Japan is bigger than Iran

Country of the month February: Japan - Part I.

Despite the triple catastrophe of mega earthquakes, tsunami and nuclear power plant disaster in Fukushima, Japan continues to be a very profitable market - foreign companies achieve good returns on sales in Japan. The prerequisite is that they have adapted to Japanese business practices. Good preparation is essential to be successful here. The following explanations should help you with this.

At the beginning of 2011, Japan surrendered its 40-year-old title as the world's second largest economic power to China and is now number three in the world. The USA continues to be the world's largest economy, with Germany in fourth place. Real GDP was US $ 4,902 billion in 2013, so Japan generated around 6.9% of world GDP with a population of 127.3 million. At USD 38,491 (adjusted for purchasing power, 2013) GDP per capita is one of the highest in the world; the country has a broad, technologically highly developed and export-oriented economic structure. However, Japan is feeling the effects of slower growth in China. Exports to the neighboring Middle Kingdom are falling for the first time in a long time, and deflation also remains a problem. The IMF expects Japan to grow by just 0.6% this year. That is, the relative stagnation due to the lack of great productivity advances and the shrinking population continues.

Hardly any other country is aging as quickly as Japan. This presents the number three in the world economy with enormous challenges. Nonetheless, Japan will remain the leading innovator in Asia for the foreseeable future. The very high per capita income will continue to rise. The triple catastrophe of mega earthquakes, tsunami and nuclear power plant disaster in Fukushima set the whole country back. According to government reports, the country has ostensibly recovered from the disaster. But the effects of the atomic temptation will continue to affect not only the Fukushima area but also the Tokyo metropolitan area and the main island of Honshu for many decades to come. The state-supported and made investments in reconstruction promote economic development.

Japan's economy is struggling

Japan is the third largest economy in the world, after the USA and China. Because of its technological supremacy, Japan will remain the leading innovation and economic power in Asia and the third largest economy in the world for the foreseeable future. Japan generates almost 50% of the GDP of East Asia or almost two thirds of the GDP of Euroland. 1% growth in Japan corresponds to 8% growth in the PRC. In 2011, Japan registered a trade deficit for the first time since 1980. The reasons were earthquakes, tsunami and nuclear disaster in the northeast and the high level of fuel imports to secure electricity production, since only two of around 40 nuclear power plants are currently in operation in Japan. After the nuclear disaster in Japan, an area of ​​around 30,000 square kilometers was contaminated with radioactive material, which corresponds to 8% of the total land area of ​​Japan. However, this is valuable arable and building land that is so little available in Japan.

The assessments of the trade deficit vary widely. Above all because of the continued relocation of production abroad, numerous observers see the importance of Japan as an export nation at risk. However, many of Japan's export successes remain “invisible”, as Japanese companies manufacture in China and export some of the products from there.

Like Germany, Japan is poor in raw materials and highly dependent on imports for both energy and food supplies. The innovation-friendly economic structure, which in addition to the internationally known large companies also includes a very large number of small and medium-sized companies, is considered to be a global leader in research, development and production in mechanical engineering and automotive engineering, in the electronics and chemical industries. Exports remain essential for Japan, especially in the current situation with weak domestic demand and a rapidly aging population. The export sector was privileged by the monetary policy of the Abe government with the accompanying weakening of the yen. Japan is benefiting from Asia's economic integration and the catching-up process of the emerging Asian countries, especially China.

Economic situation: "three-arrows strategy"

Since PM Abe took office in late 2012, the government has pursued a policy of economic expansion in order to overcome the period of longstanding deflation. However, the Japanese government's fiscal maneuverability is rather limited due to the high level of public debt (over 240% of GDP, IMF definition). Abe aims to revitalize the economy through a "three-arrows strategy" (expansive monetary, flexible fiscal and structural reform policy). In the course of 2013 and in the first half of 2014, this led to a comparatively strong growth impetus and sharply rising stock exchange prices (growth rate in 2013 and 2014 around 1.5%), although this development did not continue in the second half of 2014 after a controversial increase in VAT. In spite of the depreciating yen, exports are not growing as expected either, as many companies have relocated their production capacities abroad in the past decade. Although the inflation rate is picking up as desired, this is not due to increasing domestic consumption and rising real wages. Import prices in particular are responsible for an increase in the inflation rate.

International investors are demanding a credible fiscal consolidation plan and rapid implementation of the structural reforms announced. This also includes increasing the share of women in employment. A bill that, among other things, Encouraging companies to set specific goals for the advancement of women and their employment in managerial positions was introduced into the legislative process.

Good for exporters

Imports are benefiting from the high yen. Among the important sectors, the automotive industry in particular has problems. Renewable energies are one of the key sectors of the future, especially wind power. Japan has so far neglected the generation of electricity through wind power. Gradually, however, there is a rethink. The new feed-in tariff in particular could provide a boost. The remuneration rates have not yet been determined. Nevertheless, new projects are being initiated in anticipation of the tariff on land and at sea.

Opportunity for foreign companies

Foreign companies have so far dominated the market for large wind turbines. Japanese companies are world market leaders in many industries (cars, IT industry, new materials, cameras, etc.). Since the 1990s, companies and the state have continuously invested more money in research and development than any other industrialized nation. Japan, with full confidence in its future, is relying on technological solutions to overcome its problems.

Energy efficient products and insulation technology

The topic of insulation technology has been neglected in Japan so far, but it has gained in importance with the tightening of building regulations relating to the energy efficiency of buildings. So far, glass wool has had a dominant position, but the market share, like that for stone wool, is falling. Sales of polyurethane foam have remained constant, with growth recorded above all in polystyrene foam, cellulose fibers and phenolic resin foam.

A typical feature of Japanese houses are the comparatively large window areas, often in the form of sliding windows and doors. 90% of the new buildings and 60% of the rental apartments have double-glazed windows, but these almost always have aluminum frames and no significant sealing of the frame. The doors are also often made of steel or aluminum and have high thermal conductivity. Over two thirds of the single-family houses have aluminum frames, the market share of combined aluminum-plastic frames is 27.3%. In multi-party houses, the proportion of aluminum frames is even over 80%. However, there are clear regional differences here. In Hokkaido, around 90% of window frames are made of plastic, but the total proportion in all of Japan is only 8%. In recent years, this very neglected area has received more attention. The proportion of multi-pane insulating glass is increasing continuously. The proportion of insulating aluminum window frames, aluminum-plastic frames and plastic window frames is also growing.

The Japanese market is interesting for German manufacturers from the following areas:

  • Air conditioning (ventilation and cooling systems, etc.)
  • Heating technology (modern condensing technology, combined heat and power plants, combined systems of condensing technology and solar thermal / geothermal or PV etc.)
  • Building technology (heat distribution and transfer, measurement and control technology, etc.)
  • Construction technology (thermal insulation, windows / doors, facades, low-energy houses, passive houses, etc.)
  • Security technology

Japan is one of the wealthiest countries in the world. 74.3% of GDP comes from the service sector, 24.2% from industry, and 1.5% from agriculture / forestry, fishing and mining.

Also read "Japan as a lucrative sales market for German products"in: Country of the Month March: Japan- Part II

Source: ABI - Asia-Pacific Business Intelligence (S) Pte Ltd. to the online application Export-Plus, Bundesanzeiger Verlag, Cologne