Japan

by

Jeff Horne

March 18, 1999

I. Statistical Overview

A. Geography
Land area / 344,744 km²
Major cities / Tokyo, Osaka, Kyoto, Kobe
Climate / Varies from tropical in south to cool temperate in north
B. Demography[1]
Population / 125,931,533 (1998 est.)
Population growth rate / 0.2% (1998 est.)
Fertility rate / 1.46 children born per woman
Infant Mortality rate / 4.1 deaths thousand live births
Life Expectancy / Men: 76.91
Women: 83.25
C. Political
Type of government / Constitutional Monarchy
Party or person in power / Mr. Keizo Obuchi / Liberal Democratic Party
D. Economic
Currency / Yen
Exchange rate (per US$) / 122.72 ¥/US$ (March 5, 1999)[2]
Fixed/Floating exchange rate / Floating
GDP PPP (US$) / $3.08 Trillion (1997 est.)
GDP per capita (US$) / $24,500 (1997 est.)
GDP growth rate / 0.9%
Inflation rate / 1.7%
Unemployment rate / 3.4%
Major imports / Foodstuffs, Raw Materials, Fossil Fuels
Major trading partners: imports / US, Southeast Asia, EU, China
Major exports / Heavy Machinery, Motor Vehicles, Consumer Electronics
Major trading partners: exports / US, Southeast Asia, EU, China
E. Socio-Cultural
Major religions / Buddhist, Shinto
Literacy rate / 99%
Languages spoken / Japanese
Ethnic groups / Japanese (99.4%), Other 0.6% (Mostly Korean)

II.  Current Issues

Since the end of World War II, Japan has grown to become one of the world’s three largest economic superpowers. For most of the last two decades it has trailed only the United States in Annual GDP, and has remained on par with Europe’s economic superpower, Germany. With its well-educated and productive workforce, and its regional and worldwide economic strength Japan has also served as the impetus for vast economic growth in Asia during the last quarter of a century.

With the recent economic crisis in Asia, however, Japan’s economic strength and regional leadership are being tested. How will the Japanese government and the Japanese economy respond to this challenge?

Economy

Japan is currently in the midst of its biggest recession since the end of the last world war. For the first time in the last 50 years, economic growth in Japan is in decline. Since the onset of the Asian Flu, economic output in Japan decreased 0.7% in 1997 and 3% in 1998. [3] In an attempt to bailout its’ overdrawn banking system, Japan nationalized two of its major 13 banks and persuaded several other large banks to merge. To jumpstart the economy, the Japanese government reduced its reserve requirements for banks to almost zero, has cut taxes, and has increased government spending. In essence, Japan has been throwing good money after bad.

Although Japan’s economy may appear to be in bad shape through this period of baking reform and reorganization, the national employment rate remains strong and the economy seems to be showing signs of growth. The fourth quarter of 1998 saw condominium sales in Tokyo rise over 50%. In January, the number of car sales in Japan rose for the first time in 20 months. With the current unemployment rate in Japan at about 4.3%, it is difficult to compare the effects of this economic crisis on Japan with the economic situation in the rest of Asia, or with other worldwide or regional depressions. During the Great Depression of the 1930’s, for example, over a quarter of the workforce in the US was unemployed. Current figures for many countries in Asia presently are much worse, such as in Indonesia with 15% unemployment and figures showing approximately 50% underemployment.[4] However, this economic downturn has identified many problems with the economy in Japan that need to be remedied.

How should the Japanese government go about repairing its ailing economy? Is the government actually stimulating the economy by lowering taxes and increasing government spending?

Many economists believe that the best way for Japan to gain economic stability is through a period of controlled inflation. A managed inflation, in theory, would relatively reduce the amount of debt owed by debtors and lower the value of the Yen in relation to world currencies. This would stimulate the Japanese economy by making Japanese exports appear cheaper and relatively more attractive to the world market. [5]

The flipside of the Japanese government’s injection of money into the economy, however, is the strain that it would place on the rest of Asia. If the Japanese Yen depreciates it would pressure other economically crippled economies in the region to follow suite, depreciating their currency to maintain current levels of exports. A weaker Yen would likely lower imports from nearby Asian countries, causing even greater problems for some of Japan’s neighbors. For this reason, and because of the Bank of Japan’s aversion to inflation, The Japanese government has been very reluctant to try any policy that may bring inflation to Japan and to the Asian economy as a whole. [6]

Political

Throughout the world, when a country’s economy takes a downturn, political turmoil often ensues. Japan is no different.

Keizo Obuchi became Prime Minister in July of 1998, upon the resignation of Ryutaro Hishimoto. At that time, Mr. Obuchi became the ninth Prime Minister of Japan in almost as many years. Mr. Hashimoto’s resignation followed a stunning election defeat, loosing 15 of the LDP’s 60 seats in the Upper House of Parliament.

The Liberal Democratic Party (LDP) has been the strongest political party in Japan throughout the post-war period with only two periods of interrupted power, the 1998 election being the LDP’s second worst showing in history. The election results represented a no confidence vote on the part of the Japanese electorate, forcing Hashimoto’s resignation. [7] Mr. Obuchi is up for reelection within the LDP later this year and a general election in 2000.

III. Important Issues in Doing Business in Japan

Historical Background

To better understand a people or culture, it helps to know and understand their background. In Japan, for example, the myth regarding the creation of the world may help provide insight into the minds of many Japanese business people. As we will find, the gods created heaven, Earth, and then Japan.

