Why (Almost) Nobody Invests in Japan - VisualPolitik EN
Summary
TLDRThe video script highlights Japan's resurgence in economic and political influence, underscored by its strategic alliance with the US and leadership in the CPTPP. Despite challenges like demographic decline and yen weakness, Japanese firms have ascended the value chain, becoming indispensable in high-tech supply chains. However, Japan's paradoxical low foreign direct investment (FDI) is attributed to its closed corporate ecosystem, legacy policies, and Keiretsu structure. Recent shifts in social attitudes, demographic pressures, and corporate governance reforms may signal an impending transformation, raising questions about Japan's future as a hub for multinationals.
Takeaways
- 🌏 Japan is regaining prominence in both economic and political spheres, highlighted by its strategic importance to US security policy in Asia.
- 🤝 High-level visits from US officials Antony Blinken and Lloyd Austin, and the reception of Japan's then Prime Minister Yoshihide Suga, underscore the strengthening Tokyo-Washington ties.
- 📈 Japan's economic strategy includes leading the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), positioning it as a trusted power in Southeast Asia.
- 💼 Despite demographic and currency challenges, Japanese companies have adapted by moving up the value chain, becoming key suppliers of high-tech materials and components globally.
- 🔍 Japanese firms' market dominance in advanced tech components often goes unnoticed by consumers but is crucial to the high-tech industry.
- 📊 Japan's real per capita growth has been on par with the US since 2009, outpacing countries like France and the UK, despite a shrinking working-age population.
- 💼 Japan's economy is attracting multinational attention as the third-largest consumer market, yet it lags in attracting Foreign Direct Investment (FDI).
- 🏆 The UN ranks Japan near the bottom for FDI as a percentage of GDP, primarily due to historical restrictions and corporate structures that deter foreign takeovers.
- 🔒 Post-WWII policies and Keiretsu conglomerates have created a closed ecosystem in Japan, limiting foreign corporate footholds and affecting productivity and innovation.
- 🌐 Changes in social attitudes, demographic pressures, and corporate governance reforms may soon alter Japan's stance on FDI and international talent.
- 🔑 Japan's low immigrant population contributes to its demographic crisis and labor shortages, with potential implications for economic growth and multinational interest.
Q & A
Why is Japan considered the linchpin of US security policy in Asia?
-Japan is considered the linchpin of US security policy in Asia because it has a strong alliance with the US, as evidenced by high-level visits from US officials like Secretary of State Antony Blinken and Secretary of Defense Lloyd Austin, and the Japanese Prime Minister Yoshihide Suga being the first foreign guest received by President Joe Biden at the White House.
What is the significance of the Trans-Pacific Partnership Agreement (CPTPP) in Japan's economic strategy?
-The CPTPP is significant in Japan's economic strategy as it is one of the largest free trade and economic integration agreements in the world, which Japan is leading. This positions Japan as a key player in the global economy and enhances its influence in the fastest-growing economic region, Southeast Asia.
How have Japanese companies adapted to increased competition from South Korea, Taiwan, and China?
-Japanese companies have adapted to increased competition by moving up the value chain and focusing on producing high-tech, highly innovative materials and components that are indispensable in the global production chain.
What is the role of Japanese companies in the high-tech industry's advanced components and supplies?
-Japanese companies control more than 50% of the market share in many of the advanced components and supplies of the high-tech industry, including specialty glass, semiconductor manufacturing equipment, and complex chemicals.
How has Japan's real per capita growth compared to other developed countries since 2009?
-Since 2009, Japan's real per capita growth has grown almost at the level of the United States and risen above countries like France or the United Kingdom, despite its overall GDP growth being relatively low due to a shrinking working-age population.
Why does Japan rank second to last in the world in terms of Foreign Direct Investment (FDI) received as a percentage of GDP?
-Japan ranks second to last in terms of FDI received as a percentage of GDP due to its closed ecosystem of corporate operations, legacy restrictions on FDI post-World War II, cross-shareholdings, and the influence of large conglomerates known as Keiretsu, which make it difficult for foreign corporations to gain a foothold.
