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Monday, November 1, 2010

Japan considering reduction of corporate tax on foreign companies

Nikkei Newspaper reported, on October 21, 2010, that the Japanese government is considering a tax reduction for foreign companies. The overall tax break will be 5% reduction, but on specific sectors like high-tech and medical companies with foreign capital may receive favors of 10%-15% reduction, to attract investment from overseas.

The idea is under consideration, and I am personally pessimistic about the possibility.

The Japanese Government's Role in their Bull Economy

In terms of policy, the government has passed legislature that supports big business, and protects its industries. After the occupation, the government set rigorous controls on foreign trade and exchange transactions. There were quotas set on imported industrial raw materials and other imports. Also, foreign investment was tightly monitored and restricted. The industries that the government has protected that are not successful are agriculture, coal, and merchant shipping industry. The government supported these industries even though they could not compete on a global level because of political pressure. Japanese government protected their infant industries, however, it is important to note that they didnÍt make the mistake in protecting them to the point that they allowed inefficient industries to stick around for too long.

Japan has historically resisted direct foreign investment. Japanese equity markets are tight even today. In the 1950Ís, the government even had control over foreign exchange rates. Instead, Japanese business relies on debt from Japanese banks. Since the government backs the banks, the government is in control of the businesses too. The Japanese government (like the FED) sets the required reserve ratio and they would make provisions to help private banks over loan to certain sectors. This practice where the government will guarantee loans to certain sectors is called window guidance.

Attitudes toward government direction

Japanese attitudes towards government have historically been shaped by Confucianism. Japan often has been defined as a Confucian country, but one in which loyalty is more important than benevolence. Leadership stemmed from the government and authority in general, and business looked to government for guidance. These attitudes, coupled with the view of the nation as a family, allowed government to influence business, and businesses worked hard not only for their own profits but also for national well-being. There was a national consensus that Japan must be an economic power and that the duty of all Japanese was to sacrifice themselves for this national goal. Thus, the relationship between government and business was as collaborators rather than as mutually suspicious adversaries.

Demographic Impact

Japan is now facing a shortage of labor caused by two major demographic problems: shrinking population because of a low fertility rate, which was 1.4 per woman in 2009 [4] , and replacement of the postwar generation which is the biggest population range [5] who are now around retirement age. The population aged over 15 to 64 years old is 63.7% (80,730 thousand people) of the total population; most of them are considered as productive population who work and support those who are too old or too young to work, while the percentage of the population aged 65 and over is 23.1% of the total population in 2011 [6] This impacts the shortage of labor in the physical care of the aged people, and Japanese government started bring in care workers from overseas which is managed by bilateral agreements with Indonesia and the Philippines [7] .

Recently, Japan has seriously considered introducing "foreign workers" to the nation twice. The first was in the late 1980s, when there was the labor shortage because of the economic boom, however it was forgotten when the economy worsened. The second started in 1999 since the labor shortage caused by demographic change [7]

Workers from Overseas

Traditionally, Japan has had strict laws regarding the employment of foreigners, although exceptions were made for certain occupational categories. Excepted categories have included executives and managers engaged in commercial activities, full-time scholars associated with research and education institutions, professional entertainers, engineers and others specializing in advanced technology, foreign-language teachers, and others with special skills unavailable among Japanese nationals. Officially, in 2008 there were 486,400 foreign workers in Japan:

43.3% of Chinese, 20.4% of Brazilians, 8.3% of Filipinos and others (A labour Ministry survey of Companies) [7]

Helping foreign companies bring their business to Japan

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.

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. Located in Tokyo, Yokohama, Nagoya, Osaka, Kobe and Fukuoka, IBSCs are stocked with a wealth of relevant business information and offer access to industry experts, legal scriveners, accountants, ICT specialists and certified social insurance consultants. The centers also provide free temporary office space (for up to 50 business days) and access to meeting and conference rooms.

Businesspeople can also make use of the JETRO Business Library, located in Tokyo and Osaka. The Library boasts a wide selection of materials and resources devoted to international trade, business and investment, including numerous Japanese and foreign books, statistics, company directories, customs tariff tables, newspapers and magazines. Library users can also access commercial online databases and CD-ROMs containing recent trade and economic data.

FDI levels in major countries

(ratio of FDI stock to nominal GDP, as of end 2007)

JETRO operates one-stop business support centers in major business areas across the country. These centers, calledInvest Japan Business Support Centers (IBSCs) , offer foreign businesses everything they need to begin investing in Japan, and all under one roof. Located in Tokyo, Yokohama, Nagoya, Osaka, Kobe and Fukuoka, IBSCs are stocked with a wealth of relevant business information and offer access to industry experts, legal scriveners, accountants, ICT specialists and certified social insurance consultants. The centers also provide free temporary office space (for up to 50 business days) and access to meeting and conference rooms. Businesspeople can also make use of the JETRO Business Library, located in Tokyo and Osaka. The Library boasts a wide selection of materials and resources devoted to international trade, business and investment, including numerous Japanese and foreign books, statistics, company directories, customs tariff tables, newspapers and magazines. Library users can also access commercial online databases and CD-ROMs containing recent trade and economic data. http://www.jetro.go.jp/en/jetro/activities/fdi/ FDI levels in major countries (ratio of FDI stock to nominal GDP, as of end 2007) Source: UNCTAD, World Investment Report 2008 Temporary Office Space - Open A Japan Office " id="pdf-obj-2-15" src="pdf-obj-2-15.jpg">