Japanese Mythology

The characters used to represent the word “Japan” in Japanese, are translated into English as “Origin of the Sun.” And Japan’s origins, according to Japanese mythology, began with the creation of “The Great Eight Islands and all things” by the gods Izanagi-no-mikoto and Izanami-no-mikoto. These gods also created numerous other gods, such as Amitarasu, the god of the high plane of heaven also known as the Sun Goddess, her brother Susa-no-o, who was in charge of the Earth, and Tsuki-yomi, the moon goddess. [8]

Amitarasu was the most powerful of the gods created by Izanagi and Izanami, and a god with whom the Japanese people have come to identify. The Japanese emperor, for example, is said to be a direct descendant of Amitarasu, goddess of the sun. Prior to the end of World War II, the Japanese believed that they were invincible, as the Japanese were the closest race to the Gods. To a small extent, this elitist psyche continues today. This mindset reflects Japan’s historical unwillingness to encourage import activity. Additionally, their keiretsu organization structure inhibits outside businesses to participate in the Japanese economy. It is an explicit example of their elitist perception of their place in the world.

Meiji Restoration (1868-1912)

For many years prior to 1868, Japan was an isolationist state governed by numerous small kingdoms and warlords. Access to outsiders was not allowed, with the exception of specific ports for trade.

However, with the beginnings of the Meiji Restoration in 1868 by Emperor Meiji, Japan began to open its doors to the outside world, allowing more access to trade for the exchange of goods and ideas to stimulate political and economic progress. The Japanese began to reform their political, economic, legal and military systems to bring them closer in line with Western nations so that Japan could become internationally competitive. [9]

Business Today

Economic

After World War II, the US worked closely with the Japanese government to rebuild Japan. The Japanese graciously accepted US assistance and invested the money in numerous businesses, banks, and infrastructure improvements to rebuild its economy.

Shortly after the war, there was a huge market in Japan for US made consumer goods. As Japan’s economy grew, Japan became more self-reliant and the market for US low-end consumer goods going to Japan decreased. As this transition occurred, however, Japan and the US remained close trading partners, trading goods of a more sophisticated nature. As the Japanese economy grew and Japanese consumers became interested in more technically advanced goods, US business began taking more and more interest in entering into the Japanese economy.

As many US firms began to enter into new markets, though, they found that it was exceedingly difficult to compete with established Japanese companies. Many US firms believed the Japanese government had established barriers to trade. While in many instances it was true that the Japanese government would place heavy restrictions on the trade of certain goods, there were often extenuating circumstances and more consumer preference based reasons preventing US companies from meeting expected sales figures.

General Motors and Ford, for example, tried for years to break into the Japanese automobile market. Their annual Japanese sales were miniscule, however, and they were unable to meet predicted sales figures. Was it really because of trade barriers instituted by the Japanese government? Or was it because the US automakers continued to build cars with the steering column on the left-hand side of the car?

Although some of the blame should certainly fall on US automakers, some of the arguments that the Japanese government was restricting the importation certain goods was well founded. US makers of auto-parts, for example, were unable to sell into the Japanese markets because of stringent Japanese policies on quality. Kodak had the similar problems when trying to compete against Fuji when entering Japan. [10]

The governments of The US and Japan have since worked together throughout this decade to establish freer trade, however many companies are still reluctant to enter the market for fear it remains relatively closed. It does appear, however, that trade in many industries has increased.

Political

The Japanese tend to be a very conservative people, more averse to change than most Eastern nations and Western nations alike. Their conservatism in conjunction with the Japanese need for consensus in decision making is one of the many reasons that the Japanese economy has been so slow to recover from the Asian flu.

Their conservatism has also led to the creation of a single party system, rendering Japan one of the only developed nations without a second major political party. Many scholars advance the notion that the competition between two or more parties is necessary for a government to operate efficiently. Although times may be changing, a second major contender has not yet come into play. Many small political parties do exist, however, and appear to be growing, albeit slowly. The LDP’s largest opposition party is the Democratic Party of Japan. Some of the other important political parties, in order of strength from most powerful to least, include the Japanese Communist party, the Sokka-Gakkai, a Buddhist affiliated party, the Liberal Party. [11]

Socio-Cultural

As technological advancements continue to make the world feel smaller and smaller, we find that it becomes easier and less expensive to do business abroad. And although the close relationship that the United States has with Japan has been cultivated during the 54 years following World War II, we find that many of the systems and methods of doing business have not yet merged. There remain many differences in our systems, and the systems of the world.

Some of the differences in business culture in Japan are listed below:

·  Initial Business Contact and Greetings[12]

Lengthy response time to business inquiries as the Japanese may require more information beyond that that US business would require prior to responding to a letter or inquiry. There may also be an increase in the time required due to translation of a document into English

The Japanese have a preference for doing business face to face rather than over the telephone. The Japanese are very interested in cultivating a relationship before making a business deal.

·  Bowing[13]

It remains controversial in Japan today whether or not non-Japanese should bow.

To properly execute a bow, a businessman should put their arms to the side and bend over, without changing the angle of their head.

A businesswoman should cross her hands low and in front of her body with her palms inside and then bend from the waist. Women often bow lower than do men.

·  Employee Relationships with Superiors[14]

In Japanese companies there are many levels in the decision-making hierarchy. Developing seniority is the most important method for moving up in the hierarchy. Supervisors tend to approach those who work under them to provide guidance in a more paternal way than in the US, known as a Sempai - Kohai. Many Americans working in Japan may feel smothered by the frequency with which the supervisor looks over their shoulder.

·  Male / Female Business Relationships[15]

It is still rare to find a woman in a position of authority in Japanese business. For a woman to establish a successful business relationship with a Japanese company, the relationship requires greater effort and time to overcome their traditional social views. She must become, in a sense, “one of the guys.”