Japan’s Thriving Business Landscape: Opportunities for Overseas Startups

Advantages of Startups Expanding Internationally

For startup companies that have successfully established their business in their home country, the next strategic step for expanding their market reach is international expansion. In today’s borderless economy, businesses are finding it easier to be relevant in foreign markets, making international expansion a viable option. This is especially effective when a company’s home market is highly competitive and expanding into international markets, often referred to as “blue oceans,” can be a game-changing move.

Japan’s Ambitious Plans for Foreign Direct Investment Expansion

Setting a Target of $666 billion for Foreign Direct Investment As of the end of December 2020, foreign direct […]

BizMOWA

For companies that are already operating in their home country, as opposed to those starting up internationally for the first time, the barriers to international expansion are relatively low. Regarding expenses, the primary focus shifts to marketing costs. This differs from starting a business from scratch, which often involves significant initial costs. International expansion not only impacts revenue but also reduces labor and material costs, resulting in cost-effectiveness.

Many global companies have expanded internationally, and in some cases, their revenue in international markets surpasses that in their home countries. In cases where a demand exists in a country, but no company is adequately fulfilling it, foreign businesses can have a competitive advantage.

Considering International Expansion into the Rapidly Growing Asian Market

For startup companies, the first question when considering international expansion is often, “Which country should we target?” Various criteria are considered, but one of the primary factors is the population of the country. India tops the list with the most populous country globally, followed by China and the United States. With India and China alone accounting for around 3 billion people, or approximately 38% of the world’s population, it’s clear that the rapidly growing Asian market can be an appealing choice for international expansion.

However, entering India and China, among other Asian countries, can present high barriers for foreign businesses. India is still developing economically, and infrastructure and living conditions are low level. Safety and security are also concerns. India’s caste system continues to influence social dynamics. China operates under a communist regime with significant restrictions on freedom of speech, religious freedom, and an extensive system of internet censorship, posing risks to businesses heavily reliant on digital tools, which are essential for international expansion in the digital age. Additionally, trade tensions exist between China and the United States, especially in high-tech sectors like semiconductors.

Although advanced countries like South Korea, Taiwan, and Singapore exist within the Asian region, their relatively small populations limit the advantages of international expansion for foreign startups.

Many global companies often select the EU as their first international market. Despite the diversity of languages in the EU, English is often used for communication, making it relatively accessible for businesses. Similarities in business practices and religious affiliations to the United States make the EU an attractive choice for many enterprises.

Japan: A Stable Hub for Business with Political and Economic Stability

Japan boasts a population of 120 million, ranking 11th globally. Japan and the United States are the only countries with populations exceeding 100 million among the G7 member states. Japan has also been classified as an advanced country by the World Bank Group. In addition to its large population, Japan offers a stable political and economic environment and well-developed infrastructure, making it an attractive place for businesses.

However, Japan faces demographic challenges, with its population projected to fall below 100 million by 2050. It has the world’s highest aging population, and business practices in the country are unique. Japan’s foreign direct investment (FDI) stands at 7.4% of its GDP, significantly lower than the OECD average of 56.4%.

Japan’s Ambitious Plans for Foreign Direct Investment Expansion

Setting a Target of $666 billion for Foreign Direct Investment As of the end of December 2020, foreign direct […]

BizMOWA

Nevertheless, Japan is making significant efforts to stimulate investment and boost its FDI. The government has set ambitious targets, aiming to increase FDI from its current 40 trillion yen to 100 trillion yen (approximately $666.7 billion). Recognizing the critical role startups play in the country’s economic growth, the Japanese government has been proactively supporting startups since 2022, both domestically and internationally.

Furthermore, Japan holds potential as a hub for Asian startups. The geographical proximity and similar culture within the Asian region make Japan an ideal location for startup businesses. Many individuals in Japan are proficient in Asian languages.

In conclusion

Countries with large populations like India and China may seem appealing as initial destinations for international expansion. However, for startups, these countries can be high-risk environments due to their unique conditions and limited resources.

Japan, on the other hand, offers a stable environment and established infrastructure that can be advantageous for startups. It allows startups to apply cutting-edge business models and technologies to a market known for adopting innovations, even though this adoption often occurs with a slight delay compared to the United States.