A comprehensive guide to launching a corporation in Japan

Japan’s business landscape

Before starting a business in Japan, it is important to understand what kind of environment you will be up against. Japan has been a strong economy since the second world war. This means there is a high level of infrastructure throughout the country. Japan has good connections with its surrounding countries in the Asia-pacific region which can make exporting and trade easier. Japan’s economy also benefits from recent advancements in IT technology.
Japan’s capital city, Tokyo is the spiritual and financial heart of the country. It is an international city that has its own place in the world. The Japanese economy is highly developed and at present is the third largest by nominal GDP after the U.S. and China. Japan has a healthy manufacturing sector producing high technology products. Industrial production in Japan is sixth largest in the world. However, the most common business sector in Japan is the service sector, such as telecommunications, retail and transportation. Japan’s workforce is one of the most educated; there is a high number of scientists and engineers in the work force. Japan ranks third highest worldwide in annual patents issued.
The Japanese government is closely involved in the economy which is a sign to many that the economy is stable. Despite high levels of national debt, the Japanese economy continues to prosper. Global companies like Fujitsu , Sony and Canon operate out of Japan. Japan has close trade ties to China, the US and South Korea meaning it can export goods into these countries with ease.
The business culture in Japan is formal and structured. They believe in formality and hierarchy when it comes to their workplace. Women are underrepresented in the workforce due to traditional gender roles in the country, including the importance of women in the household and with children.
Many foreign companies have opted to do business in Japan due to the amount of money that is available at their disposal. Japan has a population of over 126 million which makes it the 11th highest population in the world. Japan’s size means that it is an attractive market for most businesses. Japan is a big enough economy that even niche products can be successful. With Japan’s high-speed rail, products and services can be transported around the country in no time at all.
While foreign business have had much success in Japan, they have also experienced challenges such as understanding the cultural and social aspects of Japan. Japanese people prefer to do business with those they have a strong relationship with, so establishing a strong network is vital. English is not an often spoken language in Japan so fluency in Japanese would be a distinct advantage to your business.

Starting a business in Japan’s legal structure

Before commencing business activities in Japan, a number of legal requirements and formalities must be satisfied. These include choosing the appropriate business entity, completion of required registration and approvals, and other legal obligations to operate the business in compliance with applicable laws and regulations. The types of business entities in Japan can be categorized as: (i) unincorporated, (ii) incorporated, and (iii) partnership.
Unincorporated
As the name of this business type suggests, unincorporated means that there is no registration necessary for this type of business.
Incorporated
Incorporated means that there is a legal formation of a legal person. Corporate status must be registered with Japan’s Legal Affairs Bureau to obtain legal benefits, including limited liability under the Corporation law.
Partnership
There are four types of "partnerships" recognized by the Japanese Civil Code: There are no registration requirements for any of these four types of partnerships, other than any applicable business registration requirements.
Business Registration
All businesses operating in Japan are required to file area-specific business registrations, such as for "master" (or "special") businesses (e.g. food service, taxi, medical treatment, and nursing care). The registration process is done at the local government offices (not the Legal Affairs Bureau) where the business headquarters is located. Under the special provisions of the Company Law, there are no mandatory financial audit or annual shareholder meeting requirements for Japanese companies. Members or shareholders are required to meet at least once a year. However, under certain circumstances, members or shareholders may meet less frequently than once a year. Registration of incorporation must be filed within two weeks after the date of establishment. Although a corporation is not required to formally obtain business licenses, as noted above, businesses related to food service, medical treatment, nursing care and taxi services require separate registration (and licensing) with local government offices. The registration process will take approximately two weeks from the time the paperwork is filed in Japan.

Entry modes of Japanese market

Market entry into Japan has long been one of the most challenging challenges for foreign companies. This is primarily because of the low level of English proficiency, the many different dialects, and the frequently bewildering number of products and services to choose from, as well as certain high tariffs and many non-tariff barriers to foreign imports, including "Japan specific" requirements for various product certifications.
Some of this confusion has been mitigated somewhat in the last few years by the increasing English proficiency of younger Japanese workers, the proliferation of English-language social media used by Japanese, and foreign ownership of many companies in Japan. Social media have significantly reduced the barriers to entry for a foreign company. Consumers in Japan are much less likely to go out shopping to buy something when they can order it online in the comfort of their homes. What this means, for example, is that you might be able to start your business as a website, learn quickly what is popular, and then move into brick-and-mortar stores where you know what will sell.
Like any new market, Japan requires a certain amount of product and market localization to win the Japanese consumer. The rules of marketing — like "Sell me a product I want," seem to hold true in Japan as anywhere else. The difference is the Japan specific localization that appears to matter more in Japan than other countries, particularly if you are going to retail and selling directly to the consumer. For example, if you make bread, you are going to have to tweak the formula, so that it will not go stale (and thus taste bad) as quickly as bread made in France (or where ever) or the United States could go. Japanese are used to over two thousand different types and kinds of mulled teas — mint, barley, mugicha, rooibos, gojicha, and others — and if you think the Japanese are going to buy just tea because you say it is Australian or Indian, you would be wrong.
If you want to sell French style bread and tea products in Japan, you will likely need to find a Japanese partner experienced in doing so, or have a base of operations in Japan where your product can be manufactured to Japanese specifications.
You are also going to have to craft your marketing message so that it sounds Japanese. An ad telling Japanese listeners to buy your product because you are "the best" likely will not work because that type of approach usually fails when compared to telling the listener what is unique or different about your product. According to Forbes, on a day-to-day basis, the Japanese are not big risk takers and this is something that must be taken into account in terms of what you offer to them.
Getting your Japanese expansion strategy wrong can cost you so much money you cannot survive. Get it right and you can create a great deal of wealth for yourself and earn a good reputation for yourself and your business.

