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					Question In this assignment, i have made survey on japan country in order to open Branch of Australian based company in Japan. To open new branch in Japan, first of all we have to analyse economy and have to make various analysis as i have made in this paper including culture,FDI, people....

Japanese Economy: Japan is the 2nd largest economy in the world with GDP valued at $4.367 trillion in 2006, and a population of 127 million. The Japanese economy has highly developed industries like banking, insurance, real estate, retail, transportation and telecommunications industries. Its heart of technology in produce motor vehicles, electronics equipment, machine tools, ships, chemicals. Japan is the 4th largest exporter in the world behind Germany, the US, and China. However, Japan needs to import most of its energy and food as it does not have much agricultural land or oil reserves. Japans currency is Yen.

Balance Of Payments: The balance of payments measures the payments that flow between any individual country and all other countries. Japan's current account surplus increased to 25.0 trillion yen in 2007, up from 19.8 trillion in 2006, this is the second consecutive year. This was mainly due to the growth of the surpluses in the trade and income balances.

Trading partners and key imports exports: The most important trading partners in terms of imports and exports are USA, Taiwan, Hong Kong, Singapore, China, Australia, Indonesia and South Korea. Among these countries USA itself imports one quarter of all japans exports. Key exports include Cars, Electronic devices and Computers and Imports include Raw materials such as Oils, Food items and wood, Machinery and Equipments, Textiles. The exports of Japanese for the financial year 2005 amounted to US Dollar $ 595 billions and Japanese imports amounted to US Dollar $515 Billion for the year 2005. and

Economic Policy of Japan: Japan‟s foreign policy is administered by the Ministry of Foreign Affairs. Japan being the largest creditor nation it supplies Overseas Development Assistance which holds the key in great opportunities for Australian exporters.

Australia and Japan enjoy excellent trade relation in bilateral trade from almost 100 years and Australia is the only country among few other countries which enjoys a trade surplus with Japan.

Major Australian exports to Japan: Coal, Iron Ore, Aluminium, Meat. Major Australian Imports: Passenger Motor Vehicle, Transport Vehicles, Civil Engineering equipment. GDP Growth: Year 2003 2004 2005 Billion in Yen 490544 496058 502457

Japan's economy grew at an annual rate of 1.9 percent in the first three months of 2006, topping economists' expectations. Fourth quarter (October-December) 2006 GDP estimates The figures showed a 1.3% increase from the previous quarter, an upward revision from the previous 1.2%. In annualized terms, GDP estimates increased from 4.8% to 5.5%. Japan’s 2007 First Quarter GDP Growth at Annualized 2.4% Ow3-s/s1600-h/japan+GDP+yoy.jpg

Trade Agreements:

In April 2005, Prime Minister Howard and Prime Minister Koizumi agreed to commence a joint study on various policy options to enhance economic relations between Japan and Australia, including the feasibility or pros and cons of a free trade agreement. Japan is Australia‟s largest trading partner Australia is Japan‟s twelfth largest export market and seventh largest trading partner Australia is Japan‟s fifth largest source of imports 58% of imported Passenger Vehicles, 37% of imported commercial vehicles,27% of imported construction equipment are imported from Japan. Japan is Australia‟s third largest foreign investor.


Physical Environment: Japan has four distinct seasons with hot summers, cold and freezing winter. Japan is very hot and humid, with the first six weeks being the rainy season. Spring months are March, April, and May. Summer months are June, July, and August. Autumn months are September, October, and November. Winter months are December, January, and February. Summer is hot and humid in general. During the winter, it snows a lot on the Sea of Japan side, and it is dry on the Pacific Ocean side. Infrastructure:

Japan has a very extensive and modern road network. It consists of 1,152,207 kilometres of highways, They include 6,114 kilometres (3,799 miles) of expressways. The number of motor vehicles increased from 70,106,536 in 1995 to 73,688,389 in 1999. Major development projects to expand the Japanese highway network include a $32billion project for the construction of a second Tomei-Meishin Expressway, connecting Tokyo and Kobe via Nagoya. The length of Japan's railways is 23,670 kilometres more than half of which is electrified. Japan is famous for its high-speed trains. As it is surrounded by water, Japan has developed a modern sea transportation system. Japan has a very large merchant-marine fleet, which is a necessity for its international trade and for ensuring an uninterrupted arrival of raw material, fuel, foodstuffs, and other necessary products. The fleet comprises 662 ships with a total capacity of 13,039,488 tons. Japan benefits from a modern and extensive air transportation system. Airports in Tokyo, Kagoshima, Osaka, and Kansai provide international services. Japan's telecommunication system is very advanced. It consists of private and public service providers, but a public company, Nippon Telephone and Telegraph (NTT), is the largest provider, controlling about 95 percent of fixed telephone lines. Personal computer ownership is high: 237 PCs per 1,000 populations. Japan's electricity is derived from 4 major methods: thermal (using oil, liquefied natural gas, and coal), nuclear, hydro (water power), and non-conventional (geothermal, solar, and wind). In anticipation of large increases in consumption in the 21st century, Japan is planning to increase its output to 1,280 billion kWh by 2020.

Tariffs: Tariffs are based on the Harmonised System - most duties are ad valorem (per cent) based on the GATT valuation system approximately cost, insurance and freight (CIF) value („Incoterms 1990‟).











Japan maintains tariffs and restrictions on some agricultural items, which are relevant to some Australian exporters.

Political Factors A company planning to extend their business on international basis needs to understand the political environment of the particular country they are entering in.