What is the average percentage of FDI in GDP for developed countries, and how does Japan compare?
-The average percentage of FDI in GDP for developed countries is 44%. In contrast, FDI accounts for just over 4% of Japan's GDP, indicating a significantly lower level of foreign investment.
What are the three main reasons that could lead to a change in Japan's FDI situation?
-The three main reasons that could lead to a change in Japan's FDI situation are increasing social acceptance of foreign control of local companies, the demographic decline forcing many SMEs to close due to lack of successors, and changes in corporate governance policies to raise economic growth and profitability.
How does Japan's immigrant population compare to other developed countries, and what implications does this have?
-Japan has a fairly small immigrant population, barely 2% of the total, compared to over 13% in the United States. This has implications for the country's talent pool and contributes to the deepening demographic crisis, with a shrinking working-age population and labor shortages.
What measures has the Japanese government introduced to address the labor shortage and encourage foreign labor?
-The Japanese government has introduced changes to encourage the arrival of foreign labor, although it is indicated that more rapid changes may be necessary in the future to address the labor shortage, which is projected to reach about 6.5 million workers by 2030.
Outlines
🌏 Resurgence of Japan's Global Influence
The script discusses Japan's renewed significance in both economic and political spheres. Since Joe Biden's presidency, Japan has been reaffirmed as a keystone in US security policy in Asia, evidenced by high-level visits from US officials and the Japanese Prime Minister being the first foreign guest at the White House. The country's economic strategy includes leading the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), positioning itself as a trusted power in Southeast Asia. Despite demographic and currency challenges, Japanese companies have adapted by moving up the value chain, becoming suppliers of indispensable high-tech components, which has contributed to Japan's real per capita growth being on par with the US. However, there is a paradox in that international companies invest very little in Japan, despite its status as the third-largest consumer market.
🏢 Japan's Corporate Ecosystem and FDI Anomaly
This paragraph delves into the reasons behind Japan's low levels of Foreign Direct Investment (FDI), ranking it second to last globally in terms of FDI as a percentage of GDP. The script explains that Japan's corporate structure, with its Keiretsu conglomerates and cross-shareholdings, creates a closed ecosystem that is resistant to foreign takeovers. This has resulted in a lack of mergers and acquisitions, which are typical drivers of FDI in other developed countries. The government's attempts to encourage foreign investment have been largely unsuccessful, with policies such as lowering the threshold for government approval in corporate transactions making it difficult for foreign entities to invest in Japan. However, there are signs of change on the horizon, with increasing social acceptance of foreign control, demographic pressures leading to potential opportunities for foreign investment in SMEs, and shifts in corporate governance policies that may open up the market to foreign capital.
Mindmap
Keywords
💡Economic and Political Arena
💡Linchpin
💡Trans-Pacific Partnership Agreement (CPTPP)
💡Value Chain
💡Demographic Decline
💡Yen
💡Foreign Direct Investment (FDI)
💡Keiretsu
💡Cross-Shareholdings
💡Small and Medium-sized Enterprises (SMEs)
💡Corporate Governance
Highlights
Japan's resurgence in economic and political influence, highlighted by its central role in US security policy in Asia.
High-level US officials' first international visits to Japan, signaling its importance in US foreign relations.
Japan's proactive stance in economic agreements, leading the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Japan's status as the most trusted power in Southeast Asia according to public opinion polls.
Japanese companies' strategic shift to high-value manufacturing and innovation, moving up the value chain.
Transcripts
Both in the economic and political arena, Japan is coming back into fashion.
Want an example? Since he arrived in the Oval Office,
Joe Biden has made it clear that Japan remains the linchpin of US security policy in Asia.
Proof of this is that both Secretary of State, Antony Blinken, and Secretary of Defense,
Lloyd Austin, visited Japan on their first international trip. And not only that,
the Japanese Prime Minister of the time, Yoshihide Suga, was the first foreign
guest Biden received as President at the White House. Quite a statement of intent.
And, of course, it's not just about the relationship between Tokyo and Washington.
