Generalizes on the best strategy to enter the market, e.g., visiting the country; importance of relationships to finding a good partner; use of agents.
Ways to Enter the Market
- Selling to a dedicated Distributor
- Direct exporting
- Joint Ventures
- Turnkey projects
- Buying a company
Keys to Market Entry Success
- Business cards
- Product marketing information
- Detailed technical specifications
- Reliable point of contact and customer service
- Website with detailed product information
- Basic self-introduction phrases in Japanese
- Having an interpreter or bilingual assistant when appropriate
Japanese Business Culture Basics
An appreciation of Japanese business culture and social practices is also useful to establish and maintain business relationships in Japan. Indifference to local business customs conveys the exporter’s lack of commitment or international business experience and may lead to misunderstandings, and lost opportunities. Finally, exporters must take time to understand the demands and expectations of the Japanese consumer, in areas such as product quality, appearance, packaging and display, delivery and after-sales service. Additional business culture concepts to keep in mind:
- Japanese society is complex, structured, respectful of age, hierarchical and group-oriented
- Group decision-making is important in Japan. Reaching consensus may take longer than in Western business culture.
- Japanese companies often take a long-term approach to developing business relationships.
- Business travelers to Japan should bring a large supply of business cards (with their title) when they come to Japan; printing two-sided bilingual cards is recommended.
- Japanese customers’ and business associates’ high expectations of excellence in product and service quality cannot be overemphasized
Japan’s capital city, Tokyo (population 13.8 million), forms the core of an urban area that, along with the suburban prefectures of Kanagawa, Saitama, and Chiba, boasts a total population of over 36 million, roughly equivalent to the New York and Los Angeles metropolitan areas combined. It is Japan's undisputed center of government, business, higher education, information, media, fashion, and culture. The entire geographical region centered on the capital – often referred to as the “Kanto” region – accounts for about one-third of Japan‘s total GDP.
Most major Japanese companies, trade associations, and foreign companies have their headquarters or major branches in Tokyo. Consumers in the capital are more likely to encounter foreign products, foods, and fashions than elsewhere in Japan, and consumer trends often originate in Tokyo. For U.S. firms, the major advantages of establishing a presence in Tokyo, despite the high cost of residential and office space, are the city's concentration of major companies and high-income consumers, proximity to the powerful central government regulatory agencies, and location at the hub of Japan‘s highly centralized transportation networks, including its two busiest airports: New Tokyo International Airport in Narita, Chiba Prefecture (often called "Tokyo Narita"), and Tokyo International Airport (commonly known as "Tokyo Haneda"), just south of central Tokyo. Attractive areas for U.S. exporters in the greater Tokyo area are environmental technologies, information and communications technologies, medical equipment and healthcare services, biotechnology, financial services and the lifestyle market. Tokyo’s selection as the host city for the 2020 Summer Olympic and Paralympic Games also creates numerous business opportunities for U.S. companies.
Japan’s Kansai region lies in the west-central part of the main island of Honshu, and is made up of the following seven prefectures: Mie, Nara, Wakayama, Kyoto, Osaka, Hyōgo and Shiga. With a land area of roughly 13,000 square miles, a population exceeding 20 million and an economy of nearly $1 trillion, Kansai is an economic powerhouse and an essential segment of the Japanese market. The region is anchored by Osaka, a vast metropolitan area second only to Tokyo in scale, and includes the major port city of Kobe as well as two historically significant political and cultural treasures in Nara and Kyoto.
Kansai’s economic base is diverse, including electronics, food, pharmaceuticals, biotech, chemicals, textiles, and other vibrant industries. In GRP terms, Kansai by itself would rank as the world’s 16th largest economy (between Mexico and Indonesia) and the fifth largest in Asia (behind, China, Japan, India and Korea). The region leads Japan in the production of lithium-ion batteries, medicinal drugs and solar cells. Its SMEs also hold world market share in products as diverse as gear measuring machinery, parts for nuclear power plants, and barber chairs. Kansai is home to some of the world’s best known corporations, such as Daihatsu (automotive), Daikin (air conditioning units), Asics (footwear), Kawasaki Heavy Industries (transportation manufacturing), Kyocera (ceramics), Montbell (outdoor gear), Omron (electronic components), Panasonic (electronics, home appliances), and Suntory (whiskey and beverages), Capcom (video games), Mizuno (sporting goods), Shimano’s (bicycle parts and fishing equipment), and Takeda (pharmaceuticals).
