Investment Risks in Japan

A company has to carry out a feasibility test in any country before committing resources to avoid resources. Risk analysis enables a firm to compare the benefits verse risk of investing in the environment. In normal cases or conducive environments the risks must be negligible and the benefits great. The research paper is an analysis of the investment environment in Japan. Japan is a leading producer of technology located in the Far East seas. The paper will look focus on political, social, economic, technological and legal factors affecting investments in Japan.

 

Investment Risks in Japan

Japan is a leading producer of technology and technology products including electronics and cars. An investor aiming to invest in Japan will benefit from the easy access to technological products and solutions. Infrastructure such as roads, power supply, rails, airports and ports are fully developed. Japan attracts a large number of investors mainly firms interested in tapping the technology market. Technological products make up a substantial part of the total exports from the country. Japan is a major player in the international market having joined the World Bank in 1952 and starting to reconstruct an economy devastated by war. Japan has an open market policy and is the 20th most free market to trade in the world scoring 73.3 points in the investment freedom score. Compared to the Asia nations Japan is ranked 6th out of 41 countries. Improvements are seen in labor freedom, trade freedom and business freedom. However, politics and government taxes affect foreign investors seeking to invest in the country. 

Background

Japan is one of the largest Eastern Asia economy competing with Korea and China.  Japan is made up of a chain of Islands located between the Sea of Japan and the North Pacific Ocean and east of the Korean Peninsula. Islands making up Japan include Bonin Islands, Daito-Shoto and Minami-Jima.

Tokyo is the capital City of Japan holding a total population of 38.001 people. The Japanese landscape is mainly rugged and mountainous. Japan climate varies with the tropical climate in the South and cool temperate in then north. Despite having virtually negligible mineral resources or natural energy resources. Japan is the world’s largest coal importer and also natural liquefied gas. Japan is also the second largest importer of oil in the world. According to the CIA Japan has a population of 127.3 million people. Japanese of the official language of the Japan people and a prime minister elected by the people in a democratic process. A catastrophic earthquake hit Japan in 2011 and followed by a Tsunami devastating its infrastructure including several power systems. The CIA estimates that 93.5% of the population is in urban areas. 

Economic Risk Factors

After the end of the world II, Japan began reconstructing its damaged economy worn out by years of war. Several factors have enabled Japan to reconstruct including mastery of high technology, strong work ethic, government-industry cooperation and small defense allocations. Japan allocates just 1% of its GDP to defense spending. Japan is the third largest economy in the world with technology being the highest earner for Japan. Since the shutdown of several reactors in 2011 Japan has increased its imports of fossil fuels. Japan is also imports estimated 60% of the food and the agricultural sector is highly technologized and subsidized by the government. Japan had a gross domestic product of $4.767 in 2014 and $4.772, $4.697 in 2012 and 2012 respectively. 

The GDP per capita of Japan was $37, 500 in 2014 with the total gross savings accounting to 22.4% the gross domestic product. Japan had an inflation rate of 3.12% in 2015 (trading economics). The employment rate stood at 3.6% in the population of 127 million people. The economy of Japan has stagnated beginning 2014 with a GDP rate of -0.104%. In terms of GDP composition services contributed the highest at 72.58%, industry, manufacturing and agriculture contributed 26.1%, 18.53% and 1.21% respectively (Global edge).

Japan has an extremely high government debt due high budget deficits with government debt to the GDP at 230% in 2014. The big government debt is a major turn off for investors aiming to invest in the Japanese market. Overall, the economic growth in Japan seems to have stagnated in 2014 and began falling in 2015. However, the economy of Japan is still substantially stable compared to other world economies and better for an investor. The service industry is the biggest in Japan and offers incoming investors a ready market for products. An investor has several reasons to invest in Japan including great infrastructure, recovering economy and innovation technological solutions for every problem. 

Environmental Risk Factors in Japan

Japan is party to Antarctic-Environmental Protocol and the Climate Change-Kyoto Protocol. Japan is strict on emission controls though studies show that just like all nations emission have a negative impact on the environment. The south mainly experiences a tropical climate while the north has a cool temperate. Japan island formation leaves the country vulnerable to multiple active volcanoes. The volcanoes are a leading cause of severe earthquake that have struck the country in the past decades. Japan is also heavily affected Tsunamis.  An earthquake in March 2011 resulted in massive damage to infrastructure including roads, airports, bridges and nuclear power stations. Japan had to shut down several of its nuclear reactors after the earthquake to prevent a nuclear meltdown. Immediately after the earthquake Japan experienced a massive Tsunami leaving hundreds dead and millions displaced. Japan is situated above two moving tectonic plates hence the frequent earthquakes. Since the incident, Japan has relied on fossil fuel power to feed industries affecting its production rate. To reverse the situation Japan has advanced detection programs and infrastructure. 

Japan is prone to catastrophic earthquakes and Tsunamis which makes it a less preferable investor location. Earthquakes are a common occurrence in Japan leaving behind a devastating loss of property and life. The environment risk factor is unsuitable for an investor. 

