Business opportunities in Japan

Japan is one of the world’s economic giants, a modern and sophisticated powerhouse that ranks behind only China and the United States in the global economic rankings. At the peak of its powers in the late 1980s, Japan was talked about as a serious potential challenger to America’s number one status.

China overtook Japan as the world’s second-largest economy in 2010. Yet, Japan remains an immensely powerful force in world trade and commerce, and a key business partner for Australia. Japan is our second-largest export market, behind China, and our third-largest source of foreign investment. Importantly, bold reforms being implemented by the Japanese Government are set to open up new opportunities for Australian businesses, and a new chapter in a long and prosperous economic relationship.

Australia and Japan enjoy a strong and complementary trading relationship that has flourished since the early 1960s. Australia’s major exports of natural resources such as coal, iron ore and liquefied natural gas have fuelled Japan’s manufacturing sector. Australian agricultural products such as beef and fresh seafood have also been important contributors to the relationship. In turn, Japan has been a major supplier to Australia of manufactured goods including cars, electronic equipment and steel, as well as a primary source of tourists. Japan has also invested heavily in Australia over several decades, with its total stock of investment worth just under AUD 200 billion in 2015. Total Australian investment in Japan in 2015 was worth just under AUD 90 billion.

Although services account for the vast majority of economic activity in both Japan and Australia, it is resources, agricultural products and manufactured goods that dominate the trading relationship, with trade in goods worth more than AUD 55 billion in 2015-16. Two-way services trade in 2015-16 was worth a relatively modest AUD 5.2 billion, with travel and transport the major contributors. However, trade in services could expand considerably after the signing of a free trade agreement – the Japan Australia Economic Partnership Agreement (JAEPA) – that came into force in January 2015. The agreement has removed barriers and opened up new opportunities for Australian professional services providers in areas including the law, finance and design, to name just a few.

From an Australian business perspective, Japan is quite different to other Asian countries in that the opportunities are not due to a rapidly rising GDP and expanding middle class. Its economy is developed and mature, and its middle class already well established. Opportunities are therefore to be found in discovering new niches in a changing and increasingly open economy with an established cohort of middle-class consumers. Products and services that meet the exacting standards of affluent Japanese consumers will be well placed in this market, and possibly others in the region as well.

The opportunities presented by doing business in Japan extend beyond its national boundaries. Japan is the largest investor in Southeast Asia, and many of its businesses have a significant presence in third markets. Hence, working with a Japanese business partner or integrating into their supply chains can be a rewarding option for Australian businesses looking to sell their products into more challenging markets.

As two developed, service-orientated economies that enjoy an excellent political relationship, Japan and Australia are poised to further deepen their economic ties. Specific industries and products Australian businesses enjoy advantages in include agriculture, processed food, seafood, wine, cosmetics, life sciences and biotechnology, financial services and legal services.

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