In addition to its manufacturing base, Kansai has a history of providing leading research in the life sciences. The region’s bioscience clusters are leading global contributors to advances in areas involving the human immune system and infectious diseases, and cerebral and cardiovascular research. Kansai is home to the world’s largest third-generation synchrotron radiation facility, known as “Spring 8,” and one of the world’s fastest supercomputers, known as “Kei,” which resides in Kobe.
Kansai’s extensive infrastructure includes railway networks of the bullet and regional trains that connect Osaka, Kobe, and Kyoto to all parts of the country, as well as three major airports that link the region to multiple domestic and international destinations. Several airlines offer daily direct flights between Kansai International Airport (KIX) and Los Angeles (LAX) and San Francisco (SFO), providing travelers with additional options to travel to and from the United States. Lastly, the region has two of Japan’s busiest maritime ports in Osaka and Kobe that serve as an important hub for East Asian trade throughout the Pacific, as well as passenger and car ferry options throughout Japan.
As for urban developments, a joint venture of 15 developers, including Mitsubishi Estate, Orix Real Estate and Takanaka Corp., recently announced that they were designated to develop the 2nd phase of the 59-acre Ume-Kita area in Osaka. This is the last planned urban development project, a unique residential and business activity hub, located at Osaka’s central railway station. The construction will start in fall 2020 and will open in 2024. The first phase of the Ume-Kita area, known as Grand Front Osaka, was completed in 2013. With recently approved legislation allowing for integrated resort (IR), Osaka is currently the front runner location for the site of a future IR, with potential for integrated gaming, hotels, convention facilities, entertainment, as well as potential luxury retail and dining.
Kansai, as the cultural and historical heart of Japan, is home to five UNESCO World Heritage sites. Six of the top seven prefectures, in terms of government-designated “national treasures” are located in the region starting with Nara, which at one point served as the eastern end of the Silk Road and boasts the most national treasures, including Japan’s largest sitting Buddha statue. Kyoto is Japan’s old capital and religious center renowned for its many ancient shrines, temples, and beautiful gardens. Wakayama is known for its great hiking and onsen hot springs, as well as the centuries-old mountaintop Buddhist temple complex of Koya-san which is considered one of Japan’s most intensely spiritual places.
Kansai is also home to a vibrant “foodie” scene, and the area is often referred to as Japan’s “kitchen”. Local dishes offer everything from Osaka’s takoyaki (fried octopus and dough fritters) and okonomiyaki (a savory pancake stuffed with sliced cabbage) to Kobe’s famous wagyu beef and the refined cuisine of Kyoto. For sports lovers, the region is a go-to destination in baseball-crazy Japan and home to two professional baseball teams, the Hanshin Tigers and the Orix Buffaloes. Between sumo wrestling, soccer, and a plethora of other spectator sports, there is something for all sports lovers in Kansai.
The people of Kansai are descended from Osaka’s merchant culture. They are known for their pragmatic, entrepreneurial and down-to-earth personalities, and keen business sense. Citizens of Kansai are also reputed to have Japan’s best sense of humor.
The Kyushu/Yamaguchi region of southwestern Japan consists of seven prefectures on Kyushu Island (Fukuoka, Oita, Saga, Nagasaki, Kumamoto, Miyazaki, Kagoshima) and Yamaguchi Prefecture on the southern tip of Honshu, with a combined population of about 14.5 million. The region's roughly $450 billion economy constitutes Japan's fourth largest economic center, representing about 10% of national GDP, which makes it one of the thirty largest economies in the world (larger than either Austria or Thailand). This region is traditionally known as Japan's gateway to Asia and enjoys extensive historical, cultural, and trade ties with continental Asia, particularly South Korea, China, Southeast Asia, and Taiwan. The United States is the region’s second largest export market and a top-ten import market, but Kyushu is becoming increasingly integrated into the East Asian regional economy.
