Japan, doing business in, manufacturing

Japan has been an economic power throughout much of its history, despite a major economic downturn starting in the 1990s. The earthquake and subsequent tsunami in March 2011 killed thousands of people, destroyed several nuclear power plants and set off a new round of economic crisis. Despite these trials, under Prime Minister Shinzo Abe, the country has undertaken extensive economic and security reforms. Japan is currently the fourth largest economy in the world.

In addition to its economic might, Japan has long been a model for manufacturers throughout the world. The birthplace of Lean/TPS, Japan’s model of close relationships among manufacturers, suppliers and distributors led directly to today’s emphasis on supply chain visibility and outward facing supply chains designed to promote mutual success for all members.

Japan is made up of several islands located between the North Pacific Ocean and the sea of Japan. The country is slightly smaller than the U.S. state of California. Japan has no land boundaries.

Manufacturing in Japan

As an island nation, Japan is lacking in many natural resources, most notably fossil fuels. The destruction of its nuclear power sources was a blow to manufacturers which are highly dependent on imported fuels. However, the country is enabling alternative power sources which should help manufacturing. Industry makes up 30.1% of Japan’s GDP.

Japan is known throughout the world as one of the best sources for technology products and automobiles, so it makes sense that top industries include motor vehicles and electronic equipment as well as machine tools, steel and nonferrous metals, ships, chemicals, textiles and processed foods. 

Japan’s industrial production growth rate was 1.4% as of 2017. Japan’s industrial workforce is highly efficient, since about 26.2% of Japan’s population is employed by industry but the GDP is more than 30% industrial.

Other Important Industries

Service industries make up more than 70% of Japan’s GDP. In addition to wholesale and retail trade, real estate, insurance, banking, telecommunications, advertising, data processing, publishing, tourism, leisure activities and entertainment are strong. The services sector employs 70.9% of the workforce.

Agriculture accounts for only 1.2% of Japan’s GDP. Key agricultural commodities include vegetables, rice, fish, poultry, fruit, dairy products, pork, beef, flowers, potatoes, sugarcane, tea, legumes, wheat and barley. About 2.9% of the workforce is employed in agriculture.

Supply Chain Infrastructure for Manufacturing

As befits an island nation, transportation in Japan is robust across all modalities. Japan’s location makes it an ideal trading partner across most of Asia and even Europe and the U.S. 

Shipping

Japan has more than 175 airports; 142 with paved runways most of them capable of handling freight planes and jets. The country is also home to 16 heliports. Twenty-three air carriers are registered in the country, and they moved 8,868,745,000 mt-km of freight in 2015.

Japan has a robust rail system, with more than 27,000 km of rail track, putting it at number 11 in the world. It’s merchant marine numbers 5,299 vessels which in many cases can also traverse Japan’s inland waterways. Major seaports include Chiba, Kawasaki, Kobe, Mizushima, Moji, Nagoya, Osaka, Tokyo, Tomakomai and Yokohama. Five of these are container ports. Japan also has many LNG terminals for imports.

Workforce

Japan’s unemployment rate in 2017 was 2.9%, down slightly from prior years. The workforce is about 65.01 million people and highly educated, with most people completing 15 years of education.

Economy

Japan’s GDP is about $5.443 trillion. The GDP is now growing faster on an annual basis than it has for many years due to recent economic reforms and the delay of some tax increases. In 2017, the growth rate was 1.7%. Taxes and similar revenues make up 35.2% of the GDP.

Japan is a member of the Trans-pacific partnership, and it was the first country to ratify the partnership in 2016. The agreement was renamed to the Comprehensive and Progressive Agreement for Trans-pacific Partnership after the U.S. withdrew in 2017. Japan also has an agreement with the EU which reached agreement in July 2017. 

In 2017, Japan exported $688.9 billion worth of goods. Primary exports include motor vehicles, iron and steel products, semiconductors, auto parts, power generating machinery and plastic materials. Its primary trading partners were the U.S., China, South Korea, Hong Kong and Thailand.

In the same year, imports reached $644.7 billion. Trading partners include China, the U.S., Australia, South Korea and Saudi Arabia. Key imports include petroleum, liquid natural gas, clothing, semiconductors, coal, and audio and visual apparatus.

Political Landscape

Japan’s current constitution was ratified on October 6, 1946 and went into effect on May 3, 1947. The country consists of 47 prefectures, and the government is a parliamentary constitutional monarchy. The Chief of State, emperor Naruhito came to power on May 1,2019 after his father abdicated. The Prime Minister is Shinzo Abe, who has held the office since 2012. The Prime Minister appoints the cabinet.

Tax Rules

The country has attempted to address its debt with an increase in its consumption tax rate. However, the increase has been postponed until at least late 2019. Japan’s tax rate puts it at number 63 in the world. 

The number of tax payments per year may vary by prefecture. Tokyo requires 30 separate payments, which may require about 130 hours per year to prepare. The total tax and contribution rate can reach 46.7% of profit for corporations. Although the statutory tax rate is 23.4 %, employer paid pension, health insurance, miscellaneous and enterprise taxes are additional. The Tokyo Enterprise tax is a sliding rate that is calculated on profits that can add up to more than 5% of taxable profits, for example. 

Getting Down to Business

Doing business in Japan has its own sets of advantages and challenges. Japan is a highly industrialized nation with a skilled workforce, and manufacturing plays a key role in its economy. QAD is able to adapt to any style of manufacturing and to the needs of all geographic locations. Because of the complexity of taxes in Japan, companies may need a flexible business system such as QAD to manage the variety and complexity of its taxes. QAD Internationalization enables companies to identify and overcome the challenges associated with taxes, regulations and globalization. 

How would you describe the state of Manufacturing in Japan? Learn more about manufacturing and doing business in other great countries around the world.

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