Section 5 Promotion of internal globalization This section will explain measures being implemented by Japan in order to promote internal globalization with respect to inward foreign direct investment. 1. Significance of inward foreign investment in Japan Expansion of inward foreign direct investment contributes to the improvement of productivity and creation of jobs and new industries in Japan through inflow of advanced business resources possessed by foreign companies, including management knowhow, technology and human resources. As indicated by a case in which a foreign cosmetics maker jointly developed pigments for cosmetics with a Japanese SME and expanded the business globally, forming partnerships with foreign companies contributes to expansion of foreign sales channels for Japanese SMEs and middle-sized enterprises. In addition, inward foreign direct investment is also important from the viewpoints of revitalization of local economies and communities, as shown by a rapid increase in the number of foreign tourists associated with investment by an Australian company in Niseko, Hokkaido, for example. 2. Current status of inward foreign direct investments The balance of inward foreign direct investments in Japan remains at a very low level compared with the balance of investments in other countries. In terms of the balance of inward foreign direct investment as a proportion of GDP, Japan is ranked 189th among the 198 countries/regions around the world and is above only such countries as Nepal, Burundi, Yemen, North Korea and Palestine. Recently, the balance of foreign direct investments in Japan has been on an uptrend in both absolute terms and as a proportion of GDP, with the balance as of the end of 2016 at 27.8 trillion yen and the proportion at 5.2%, but the levels are still low (Figures III-4-5-1 and III -4-5-2). 668
Figure III-4-5-1 Balance of inward foreign direct investment as a proportion of GDP Source: Data on Japan: Statistics of External Financial Assets and Liabilities (as for the balance; MOF), System of National Accounts (CAO). Data on other countries: World Investment Report 2016 (UNCTAD). Reference: WIR 2015: International comparison of balances of inward foreign direct investment as a proportion of GDP by information (as of the end of 2014) 669
Figure III-4-5-2 Changes in balances of inward foreign direct investment and proportions of GDP Notes: 1: As for the balances of the external financial assets and liabilities in Japan, calculation criteria have been changed since 2014. Those in and before 2013 are the results of calculation based on the former criteria.* 2. Proportions of GDP are the results of calculation based on the revised criteria of the CAO System of National Accounts (GDP) in December 2016. Those in and before 2013 are the results of calculation based on the former criteria. Source: Japan s External Financial Assets and Liabilities (MOF), System of National Accounts (CAO). According to a survey conducted by the Ministry of Economy, Trade and Industry, around 70% of foreign companies operating in Japan have their headquarters in Tokyo and most of the rest of them have their headquarters in the three major metropolitan areas. As some production and research and development facilities are located in provincial regions, there is presumably great potential for additional investment in Japan by foreign companies already operating in Japan. In fiscal 2016, the Japan External Trade Organization (hereinafter referred to as JETRO ), which is the core organization responsible for promoting inward foreign direct investment in Japan, supported 1,775 cases of foreign direct investment in Japan and succeeded in attracting 174 cases of investment (including 21 large-scale projects). The number of cases of foreign direct investment in Japan supported by JETRO and the number of cases of investment attracted by JETRO have steadily been increasing: the number of cases of foreign direct investment supported by JETRO rose from 856 in fiscal 2014 to 1,617 in fiscal 2015 and the number of cases of investment attracted increased from 109 670