Kyushu is often called “Silicon Island,” “Car Island,” “Food Island,” “Hot Springs Island,” and “Solar Island.” The region accounts for 29% of Japan's total production of semiconductors and IC chips by value. Northern Kyushu also boasts over 15% of Japan's automobile output, up from 5% in 2000, with Toyota, Nissan, and Daihatsu operating state-of-the-art final assembly facilities, and Honda’s advanced motorcycle plant. Kyushu’s agricultural sector produces 20% of Japan's agricultural output and ranks first in Japan in livestock output (about $6.9 billion in 2016). Demographic trends have led to a decreasing reliance on family farms and the number of corporate farms has more than quadrupled since 1995. The region accounts for about 20% of solar module production, and also includes important industries such as steel manufacturing and ship-building. Japan's two space-launch facilities are located in Kagoshima Prefecture. International tourism to Kyushu has been a driver of growth in recent years, with foreign arrivals doubling since 2014. Hakata and Nagasaki Ports, both in Kyushu, were the two top seaports for international passenger arrivals in Japan in 2016 and two other regional ports have launched public-private partnership plans to vastly expand their cruise ship infrastructure capacities. As of 2015, Kyushu has approximately 250 offices of America-related companies (excluding hotels, airlines, retail outlets, insurance and food services) with almost half of these in the pharmaceutical and medical fields.
With a still growing population of 1.5 million, Fukuoka City is the economic, educational, and cultural center of Kyushu. While manufacturing and agriculture are prevalent in Fukuoka Prefecture’s surrounding areas, the city’s economy is service-based, with many large retail outlets and regional headquarters offices for banking, insurance, and real estate. The city enjoys an excellent transportation infrastructure, including Kyushu’s principal international airport with access to much of Asia and direct flights to Hawaii and Guam; ferry services to South Korea; and the Shinkansen bullet train hub that links Kagoshima to Tokyo. Fukuoka City has a dynamic business environment with the highest rate of “start-up” companies in Japan (following Sendai where post-tsunami recovery efforts continue), and was selected in 2014 by the Abe Administration for the creation of a “special economic zone”. This zone places an emphasis on facilitating new businesses and the employment of foreign workers, which has allowed regulatory relaxations including simplifying the investor visa process and a tax break for new firms. Kitakyushu City became the region’s second special economic zone in 2016, emphasizing robotics and innovation for elder and nursing care.
The quality of universities in the region is high, with many institutions engaged in technological and energy-related research projects. Fukuoka and neighboring Saga Prefecture are increasingly hosting headquarters support and call centers for major Japanese corporations due to the relative seismic stability of the area and low tsunami threat, along with lower operating costs. Agriculture and fisheries are predominant in central and southern Kyushu, with many Small and Medium Sized Enterprises (SMEs) and smaller manufacturing industries. Kumamoto Prefecture was hit by a devastating earthquake in April 2016 but is rapidly rebuilding private and public infrastructure, and its recovering economy has prompted growth in many industries. In Yamaguchi Prefecture, agriculture and fisheries predominate on the northern Sea of Japan side, with industry (including heavy manufacturing) concentrated on the southern Seto Inland Sea coast, where maritime transportation links are strong.
The U.S. Consulate in Fukuoka has been actively assisting U.S. businesses and promoting their interests in the region for over 65 years, helping identify the many promising opportunities this region offers. With its long history of openness to foreign influences, the Fukuoka area has an established reputation as a useful test market for new consumer products, services, and retail concepts before they are expanded to wider areas of Japan. Major U.S. companies have established research and production facilities in electronics, computers, and medical devices, and are also active in architecture, design and construction, energy, insurance, and finance. A sector of growing interest is environmental products and services. Good export prospects exist in many other sectors, including building materials, medical equipment, and health care products. U.S. and foreign companies in the region have indicated some challenges in the business registration and set-up process, an issue which the Fukuoka City government is helping to address through the special economic zone framework. Business in the district is predominantly conducted in Japanese, with relatively few advanced English speakers compared to other major metropolitan areas such as Tokyo and Osaka.
Okinawa – Japan’s only subtropical region and its southernmost prefecture – comprises 160 islands (40 inhabited) stretching over 623 miles from mainland Japan to Taiwan, but its 1.4 million people and $37billion economy is concentrated on the largest island, also called Okinawa. Although Okinawa’s market is relatively small by Japanese standards, there are significant opportunities for U.S. businesses, in part due to Okinawa’s history as a U.S.- administered territory from 1945-1972 and the continued U.S. military presence in Okinawa. Okinawans are open to imported goods and are already familiar with many American products and American food culture. Okinawa has the second highest population growth rate and its workforce is the youngest in Japan. Average wages are among the lowest nationwide. Okinawa offers a wide range of subsidies and tax incentives for investors and employers.
