Foreign Companies in JETRO Survey Find Japan's Social and Economic Stability Attractive for Business

JETRO, the Japan External Trade Organization, recently surveyed 7,427 foreign companies operating in Japan, seeking insights into their perceptions of the business landscape. The findings, unveiled on March 21, were drawn from responses gathered between October and November 2023.

In total, 1,537 companies, or 20.7%, submitted responses. The survey aimed to understand the attractiveness and challenges of Japan's business environment. It also sought to identify the types of support foreign businesses are seeking.

This marks JETRO's third iteration of the survey since its inception in 2021.

Expansion to Include Geopolitical Risks and Post-Pandemic Factors

The survey's scope extended beyond JETRO-supported companies to include both domestic and foreign-owned enterprises. According to the results, the performance of both domestic and foreign-owned companies has remained robust for two consecutive years.

At the same time, the proportion of companies contemplating expanding their business or strengthening existing operations has surged. Approximately 1.6 times as many companies are considering growth compared to two years ago.

*Office buildings line the streets of Tokyo amidst redevelopment. (©JAPAN Forward*)

In this survey, new questions compared to 2023 were introduced to address geopolitical risks. The responses underscore the perception that Japan's economic and social stability provides an exceptional bu s iness environment.

Meanwhile, the yen's depreciation poses challenges for Japanese subsidiaries importing raw materials from overseas and selling domestically. At the same time, it presents advantageous conditions for overseas parent companies investing in large-scale projects, such as factories.

Looking towards the future of post-COVID business developments, digital transformation (DX) emerges as a critical focus. With domestic legislative reforms promoting DX, opportunities are anticipated for businesses that have been slower to adopt DX services domestically.

Talent acquisition remains a significant challenge. Therefore, there are also calls for improvements in the work/life environment to facilitate the integration of foreign workers.

Foreign Direct Investment in Japan Continues to Grow Steadily

Data from the Ministry of Finance highlights a substantial increase in foreign direct investment (FDI) in Japan.

Starting at around ¥6 trillion JPY ($39.6 billion USD) in 2000, FDI has surged to an estimated ¥49.6 trillion ($327 billion USD) in 2023. That marked an increase of over eightfold. Although FDI remained around ¥40 trillion ($264 billion USD) during the COVID-19 pandemic in 2020 and 2021, it has resumed an upward trend since 2022.

In early 2023, the Japanese government raised its target for FDI by 2030 from the previous ¥80 trillion ($529 billion USD) to ¥100 trillion ($661 billion USD).

In terms of responses, American companies had the highest participation at 20.9%. This was followed by Germany at 12.4%, and China at 9.6%. Regionally, Europe accounts for 39.7%, Asia 33.7%, and North America 21.9% of the total. This is consistent with the 2023 survey.

Where These Companies Locate

Over 80% of the companies responding to the survey are headquartered in the Kanto region. However, the manufacturing industries are relatively dispersed, as 75% have bases outside of Tokyo.

More than 60% of Asian parent companies expressed the intention to expand within Japan, with Chinese firms particularly proactive. When it comes to research and development as well as manufacturing bases, factors such as infrastructure, talent acquisition, and cost in location decisions often take priority. The ongoing redevelopment projects in the Tokyo metropolitan area respond to this by ensuring an ample supply of office buildings.

*There is also abundant office supply in the heart of the city. (© JAPAN Forward)*

TMSC, the major Taiwanese semiconductor manufacturer, is another example. It established a factory in Kikuyo town, Kumamoto Prefecture. This development is poised to drive economic growth across multiple sectors, notably commerce and services.

The TMSC development may also spur the relocation of expatriates and their families. This, too, would contribute to the further prosperity of the local economy. Expansion of these manufacturing industries into regional areas like Kyushu helps create vibrant economic hubs.