicated to begin their trade in the country. There are some challenges like high lent price, conventional business etiquette, language issues, and many more that act as a barrier for foreign companies (Watanabe and Lemaire 2018).

In spite of whether a business is from Japan or is an overseas corporation with an existence there, it requires an effectual compliance agenda to promote moral behavior by its worker and uphold its reputation as well as obey with appropriate laws. While the financial opportunities in Japan may still be vigorous enough to draw companies there, any foray by an overseas business into the country should consider the regulatory surroundings and compliance risk of doing trade there. The report will focus on analyzing the macroeconomic and political issues that affect foreign firms in Japan. It will further provide suitable recommendations for international firms. Finally, the conclusions will summaries the overall analyses. 

Macroeconomic Factors

Changes in Labor Market Condition

The redundancy rate has declined recently to approximately half the level of the deflationary phase. While the working-age population has continued to turn down in Japan, some may believe that this is just due to a decline in labor supply (Kamei et al. 2017). This means that the current reduction of labor market circumstances is mostly due to an augment in labor demand, not a decline in labor supply. This development in the service situation has brought about a boost in household income, with the number of working people rising and salary rising reasonably. In Japan, where the working-age population has been declining, an augment in labor contribution by women and older are welcome in terms of hastening financial growth. Due to the alteration in a labor market the overseas firms may have to invest in training and development which may also influence their profitability.

The Japanese currency Yen has been strong in relation to other world currencies, which has exaggerated Japanese exports. The business tax rate in Japan in the present situation is 40 per cent, which can be considered comparatively high compared to other foremost nations. The foremost Democratic Party has a strategy to decrease the tax to 25 per cent to attain a more global level, and in that way endorse financial growth (Narula 2020). Though, Japan has the most expensive non-tariffs trade obstacle and customs that make it very complex for overseas countries to export to Japan.

Foreign companies in the Japanese marketplace are facing frequent issues. A customary repugnance towards amalgamation and acquisitions within the business; Japan has reserved foreign reserves, and weak business domination has to lead to low income on equity and money hoarding amongst Japanese business, though the business practice may be improving in both areas, mainly in corporate governance. Shareholder and company proprietor should also tackle with rigid labor regulation and an extremely disciplined labor staffing structure that can considerably augment the cost and complexity of supervising human resources (Higuchi 2018). The Japanese regime has documented lots of these issues and is pursuing a plan to progress venture position. Levels of corruption in Japan are low, but deep associations between firm and dealer may restrict the opposition indefinite segment and restrain the access of overseas business into the local marketplace.

Restrictions on Foreign Firms

The Foreign Exchange and Foreign Trade Act administer investment in segment consider to have state safety or financial constancy implication (Norbury 2019). If an overseas depositor needs to obtain over 10 per cent of the share of a scheduled corporation in a chosen sector, it has to give previous notice and get sanction from the bureau of investment and the department that controls the particular business. The designated division comprises farming, aerospace, forestry, fuel, electric/gas/water utilities, telecommunications, and leather manufacturing.

Legal Regime

Some affiliates of the foreign trade society in Japan continue to state distress that Japanese controller does not seek enough official input from industry stakeholders, instead of relying on informal relations among controller and domestic firms to arrive at authoritarian decisions (Shinoda 2018). This may have the result of disadvantaging overseas firms that lack the gain of deep associations with local regulators. The United States has encouraged the Japanese administration to improve public notice and comment actions, to guarantee constancy and lucidity in rule-making, and to provide reasonable deliberation to comments received.

Political Changes

A range of political factors affects international factors. Political factors such as alteration in tax rates, guidelines, and proceedings of government, political firmness of country, foreign trade system, etc. affect the functioning of an international business firm. Lacks political constancy in the country directly impact the process of the business firm (Belov 2016). Also, different tax policies and government proposals sometimes delay the development of business in other countries. 