in fiscal 2014 to 160 in fiscal 2015 (Figure III-4-5-3). Figure III-4-5-3 Changes in JETRO s achievements concerning projects for attracting foreign investment to Japan Source: Materials released by JETRO. 3. Government goal The Japan Revitalization Strategy (Cabinet decision on June 14, 2013) set a government goal of doubling the balance of inward foreign direct investments to 35 trillion yen by 2020 (from 17.8 trillion yen as of the end of 2012). Although the balance of inward foreign direct investments in Japan has been rising, coming to 27.8 trillion yen as of the end of 2016, it is necessary to further promote foreign direct investment in Japan in order to achieve the government goal. As a medium-term goal for fiscal 2015 to 2018, JETRO aims to attract more than 470 cases of inward foreign direct investment in Japan (including more than 60 large-scale and other specified projects) by using its domestic and foreign networks in order to further enhance initiatives to promote inward foreign direct investments that contribute to the promotion of open innovation and the revitalization of local economies. 4. Specific initiatives To promote inward foreign direct investments, the Council for Promotion of Foreign Direct Investment in Japan (Invest Japan), a ministerial-level council, has been convened since 2014 for the purpose of performing the headquarters functions for activities to identify and attract investment 671
projects and contributing to initiatives promoted by relevant ministers and councils to carry out necessary institutional reforms. On May 20, 2016, in order to resolve problems that stand in the way of the conduct of business in Japan by foreign companies, the Policy Package for Promoting Foreign Direct Investment into Japan to Make Japan a Global Hub, which included measures to attract foreign companies by taking advantage of Japan s strengths and to resolve problems impeding foreign companies business expansion into Japan, was determined by the Council for Promotion of Foreign Direct Investment in Japan. The measures included revisions of regulations and administrative procedures, promotion of the provision of information in English, revision of the residency qualification system to attract highly skilled foreign professionals, improvement of the living environment and enhancement of English education for Japanese people. These initiatives are also characterized by the Japan Revitalization Strategy 2016 (Cabinet decision on June 2, 2016) as useful for further promoting inward foreign direct investment. In response to the above policy, the following specific initiatives are being implemented in order to promote inward foreign direct investment. In May 2016, the Working Group for Revising Regulations and Administrative Procedures was established under the Council for Promotion of Foreign Direct Investment in Japan in order to discuss how to simplify regulations and administrative procedures that stand in the way of investment in Japan by foreign companies and to do coordination work with relevant ministries and agencies. The working group held discussions on problems related to regulations and administrative procedures that were pointed out by foreign companies and experts and other people supporting them and adopted its final report on April 24, 2017. At a meeting of the Council for Promotion of Foreign Direct Investment held on May 10, 2017, discussions were held on continuous efforts to resolve problems that stand in the way of the conduct of business in Japan by foreign companies. When foreign companies do business in Japan, one problem is the difficulty of securing workers with global business skills. In order to attract foreign workers with a high level of skills and knowledge and encourage them to work in Japan for a long period of time, it is important to develop immigration and residency management systems that are more attractive than other countries systems. Therefore, in April 2017, the reforms of the immigration and residency management systems were implemented, including the establishment of the Japanese Green Card for Highly Skilled Foreign Professionals, which reduces the period of stay in Japan required for the application for permanent residency permission by highly skilled foreign professionals from five years to a minimum of one year. In a fiscal 2015 survey conducted concerning interest in investment in Asia in fiscal 2015, Japan was ranked first in terms of attractiveness as an R&D base and as a sales base, as it was in the previous survey (fiscal 2013). In order to support efforts to attract research and development divisions by taking advantage of Japan s strength as an R&D base, the Ministry of Economy, Trade and Industry implemented the Subsidy Program for Global Innovation Centers (fiscal 2015 supplementary budget), which was targeted at foreign companies. This program supported advanced initiatives under which Japanese companies and universities formed partnership with foreign companies and promoted 672