Government Structure Government: Constitutional monarchy with emperor as symbol of state. With Parliamentary form of government. Elected bicameral legislature called National Diet, consisting of House of Councilors (upper house) and House of Representatives (lower house). General elections every four years or upon dissolution of lower house; general elections every three years for half of upper house. (Map Zones, 2008)

Government intervention The Japanese government has made efforts to open the Japanese market to foreign companies and official regulations on foreign investment are minimal. (Japan BusinessFAQ's. 2008)

International relation with other countries Since the relationship between Japan and Australia has expanded to economic activities, politics, culture and various other fields. Both countries have benefited from our strong and complementary economic relationship. People in Australia and Japan have successfully established a warm friendship and there is active interaction at many levels between the two countries (Australian studies centre, 2007) As trusted partners in the Asia Pacific region, Japan and Australia share a common interest in regional stability and prosperity. Japan and Australia have held a series of events, the "Japan-Australia Friendship Anniversaries," to commemorate the significant milestones. In 1996 the two countries marked the twentieth anniversary of the signing of the Basic Treaty of Friendship and Co-operation between Japan and Australia, and in 1997 they observed the fortieth anniversary of the signing of the Agreement on Commerce between Japan and the Commonwealth of Australia, and the centenary of the opening of the Japanese ConsulateGeneral in Sydney. In this connection, commemorative activities were taking place in Japan and Australia, including symposiums, sporting exchange events, and a variety of cultural events. Political stability Risk of Political Instability in Japan is 8.30 in the year 2007 (1: 0 = very high, 10 = very low) (Source: The World Competitiveness Yearbook, 2007)

According the table above, it is clear show that Japan‟s instability is lower than average so it means less political risk. And there is no sign of an international terrorist presence in Japan, nor any likely prospect of one emerging. (Sisbo, 2008)

Level of corruption Japan is perceived to be more corrupted country than Australia. It stands at 17rd rank in the chart of Corruption Perception Index 2007 with 7.5 CPI score among all other countries. Against Australia, it ranks 11th with 8.6 score. The measurement is done on a scale between 10 (highly clean) and 0 (highly corrupt) (Transparency international, 2007).

MapZones 2008, Japan -Government

Japan Business-FAQ's. 2008, Foreign Investment

Australian studies centre, 2007, Australia-japan relationship

Japan-Australia Relation, The ministry of foreign affairs of Japan, June 2008

The World Competitiveness Yearbook, 2007, IMD, Switzerland)

Sisbo 2008, Business Security Information for JAPAN

Transparency International 2007, Corruption Perception Index

LEGAL SYSTEM IN JAPAN AND HOW IT WORKS: The modern Japanese legal system is an eclectic one based largely on the AngloAmerican tradition. Japan operates under the so-called Six Codes (Roppo). These are:  The Constitution (the primary document governing legal and political relationships)      The civil code The code of civil procedure The penal code The code of criminal procedure The commercial code

The whole judicial power is in the Supreme Court, 8 high courts, 50 district courts, 50 family courts and 575 summary courts. The Supreme Court, the highest court, is the final court of appeal in civil and criminal cases. The constitution's Article 81 designates it "the court of last resort with power to determine the constitutionality of any law, order, regulation, or official act." The Supreme Court is also responsible for nominating judges to lower courts, determining judicial procedures, overseeing the judicial system, including the activities of public prosecutors, and disciplining judges and other judicial personnel. Below the Supreme Court, the Japanese system included eight high courts, fifty district courts, and fifty family courts in the late 1980s. Four of each of the last two types of courts was located in Hokkaido, and one of each in the remaining forty-six rural prefectures, urban prefectures, and the Tokyo Metropolitan District.

OWNERSHIP OF LAND/BUSINESS: The real property system in Japan might be difficult for non-nationals to understand. So the following are a few basic factors about the Japanese real property system which should be highlighted at the outset: 1. In Japan, land is regarded as a separate asset from buildings. Therefore, the term "Land Price" is normally used instead of "Property Price", not only for agricultural land but also for developed land. Also, the term "Land Market" is often used instead of "Real Property Market", and the "Land Market" refers to the market which determines the "Land Prices". 2. Freehold is the only type of property ownership in Japan. There is no equivalent system of leasehold property ownership but there is a property holding system called "land lease": the ownership of a building only, excluding the land. A land lease is only granted under a provision that the building is owned by a different party from the actual landowner. 3. In most other countries, land price is a residual of property price, calculated by the income approach: net income divided by yield, minus building cost. However, in Japan, property price, including that for income producing properties, usually comprises land price plus building price, which are calculated separately. Land prices are normally determined by market comparisons utilising land price indices prepared by the Government; such as those within the "Land Price Publication" by Ministry of Land, Infrastructure and Transport, whilst building prices are normally determined in the market through the cost approach.

4. Currently, due to the continued land price declines and the spread of real property securitisation, property prices are beginning to be determined by reflecting the income from the subject properties, where real property assets are considered as a whole, using the income approach.

LABOUR LAW: Working conditions When hiring workers, companies enter into labor contracts with each worker. At that time, the employer must notify the employees in writing of the following employment conditions.

The term of the agreement (or where there are no provisions pertaining to term, the fact that there are no provisions pertaining to term).

 

The workplace and the duties that the employee will have to perform. Matters pertaining to start and finish times, work in excess of regular working hours, breaks, days off and leaves.


Methods of determining, calculating and paying wages; the wage calculation period and payment times.


Matters pertaining to resignation and dismissal (including all grounds for dismissal).

If the employer makes any rules pertaining to a predetermined set of matters including retirement allowances, bonuses, safety or hygiene, these must also be included in the work rules

* In the case of part-time employees, in addition to the above, the employer must notify the employees in writing as to whether or not they are eligible for pay increases, benefits







Any part of a labour contract that does not meet the standards laid down by law is invalid. For example, a contract containing provisions such as "the company may dismiss the worker at any time for any reason," "the basic wage shall include all overtime pay," and "social insurance fees shall be borne entirely by the worker" (in the case of a business establishment covered by social insurance) is invalid insofar as these provisions are concerned. It is also illegal to impose a penalty for non-fulfillment of a labor contract. For example, it is illegal to include a clause such as the following: "If a worker retires within two years of joining the company, he/she must pay to the company the sum of 500,000 yen." However, this does not preclude an employer from claiming damages from a worker for losses actually incurred. Term of labour contracts Labour contracts generally do not stipulate a term. Where a term is specified, however, it must be no longer than three years except in a few special cases. However, a worker may resign by notifying his/her employer at any time as long as at least one year has elapsed since the date of the start of the contract term. Probation period Employers are allowed to set a limited period of probation prior to fully employing somebody, so as to see whether or not the probationary employee is able and suitable for the job. Probation periods generally last for about three months. However, it should be noted that if the employer decides not to fully employ somebody during or after the probation period, this refusal to employ is treated in the same manner as dismissal of an employee; in order for such a refusal to be legally allowed, valid reasons for refusal (which were not evident at the time of probationary employment) must have come to light during the period of probation, and it must be objectively reasonable for the employer to refuse to fully employ that person for the aforementioned valid reasons. Re-assignment and external assignment

Japanese companies frequently redeploy their workers through internal re-assignment and external assignment, and such redeployments may often require a worker to relocate. Generally, employers have considerable discretion when it comes to changing a worker's duties or temporarily assigning him or her to another company if this is reasonably necessary to business. Governing law In the case of international contracts, the governing law may be determined by agreement between the parties (see Article 7 of the Law on the General Rules on Application of Laws), and labor contracts are no exception. However, legislation that is clearly intended to protect workers as a matter of policy, such as the Labor Standards Law, will be compulsorily enforced in the forum state regardless of any such agreement. If a labor contract does not stipulate the governing law, it is assumed to be the law of the region in which labor services are provided.

