Changes in the Japanese Market Environment and Expectations for Foreign Direct Investments in Japan by Foreign Enterprises
1) Progress of Globalization
A process of globalization is taking place in all industries under the mechanism of the market
economy with mergers and acquisition activities and corporate strategic alliances transcending
national borders taking place at an accelerated pace. Competition is being carried out on a global scale in the automobile, electrical equipment, communications and pharmaceutical sectors. In these areas, new global standards are being established. For example, in the construction industry, it is now a global requirement to acquire a standard ISO 9000 series, which has been established by the International Organization for Standardization (ISO). In the automobile industry, the Big Three in the United States have added supplemental items to the ISO 9000 series to establish QS 9000 and require investigation by a third party. In addition, in many parts of the world market, participants are being required to fulfill ISO 14000; the environmental protection standards established by the ISO to meet the local environmental protection policies. The International Accounting Standards Committee (IASC) has almost completed the preparations for the International Accounting Standards (IAS) that were designed to facilitate the global standard for accounting. The International Organization of Securities Commissions (IOSCO), of which Japan’s Ministry of Finance is a member, has indicated their intention of its adoption beginning in the year 2002. In these various sectors, globalization of standards have been progressing and are affecting the various industry sectors and markets.
2) Innovation in the Information/Communications Industry
Since the beginning of the 1990’s, “innovation in the information and communications
industry” evolving around the concept of digital information has been taking place. Computer
equipment, cellular phone equipment, digital videodiscs (DVD) and other new software have
been developed. Information networks consisting of such devices have brought about changes
in all industrial areas.
The reach of the “innovation in the information and communications” has not been limited to
industry. It has caused the popularization and increased usage of the Internet among administrative agencies and institutions , with a high level of public orientation, such as schools, hospitals , and households. In the finance and securities areas, the use of electronic money is being realized. Businesses are being developed using information networks in the distribution and the business support areas.
3) Need for Preservation of the Environment
Today, environmental preservation issues, global warming, the depletion of the ozone layer,
acid rain, water pollution, and desertification have been cited on a worldwide scale and
measures are being discussed. As a proposed solution, a global agreement on the emission
standards for carbon dioxide emissions in each country was achieved during the 1998 Kyoto
Environmental Conference.
In Japan, laws and standards have been implemented for environmental preservation and
measures are being taken to strictly enforce the installation of pollution control equipment and
reporting systems relating to the regulatory standards. Every industry will be required to adopt
environmental protection equipment and systems, which is expected to lead to a major
development of an entirely new environmental-related business market.
4) The Aging Population and Declining Birthrate
In the near future, Japan will become one of the most aged societies. Early signs of an aging
population appeared in the 1980’s and accelerated in the 90’s. It is expected to increase at the
same pace in the future, while the birthrate declined to 1.38 children per female in 1998. These
trends will expand the markets for medical care, welfare, and nursing markets, as well as affect
the housing and the service industries.
5) Shifts in Lifestyles and Health Consciousness
A trend toward diversification of people ’s values and individualism has been noted in the people of Japan today. They are beginning to enjoy life through new leisure and sports activities without binding by the existing set of values. People are taking an interest in their health by joining fitness and sports clubs, and lifelong education and culture centers are gaining popularity.
6) Reforms in the Company Organization “Kaisha”
Amendments to the Commercial Law and the Anti-Monopoly Law led to the following changes
in company systems:
· Introduction of a stock option system
· Purchase of own shares
· Simplification of merger process
· Lifting of the prohibitions against holding companies
The stock option system is a compensation system that has been introduced into Japan from the United States. It is a tool to provide incentives to motivate the corporation’s officers and staff toward improving corporate performance. Preferential tax treatment for the income from
exercising options has also been established under the Income Tax Law.
Purchase of own shares is the purchase by the company of its shares using earnings or other
profits. Through this operation, the corporation can enhance its ability to efficiently and
flexibly manage its cash flows.
Merger procedures have been simplified through the abbreviation of the requirement for individual notification of the merger in creditor protection procedures, as well as through abolition of the report and establishment meetings. On the other hand, steps have been taken to enhance information disclosure for the shareholders and creditors to protect creditors and investors.
A holding company enables the decision making process to proceed more quickly because the
management of the group of enterprises and individual businesses is separated.
Major issues for structural reforms that are outstanding are:
· Introduction of share exchange
· Enhancement of corporate information disclosures (consolidated financial reporting base)
· Preparations of laws relating to mergers and acquisitions
· Tax reforms (introduction of a consolidated taxation system)
· Defined contribution pension system, fee-based job placement services, reforms to the
qualification system
· System reform relating to land (relaxation of land use restrictions, system preparation for
securitization of real estate)