Because of Okinawa’s unique history and current economic circumstances, the central government provides an annual subsidy to promote the prefectural economy. In FY2018, the amount was approximately $4.5 billion, of which $1.3 billion was in public infrastructure projects, including port upgrades and the continuing construction of a second runway at Naha International Airport.
Tourism is Okinawa’s major economic activity. In 2017, the total number of tourists who visited Okinawa increased 9.1% to 9.4 million from 8.6 million in 2016 due to new foreign airline routes, public-private tourism promotion strategies, and relaxed visa requirements for Chinese tourists. In addition, of all Japanese destinations, Okinawa had the most cruise ship visits from Taiwan, China, Hong Kong, and other parts of Japan in 2017. As a result, the number of non-Japanese tourists increased 22 percent to 2.5 million in 2017, compared to 2.1 million in 2016. The number of domestic and overseas tourists reached a record-high for the fifth consecutive year. Tourism-related revenue reached $6.3 billion in 2017, which is also the record high.
The Okinawa Prefecture Government (OPG) expects continued growth in tourist numbers and revenue. Okinawa pledged to improve tourism infrastructure with the goal of attracting 12 million tourists annually by 2021. Ongoing construction of Naha Airport’s second runway is expected to be completed before the Tokyo Olympics in 2020. Additionally, Okinawa is seeking to bolster its medical tourism industry. In 2014, Okinawa announced plans to create an Okinawa health and medical hub on returned U.S. military land. The hub will include a hospital, an infectious disease research center, and a new pharmaceutical development facility. The Government of Japan budgeted $3 million for a feasibility study and a promotional campaign. Some experts assess, however, that the development of the Okinawa health and medical hub will be hampered by a lack of trained medical researchers.
The prefecture welcomes foreign investment. The Governor formed an economic strategy committee to encourage commercial and tourism partnerships throughout East Asia. The OPG does not keep data on foreign investment. The OPG has satellite offices in Taipei, Hong Kong, Shanghai, Beijing, Singapore and Fuzhou to activate economic exchanges. In addition, OPG established five core strategies to target the Asian market. The strategies include: development of logistics, communication and information hubs, an aviation-related industry cluster, world-class resorts, and manufacturing promotion.
Although public sector spending and tourism dominate Okinawa’s economy, government policy is encouraging diversification into information and communication technology (ICT) and air cargo. Over 400 ICT companies, some affiliated with American firms, have begun operations in Okinawa since 1990. These firms have created 29,379 jobs through 2017. By offering various tax incentives, such as a 40 percent reduction in corporate income tax and 15 percent investment tax credit, Okinawa aims to attract a total of 560 companies and create 42,000 jobs by 2021. In addition, Okinawa has fewer large earthquakes than other Japanese regions, and has become a popular location for business continuity and disaster recovery-related investment. Okinawa built a cloud data center that has the capability to store data of up to 18,000 servers. Okinawa also aims to become the ICT conduit for East Asia by connecting Japan and Asia via underwater cable to the existing Global International Exchange (GIX). Hewlett-Packard partners with Crosshead, a local ICT company, to utilize Okinawa’s link to the GIX cable to expand its business in Asia.
The Okinawa Institute of Science and Technology (OIST) Graduate University, a world-leading natural sciences graduate school, has an annual budget of about $183 million. OIST aims to contribute to the economic growth of Okinawa by conducting ground-breaking research in natural science and attracting research institutions and venture businesses to Okinawa with the eventual goal of forming intellectual and industrial clusters in a field of research and development.
Okinawa’s Naha International Airport is just two to four hours from major Asian hubs such as Tokyo, Nagoya, Osaka, Seoul, Shanghai, Taipei, Hong Kong, Bangkok, Qingdao, Guangzhou, Xiamen, and Singapore. Cargo operations at the airport go on 24 hours a day. In 2009, All Nippon Airways (ANA) took advantage of Okinawa’s central location in Asia to establish an international cargo hub. Since then, cargo volume has grown one hundredfold. Naha International Airport now handles the 4th-largest volume of international air cargo in Japan, making it one of Okinawa’s key growth industries. ANA’s cargo hub has drawn attention in Asian and Japanese markets due to Okinawa’s tax incentives and central location. In addition, MRO Japan, which is a group company of ANA Holdings, plans to establish an aircraft Maintenance, Repair, and Overhaul (MRO) facility for low-cost carriers at Naha International Airport in early 2019.