PROCESS FOR SETTING UP A COMPANY: Registration of establishment of a branch office: A branch office may begin business operations after registering its establishment with the Legal Affairs Bureau; branch offices of foreign companies must register in accordance with the registration requirements for Japanese corporations of most similar form to that of the foreign company. In order to select the most similar form of Japanese corporations and to determine the information to be registered, reference should be made to the foreign company's articles of incorporation, establishment certificate, registration certificate, and other such documentation. Once the details of the branch office to be registered—the address of the branch office, the representative in Japan, the date of establishment of the branch office and the disclosure method for balance sheets—is determined, the information that must be registered can be ascertained.

Document(s) certifying the information to be registered must be submitted when applying for registration of the establishment of a branch office, and the certified document(s) must be issued by the competent authorities in the home country of the foreign company. It is often convenient to use an "affidavit" on information for registration certified by that country's embassy/consulate in Japan. General flow of procedures for establishing a branch office 1. Determination of branch office information to be registered

2. Examination at the Legal Affairs Bureau of similar corporate names

3. Establishment of branch office (date of branch office establishment is at the branch office's discretion)

4. Preparation of affidavit on establishment of branch office

5. Certification of affidavit by embassy/consulate in Japan

6. Application to the Legal Affairs Bureau for registration of branch office establishment; registration of company seal with the Legal Affairs Bureau

7. Acquisition of certificate on registered information and company seal registration certificate (approx. two weeks after application for registration)

8. Opening of bank account under branch office name












(notification prior to branch office establishment may be required in certain sectors)

(Note) Time required: about one month after determination of branch office information to be registered 1.3.2 Registration of establishment of a subsidiary company

Subsidiary companies are established through registration with the Legal Affairs Bureau. The application date for registration will also be the date of establishment, and the company may carry out business operations from that date. Some of the documents needed for the subsidiary establishment procedures should be prepared in the home country of the foreign company: document(s) certifying the profile of the foreign company, document(s) certifying the representative authority of the foreign company's representative and document(s) certifying the authenticity of the signature of the foreign company's representative.

The foreign company's articles of incorporation, establishment certificate, registration certificate and other official documents as well as an affidavit notarized by a notary public in the home country of the foreign company are ordinarily used. These documents will be required in completing the procedures for certifying the subsidiary company's articles of incorporation in Japan. These documents may also be needed when requesting a financial institution in Japan to take custody of the subsidiary's capital and issue a capital custody certificate. The capital custody certificate is a certificate issued by a financial institution when the full amount of the subsidiary's capital has been remitted to a special account specified by the financial institution asked to take custody. The certified articles of incorporation and the capital custody certificate will both be needed when applying for registration of company establishment. General flow of procedures for establishing a Kabushiki-Kaisha (joint-stock Corporation) 1. Determination of profile of joint-stock corporation to be established 1)

2. Examination at the Legal Affairs Bureau of similar corporate names

3. Preparation of joint-stock corporation's articles of incorporation

4. Acquisition of registration certificates, etc. for parent company, and preparation of affidavits regarding profile of parent company and affidavits regarding signatures of representatives of parent company (affidavits must be attested by a public notary in equity participants' own countries) 2)

5. Notarization of joint-stock corporation's articles of incorporation by Japanese notary public

6. Application to bank for capital custody and issue of capital custody certificate 3)

7. Remittance of joint-stock corporation capital to special bank account

8. Appointment of directors and other officers, such as representative directors and auditors

9. Examination by directors and auditors of legality of establishment procedures

10. Application to the Legal Affairs Bureau for registration of joint-stock corporation establishment (joint-stock corporation establishment date); registration of company seal with the Legal Affairs Bureau

11. Acquisition of certificate on registered information and company seal registration certificate (approx. two weeks after application for registration)

12. Opening of bank account under company name











(notification prior to company establishment may be required in certain sectors)

(Note) Time required: about two months after determination of profile of company to be established 1) This profile should contain information including the following: trade name, location of head office, business objectives, business year, amount of capital, issue price of shares, existence of provisions restricting transfer of shares, existence of board of directors, names of directors and representative directors, terms of directors, names of equity participants, and values of their investments.

2) If an individual or corporation with an address in Japan is the promoter of a joint-stock corporation and a foreign enterprise is the underwriter of shares in that corporation when it is established (such a situation is called a "formation with outside offering," or Boshû Setsuritsu), affidavits regarding the parent companies may not be required. While in this case shares issued when the joint-stock corporation is established are shared by the promoter and foreign enterprise, the joint-stock corporation may be made a 100% subsidiary of the foreign enterprise by subsequently transferring the shares held by the promoter. 3) If a joint-stock corporation is incorporated with the joint equity participation of an individual or corporation with a bank account in Japan, it may not be necessary to apply to a bank for capital custody and issuance of a capital custody certificate. In this case, it is sufficient for the capital to be paid into the joint equity participant‟s bank account in Japan, and for documentary evidence to be submitted by the representative director of the joint-stock corporation in place of a bank-issued capital custody certificate in order to certify that payment of the full amount of capital has been received. General flow of procedures for establishing a Godo-Kaisha (LLC) 1. Determination of profile of Godo Kaisha to be established 1)

2. Examination at the Legal Affairs Bureau of similar corporate names

3. Acquisition of certification regarding equity participants (in equity participants' own countries): Acquisition of registration certificates, etc. for companies that will become equity participants, and preparation of affidavits regarding profiles of companies that will become equity participants and affidavits regarding signatures of representatives of companies that will become equity participants (affidavits must be attested by a public notary in equity participants' own countries)










Acquisition of registration certificates for companies that will become equity participants

Acquisition of seal certificates for individuals/companies that will become equity participants

5. Preparation of Godo Kaisha's articles of incorporation

6. Payment by members of investment stipulated in articles of incorporation

7. Application to the Legal Affairs Bureau for registration of establishment of Godo Kaisha (Godo Kaisha establishment date), registration of company seal with the Legal Affairs Bureau

8. Acquisition of certificate of registered information and company seal registration certificate (approx. two weeks after application for registration)

9. Opening of bank account under company name

10. Notification of stock acquisition to the Bank of Japan (notification prior to company establishment may be required in certain sectors)

(Note) Time required: about one month after determination of profile of company to be established 1) This profile should contain information including the following: trade name, location of head office, business objectives, business year, amount of capital, names of members (equity participants) and values of their subscriptions, names of representative members, and names of executive officers (representative members in the case of a corporation).