Financing of businesses

Once you have a business plan and legal structure, you can consider how to finance the company. If you have sufficient capital, you may not need to explore other options. In other cases, you will need to consider several options, from government grants to venture capital to traditional debt finance. It is also important to consider how you will manage the ongoing financial operations of the company including tax obligations. Foreign businesses do not have access to Japan’s capital markets, but they may be able to borrow from banks or private individuals. Companies should note that securing a loan from a bank is typically more difficult than borrowing from private individuals for the simple reason that when borrowing from a bank, the applicant must disclose their financial position and business activity. Government grants are available from a number of different authorities, including the Ministry of Economy, Trade and Industry (METI), the Ministry of Education, Culture, Sports, Science & Technology (MEXT), and the Japan External Trade Organization (JETRO). These subsidies may cover personnel, rent, IT infrastructure, or as a match-funding arrangement for R&D projects. The subsidy amount depends on the proposal, so it is helpful to have an understanding of what your competitors have received in the past. Regarding venture capital, there are around 250 VC firms in Japan, both domestic and foreign, including many of the largest US venture capital firms. The exception to the previous paragraph applies here, and applicants do not need to disclose their financial position. However, it will almost certainly be a good idea to have a grasp of your competitor’s experience with the process before approaching any VC firms, as not having a good understanding of the process can discourage potential funding.

Employment of human resources

Like hiring employees in any country, employer-employee relationships in Japan must not be entered into at the spur of the moment. While Japan is a generally stable economy with an educated labor force, there are many Japanese attitudes and laws that must be considered when hiring and managing Japanese employees.
Japanese culture encourages working for a single company, remaining loyal to it and expecting that company to take good care of its employees. Thus, many Japanese working adults expect to work with their company until their retirement. They want to be part of a big team, not individualist freelancers.
Japanese employees appreciate their company taking care of their health and well-being. Thus, beyond salary and benefits, a company may offer sports facilities, company trips and other events, as well as a choice in how much premium paid leave to use. These are appreciated by Japanese workers.
Japanese employers traditionally hire new employees soon before they graduate, putting them in company dorms and training them. This allows the company to train employees in its own way, familiarizing them with work protocols and how to use technology. While this tradition is waning, it is still found in many Japanese companies.
For those who enter the Japanese labor market later (by age, after changing jobs, or moving to Japan for employment), companies want applicants who can speak and read/write Japanese. Language testing may be used to screen applicants for their level of Japanese. Those who have lived in Japan previously and attended school in Japan tend to be favored.
Employment laws in Japan typically require that a company must accept a resignation announcement that is made several weeks in advance. However, practice has evolved so that most companies will terminate without much severance when they feel it is necessary. That said, under the employment stability principle, the employee’s continued employment is very likely until retirement age, except for when circumstances justify dismissal (e.g., disruptive behavior, illegal behavior, loss of professional license). In order to terminate, the employer must show that it cannot reasonably be expected to continue with the employment. Termination cases often end up in Civil Courts with differing results but the general trend appears to give employers more leeway to terminate employees, provided there is agreement at the Ministry of Health, Labor and Welfare — a departure from the past where courts tended to side with the employee .
From a cultural perspective, where employees are kept and trained, the company will expect a return on investment in the form of more loyalty and contribution to the growth of the company. Japanese culture is one of give and take and companies have certain expectations.
Several items related to language and management should be noted. First, English is not a common language in Japan so while many Japanese college graduates can speak English at some level, most speak English poorly. The younger generation can use a smartphone and basic social media, but few Japanese under the age of 40 can use a computer. Must company systems are designed for Japanese users, thus if you decide to use a computer and software system from your home country, you will have to redesign it to fit the Japanese culture. Finally, while younger employees may be introduced to email and cell phone email, social net sites and Twitter among others are used for information sharing with fellow employees.
Japanese companies are highly hierarchical. Younger employees obey older employees while trust and value is earned by the older employee. Japanese employees expect to be treated with kindness and respect but they will also be expected to work extra hours and contribute extra effort when called on to do so. They expect to be asked to join company functions and events and not participating can result in lost status. Young employees are invited to various activities, such as helping support sporting events and even joining a company baseball team. men and women are treated differently in the workplace, such as permitted women to slip out early for childcare duties. Young single females are generally known as "OLs," short for office ladies, and they are reserves for higher positions, typically held by men.
Finally, if an employer wants to increase the number of women in management in its Japanese company and even in its other offices around the world, then the employer must be ready to really accept women into important positions and make it clear that differences between men and women are not tolerated. There should be equal pay and basic equal treatment as among women and men, and work policies should permit both men and women of any sexual orientation to take child care leave.