technology transfer to Japanese companies through research and development activities conducted by foreign companies and the creation of benefits for regional economies (Table III-4-5-4). To promote efforts to attract foreign companies to Japan, Japan is also continuing to improve the business environment. For example, over the three years since the inauguration of the Abe administration, the effective corporate tax rate was lowered by more than 7 percentage points to a level below 30% (29.97%). In fiscal 2018, the tax rate is expected to be reduced to a level similar to the tax rate in Germany. Japan is also actively disseminating information to foreign companies. Prime Minister Abe himself is making top-level sales pitches and is expressing Japan s eagerness to accept foreign investments. In 2016, seminars on foreign direct investment in Japan were held in Brussels in May and in New York in September, and the prime minister himself called for investment in Japan. Japan is also strengthening activities to attract individual foreign companies. Based on the Five Promises for Attracting Foreign Businesses to Japan (determined by the Council for Promotion of Foreign Direct Investment in Japan on March 17, 2015), Japan is operating the Investment Advisor Assignment System, under which state ministers, etc. serve as advisors for foreign companies, in order to better respond to requests for consultations from foreign companies. Japan publicly solicited applicants from among companies which made important investments in Japan and selected nine companies, with which state ministers, etc. conducted interviews. JETRO, which is Japan s core organization for promoting inward foreign direct investment, is also fundamentally enhancing its system to attract foreign investment. JETRO established the Foreign Affiliate Support Division and Desks dedicated to specific countries/regions at its headquarters and has strengthened its overseas sales function by employing outside experts as industry specialists. JETRO is also promoting initiatives conducted by local governments to attract foreign companies by formulating strategies for attracting foreign companies, conducting promotion activities, and providing training programs for local government employees on behalf of local governments interested in promoting inward foreign direct investment in Japan. 673
Table III-4-5-4 Survey on Western and Asian companies interest in investing in Japan Target companies in FY2011 survey: 207 companies Type of base Number of companies responded Japan China Singapore Hong Kong India Thailand ROK R&D base 67 2 27% 1 48% 3 15% - 0% 4 6% - 0% - 0% Regional headquarters 121 4 16% 1 33% 2 17% 3 17% 5 5% 8 2% - 0% Sales base 112 2 17% 1 34% 4 14% 3 16% 5 5% 7 2% - 0% Financial base 94 3 14% 1 34% 2 16% 3 14% 5 5% 8 2% 10 1% Back office 96 4 10% 1 35% 3 11% 2 13% 5 9% 8 2% - 0% Distribution base 77 3 5% 1 64% 2 6% 6 3% 10 1% 3 5% - 0% Manufacturing base 78 3 6% 1 67% 5 4% - 0% 6 3% 2 8% - 0% *Figures show percentages of the 207 responding companies (including 46 companies already starting business in Japan), excluding responses of not applicable and unknown (Europe: 80, North America: 67, Asia: 60) Target companies in FY2013 survey: 214 companies Type of base Number of companies responded Japan China Singapore Hong Kong India Thailand ROK R&D base 81 1 20% 1 20% 3 17% 5 11% 4 12% - 0% 8 1% Regional headquarters 125 3 19% 4 15% 1 27% 2 25% 6 2% 10 1% - 0% Sales base 199 1 26% 2 19% 4 12% 3 13% 5 6% 8 3% 12 2% Financial base 75 3 12% 4 11% 2 25% 1 35% 6 5% - 0% - 0% Back office 82 5 11% 4 13% 2 17% 1 22% 3 16% 9 1% - 0% Distribution base 85 4 9% 2 22% 1 24% 3 21% 7 4% 8 2% - 0% Manufacturing base 134 6 5% 1 41% 8 3% 11 1% 2 12% 5 6% 9 2% *Figures show percentages of the 214 responding companies (including 81 companies already starting business in Japan), excluding responses of not applicable and unknown (Europe: 87, North America: 69, Asia: 58) Target companies in FY2015 survey: 222 companies (this survey) *Attention!!! Type of base Number of companies responded Japan China Singapore Hong Kong India Thailand ROK Vietnam R&D base 105 1 43% 4 10% 2 15% 7 2% 2 15% 11 1% 7 2% 11 1% Regional headquarters 172 2 20% 4 10% 1 42% 3 13% 9 1% 6 2% 6 2% 6 2% Sales base 162 1 32% 3 18% 2 20% 5 5% 6 4% 9 2% 8 2% 11 1% Financial base 73 3 10% 5 1% 1 51% 2 30% - 0% 5 1% - 0% - 0% Back office 69 2 19% 7 4% 4 13% 5 12% 1 20% - 0% - 0% - 0% Distribution base 73 4 10% 2 18% 1 36% 3 16% 10 1% 5 5% - 0% 6 3% Manufacturing base 90 6 4% 1 46% 6 4% 12 1% 4 6% 4 6% - 0% 2 14% *Figures show percentages of the 222 responding companies (including 106 companies already starting business in Japan), excluding responses of not applicable and unknown (Europe: 82, North America: 67, Asia: 73) 674