1.3.3 Registration of establishment of limited liability partnership A limited liability partnership is formed when two or more individuals or corporations conclude a limited liability partnership agreement, pay the investment specified in the agreement, and register the entity thus established. As the law does not describe in detail how LLPs should operate, unlike in the case of joint-stock corporations, details are laid

down in LLP agreements. Accordingly, finalizing the content of the LLP agreement is the most important stage in the process of establishment of an LLP. Furthermore, as a partnership must be established in partnership with an individual resident in Japan or a Japanese corporation, several documents need to be prepared in both Japan and the country of the foreign party. General flow of procedures for establishing a limited liability partnership 1. Determination of profile of LLP 1)

2. Examination at the Legal Affairs Bureau of similar corporate names

3. Acquisition of certification regarding partners (in partners' own countries): Acquisition of registration certificates, etc. of companies that will become partners, and preparation of affidavits regarding profiles of companies that will become partners and affidavits regarding signatures of representatives of companies that will become partners (affidavits must be attested by a public notary in partners' own countries)









Acquisition of registration certificates of companies that will become partners Acquisition of seal certificates of individuals/companies that will become partners

5. Conclusion of limited liability partnership agreement

6. Payment by partners of investments specified in agreement

7. Application to the Legal Affairs Bureau for registration of LLP, registration of partnership seal with the Legal Affairs Bureau

8. Acquisition of certificate of registered information and partnership seal registration certificate (about two weeks after application for registration)

9. Opening of bank account under partnership name

(Note) Time required: about one month after determination of profile of partnership to be established 1) This profile should contain information including the following: name of partnership, location of business establishment, business objectives, business year, names of members and their investments, date of entry into effect of the LLP agreement, and period of existence.

Product Liability: Product Liability shall be defined as liability for damages in such case as follows: In the case where due to a defect in the delivered product, a life, a body or property of another person (including a third party not using or consuming the product directly, and a legal person as well as a natural person) is injured, the person who manufactured, processed, imported or put his name, etc. on the product as business is liable for damages of the injured person. Previously in Japan, claims for damages have usually been made based on the Civil Code Article No.709 in case the injury is caused by a defect in the product. The Civil Code Article No.709 employs the "fault-based liability (negligence) principle", and requires the "intention or fault" of the manufacturer, etc. as a condition for liability. The Product Liability Law takes the "defect in the product" as a condition for liability instead of the "intention or fault" of the manufacturer, etc. Therefore, after introduction of the Product Liability Law, the injured has only to verify the "defect in the product" for claiming damages

FDI In Japan :

FDI brings in new products and services and introduces new technologies and management know-how. It also creates employment opportunities and is a stable source of financing from overseas. For Japan, which is facing a declining birth-rate and ageing population, FDI is taking on increasing importance. Japan, as the world‟s second-largest economy and the United States‟ fourth-largest trading partner, is an important potential destination for U.S. foreign direct investment (FDI).

Over much of the post-war period, and through the 1970s and 1980s in particular, inward investment was not a priority for Japan. Japan‟s export-led economy had high growth rates and this suggested that large inflows of capital were not required. However, the prolonged and severe economic crisis that began in the early 1990s has led to Japan reconsidering the potential benefits of inward FDI, and there is an extensive literature highlighting the plight of the Japanese economy. (By: Kimino, Satomi; Saal, David S.; Driffield, Nigel. World Economy, Mar2007, Vol. 30 Issue 3, p446-469, 24p, 5 charts, 1 graph; DOI: 10.1111/j.1467-9701.2007.01001.x; (AN 25317368)) ( Japan's FDI stock balance

Source: Bank of Japan, Balance of Payments

TABLE 1a Annual New FDI into Japan (Billions of Dollars, Balance-of-Payments Basis) 1997 1998 1999 2000 JFY 2001 2002 2003 2004 2005 3.20 3.27 12.31 8.23 6.19 9.09 6.24 7.81 3.22


On a yen basis, FDI stock in Japan raised from 3.0 trillion yen at the end of 1998 to 11.9 trillion yen at the end of 2005. According to OECD figures, Japan‟s inward FDI fell sharply in 2005 to $2.8 billion after several years of solid growth. In addition, there were several large disinvestments by foreign companies facing difficulties in home markets, most notably, General Motors‟ sale of 17 percent of Suzuki Motor Corporation for $2 billion in April 2006 and Vodafone‟s $15.5 billion sale of its Japanese cellular telephone business to the Japanese firm Softbank in March 2006.

Meanwhile, Japan continues to run a significant imbalance between inward and outward FDI (see Table 1b). Japan‟s outward flow of foreign direct investment rose almost 47 percent in CY 2005 to $45.8 billion, up from $28.8 billion in CY 2003. JAPAN‟S FDI AND ITS RATIO WITH GDP :

Despite the increase in FDI since the mid-1990s, Japan continues to have the smallest amount of inward foreign investment as a proportion of GDP of any major OECD nation. According to the 2006 World Investment Report issued by the United Nations Conference on Trade and Development (UNCTAD), the current ratio of FDI to GDP in Japan is 2.2 percent, compared to 13.0 percent in the United States, 37.1 percent in the United Kingdom, 18.0 percent in Germany, and 28.5 percent in France. UNCTAD‟s

report ranks Japan as 131 among 141 countries in terms of the ratio of FDI to GDP, although Japan‟s Inward FDI Potential Index is ranked 22 in terms of the amount of FDI money received. Foreign participation in mergers and acquisitions also lags in Japan. According to Recof, a Tokyo-based M&A consultancy, the total number of M&A transactions in Japan 2006 was 2,764, up 1 percent from the previous year, but only 148 of those deals involved foreign buyers.