The role of the administrative organization in the financial system has been altering over the past decade as the central regime practice a long-term program of managerial restructuring and deregulation. All overseas exchange dealings to and from Japan with transfers of earnings and bonus, interest, payment and fees, repatriation of resources, and reimbursement of principal are liberally allowable unless specifically prohibited (Kuroda 2019). Official control on the distribution of foreign exchange and limits on foreign investment have been detached. Yet, the Japanese Government continues to play a noteworthy role in endorsing certain preferential industries, and GOJ strategy and authoritarian practices in many cases still support the wellbeing of the domestic manufacturer.

Trade Barriers

 Tariffs are generally low but Japan does have a few non-tariff obstacles that may impact saleable action by probably hindering or delaying the importation of overseas goods into Japan (Schoff 2018). Even though competition, the United States and other overseas regime stress and another aspect, have lessened the effects of this obstacle, International Corporation may still meet a non-tariff obstacle in the following area:

  • Principles distinctive to Japan (official, unofficial and others)

  • An obligation in several segments or scheme for a corporation to display previous practice in Japan, successfully restrict the entry of new candidate in the market;

  • An official policy that supports locally produced foodstuffs and shows favoritism against overseas goods

  • license authority in the hand of business associations with the inadequate association, high market pressure, and the capability to manage information and function without error

  • Cross stock investment and interconnection of trade benefit among Japanese corporation that provides drawback to a dealer outside the conventional trade group

  • an interest group (both formal and informal)

  • The cultural burden of delicate relations in Japan and the unwillingness to rupture or adjust the trade.

The Japanese marketplace is in numerous aspects very dissimilar from foreign firms. It can be both time consuming and expensive for corporations to invest and consign themselves to the Japanese market in order to intensify their information and get an improved understanding of the intricacy surrounding it. This may result in companies feeling unwilling to set up their process in the country just because the obstacle appears extreme and irresistible (Fang et al 2016). Nevertheless, in order to productively conquer the major hindrance linked to novel market entry, significantly, businesses are well equipped. By understanding the arrangement and composition of the Japanese marketplace, overseas businesses have the option to foresee troubles that may occur in the future and remove existing troubles by understanding why they happen.

Communication Style and Cultural Factors

Politeness in any kind of discussion is vital when bargaining with Japanese business associates. Japanese etiquette requires appropriate use of language level at every instance. Before talking to anonymous parties, the Japanese require to find out about their grade or status to guarantee a suitable means of communication. It is particularly significant to know the disparity in society between the US and Japan. Japanese citizens, civilization, and traditions are just the reverse. In reality, US business citizens doing a deal in the state or with Japanese citizens may be taken aback by the procedure of negotiations and trade (Muto et al 2016).

That procedure is obvious in their trade attire, which is a classically business outfit for both men and women. The business card is extremely significant in Japanese trade meeting, and is held in high regard and measured as an extension of the person. However, all these factors are general but most of the firms failed to give much importance as a result their business failed miserably in Japan.

Japan has very much strong local trade. As an instance, eBay failed in Japan against local rivalry and pull out from Japan. Japanese business also will not typically greet a novel entrant, but expand the plan to fight hard against the innovative applicant. The companies should be prepared for such rivalry with the very systematic market investigation and policy expansion (Chan et al 2017). If the company does not systematically recognize the opposition in Japan then it has a modest possibility to succeed. In order to succeed in Japan, firms should know and have to be prearranged and talented and enthusiastic to contend with the home competition.

It is an extremely practical nation in numerous customs, with a dense association of system, agreement, certifications, actions, headquarters, and establishment with authorization actions for many things, which do not need sanction in the UK or US. Several restrictions are intended as an access barrier against newcomers to the present industry. Gradually these policies are “ease” and rarely removed by the government. Furthermore, there are also some sectors, where Japan is more transparent than the United States and Europe to outside venture (Jaussaud and Rey 2018).

A case is Japan’s telecommunication company; Vodafone faced no complexity at all to obtain approximately 100 percent of Japan’s number three telecom operator. That Vodafone breakdown had nothing to do with the congested environment of Japan or any administration interference. Vodafone’s collapse in Japan was mainly due to two reasons including lack of investment in the network communication sector and other is the lack of understanding of changing customer demands.

