With a population of 125 million people and an economy that ranks third in the world, Japan presents itself as a free, rich and reliable market, with a high confidence index that is only surpassed by the USA, Germany and Canada. An economy that is emerging from the stagnation it has experienced for more than thirty years, and that prefers to do business mainly with those countries with which it has signed a free trade agreement. Renewable energies, digitalization, automotive, railroad and agri-food are some of the sectors with the greatest business opportunities, in a country where quality, sustainability and trusting relationships are values to be taken into account. These are some of the key issues that were addressed last Wednesday on the second day of the Business Opportunities in Asia Cycle, organized by this newspaper. At the event, three experts showed the reality of a mature market in which patience is a sine qua non condition for doing business that, once consolidated, lasts over time.
Around 30 people were present at Ibercaja’s new Xplora space for this second stop of the cycle, sponsored by Levante S.A., Ecosistema MAS de Ibercaja Empresas, and Aragón Exterior (Arex), with collaborators such as ARPA, Eboca, JEVASC, Navarro Llima abogados, APB Marketing Promocional and Alfredo Cortés Consultores S.L.
Julio Díaz-Terán, Senior Economist of the Embassy of Japan in Spain, Dr. Mario Malo, Associate Professor in the Master of Global East Asian Studies at the Autonomous University of Barcelona, and Jaime J. Navarro, founder of Navarro Llima Abogados S.L. and consultant of companies in Japan, showed their knowledge about the country and offered different keys to face the generation of business in Japan.
José Ignacio Toro, head of Foreign Trade and Commercial Development at Banca de Empresas Ibercaja, was in charge of opening the conference and welcomed those present to Xplora, a “new space that we intend to be a place for professional and personal encounters”. The conference, held on September 21, 2023, as part of the activities programmed as part of Ibercaja’s Ecosistema Más plan, is “undoubtedly useful”, said Toro, since “the challenge of internationalization is something that any company, in its life cycle, should consider”. A task that “is not easy”, he confesses, which is why it is essential, in his opinion, “to seek support and levers that help us to go abroad”.
The director of Go Aragón, Alfredo Cortés, was in charge of directing the event, presenting the speeches and moderating the final round of questions, in which the attendees and the speakers were able to exchange concerns and doubts about the Japanese market.
The Japanese economy is emerging from a period of stagnation that has lasted more than 30 years.
The first to speak was Julio Díaz-Terán, Senior Economist of the Embassy of Japan in Spain, who made an analysis of the current economic situation of the Asian country, as well as a presentation of the business opportunities that Spanish and Aragonese companies can find in Japan. According to Díaz-Terán, “the economic perspectives, within the uncertainty that exists, are quite good. After going through two very negative impacts, such as Covid and the war in Ukraine, the growth forecast for this year is 1.8%. The forecast for next year is over 1%, so we are predicting an exit from the cycle of stagnation and deflation in which the Japanese economy has been for more than thirty years”.
With an estimated inflation of 2.7% for the end of the year and 2.2% for next year, as well as growth of over 1%, “Japan, after many years, is becoming a normal country: with some inflation and growth”, he points out. A development that is also noticeable in the stock market, with the Nikkei index at 33,000 points and the stock market at record highs, explains the economist. “And all this with a policy of the Central Bank of Japan of negative interest rates. This is very surprising, because both the Federal Reserve and the European Central Bank are raising interest rates,” he points out.
Moreover, as he assesses, the “geopolitical risks at the moment set Japan up as an alternative to China in the supply chain in the coming years. There have been very recent problems, specifically with the issue of semiconductors, which have led large American companies to make recent investments in these products in Japan. Geopolitical aspects also make Japan a center in Asia, where investments are becoming more and more interesting”.
These data are favorable for business with the Asian country but, on the other hand, are not reflected in an increase in the economic activity of Spanish companies in this market, since only 0.8% of Spanish exports are destined for Japan. Within this percentage, Aragon is the fourth largest Spanish exporter to this destination, with 8% of Spanish exports.
Regarding the sectors of interest for Spanish companies, Díaz-Terán mentioned that, after the Fukushima nuclear power plant crisis, renewable energies have taken on an “enormous dimension”, so the economist sees in this sector an important business opportunity with Japan. Digitalization, automotive, railroad and agri-food would be other sectors with opportunities for national companies.