The Government of Japan (GOJ) imposes few formal restrictions on inward FDI, and has removed or liberalized most legal restrictions that previously applied to specific business sectors. In addition, since 2001, the government has made increasing Japan‟s stock of FDI an economic policy priority recognizing its potential for enhancing Japan‟s competitiveness and contributing to sustainable economic growth. 1) Then-Prime Minister Junichiro Koizumi in February 2001 announced a national In June 2006, the government set a further goal of increasing the nation‟s stock of goal of doubling Japan‟s stock of FDI, as a percentage of GDP, within five years. 2)

FDI to 5 percent of GDP by 2010.

3) The GOJ does not impose export balancing requirements or other trade-related FDI measures on firms seeking to invest in Japan. Risks associated with investment in many other countries, such as expropriation and nationalization, are also not of concern in Japan.


In recent years, the GOJ has taken welcome steps to address investment-related problems. 1) Reforms in the financial, communications and distribution industries have encouraged foreign investment into these sectors. 2) Reform of Japan‟s corporate code, bankruptcy laws and accounting principles are also helping to attract foreign investment into Japan. 3) The Japan External Trade Organization (JETRO), a quasi-governmental entity, and the Ministry of Economy, Trade and Industry (METI) have the lead in implementing programs to attract greater foreign investment to Japan. 4) At the regional level, a number of prefectural and city governments are intensifying efforts to attract foreign investors. 5) By providing foreign investors with abundant information on all aspects of doing business in Japan—and also offering expert consultation and even free temporary office space throughout the country. 6) With more than 70 overseas offices in over 50 countries, JETRO provides companies

around the world with a direct link to business in Japan. And JETRO offices located throughout Japan make it easy for foreign firms to get timely and accurate information about specific regions, markets and prefectural incentive programs. 7) JETRO operates one-stop business support centers in major business areas across the country. These centers, called Invest Japan Business Support Centers (IBSCs), offer foreign businesses everything they need to begin investing in Japan, and all under one roof.

8) Helping foreign firms make use of regional resources to expand their business or make initial entry.

9) Maintaining sustainable and aggressive public relations in Japan and overseas Ex. Holding large-scale seminars overseas and Japan Investment Councils in Japan's regions.

10) Provide an access to industry experts, legal scriveners, accountants, ICT specialists and certified social insurance consultants.

11) The centers also provide free temporary office space (for up to 50 business days) and access to meeting and conference rooms.






The Japanese Government has set up 22 zones, mainly in areas around ports or airports, areas that are defined as FAZ (foreign access zones) with the aim of promoting import businesses in order to attract foreign capital into Japan. Japanese and foreign companies in these areas are eligible for tax and financing benefits, while foreign companies are

eligible,    









The companies are eligible for benefits that include, among others, the following: Loans at reduced interest. Exemption from local taxes - real estate purchase tax and property taxes. Increased rates of depreciation. Guarantees from Government

14) Providing Tax incentives, credit guarantees to incoming foreign firms. Moreover, the government is now actively seeking to promote and stimulate FDI into Japan, by giving incoming foreign firms tax incentives, providing credit guarantees and facilitating more takeover activities by allowing equity swaps or share exchanges.

In June 2006, the Japanese government announced plans to accelerate efforts to achieve its goal of doubling the country's total FDI stock to the level of 5% of GDP by 2010.



Japan has gradually eliminated most of the formal restrictions governing its FDI regime. 1) In 1991, the GOJ amended the Foreign Exchange and Foreign Trade Control Law (which also controls foreign investment) to replace the long-standing "prior notification" requirement for all FDI with an "ex post facto notification" requirement for investment in non-restricted industries. 2) "Prior notification" (and thus case-by-case approval) is now required only for investment in certain restricted sectors, including agriculture, forestry, petroleum, electrical/gas/water manufacturing. 3) Administrative approval for foreign investment in some of these sectors is quite certain, while in other sectors it is likely to be subject to greater scrutiny based on "national sovereignty" or national security concerns. 4) The only legal restriction on foreign ownership in Japan's telecommunications sector applies to Nippon Telegraph and Telephone (NTT): foreign investment in NTT is limited by law to one third. utilities, aerospace, telecommunications, and leather


Company Law: 1) The most significant FDI-related legislative change in recent years has been the revision of Japan‟s Company Law. This new law, approved June 29, 2005, entered into force on May 1, 2006. 2) The most significant provision in regard to FDI is the easing of rules on the use of foreign stock as consideration in cross-border mergers. Previously, consideration given to shareholders of merged companies was generally limited to cash or stock of the surviving company. advantageous mergers. This restriction served as a disincentive to otherwise

3) Under the new Company Law, the surviving company can provide cash or shares of its foreign parent company instead of, or in addition to, its own stock in a procedure known as a triangular merger. However, under pressure from business interests, the GOJ delayed implementation of the law‟s triangular merger provision until May 2007 in order to allow firms time to determine whether to adopt defensive measures against hostile takeovers.

New Financial Instruments and Exchange Law :

1) Passed by the Diet in June 2006. The bulk of its provisions will come into effect in 2007. 2) By amending or abolishing 93 previous laws regulating banking, securities, investment and real estate trusts, the law establishes a broad new framework for the regulation of financial instruments and services. 3) The government's stated purpose in amending the law is to establish a flexible regulatory system with a uniform set of rules for similar financial instruments while enhancing protections for investors and promoting financial innovation. 4) The law, inter alia, establishes rules for tender offers (TOBs) that clarify the shareholding limits which trigger a mandatory TOB, extend the minimum time period for TOBs, and require greater disclosure of the size and price of share purchases by large-scale investors in order to protect the interests of smaller shareholders.