From an international business viewpoint, Japan is quite dissimilar to other Asian countries in that the opportunity is not due to a rapidly growing GDP and growing middle class. The economy is developed and mature, and its middle class already well recognized. Opportunities are consequently to be found in determining new places in an altering and increasingly open economy with a recognized cohort of middle-class customers (Oxelheim 2019). Products and services that meet the exacting principles of wealthy Japanese customers will be well-positioned in this market, and probably others in the area as well.

The opportunities are accessible by doing trade in Japan expand beyond its nationwide boundaries. Japan is the major shareholder in Southeast Asia, and its numerous businesses have a noteworthy existence in third markets. Therefore, functioning with a Japanese business associate or amalgamate into their supply chains can be a worthwhile option for foreign businesses looking to trade their products into more demanding markets (Colacelli and Corugedo 2018).


Superior expertise and products help them conquer these drawbacks and productively compete with domestic firms. Some strategies that may be significant for the success of overseas firms:

Good Japanese associate, parent company support, promise to the Japanese market, the timing of entrance into Japan, and better marketing capability.

  • The finest long-term approach for entering the Japanese marketplace appears to be a direct existence through an auxiliary or on-site support process. Most significant are close customer associations, which assist to progress the openness to the marketplace, estimation of future requirements and opportunity, and feedbacks for constant merchandise growth. Simply by showing frequent escalating promises to the marketplace through asset, local hire, and developing a restricted technological ability can help overseas corporations practically supporting local necessities and building necessary associations with Japanese companies.

  • Embracing collaboration and rivalry: In today's highly developed, highly dedicated environment, functioning more personally with the seller and even big player becomes severe. Technological influence can be amplified manifold in the important areas of segregation. In the twenty-first century, no corporation will be capable to support each action or product in-house

  • Regulate the Japanese mode of trade with workers: Offer a written certificate for office system. The tasks and superiority in the workplace must be comprehensible from the opening. If a business has to employ a non-Japanese individual for any cause then ensure that his Japanese aptitude is fine enough. It is not enviable that the non-Japanese executive has to depend on an inadequate number of Japanese employees who can talk good English but are habitually not the finest people for their particular occupation 

  • React rapidly to competitors: When expanding into the Japanese market, the ability to react rapidly and strongly to a competitor a countermove around the world is essential. Simply by putting stress on the Japanese in their marketplace can help the overseas company make them redirect possessions from their international strategies. If the overseas business wants to take the offensive approach it needs a fast-turnaround merchandise plan, an expansion infrastructure in every home market, and investigation teams intended at building a concrete intelligence base. One has to have the knowledge of the capital, associates, and expertise that the Japanese opponent hold and how they plan to utilize them. Manufacturing businesses should also have the ability to mass manufacturing, with sufficient suppleness to meet expansion in times of demand and to re-tool in a period of product transfer. 

  • The majority non-Japanese business has the benefit of unimpeded thoughts, abroad knowledge, multicultural administration, and autonomy from industrial group relationships which reduce the market opportunity for the competition. These traits must be utilized and can also assist to employ brilliant youthful Japanese people and other executives who have been struggling in Japanese business.


It has been concluded from the above report that macroeconomic and political factors highly influence the business of firms in Japan. The analysis also specified that adequate market research is required to understand the current trends and customer expectations in the most effective manner. In addition, the changes in economic policies and government regulations limit the profitability of firms in Japan. Furthermore, the aging population is also a major challenge for international firms. The report suggests that international firms must design a long terms strategy to succeed in Japan. Also, the evidence specified that overseas firms must develop successful strategies in Japan. The company can also hire a Japanese partner to understand the business styles in the most effective manner. To succeed in japan, firms should understand have the comprehensive knowledge about cultural values and have sufficient investments.


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Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Business Management Assignment Help

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