Government policies continue to support investment in renewable energy systems. The “Okinawa Smart Energy Island Infrastructure Project” facilitates a large-scale introduction of renewable energy sources, particularly photovoltaic solar and wind power. The 100kW ocean thermal energy conversion (OTEC) demonstration plant on the island of Kumejima and the smart grid demonstration center opened on the island of Miyakojima in 2013.
The U.S. Consulate General in Okinawa and the American Chamber of Commerce in Okinawa, which has 140 members from the American and Okinawan business communities, welcome contact with American companies seeking to initiate or expand exports into this regional market. Both are well plugged into the local business and public sector entities, and are working to discover commercial opportunities for U.S. firms in this dynamic regional market.
Chubu (Central Japan) is Japan’s third-most populous region, located midway between the largest (Tokyo/Kanto) to the northeast and the second-largest (Osaka/Kansai) to the southwest. The four prefectures of Aichi, Gifu, Mie and Shizuoka — home to 15 million people — are known as Japan’s industrial heartland and lead its economy.
Central Japan‘s economy centers on “monozukuri,” or “making things,” and the region boasts large shares of Japan’s manufacturing sectors. For example, Central Japan’s share of transportation sector manufacturing is 45%. It hosts the headquarters or main factories of world-class manufacturers in autos and motorcycles (Toyota, Honda, Mitsubishi, Suzuki, Yamaha), auto parts (Denso, Aisin), aerospace (Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Subaru), resin materials (Toray), machine tools (Mazak, Okuma, DMG Mori Seiki), power tools (Makita), ceramics (Noritake, NGK Insulators, NGK Spark Plug, Ibiden) and office automation (Brother). Additionally, thousands of supporting suppliers make this one of the top industrial clusters in the world.
The region accounts for one quarter of Japan’s industrial output and 13% of its GDP. Aichi Prefecture (pop. 7.5 million) is the political, economic, and transportation center of the region, and has ranked number one in shipments of manufactured goods every year since 1977. The U.S. Consulate Nagoya is located in the city of Nagoya (pop. 2.3 million), the prefectural capital.
Central Japan’s keystone auto industry is accelerating the development and production of “green cars” (low fuel consumption and emission vehicles). Toyota introduced a newly developed fuel cell vehicle (FCV) in 2014 — the “Mirai” (‘future’) — which the world’s biggest automaker is touting as the ultimate green car because FCVs produce no CO2 emissions. Toyota produced about 3,000 Mirais in 2017, up from 700 in 2015. The government of Aichi Prefecture, where Toyota is headquartered, is aggressively supporting the development of next-generation automotive technologies. It subsidizes about one-fourth of the construction cost of new hydrogen stations, of which 21 are currently in operation around the prefecture, and has been forward-leaning in allowing developers to test self-driving vehicles on public roads. Toyota and its suppliers in the region are significant investors in the U.S. economy: in January 2018, Toyota unveiled plans to open its 11th U.S. assembly plant, in Huntsville, Alabama.
More than half of Japan’s 1.4 trillion yen aerospace sector is based in Central Japan, where factories operated by Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Subaru collectively produce 35% of the Boeing 787 Dreamliner. The three manufacturers are currently supplying parts to build 12 Dreamliners per month and plan to ramp up production to 14 by 2019. Boeing has over 669 back orders for the 787 as of June 2018. A dozen U.S. suppliers are partnering with Mitsubishi Heavy Industries to develop Japan’s first jetliner, the 70-90 passenger Mitsubishi Regional Jet (MRJ), which completed its maiden flight in November 2015 and is being flight tested in Washington State to obtain certification from U.S. aviation authorities. Commercial delivery is scheduled for the second quarter of 2020. Mitsubishi Heavy Industries believes demand for this type of mid-range aircraft will continue to increase in coming years. In December 2011, the Japanese government designated the region as a Special Economic Zone for promoting the aerospace industry. The program includes a free trade zone, investment incentives, and the creation of a national center for research into composite materials. The program brings together 73 municipalities from five prefectures and more than 200 companies and associations, including small enterprises as well as major corporations.