TABLE 3 Japan’s FDI Inward Stock by Country/Region (Millions of dollars; International Investment Position) End 2001 North America U.S.A Canada Asia China Hong Kong Taiwan Korea Singapore Thailand Europe Germany United Kingdom France Netherlands Switzerland Latin America Mexico Brazil Cayman Isles TOTAL 7,021 7,331 1,958 1,733 1 11 1,625 50,446 10,348 9,868 2,778 2,408 3 12 1,749 78,490 12,321 13,541 2,646 4,764 5 14 4,186 89,838 13,693 14,210 3,172 3,004 5 33 2,666 97,305 10,672 11,540 2,241 8,138 4 30 5,544 100,331 20,050 18,465 1,586 3,368 73 1,414 1,399 190 303 -91 24,709 3,896 2,422 of End 2002 28,289 35,743 2,647 3,705 80 1,460 1,379 210 480 17 33,350 4,142 2,695 of End End of 2003 2004 40,222 36,612 3,610 4,904 90 1,793 1,591 244 1,039 49 39,273 4,978 1,692 45,919 40,872 5,049 5,889 90 2,136 1,605 537 1,380 48 41,779 3,915 2,310 of End 2005 47,262 43,459 3,803 6,636 101 2,586 1,378 310 2,138 42 97,728 5,847 3,004 of

Note: Negative figures indicate net outflow. Source:

TABLE 4 Foreign Direct Investment in Japan, by industry (Millions of dollars; net and flow; reporting basis for JFY2001— 04, balance-and-payment basis for CY 2005) JFY2001 Manufacturing Machinery General machinery Electric machinery Transportation equipment Precision machinery Chemicals Chemicals pharmaceuticals Metals Iron, non-ferrous & metals Rubber & leather Petroleum Textiles Foods Glass & ceramics Others Non-Manufacturing Farming & forestry Fishery & marine products Mining Finance & insurance Trading Wholesale & retail Services Real estate Telecommunication Communication and 2,621 1,107 — — — — 924 — 1 — — 70 23 281 75 84 14,784 — — — 5,281 871 — 1,330 588 6,622 — JFY2002 6,749 2,220 — — — — 3,416 — 136 — — 508 33 68 3 365 11,186 — — — 5,306 2,118 — 2,025 239 1,412 — JFY2003 4,310 2,489 — — — — 970 — 25 — — 114 10 448 7 248 14,412 — — — 9,005 3,265 — 955 609 535 — JFY2004 952 402 — — — — 199 — 7 — — 166 83 32 — 63 36,507 — — — 27,693 999 — 1,263 213 4,338 — CY2005 -2,191 — 164 -1,195 32 -59 — -1,168 — -34 1 -44 188 -211 103 — 5,414 -1 0 0 645 — 1,157 178 15 — 912

Transportation Construction Others TOTAL

18 69 6 17,340

22 19 45 17,935

15 10 18 18,722

1,947 31 24 36,507

2,108 41 — 3,223

Note: Negative figures indicate net outflow. Sources:

TABLE 6 Japanese Direct Investment Overseas, by Industry (Millions of dollars; net and flow; reporting basis for JFY2001—04, balance-and-payment basis for CY 2005) JFY2001 JFY2002 JFY2003 JFY200 4 Manufacturing Electrical Chemicals Chemicals Pharmaceuticals Transport Food Metals Iron, Non-Ferrous & Metals and 14,218 3,865 1,511 — 4,342 824 658 — 14,689 3920 1,916 — 4,916 222 633 — 16,246 5,005 4,749 — 3,013 428 1,078 — 13,750 2,039 3,530 — 3,601 1,088 1,391 — 26,146 — — 3,363 — 1,685 — 1,331 CY2005

Machinery General Machinery Electric Machinery

1,219 — — — — 7232 216 — — 850 17,796 10,753 2,700 — 692 1,612 1,387 495 65 36 27 — 26 32,297

1,288 — — — — — 240 199 — — 1,354 21,860 12,801 3,694 — 1,449 1,836 1,503 367 121 7 56 — 27 36,858

956 — — — — — 28 178 — — 810 19,599 7,639 4,315 — 1,494 1,940 1,876 1,915 258 158 4 — — 36,092

1,108 — — — — — 119 172 — — 702 21,010 11,613 1,884 — 370 2,360 1,286 2,054 280 38 24 — — 34,548

— 1,296 4,377 8,611 1,419 831 826 416 531 258 — 19,315 9,227 1,086 4,623 -851 — 824 1,372 148 23 -44 1,712 — 45,461

Transportation Equip. — Precision Machinery Rubber and Leather Lumber & Pulp Textiles Petroleum Glass & Ceramics Other Non-Manufacturing Finance/Insurance Trade Wholesale & Retail Real Estate Services Transportation Mining Construction Farming / Forestry Fisheries Communications Other TOTAL

Note: Negative figures indicate net outflow. Sources:

TABLE 7 Foreign Direct Investment in Japan Relative to GDP

(Balance-of-payments basis for CY2000 onward; in Trillions of Yen, Except Where Noted) CY2000 Nominal GDP (a) FDI Inflow (b) b / a (%) 501.1 0.90 0.18 CY2001 469.8 0.76 0.16 CY2002 CY2003 CY2004 489.6 1.16 0.24 490.5 0.73 0.15 496.19 0.85 0.17 CY2005 502.9 0.31 0.06


TABLE 8 Examples of Major Foreign Direct Investments into Japan by U.S. and Other Foreign Companies Company Promega K.K. Japan DuPont K.K. Nihon L'Oréal K.K. Biotechnology / Chemicals Stem Cell Sciences KK Johnson & Johnson Dendrite International Genzyme Japan K.K. Novon Japan, Inc. China TechFaith Wireless Communication Technology Ltd. Ellacoya Networks GeoVector Impact Investing Pty Ltd ICT / Software InterAct Technologies Japan Co., Ltd. Proofpoint UFIDA Software Engineering Japan Co., Ltd. Genesys Conferencing KK SIGMA-C KK Pixology Japan Ltd. Country US US France Australia US US US US China US US Australia China US China France Germany UK

Cisco Systems, K.K. Founder International, Inc. Ulead Systems IBM Japan, Ltd. ARM K.K. Celoxica Japan K.K. Viewlocity Japan Co., Ltd. Descartes Systems Group Raxco Software Roxio Japan, Inc. Interwise Japan K.K. SSH Communications Security K.K. Nihon Synopsys Co., Ltd. Aspect Communications Japan Ltd. Overture K.K. Juniper Networks, KK. Clearswift K.K. Sterling Commerce K.K. Computer Associates Japan, Ltd. Extreme Networks K.K. Global Knowledge Network Japan, Ltd. IFS Japan, Inc. iNAGO KK Everypath, Inc. APC Japan, Inc. AdventNet, Inc. Polaris Software Lab Limited Graphisoft Japan Co., Ltd. Atotech Japan Tera Systems VeriSign Speech Works

