Japan is a country built on reinvention. Even in the most dire circumstances, be it nuclear attack, tsunami or economic recession, its leaders have a history of “bending adversity” repeatedly into prosperous new beginnings. Most recently, after decades of economic stagnation, Japan awoke from its slumber under the energetic leadership of Prime Minister Shinzo Abe. The improbable success story of Japanese economic growth made both business leaders and politicians on the other side of the Pacific simultaneously excited for and apprehensive of the direction of Japanese power.
However, for many the optimism of just a few years ago is gone. As firefighting at home and abroad has taken precedence over strategic advancement, the reforms of Prime Minister Abe’s “Abenomics” have teetered. The Age of Japanese Prowess has yielded to Chinese openness to foreign investment, which has allowed it to dominate the AsiaPacific. India is on the rise. New markets are opening up in Southeast Asia, like the once-closed Myanmar. As result,to many investors Japan appears more a country of the past than of the future.
Although today it seems counterintuitive to invest in Japan, the spirit of reinvention that defines Japanese society and business will ensure that this season of economic trouble will also eventually be reversed and remade into a new beginning. As Chinese investment opportunities start to level off, Japan’s historically strong presence in the Asia-Pacific and its tradition of doing business according to internationally established norms make it an attractive entry point for investors. Outside its immediate neighborhood, Japanese companies are some of the best-positioned options for increasing growth in the developing world.
Market trends show that the future growth of Asia is in the smaller nations of South East Asia, not traditionally dominant Japan or China. As the Chinese economy begins to slow, the market, oversaturated with foreign investment, is turning inward. Chinese government leaders are shifting focus away from unhindered growth, to increasing restrictions in order to curb climate change and corruption. Increased costs from these added restrictions and rising wages are eroding China’s competitiveness. As a result, manufacturers are shifting to other low-cost countries, countries where Japan, not China, already has the upper hand.
Buoyed by a 70-year strong US-Japanese alliance and regional apprehension over Chinese aggression, Japanese companies have growth potential in Southeast Asia unmatched by China. In emerging markets from Malaysia to Myanmar, Japan’s annual trade has doubled in recent years. In South Asia, trade between India and Japan has tripled. While growth from China is strong as well, numerous territorial disputes are straining this relationship. Resting on a history of respect and mutual cooperation, a growing number of countries in Asia are eager to do business with Japan.
Beyond its growing presence in Southeast Asia, the Japanese system is one western investors can relate to and use. Japan has an established history of doing business on the basis of international norms and best practices, and some of the world’s largest multinational companies. Outside of mainland China, a growing reputation among Chinese companies for harmful business practices in the developing world make investment difficult. In Africa and Latin America, country leaders are realizing the ties that come with Chinese deals are disadvantageous to their countries’ own long-term growth opportunities.
In other fast-growing markets of the developing world, Japan has an established foothold as well. In Turkey, a Japanese-led consortium and investment from Japan’s official development assistance organization, Japan International Cooperation Agency (JICA), contributed heavily to the infrastructure project “of the century” – the first Asia-Europe underground train link in Istanbul. In Latin America there is the forthcoming Trans Pacific Partnership – a trade deal that promises to officially connect Latin America and Asia for the first time. Expansion minded Japan has embassies in 33 countries (China only has 22, with far fewer consulates supporting). With one and a half million citizens of Japanese descent living in Brazil – the largest population in the world outside of Japan – there is an enduring connection between the two countries politically and economically. Typically globally headquartered in New York and Washington, D.C., Japanese companies are closer than many American investors realize. Their access and experience in international markets provides a bridge to the developing world that investors in these cities seek.
Pessimists argue that the Japanese are resistant to change. They look at Japan and ask “Where is the Japanese Twitter or Japanese Uber?” Unlike the Chinese, however, Japanese companies see no need to replicate the success of social phenomenon such as these. Not only does their open system not necessitate a carbon-copy business approach, but the Japanese are innovators in how they chase mechanical and technological perfection. Companies like Mitsubishi and Toyota have led the way traditionally and will once again be leaders in their field.
To do better at home, Japanese companies have realized they need to be better abroad. While this spirit flagged as the economy grew, since the disaster in Fukushima almost five years ago this ancient society has begun to reinvent itself once again. Japan is turning its own weaknesses, such as aging demographics and lack of natural resources, into strengths by becoming a leader in robotic and environmentally efficient technologies. Even its tragedy has a silver lining. As the operator of the Fukushima Daichi nuclear power plant that gained international infamy during 3/11, Tokyo Electric Power Company (TEPCO) is now seeking to lead globally in creating a nuclear safety culture that exceeds all present standards.
Crisis pushes innovation. Despite extreme setbacks, Japan is still looking towards positive growth. As the next generation of Japanese look towards the future, they are looking abroad to where Japanese companies are well positioned. Multinational companies, whether American or Japanese, are increasingly looking beyond the developed world to the emerging markets and the rising powers where growth rates continue to soar. Japanese companies provide a thoughtful, safe approach for investors to capitalize on the global rebalance to Asia while providing a comfortable regional hub from which to operate in the future.Dr. Joshua W. Walker is Vice President of Global Programs at APCO Worldwide and is the Japan lead at the DC-based German Marshall Fund of the United States.