Establishing business relationships in Japan

Building successful relationships and expanding your network is essential for new business ventures in Japan. Grappling with the language and cultural barriers at every step of the process makes having relationships and networks imperative for getting things done in Japan. Regardless of industry or business type, it is critical to build a network of individuals and groups that can serve in varying capacities as connectors, advisors, clients, and referees.
Connecting with local companies or industry associations that have an interest in your business model is one way to get connected to trusted business people who can help identify new opportunities. Attending networking events or meet and greet parties in your area of focus is another way to get tactile information to help you make choices. Simply hiring a native-speaking receptionist can for some companies allow for offer access to a wide array of new opportunities. Basically, trusting relationships in Japan are the cornerstone to getting things done and accessing opportunities to grow your business.
Japanese businesses do in fact prefer to deal with other Japanese businesses. Trust and social harmony are central themes in decision-making in Japan, so it is helpful if you have already established a good reputation as a business person that others can vouch for. If you are not Japanese the key to gaining trust and social harmony is to manage your relationship with others for the long-term gain. Openness, honesty and reciprocity go far in Japan. When others trust that you will act with an eye toward mutual benefit, you will be in a place to begin building strong business relationships.
The key to developing a strong network of Japanese business contacts is to get out and meet people. Contact the local chapter office of the Japan Chamber of Commerce and Industry to find upcoming events. Be open-minded about who you meet, where you go when you are networking and how you present yourself.
It should go without saying, but being a courteous, patient, and open-minded consumer of all things Japanese will greatly improve your chances of creating relationships and growing networks with Japanese business people.

Common pitfalls in Japan

Navigating these challenges requires a proactive strategy, but with the right approach, they can be overcome. For instance, staying informed about changes in the regulatory environment is crucial, as this allows you to anticipate new challenges and adjust your business plans accordingly. By networking with other entrepreneurs and business owners, you can gain valuable insights into common hurdles faced by foreign companies in Japan, such as bureaucratic inefficiencies or cultural nuances that affect business operations.
One practical solution to overcoming regulatory hurdles is to work with a local legal expert or business consultant who can provide guidance and support throughout the process of starting a company in Japan. These professionals can help you understand and navigate the complex legal and regulatory landscape, ensuring that your business is compliant from the outset.
Cultural misunderstandings can be addressed in several ways, including educating yourself about Japanese business etiquette and practices, hiring local staff who can provide guidance and advice, and seeking out mentorship from successful entrepreneurs who have faced similar challenges.
Finally, competition in the Japanese market can be mitigated by focusing on differentiation and value creation. This means finding ways to set your product or service apart from the competition, whether through unique features, superior customer service, or innovative marketing strategies. Building a strong brand and reputation can also help you stand out from the crowd and attract customers.
By proactively addressing these challenges, you can set yourself up for success and increase your chances of building a thriving company in Japan.

Trends and future potential

Future trends and opportunities, such as rising industries and shifting consumer trends
Business opportunities in the coming years are likely to arise from several different sources. Primarily, the growing Japanese economy will continue to draw foreign companies into Japan. Perhaps most significantly, the growth of new corporate structures within Japan (for example, the LLC or the GK) has made investing in Japan and starting a business in Japan far more attractive and easier than it used to be.
Rising wages, increased global access and changing consumer interests will together drive growth in a variety of Japanese industries. As a result, it is widely expected that companies begin expanding into the following industries:
While many industries are likely to see sluggish growth in the years to come , some areas are likely to experience sharp rises in revenue and other key metrics. Increased demand for food and food-related services is likely to drive growth in many industries tied to agriculture, food, cosmetics, health care, renewable energy, and information technology (as previously discussed).
Japan is experiencing structural change that will impact the way businesses interact with consumers — and these changes are expected to continue in the near future. For example, Japanese consumers have changed their shopping behavior, with many more purchases occurring online and via mobile devices. Furthermore, social media has become an important marketing tool in Japan, and business-to-consumer sales are increasingly reliant on social networks. Companies that are able to take advantage of social media in the coming years will almost certainly benefit from the valuable insights garnered through different social media platforms.