US China Taiwan UK UK UK US Canada US US US Finland US US US US UK US US US US Sweden Canada US US US India Hungary France US US US

Red Hat ANCA Pty Ltd Balco Australia Pty. Ltd. Pelican Products Bosch Lactalis Japon Demarle Japon Co., Ltd. TMD Friction Japan KK dSPACE Japan K.K. ROHDE & SCHWARZ Japan K.K. Campagnolo Japan Ltd. A. Proctor Group Ltd., Japan Rotex Japan Ltd. SAINT-GOBAIN Group in Japan Magna International, Inc. MeadWestvaco K.K. Manufacturing Bolthouse Farms Japan Y.K. Concurrent Nippon Corp. Voith Paper Automation Japan Ltd. Color Kinetics and Color Kinetics Japan Carpigiani Japan Co., Ltd. Galbani Japan Company, Ltd. G.D. Jidokikai K.K. Nippon RFI Shielding KK Lutron Electronics Company Federal-Mogul K.K. Inergy Automotive Systems Velux Japan Ltd. Applied Materials Japan, Inc. Continental Teves Corporation Geislinger K.K. Grohe Japan Ltd.

US Australia Australia US Germany France France Germany Germany Germany Italy UK UK France Canada US US US Germany US Italy Italy Italy UK US US France Denmark US Germany Austria Germany

Air Products Japan, Inc. Snap-on Tools Testo K.K. Trespa Japan Limited Bodum Japan Co., Ltd. Kennametal Hertel Japan Dyson Japan Vaisala KK A Color Kinetics Installation Pfizer Japan Inc. Alcon Japan Ltd. Fresenius Medical Care Japan K.K. Nippon Hexal Corporation Widex Co., Ltd. PAREXEL International Medical Care KARL STORZ Endoscopy Japan K.K. Draeger Medical Japan ELA Medical Inc. Nobel Biocare Japan Haemonetics Corporation Peter Brehm Japan Becton Dickinson Real Estate ProLogis Oakwood Corporate Housing Edelman Elanex HRnet One K.K. Services/Consulting F.H. Bertling Logistics Japan KK CNC Japan K.K. Datamonitor Japan Christie's Japan Services/Education Wall Street Institute, Japan, KK

US US Germany Netherlands Denmark US UK Finland US US Switzerland Germany Germany Denmark US Germany Germany France Sweden US Germany US US US US US Singapore Germany Germany UK UK China

Services/Leisure Services/Media

Nihon Harmony Resorts KK KBS Japan KK Rucoline Japan Co., Ltd. Nihon Hallmark Puratos Japan Chocolates El Rey Japan Co.,Ltd. Loro Piana Japan Co.,Ltd Freixenet Japan Inc. Chelsea Japan Co., Ltd. Miele Japan Corporation

Australia Korea Italy US Belgium Italy Italy Spain US Germany Germany Spain US US US US US US US US US US Switzerland UK US US UK US US US China US


Pieroth Japan K.K. ZARA JAPAN CORPORATION Warner Mycal Lands' End Catalina Marketing Costco L.L.Bean Coach Tully's Shopper Trak RCT Co. Oyo RMS Corp. Resource Connection Japan K.K. Telekurs(Japan) Ltd. Sports Marketing Surveys Japan, Inc. Altair Engineering, Inc.

Business Consulting Market Research

Harris Interactive ERM Japan Ltd. Dorsey & Whitney LLP Pacifica Corporation WL Ross & Co. Sinomonitor Bowne & Company

Basis Technology Mondial Assistance Insurance AXA Non-Life Insurance Co., Ltd.

US France France


Restrictive market practices such as a closed distribution system, cartel-like behaviour and entrenched arrangements that make it difficult for new entrants to compete in terms of product, service and price, are frequently cited structural impediments that are peculiar to Japan.

Nevertheless, foreign investors who want to establish or enhance their presence in Japan face a number of unique challenges, many which are matters of private business practice rather than of government regulation. The most notable of these include:   

A high overall cost structure that makes market entry, exit, and expansion expensive; Cultural and linguistic challenges to doing business; Corporate practices and market rules that inhibit foreign acquisition of Japanese firms, such as insufficient financial disclosure practices, crossholding of shares among companies belonging to the same business grouping, and a low proportion of publicly traded common stock relative to total capital in many companies;

  

Exclusive buyer-supplier networks and alliances maintained by some business groups that limit competition from foreign firms and domestic newcomers; Labor practices which inhibit labor mobility, repress productivity, and negatively impact development of skills; Public wariness about “hostile” foreign takeovers.

All of these issues continue to be addressed in government-to-government talks and progress has been made in some areas.

Finance Banking System: The Bank of Japan is the central bank of Japan. It is a juridical person established based on the Bank of Japan Act (hereafter the Act), and is not a government agency or a private corporation. ( Bank of Japan, 2008)

Currency and foreign exchange

The yen is the currency of Japan. An exchange rate to us dollar changes frequently in last one year. According to the image below , it is show that exchange rate is about 110 Yen =1 US dollar.

U.S. Dollar to Japanese Yen Exchange Rate

(Source: Yahoo finance, 2008)

And the image below is showing the forecast about exchange rate changes in next

(Source: Financial Forecast Center, 2008)

Repatriation of profit

A liberal system that allows full earnings repatriation still exists in Japan. There are no limitations imposed in case of capital or foreign exchange. Foreign investors are entitled to repatriate profits and capital at the prevailing exchange rate. There are no maximum or minimum total investment requirements


The Japanese tax system is rather complex. In general, the corporate tax rate in Japan is 37.5 percent. Under most tax treaties, branches of foreign firms are taxed only on the income accrued in Japan. A 20 percent withholding tax is also applied to dividends, interest, and royalties that are distributed by a Japanese firm. (Japan Business-FAQ's, 2008)

Interest rates

Japan's monetary policy of zero interest rates was introduced in March 2001 in an attempt to revive the economy, which had been in long-term recession since the early 1990s. The Bank of Japan has abandoned the country's zero interest rate policy after more than five years. (Q&A: Japanese interest rates, 2008) The following graph is showing last year Japanese interest rate. Japan's central bank decided Tuesday to keep its key interest rate unchanged at 0.5 percent. (China view, 2008) And recently rate is about 0.5% and the highest in this period is round 0.67%

(Source: Bloomberg, 2008)

Bank of Japan 2008, Outline of Bank of Japan

Yahoo Finance, 2008

Financial Forecast Center, 2008, Japanese Yen Currency Exchange Forecast

Japan Business-FAQ's.