The defense industry is also strong in Central Japan. Mitsubishi Heavy Industries is partnering with American firms such as Lockheed Martin and Raytheon to develop and produce fighter planes and missiles. The Japanese manufacturer started assembling F-35s under license at its Komaki South Plant in December 2015, the first of which was delivered to the Japan Self Defense Force in January 2018. In October 2012, the region hosted Asia’s largest aerospace trade show, “Japan Aerospace 2012” which featured a total of 665 aerospace-related firms and organizations from over 32 countries. Sixty U.S. companies exhibited the largest number outside of Japan. About one third were housed in a Foreign Commercial Service-supported pavilion, with five obtaining $3 million in sales and partnership agreements during the show. More recently, the city was the venue in September 2017 for Aeromart Nagoya, which brought together 325 aviation companies from 20 countries. Aeromart Nagoya will be held again in September 2019.
Though none of its facilities was damaged during the March 2011 Great East Japan Earthquake, Chubu Electric Power Company (CEPCO) was ordered by the Government of Japan to shut down the only nuclear plant in Central Japan as a precautionary measure. The plant, located along the coast of Shizuoka Prefecture, remains shuttered today. CEPCO, Central Japan’s largest utility company, has taken steps to enhance earthquake and tsunami safety — including the construction of a 22-meter-high seawall — but continuing anti-nuclear sentiment has cast doubt on the possibility of a restart. The utility is, therefore, focusing on cutting costs and securing alternative sources of energy. CEPCO has been importing U.S. liquefied natural gas (LNG) from a terminal in Cameron, Louisiana, since January 2017 through a joint venture with Tokyo Electric Fuel and Power, and it is also planning to build a highly efficient coal-fired power plant slated to begin operation in 2021.
Central Japan’s economy should get a boost from arrival in Nagoya in 2027 of a maglev that will link the city to Tokyo at speeds of up to 300 miles per hour. The Central Japan Railway Company started construction on the Chuo Shinaksen (Central New Trunk Line) in December 2014. When completed, the maglev will reduce Nagoya-Tokyo travel time from 100 minutes to just 40. The $50 billion (5 trillion yen) line will reach Osaka by 2037.
Hokkaido/Tohoku> Northern Japan consists of Hokkaido and six prefectures of northern Honshu (collectively known as “Tohoku”): Aomori, Akita, Miyagi, Iwate, Fukushima, and Yamagata. Together they comprise roughly one-third of Japan’s landmass and one-ninth of its population. Hokkaido had a population of approximately 5.34 million (as of January 2017) and Tohoku had a population of approximately 8.98 million (as of October 2016). The Gross Regional Product (GRP) for Hokkaido is approximately $169 billion (Source: Hokkaido Prefectural Government Economic Department May 2018) and the GRP for Tohoku is approximately $248 billion (Source: Tohoku Bureau, Ministry of Economy Trade & Industry Regional Statistics 2018). Hokkaido, located roughly 500 miles north of Tokyo, is Japan's northernmost island.
These prefectures comprise Japan's agricultural heartland, with large-scale and diverse farming, including dairy and livestock, in Hokkaido, and highly-prized rice growing in Akita and Miyagi Prefectures in Tohoku. Hokkaido’s agricultural output was about $10.8 billion, which accounted for 13.2% of national agricultural output. Hokkaido is the number one producer of wheat, potatoes, soybeans, legumes, onions, sugar beets, fresh milk and racehorses in Japan. Despite Hokkaido’s agricultural importance to Japan, primary industries (agriculture, fisheries, and forestry) only account for 4.3% of Hokkaido’s gross product. Hokkaido’s 34,029 farming households (as of March 2017) are half as many as in the 1990s, and this number continues to shrink. And while Hokkaido’s farmers’ average age is less than in the rest of Japan, 38.6% are over the age of 65, and this number continues to increase. (Source for this paragraph: Hokkaido Prefectural Government Agricultural Department, April 2018).
Hokkaido’s tertiary industries (i.e. wholesale, retail, and service industries) account for 80% of the region’s economy, which is higher than the national average, due to Hokkaido’s thriving tourism industry. 2.3 million foreign tourists visited Hokkaido in 2016, accounting for about 9.3% Japan’s total of 25 million. In particular, the number of tourists from China, Taiwan and Korea has been increasing. Hokkaido has also long depended on public works projects, with the construction industry accounting for 7.0% of gross regional product, which is 1.5% larger than the national average. Hokkaido’s manufacturing sector accounts for only 10.3% of gross regional product, which is about half the national average. (Source for this paragraph: Annual Statistics of Hokkaido Prefectural Government May 2018)
Tohoku, on the other hand, has succeeded in attracting manufacturing plants in sectors such as auto assembly, auto parts, electronic components, devices and circuits, and ICT (Information & Communication Technology) equipment. Tohoku’s manufacturing accounted for 15.8% of regional output, with agriculture at 2.3% and construction at 11.4%. (Source: Tohoku Bureau, Ministry of Economy Trade & Industry Regional Statistics 2018)
Seven years after the March 11, 2011, Great East Japan Earthquake and Tsunami (locally named “3.11”), Japan’s efforts focus on long-term development and establishing a sense of permanency for impacted communities. Nevertheless, recovery costs and the disposal of radioactive waste from the severely-damaged Fukushima Daiichi Nuclear plant still loom as open-ended challenges. Communities all over Tohoku are also struggling with accelerating population decline and longer-term economic viability.