Increasing economic competition from China is causing the Japanese government to step
up its game. There is, for example, the Trans-Pacific Partnership Agreement,
the CPTPP, one of the largest free trade and economic integration agreements in the
world that is being led, by none other than Japan.
A country that, according to public opinion polls,
is the most trusted power in Southeast Asia, the world's fastest-growing economic region.
But we’re not only talking about the political field.
The truth is that Japan is also becoming fashionable economically.
Despite all its limitations, such as its eternal crisis, the demographic decline or the weakness
of the yen, the Land of the rising sun, or rather Japanese companies, are reinventing themselves.
Starting in the late 1990s when, first South Korean and Taiwanese companies,
and then Chinese ones, began to compete head-to-head with many Japanese manufacturers,
they were gradually forced to produce goods that
were more difficult to make and imitate. In other words, move up the value chain.
And that is exactly what they did. Many Japanese companies
have transformed themselves into suppliers of high-tech,
highly innovative materials and components that are indispensable in the global production chain.
To give you an idea, although for us end consumers it may be somewhat invisible, Japanese companies
control more than 50% of the market share in many of the advanced components and supplies
of the high-tech industry. From specialty glass, to semiconductor manufacturing equipment,
to complex chemicals. If you use high-tech products, Japan probably has a lot to do with it.
In many ways this explains how, since 2009, Japan's real per capita growth has grown
almost at the level of the United States and risen above countries like France or the United Kingdom.
Yes, yes, that’s right.
Japan's GDP is barely growing but we have to take into account that its population,
particularly that of working age, has been shrinking for years. In other words,
with a lower population they produce more. In per capita terms, Japan’s economic performance
over the last decade has been reasonably good. And if we also take into account that it is
still the third largest consumer market in the world after the United States and China, we can
get an idea of why Japan's economy is once again attracting the attention of many multinationals.
However, hold on just a minute, because something is not adding up.
Despite all its attractions, the truth is that international companies barely invest in Japan.
Check it out.
But, having said that, let's move on.
(WHY IS NOBODY INVESTING IN JAPAN?)
Well, to say that nobody invests in Japan is obviously an exaggeration.
But surely you won't think it's such an exaggeration if I tell
you that the United Nations ranks Japan second to last in the world
only to North Korea in terms of Foreign Direct Investment received as a percentage of GDP.
This is a huge anomaly.
The bottom line is that: FDI accounts for just over 4% of Japan's GDP. To give you an idea,
the average for developed countries is 44%.
Normally countries that want to boost their economic growth would encourage
foreign companies to locate there, to open new facilities, such as new factories or new offices,
to buy local companies or to invest in the country's public or private bonds.
However, this is not the case in Japan,
which remains completely disconnected from foreign direct investment flows.
But does that mean it is forbidden to make
a productive investment in the Land of the rising sun?
Not at all. In fact, Japan's politicians have been talking about encouraging foreign
investors for almost 20 years. And in a way they have done just that.
When Junichiro Koizumi took office as Prime Minister in 2001, FDI in the country was a
mere 1.2% of GDP, prompting this government to set a target of 5% by 2011. At first
things went smoothly and the percentage of foreign investment increased to 4%
in 2008. Since then, however, things have remained stagnant.
So the question is, what is the reason for this anomaly? Why does Japan not attract productive
investment? Why does nobody – or almost nobody – want to invest in this country? How is it
possible that in this race, the only country the Land of the rising sun beats is North Korea?
Well, VisualPolitik fans, the key seems to lie in corporate operations.
Let me explain. In a typical developed country, up to 80% of FDI inflows take the
form of corporate mergers and acquisitions. However, that is not the case in Japan.
This seems to be a legacy of the immediate post-World War II era.
At that time Tokyo restricted FDI to
prevent foreign companies from taking control of the market.
Years later, when entry into the OECD forced the Japanese government to overturn these
restrictions, Japanese policymakers devised countermeasures of sorts to
make it more difficult for multinationals to buy Japanese companies. A large part of
these countermeasures had to do with the promotion of cross-shareholdings between
companies and above all with the return of the large conglomerates, the Keiretsu.