Q&A: Japanese interest rates, 2006

China View, 2008, Japan’s Central bank remains interest rate at 0.5%

Bloomberg, 2008, Bank of Japan interest rate

SOCIO CULTURAL FACTORS: 1) Japan‟s Business Etiquette :  Politeness, sensitivity and good manners are the pillars of Japanese business etiquette.  In Japanese business etiquette, Japanese business cards are a 'must have'. Never flick, throw, slide, lob or otherwise push your Japanese business card.  Always telephone 1 - 2 hours prior to a scheduled meeting to confirm that you are on your way.  If you will be late arriving for a meeting then call at least 1 hour in advance to allow the customer to reschedule.  Always arrive 10 minutes early for a meeting, more if the meeting will be with senior executives.  Plan an exact agenda for the meeting : if the Japanese side say the meeting will finish at 4pm then it probably will not be extended.  It is good Japanese business etiquette to take lots of notes when coming in meeting.

2) Business Attire :

 Men: Wear dark suits (navy or black) with white shirt and subdued tie from October - April and gray suit from May - September.  Woman: wear shorter (or tied back) hair, trouser suits or longer skirt suits with seasonal colors as for men. Japanese women are very fashion conscious and many wear Gucci, Chanel, and Prada etc. Most Japanese companies do not allow female employees to wear jewellery, very short skirts or highheeled shoes. Women too are not properly attired without Japanese business cards!

( Venture Japan. 3) Japan‟s Culture :

Japan has a fascinating and multifaceted culture; on the one hand it is steeped in the deepest of traditions dating back thousands of years; on the other it is a society in a continual state of rapid flux, with continually shifting fads and fashions and technological development that constantly pushes back the boundaries of the possible. It could therefore be said that Japan is a country of stark contradictions and is in part this that makes it such a fascinating country to visit and unique tourist destination.

4) People :  Japan has a population of about 126 million (the eighth largest in the world), 75% of whom live in urban areas where population density is very high.  Much of Japan however is very sparsely populated; there are large national parks and vast mountainous regions where the people's way of life is unrecognisable from urban Japan.  Inhabitants of non-Japanese origin make up only just over 1% of the overall population. The vast majority of these are Koreans.  The ancestry of the Japanese is a matter of much debate. The indigenous population of Hokkaido originally included a variety of ethnic groups, now collectively known as the Ainu. Many place names in Japan can be traced back to the Ainu language.

5) Religion :  State Shinto, were varied assortments of different Shinto and Buddhist sects, all combining to form a spiritual framework for the Japanese. Shinto was the religion of life, of living spirits (kami), who affected everyday living; Buddhism, on the other hand, was a religion of death, focusing on one's ancestors and the life to come. These beliefs were supported through a calendar of ritual and an intricate web of social custom.  Some of the new religions such as PL Kyoden (Public Liberty Kyoden) and Soka Gakkai have, however, become very much a part of the establishment in Japan, and it seems their role in politics and business is not to be underestimated.

6) Social Convention :  Manners and custom are an important part of many facets of Japanese life. The language, although basically quite simple to pronounce and speak, is made very difficult to master because of the codified layers of respect and humility that are used depending on to whom you are talking.  It is customary to take off your shoes in the reception area when entering a Japanese house, some restaurants and hotels will also require you to do this there is normally clearly a place to put your shoes.

 When meeting people you can bow, although shaking hands is quite common these days. You may well be given a business card, these meishi are used by businessmen and high school students alike.

 When you address someone you should use the suffix "-san", so Mr. Suzuki becomes Suzuki-san. Never use "-san" to speak about yourself however.

 Before eating it is customary to put your hands together and say 'ita-dakimasu' (I will partake) and afterwards 'gochi-so-sama-deshita' (that was delicious).

 Gifts, known as "omiyage" in Japanese, are very important in Japanese society and if you meet any Japanese you may well be given something.

7) Food:  Many Japanese restaurants specialise in one particular type of food. The best place to try Sushi (slices of raw seafood placed on lightly vinegared rice balls) and sashimi (slices of raw seafood dipped in soy sauce), is a kaiten-zushi bar.  Japanese food does not stop with raw fish; other specialities include teriyaki, marinated beef/chicken/fish seared on a hot plate), sukiyaki (thin slices of beef, bean curd and vegetables cooked in soy sauce and then dipped in egg), and tempura (deep fried sea-food and vegetables).  There are vegetarian options in Japan. Try the wonderful zaru soba (buckwheat noodles served cold), a bowl of Udon (thicker noodles) in a mountain vegetable soup, tofu steak or a vegetable okonomiyaki (savoury pancake).  If you are feeling adventurous you could try Natto, this is a sticky and slightly smelly concoction made of fermented soya beans 8) Drink :  Japan is a country of drinkers - and a few rituals should be considered before taking a tipple.  Whilst Sake (rice wine) is the national drink of Japan, lager-beer (pronounced beer-ru in Japanese) is the most popular. Widely available brands include Kirin, Sapporo, Suntory, and Asahi. They are all worth a taste and average about 5% abv.  Happoshu, not actually beer but a malt flavoured beverage.

 A wide variety of alco-pops called Chu-hai are available.  Whisky is very popular amongst Japanese men - Scotch is considered the best and is highly sought after.

9) Sports:  Sports are a big deal in Japan. Indeed, it is said that the very origin of the Japanese race depended on the outcome of a Sumo match. Sumo is the most popular and the wrestlers still command high celebrity status. In Sumo the basic idea is for the higashi rikishi (east wrestler) to force his nishi (west) foe out of the ring or onto the floor of the dohyo (ring). It's generally all over in a few seconds but watch carefully and there is immense skill and artistry in the wrestlers' moves. There are six tournaments (basho) a year and it is well worth a visit.  Football, known as soccer in Japan, has always struggled to find a place in the nation's heart.