Preparation for the Tokyo Olympics & Paralympics in 2020 has exacerbated the already existing labor shortage for ongoing disaster reconstruction projects in Tohoku. In addition to a lack of construction workers, the shortage of technical personnel, especially civil engineers, has inflated construction sector wages not only in Tohoku, but also throughout Japan. Moreover, the recent depreciation of the yen has led to higher costs for imported construction materials and has forced many building project plans to be altered. But even bigger than the challenges of physical reconstruction, Tohoku faces underlying social challenges that plagued the region before the disaster and have accelerated after it--namely depopulation, regional economic revitalization, and determining an appropriate mix of energy sources. While each challenge has distinct physical manifestations, none has a clear path forward and will have implications that extend beyond Tohoku to the rest of Japan.
The majority of Japan’s nuclear power plants remain offline after the 3.11 disaster, and the GOJ intends to increase the share of renewable energy generation. Japan began to liberalize its estimated 8 trillion yen ($67 billion) household electricity market in April 2016. Since then, private sector companies, including regional gas companies, are able to more easily enter the market and Hokkaido has ranked third among regions in Japan for consumers choosing to switch electricity providers. Companies with expertise and related technologies may well find business opportunities in Tohoku and Hokkaido because both regions are blessed with rich renewable energy resources, including strong wind for wind turbines (including both inland and offshore), vast, sunny fields for solar projects with fuel cell storage, geothermal resources, biomass potential, and small-scale hydraulic power systems along agricultural irrigation ditches.
Tourism and related industries are also positioned as an important source of economic growth in both Hokkaido and Tohoku. Both regions host many festivals year-round, with varied themes such as foods, culture, fireworks, dancing, and rock music, which attract millions of domestic and foreign visitors. Multi-national goods and services, including internet-based services (i.e. Trip Adviser, Yelp, Air B&B) that could assist national and international visitors to Hokkaido and Tohoku regions could capture some of this market.
New Chitose Airport in Hokkaido has ample capacity for air passenger and cargo traffic. Increasing numbers of regularly-scheduled and charter flights by Japanese and foreign Low Cost Carriers (LCC) are boosting traffic at New Chitose Airport, Sapporo’s main airport. The operations of seven of Hokkaido’s thirteen airports, including New Chitose, will be privatized in 2020. The bidding process will start in summer 2018, and already several companies have shown interest in forming consortiums for bidding, including French and Spanish companies. Sendai International Airport in Miyagi Prefecture was privatized in July 2016, and began turning a profit while serving a record 3.4 million passengers in the first year. They are trying to better connect airport to other transportation means to make it as gate way to Tohoku’s other regions to further enhance the airport use. Although the number of foreign tourists in Tohoku has returned to pre-3.11 level in 2015, Tohoku has the least amount of foreign tourists in Japan. To overcome the situation, its six prefectures and local municipalities are working together to promote the Tohoku region as whole, pooling budget and human resources to attract more foreign visitors mainly from Asia.
In March 2016, Shinkansen (bullet train) service reached Hakodate in southern Hokkaido, passing from Japan’s main island of Honshu via the Seikan Tunnel under the Tsugaru Strait, the longest undersea tunnel in the world. Further Shinkansen construction is underway, with the intent to connect Hakodate to Sapporo, by 2035. The Hokkaido Prefectural Government, together with various local economic entities, have been lobbying the national government, and in particular the Ministry of Land, Infrastructure, Transport and Tourism, to shorten the construction period, with hopes of hosting the 2030 Winter Olympics and Paralympics and accelerating regional economic revitalization.
Market Entry Resources
For new-to-market exporters, developing a suitable market entry strategy is a key to success in the Japanese market. Industry, company objectives, and a number of other factors will determine the best market entry strategy