Obstacles To Doing Business In Japan

Any discussion about business obstacles in Japan must be entrenched in the basic understanding of the country’s corporate governance system, culture, and language.

If you are looking to do business in Japan, here are some of the challenges and obstacles of doing business in Japan. This includes the country’s corporate governance system, culture, and language.

Language and Culture

Many global organizations have challenges when reaching their business goals in Japan. This is usually due to the lack of understanding of the Japanese language and culture. From an outsider’s perspective, Japan has safe and clean cities where global companies can emerge and thrive.

However, Japan has unique formal and informal communication rules. For one, establishing a trusting work relationship is very important in their business culture. There are strong expectations on product quality and corporate integrity which, when broken, may hurt beyond recovery trust and business prospects. Additionally, patience is essential. When doing business in Japan, people like to thoroughly analyze their decisions with colleagues to make the best choice.

While there is an improvement in English language capabilities, the average proficiency level among Japanese professionals still lags far compared to other Asian countries such as Singapore, India, and the Philippines. Besides the business difficulties in communication in English, multinational organizations may also struggle with Japanese regarding official documents and information systems that may require the help of a translator.

Even when language is not an obstacle, any cultural differences may hinder effective business communications.

Difficulty In Finding Human Resources

JETRO “Survey on Japan’s Investment Climate” analyzes the attractiveness, challenges, and obstacles of doing business in Japan. According to their 2019 report, the majority of the foreign-affiliated companies chose ‘difficulty in finding human resources” as the number one obstacle to doing business in Japan with difficulty in communicating in non-Japanese languages coming in second.

Companies have found difficulties in finding human resources with proficient English as well. This makes it more difficult for foreign companies to adapt to Japanese labor force practices. This can lead to high human resource costs, labor shortages, etc. They highlighted that though workers prefer big corporations they do not want to work in a foreign company.

Organized Crime

Japan is known to have fewer crimes, terrorists, and violent group attacks. Nevertheless, international corporations should be aware of the fact that Japan is home to the largest organized crime group in the world.

These organized gangs are known as Yakuza and they are notorious for being involved in nightclubs, pachinko bars, human trafficking, illegal drugs, and more. They are also involved in many legitimate businesses (i.e. real estate, construction, and financial sectors) that they used as a cover-up for their illegal activities. With total members estimated to be about 25,900 members as of 2021 (a new low), it seems that their influence is declining now.

Information Security

Managing information security challenges has become a widespread concern among top decision-makers all over the world. Moving forward when doing business in Japan, requires adapting to strengthening regulatory conditions and addressing stakeholders’ increasing expectations about the prevention of the following three main issues: Cybercrime (hacking), Privacy Protection, and Third Party Providers.

Natural Disasters

Japan is highly prone to and has experienced numerous natural disasters such as:

  • Earthquakes
  • Tsunamis
  • Typhoons
  • Volcanic eruptions

Natural disasters are common in Japan, and Japanese people are taught from a young age how to prepare for these natural disasters as much as possible. However, no amount of preparation can divert the consequences such as the 1995 earthquake in Kobe, the earthquake and tsunami in Fukushima, and the Tohoku region in 2011.

As such, natural disasters can affect business in ways such as:

  • Loss of equipment
  • Supply chain disruptions
  • Communication barriers
  • Building/infrastructure damage
  • Loss of personnel/clientele

If they don’t effectively prepare for natural disaster consequences, it can disrupt a business’ plans.

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