To give you an idea, today these conglomerates continue to exercise
enormous control over the national economy. The Keiretsu control 26,000 parent companies,
56,000 subsidiaries and employ about 18 million people, almost a third of all Japanese employees.
And this is not even counting many companies that
act as subcontractors and suppliers closely linked to these groups.
The Toyota group, for example, has some 1,000 subsidiaries and 40,000 suppliers, most of which
are closely linked to this group. In other words, in practice, they are not entirely independent.
In this way, the Keiretsu exercise such great control over Japanese
companies that they leave little room for foreign
corporations to gain a foothold. It is something like a very closed ecosystem.
The problem is that the ecosystem is so closed that in many fields it has fueled
enormous inbreeding that comes at the expense of productivity and change. For example,
the digital transition in Japan lags far behind its counterpart countries.
To make matters worse, despite its intentions,
the government has introduced even more control mechanisms.
For example, in 2020 it pushed through parliament a change in the Foreign
Exchange and Foreign Trade Law to lower the threshold by which a corporate transaction
requires government approval: from 10% of the shares it dropped to around 1%.
The result is that buying a company in Japan can be almost an impossible mission. And
that explains the very little FDI that enters the country in relative terms,
However, this is something that could start to change very soon, for three main reasons.
Firstly, surveys are beginning to show greater social acceptance of foreigners taking control
of local companies. This is something that traditionally generated dread in the country.
Secondly, demographic decline is forcing many Small and Medium-sized Enterprises
to close as their owners retire and have no successors. Along these lines, in 2020,
a report published by the FDI Promotion Council, a government advisory body,
argued that foreign capital inflows could be the solution.
We are talking about more than 600,000 profitable SMEs that might have to
close within the next three years. There are six million jobs at risk.
And thirdly, plans to raise the economic growth and profitability of the Tokyo Stock Exchange
are driving changes in the corporate governance policies of companies. We'll tell you all about
this in an upcoming video, so don't forget to subscribe to VisualPolitik to stay in the loop.
However, as we have mentioned on other occasions, this is not the only area
where Japan's economy has become the odd one out in terms of economic globalization.
Check it out.
(A COUNTRY THAT IS ALSO CLOSED TO TALENT)
In contrast to most developed countries, Japan has a fairly small immigrant population:
barely 2% of the total. In the United States, for example, this figure exceeds 13%.
Not only has this meant excluding a lot of talent,
but it has also contributed to deepening the demographic crisis the country is experiencing.
Its population first began to decline in 2005 and has been steadily shrinking since 2011,
which is taking a major toll on the working-age population.
For example, in 2019, more than 28 percent of the population was over the age of 65, and only about
60 percent of Japanese residents were between the ages of 15 and 64. This explains why this
country suffers from one of the highest levels of labor shortages of all developed countries.
According to the Japanese government itself,
we are talking about a shortage of about 6.5 million workers by 2030.
So far, some changes have already been introduced to encourage the arrival of
foreign labor. But everything indicates that things will have to move faster in the future.
And so, VisualPolitik viewers, you can see that in some fields, the Japanese economy is
the most closed to international flows but that it is about to undergo a huge transformation.
The question is, will it be enough to balance all the problems the country is facing? Will
Japan become the new fashionable destination for multinationals?
These are questions that only time can answer. For now,
leave us your thoughts below in the comments and, very, very important:
if you have found this video that we have made in collaboration with our friends from Value
School interesting, don't forget to like it and leave us your impressions in the comments.
All the best and see you next time.
Ver Más Videos Relacionados
How the Meiji Restoration Turned Japan into an Empire - Pacific War #0.2
Japan's Crisis Is Sending A Warning To The World
BBC "TWO" | Nippon | Episode 5 of 8 - "Taking on Detroit"
Why Immigration Isn't Saving Europe's Economy
Why The Japanese Yen Is Collapsing (And How This Affects You)
Japan Is Now Threatening MAJOR Intervention Against The Dollar
5.0 / 5 (0 votes)