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ADVERTISEMENT M ore than a year after one of the strongest earthquakes in re- corded history struck northeastern Japan, the confidence of foreign investors in the country remains surprisingly unshaken. The latest figures attest to this. Foreign direct investment (FDI) stock in Japan is virtually unchanged in the past fiscal year, at 17.5 trillion yen, with most foreign firms deciding to stay. Some multinationals have made new investments. Amazon, General Electric, Ikea, and ToysRus have opened operations in the Tohoku reconstruction area. Dozens of firms—including Volvo Technology and Eurocopter—have invested in R&D centres across Japan following the quake. Such trends illustrate that Japan is still a critical market for multinationals operating in the Asian region. The plain fact stands: the country, though overshadowed by the surge of China and India, is the third-largest economy in the world. Not only is its market immense, its consumers are among the world’s most discerning and demanding. This makes it an ideal testing ground to innovate, refine, and market goods and services for the rest of Asia. With hundreds of flights to China, South Korea, Taiwan, and Southeast Asia from Japan, the country is well-placed to serve as a regional hub. In addition to serving as a gateway to the Asian market, Japan offers a wealth of research institu- tions and innovation know-how. Professor Shinya Yamanaka, whose research into iPS cells at Kyoto University won him the Nobel Prize in Medicine this year, is only one of many world-class scientists in Japan. According to OECD data, the country’s R&D expenditure as a percentage of GDP (3.3 per cent in 2010) and number of research- ers per capita (51.2 researchers per 10,000 people in 2010) are the high- est among G8 countries. This R&D prowess puts Japan second only to the US in the global ranking of the number of patent applications pub- lished per year. Japan, moreover, is one of the world’s safest countries and, as Asia’s oldest democracy, is politically stable. This is no small consideration for multinationals considering long- term investments. Recent improve- ments in transport infrastructure, such as the expansion of interna- tional flights and improved access to Haneda Airport in Tokyo, have further enhanced Japan’s business environment. Using express con- nections, it now takes a mere 13 minutes from Haneda Airport and a little over half an hour from Narita Airport to reach the capital. Japanese officials point out not only such assets but also Japan’s stepped-up business incentives for multinationals in response to stiffen- ing competition from Asian rivals. Foreign companies that are certi- fied under the recently executed Act for Promotion of Japan as an Asian Business Center qualify for a reduc- tion in nation-wide corporate taxes. This, combined with local tax breaks, will mean the effective corporate tax rate could fall to between 20 and 25 per cent. Certified companies also will be able to utilise an Accelerated Patent Examination procedure together with the country’s Patent Prosecution Highway for one of the fastest tracks to securing a patent anywhere in the world. Government officials explain that certified com- panies will also benefit from a short- ened entry visa application process for their foreign workers. Under the scheme, waiting periods will fall from one month to 10 days. In addition to these incentives, the government has initiated a sub- sidy program to entice global com- panies to set up R&D and regional headquarters in Japan. The ongoing program has attracted applications from cutting-edge firms from a range of sectors. Pharmaceuticals, health- care products, plastics, electronic component materials, optical com- munication equipment, vegetable seeds, medical information systems, fuel cells, industrial chemicals, and automotive technology companies were selected for subsidies in fiscal year 2011. The country is also offering a combination of financial, tax, and regulatory support for firms investing in special zones across the country, including the special Reconstruction Zone in the Tohoku disaster area. Firms newly investing in these Reconstruction Industrial Cluster Zones will be eligible for such in- centives as a five-year exemption on corporate taxes, immediate deprecia- tion on assets acquired for R&D, and a tax credit equivalent to 10 per cent of the remuneration of those employed from the disaster area. JETRO (the Japan External Trade Organization) welcomes inquiries at any of its more than 70 offices around the world. It will then direct firms to one of six Invest Japan Business Support Centers (IBSCs) in Japan that provide com- prehensive support for firms think- ing of investing in Japan. By Ken Hijino Over a year since quake, investor confidence in Japan unshaken B ernard Delmas, the presi- dent of Nihon Michelin Tire, the Japanese arm of French tyre manufacturer Michelin, believes that the “busi- ness reasons for maintaining an R&D centre in Japan have become even more important in recent years.” Mr Delmas explains why: “Japan has an extremely mature market and demanding consumers interested in brands, new and pre- mium products, as well as specific product features. To be in Japan, answering these consumer needs, is to be in a ‘laboratory’ for other po- tential markets. This is what makes the Japanese market so important for us.” Michelin set up its R&D centre in Japan in Ota city, 80 km north- west of Tokyo, more than 20 years ago. Since then, the manufacturer has continued to invest in Japan as one of its three global research hubs. In 2010, the company com- bined its Asian research operations and pumped more capital into the Ota site and has since regularly increased the number of research- ers through local hiring. Mr Delmas argues that cutting- edge products—such as eco and premium tyres—developed in Japan’s trendsetting market will eventually translate into sales in other markets. For example, most of Michelin’s winter tyres sold glo- bally, including in North America and Europe, are developed in Japan. As a platform for innovation, Japan continues to offer an attrac- tive R&D “context.” According to Mr Delmas, “Japan has high-level universities and laboratories that are very accessible.” In addition, Japanese engineers and employ- ees are “very loyal and willing to dedicate themselves to R&D in their careers.” Mr Delmas says this positive image of Japan’s human assets was reconfirmed in last year’s crisis. “Before the earthquake, Japan was fading away on the world agenda,” he says. “But the disaster was posi- tive in impressing upon the world Japan’s fundamental strengths of endurance, courage, and discipline.” Bernard Delmas President of Nihon Michelin Tire Sources: IMF, World Economic Outlook Database (April 2012); Economic and Social Research Institute, Cabinet Office, Prefectural Economic Almanac (February 2012). Hokkaido region (195) = Singapore (186) Tohoku region (428) = Sweden (406) Kanto region = United Kingdom (2,055) (2,181) Chubu region (782) = Netherlands (796) Kinki region (813) = Netherlands (796) Chugoku region (296) = Thailand (264) Shikoku region (140) = New Zealand (118) Kyushu region (499) = Switzerland (492) (US$ billion, 2009) GDP comparison of Japan’s regions with some countries Japan’s extremely mature market is a product laboratory ©Center for iPS cell Research and Application, Kyoto University ©Shinya Yamanaka, Center for iPS Cell Research and Application, Kyoto University iPS cells derived from adult human dermal fibroblasts Professor Shinya Yamanaka wins a Nobel Prize for research into regenerative medicine in 2012 and exemplifies Japan’s R&D prowess and regenerative powers as a nation.