Companies that have a competitive advantage over other countries in the world thanks to the Economic Partnership Agreement that the European Union signed in 2019 with the Japanese country, since, as he says, 80% of the business that Japan does is with states with which it has signed a free trade agreement. In addition, this treaty has led to a 15% reduction in tariffs, a circumstance that facilitates economic activity between companies in both countries.
Finally, Julio Díaz-Terán highlighted the fact that the Japanese market is “free, rich and reliable” and that it is the fourth in the world in the FDI confidence index, behind the USA, Germany and Canada. These figures highlight the value of an economy that, he concludes, has an innovation ecosystem open to the world, excellent human resources and an excellent business environment and legal framework.
Respect, restraint and hierarchy as key elements of negotiation
The second speaker was Dr. Mario Malo, Associate Professor in the Master of Global East Asian Studies at the Autonomous University of Barcelona, who focused his speech on intercultural communication and negotiation strategies in Japan from a sociocultural point of view.
This Collaborating Professor in the Master’s Degree in Japanese Studies at the University of Zaragoza made a “sketch of sociocultural and communicative elements that any businessman should take into account before doing business in the Japanese sphere. Whenever we face negotiations in the economic sphere in such a globalized world, the cultural factor is sometimes not taken into account. But if we want to do business with Japan, we must take it into account”.
In this way, Malo began by explaining how the geographical (such as its insularity and the fact that 70% of its orography is mountainous), historical and socio-cultural particularities have marked a particular way of life and way of doing business that is necessary to know before establishing contact with companies from this country. In this way, the professor brought to the table the fact that, in Japan, barely 30% of the surface area is available for living and cultivation, in a country of 125 million inhabitants, something that leads to deficiencies in the agri-food field that leads them to require large imports of both meat and fruit and vegetable products.
This reality is linked to the basic processes of Japanese socialization, in which the old family systems based on primogeniture continue to have roots that are also transferred to the social and business spheres. A type of relationship that leads them to see the company as an extension of the family, and in which identification and loyalty to the company are absolute. And which also leads them to work long hours, to develop a long professional career (in which seniority in the company is of great value), interdependence and cooperation. These are companies in which the individual receives recognition as long as his or her actions have benefited the group.
The geopolitical reality and the Japanese socialization processes also influence, explains Malo, the negotiation processes in Japan. Knowledge of the concepts of Nemawashi (building trusting relationships) and Ringi-Seido / Ringi-Sho (group approach and formal consensus), and of Wa (harmony), are seen as a sign of respect for local cultural processes that is positively appreciated by Japanese negotiators. Meetings and talks in which it is important to know the hierarchical and paternalistic relationships between managers and employees that are transferred even to the use of space in the meeting room.
Finally, the professor recommends the use of restrained body language, not looking directly into the eyes, using calm facial expressions and not touching the other person, the latter gesture being perceived as impolite. Skill in the use of respectful forms of communication (Keigo), such as Teinego (the polite form), Sonkeigo (the honorific form) or Kenmoogo (the humble form), can determine, he says, the success of the negotiation.
Patience is highly rewarded in Japan
The last to speak was Jaime J. Navarro, partner at Navarro Llima Abogados S.L and business consultant in Japan through his consultancy Nichiza, and thanks also to Levante S.L., a start-up company of Spanish and Japanese capital that seeks to build bridges between the two countries so that small and medium-sized companies can do business more easily in Japan. “We have seen that the barriers are very important,” says Navarro.
With a population of 125 million people, and with an economy that ranks third in the world by GDP volume, Japan is an interesting destination, according to Navarro, for companies that can, on the one hand, offer products and services of high added value and high quality, and on the other hand, that have sufficient financial capacity to withstand an average implementation period of two years that implies doing business with companies in the Asian country.
In addition, the lawyer recalls that the Japanese market is a mature market “where you will find all your competitors”, so the value proposition must be “very high” in order to capture the interest of the Japanese company. An economic ecosystem where relationships are always long-term, where oversupply prevails and where people live and work in Japanese, not English, which is why he also recommends making an effort to have a local partner. “Despite the complexity, the reward is worth it, as you can achieve long-term recurring business,” he explains.
Finally, among the sectors in which he observes, from his experience, business opportunities, would be agri-food (wine, oil, ham, alfalfa), gastronomy, fashion and luxury, sustainability, automotive, construction machinery, tourism, culture and sports and services to Spanish-speaking residents in Japan.
This concluded this second stop of Go Aragon’s Asia Business Opportunities Cycle, whose next appointment will be held on October 3 with India, and which will conclude on November 8 with a day dedicated to the technical aspects related to commercial expansion in Asia.