Political Risk Factors

Japan is a democracy with the Prime Minister as the elected public head of government. Japan has a constitutional monarchy or the Emperor, who plays a role as the ceremonial head of state by has no power. Japan legislative power lies in the Houses of Representatives, councilors and has a Supreme Court. The houses or the Diet elects the Prime Minister. Japan is, therefore, a constitutional monarchy but with a civil law system. Japan abandoned excessive spending on the military after the World War II and has a stable political environment. Japan is a leading member of the United Nations and the Asia-Pacific Economic Cooperation. Despite territorial disputes with Russia, South Korea, North Korea because of its nuclear programs. Corruption is a major factor in Japanese politics; private government contractors support politicians of choice, and the politician are obliged to favor the firms in awarding of public tenders. Japan ranks fifteen out of 175 countries on the corruption rating by Transparency International. Japan also has had seven prime ministers in the last seven years making the country less politically stable and attractive. 

Overall, the Japanese political environment is stable and friendly for investors. Japan strict political disciplines adopted after the Second World War makes it the best country to invest. Japan is not subject to political tensions after the tensions of the World War II. 

Society Risk Factors

Japan has a population of estimated 127 million people and the fastest aging rate compared to her neighbors. Japanese has a life expectancy of 83.5 years higher than any other country globally. Japan recorded one million births and 1.265 million deaths in 2014. Estimates indicate that by 2060, over 40% of the population will be 65 years and over.

Japanese is the primary language of the Japanese. The Japanese ethnic religion is known as the Shinto and co-exists with Buddhists. The Japanese follow normal rituals such as birth, weddings, and funerals. The Japanese visit shrines and temples to pray and ask for good luck. The Japanese belief in saving face and avoiding embarrassment in social or professional transactions. Therefore, they do not turn a person’s request down outright. Open criticism or arguments are not accepted. Second, the Japanese value harmony and peace concepts that are taught to children. Japanese teachings value interdependence or teamwork in all activities. The Japanese reward team effort rather than individual effort. The American culture recognizes individual effort and performance that can create a challenge in Japan. Third, greetings are formal and ritualized. When greeting someone in Japan, it is critical to show the correct amount of respect for the person class, name or family. Finally, the Japanese social and cultural systems are based on hierarchy. The elderly are respected and their counsel valued by young people.  Explaining the Japanese culture in terms of Hofstede’s cultural theories the Japanese are collectivists. Collectivist value closely knit social frameworks where relatives within a family take care of each other. Power highlights that the Asian ethnic groups value family and family closeness. The same attributes are brought into business relationships where the family or team rather than individual comes first.  

The Japanese culture is favorable for business practices and values teamwork. Investors into Japan are, therefore, likely to benefit from team productivity. Cultural norms such as harmony and face also help reduce workplace conflicts. However, the fast aging and depleting Japanese rapidly aging population is likely to affect the supply of young and energetic labor. Old people are less productive and interfere with the optimum production rate.

Legal Systems

The Japanese law accepts the protection of intellectual property such as design patterns or research. The law also covers trademarks and copyrights and prevents infringement of intellectual properties by competing or no competing parties. Several acts protect intellectual property in Japan including the Patent (Amendment) Act of 2003, design Act amended 2014 and he Trademark Act of 1959 and amended 2014. 

An organization trading in Japan has assured protection of patents and trademarks from infringements. Property rights create value for research work and designs and ensure that the owners benefit from their intellectual properties. 

Technology/Infrastructure Risk Factors

Japan has the most advanced technological systems and infrastructures compared to her Asian neighbors. Japan has advanced airports, railroads, bridges, nuclear power stations, and ports. Japan is a leading innovator in all technology fields including handheld devices, military systems and software systems. Japan has 250 bullet trains and 98 airports making it a regional hub. Example, Japan is home to global car maker Toyota with the largest market share of the car market in the world. Japan is also a fully industrialized nation. Japanese researchers lead the world in terms of patents making Japan a key innovation center. 

Overall, Japan has a wide pool of surplus technology experts and researchers in addition to fully developed infrastructure. The availability of experts and infrastructure is critical for investors and supports the establishment of new firms by tapping the surplus specialist workforce in the Market.    

Conclusion

Japan is the third biggest economy in the world despite huge differences between the value of the United States currency and Japanese currency. The Japanese economy also rival the United States in technological innovations and earnings. Despite having no natural resources, Japan has invested heavily in technology to offset advantages enjoyed by other nations mainly oil producing nations such as the United States and Russia. The economic, political, legal and cultural environments in Japan favor entry of international investors. Japan has a fully developed economy supported by a large knowledge pool. Availability of skills and development infrastructure such as roads, rail, and power systems and banking systems adds to the advantage. The Japanese culture favors hard work and team productivity that is also an added advantage for firms investing in Japan. Strong intellectual property laws also attract investors with a guarantee of protection from copyright infringements. Overall, Japan environment favors investors due to a large service industry and global competitiveness.

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Nov 11, 2019 in Research Essay Samples