Source: UNCTAD, World Investment Report 2008

Temporary Office Space - Open A Japan Office

JETRO operates one-stop business support centers in major business areas across the country. These centers, calledInvest Japan Business Support Centers (IBSCs) , offer foreign businesses everything they need to begin investing in Japan, and all under one roof. Located in Tokyo, Yokohama, Nagoya, Osaka, Kobe and Fukuoka, IBSCs are stocked with a wealth of relevant business information and offer access to industry experts, legal scriveners, accountants, ICT specialists and certified social insurance consultants. The centers also provide free temporary office space (for up to 50 business days) and access to meeting and conference rooms. Businesspeople can also make use of the JETRO Business Library, located in Tokyo and Osaka. The Library boasts a wide selection of materials and resources devoted to international trade, business and investment, including numerous Japanese and foreign books, statistics, company directories, customs tariff tables, newspapers and magazines. Library users can also access commercial online databases and CD-ROMs containing recent trade and economic data. http://www.jetro.go.jp/en/jetro/activities/fdi/ FDI levels in major countries (ratio of FDI stock to nominal GDP, as of end 2007) Source: UNCTAD, World Investment Report 2008 Temporary Office Space - Open A Japan Office " id="pdf-obj-2-21" src="pdf-obj-2-21.jpg">

The JETRO IBSC (Invest Japan Business Support Center) is a business facility which provides you with the most convenient and cost-effective way to enter or expand your business in Japan.

For foreign companies planning to start a business in Japan, we provide information, consultation and other services free of charge, as well as a few services for charge. When you come to Japan, JETRO Invest Japan Business Support Center (IBSC) will support you depending on your business needs by providing consultation and facilities for establishing a business base and starting your business in Japan.

When doing business in Japan (or any other foreign market) there is always a risk of being scammed by people, usually bilingual professionals and executives, who while purporting to be experts in the various aspects of doing business in Japan, China (or wherever you happen to be doing business) will, with a smile and a bow, happily help divert your precious cash into their corporate coffers while of course using those myths of doing business in Japan as justification for their failure to produce results.

Doing business in Japan will be extremely expensive if the costs are not properly controlled and your stockholders, especially private angel investors, will naturally expect that those costs of doing business in Japan will be tightly controlled.

The first approach was tried by the US PC vendors mentioned in the section on

months doing business in Japan who, sadly for Japanese consumers, did not succeed. They clearly expected that by setting up large Japanese subsidiary companies, leasing expensive offices and launching nationwide advertising campaigns, they would be assured success doing business in Japan. They had bad advice because Japanese market habits are very different from those of the US and European markets and more than simply mass-marketing is required to break Japanese consumer habits.

Japanese Society & Culture

The Japanese and 'Face'

. Saving face is crucial in Japanese society. . The Japanese believe that turning down someone's request causes embarrassment and loss of face to the other person. . If the request cannot be agreed to, they will say, 'it's inconvenient' or 'it's under consideration'. . Face is a mark of personal dignity and means having high status with one's peers. . The Japanese will try never to do anything to cause loss of face.

. Therefore, they do not openly criticize, insult, or put anyone on-the-spot. . Face can be lost, taken away, or earned through praise and thanks.

Harmony in Japanese Society

. Harmony is the key value in Japanese society. . Harmony is the guiding philosophy for the Japanese in family and business settings and in society as a whole. . Japanese children are taught to act harmoniously and cooperatively with others from the time they go to pre-school. . The Japanese educational system emphasizes the interdependence of all people, and Japanese children are not raised to be independent but rather to work together. . This need for harmonious relationships between people is reflected in much Japanese behaviour. . They place great emphasis on politeness, personal responsibility and working together for the universal, rather than the individual, good. . They present facts that might be disagreeable in a gentle and indirect fashion. . They see working in harmony as the crucial ingredient for working productively.

ETIQUETTES AND CUSTOMS IN JAPAN:

Meeting Etiquette

. Greetings in Japan are very formal and ritualized. . It is important to show the correct amount of respect and deference to someone based upon their status relative to your own. . If at all possible, wait to be introduced. . It can be seen as impolite to introduce yourself, even in a large gathering. . While foreigners are expected to shake hands, the traditional form of greeting is the bow. How far you bow depends upon your relationship to the other person as well as the situation. The deeper you bow, the more respect you show. . A foreign visitor ('gaijin') may bow the head slightly, since no one expects foreigners to generally understand the subtle nuances of bowing.

Gift Giving Etiquette

. Gift-giving is highly ritualistic and meaningful. . The ceremony of presenting the gift and the way it is wrapped is as important--sometimes more important--than the gift itself. . Gifts are given for many occasions. . The gift need not be expensive, but take great care to ask someone who understands the culture to help you decide what type of gift to give. . Good quality chocolates or small cakes are good ideas. . Do not give lilies, camellias or lotus blossoms as they are associated with funerals. . Do not give white flowers of any kind as they are associated with funerals. . Do not give potted plants as they encourage sickness, although a bonsai tree is always acceptable. . Give items in odd numbers, but not 9. . If you buy the gift in Japan, have it wrapped. . Pastel colours are the best choices for wrapping paper. . Gifts are not opened when received.

CAPITAL AND PRIORITIES.

The long-term view of Japanese managers is also based on sources of finance. While American firms rely heavily on capital from the stock markets, Japanese firms tend to rely more heavily on borrowing from banks and generally have much higher debt-to-equity ratios. Consequently, Japanese managers are under less pressure to maximize short-term earnings to please shareholders. By contrast, in the United States there is intense market pressure for companies to meet quarterly earnings expectationseven exceed themor else face a sell-off of their shares. In general, Japanese firms are more likely to focus on productivity, growth, and market share, whereas U.S. firms are more inclined to concentrate first on profitability.

There are also questions about the participation of women in business. For most Japanese women it is common to leave their jobs after getting married or having children. So in many companies they try to hire fewer women, thus lowering the number of women in business and decision- making positions.