Business Climate Survey of AHK Japan and KPMG in Germany
Japan is an important cornerstone in the diversification strategy of multinational German companies
96% of German companies in Japan value the country as an anchor of stability in uncertain times
- Share of German companies with Asian headquarters in Japan increases (+6%-points)
- Presence in Japan drives global group sales; 43% of companies surveyed (previous year: 16%) achieve three times higher sales outside Japan than in Japan itself
- Business in third markets for German companies in Japan rises significantly to 58% (previous year: 48%)
- Russia-Ukraine war can be felt in Japan too: 74% of German companies in Japan indirectly affected by sanctions due to - the war; 17% directly affected
- Optimism for 2022: 75% of German companies expect sales growth in Japan - 55% expect increasing profits
- 50% of respondents say Japan can learn from Germany in the area of immigration policy, while 33% note that Germany can learn from Japan in limiting cluster risks
June 30, 2022 | Tokyo/Berlin. Business with and from Japan is gaining in importance for German companies, not least against the background of the Russia-Ukraine war. This is shown by a joint survey conducted by the German Chamber of Industry and Commerce in Japan and KPMG in Germany. The proportion of German companies surveyed that have their Asian headquarters in Japan has risen by 6%-points compared with the previous year. In addition, the proportion of German companies that, as a group, generate three times more sales outside Japan than in Japan has almost tripled year-on-year to 43%. Similarly, 58% of the German companies surveyed (versus 48% in the previous year) now generate business with Japanese companies on third markets in joint projects, taking advantage of their traditionally good access, particularly in Asia.
"This development insistently underscores Japan's strategic importance for German companies. The Russia-Ukraine war has led to a reassessment of the risk position of multinational German companies. Chancellor Scholz's first visit to Asia took him to Japan at the end of April. The decision to intensify bilateral relations through regular government consultations emphasizes Japan's increasing relevance. Both countries want to cooperate even more closely on key global challenges in climate protection, securing supply chains and maintaining free trade routes. The German economy will benefit from this in times of continued decoupling of the two largest economic powers, the USA and China", said Andreas Glunz, Head of International Business at KPMG in Germany.
Stability is location factor No. 1
The German companies surveyed consider Japan's economic stability (97% compared to 90% in the previous year), the trustworthiness of business relationships (96% compared to 95% in the previous year) and security and social stability (92% compared to 90% in the previous year) to be among Japan's particular strengths.
However, the situation on the labor market has deteriorated significantly: 81% (61% in the previous year) of respondents confirm a clear shortage in the availability of qualified workers.
"Especially in the current phase of uncertainty and realignment of the global economy, Japan is seen as an anchor of stability and an important cooperation and value partner in Asia. Investments are always long term. German companies therefore attach great importance to stability and security. Japan occupies a top position in international comparison", says Marcus Schuermann, Managing Board Member of AHK Japan.
Difficult fiscal year 2021
The second pandemic year did not bring the hoped-for improvements for German companies in Japan: both sales and margins fell again slightly in 2021 compared with 2020. Thus, 18% generated losses (versus 17% in the previous year). At the same time, a lower proportion of companies generated a return on sales of more than 5% in Japan (43% in 2021 vs. 47% in the previous year).
Positive outlook for the future, but war in Ukraine a burden
The war in Ukraine is leaving its mark all the way to Japan: 17% of the companies surveyed describe themselves as directly affected by the war as well as the sanctions and countersanctions that have been imposed - 7% of them very strongly. 74% are indirectly affected (35% of them very strongly), particularly by the limited availability of and increased prices for raw materials and intermediate products as well as problems in the supply chain.
Looking ahead to 2022, German companies in Japan are nevertheless positive: three quarters (75%) expect rising sales and 55% rising profits. For the following year 2023, the forecasts of the companies surveyed are even more positive. Here, 78% expect higher sales and 68% higher profits.
Japan is more than just a sales market
In addition to the high sales potential in the Japanese market (87%), strategic reasons such as participating in Japanese business networks (59%), spotting new trends (58%) and observing Japanese competitors in their home market (55%) are among the top four reasons for having a presence in Japan - in each case almost unchanged versus 2021.
Nevertheless, the German companies surveyed invest only comparatively little in Japan: three quarters (75%) invest less than EUR 5 million in Japan (83% in the previous year).
"Japan is no low-cost manufacturing location, but an innovative location for research and development, as well as a comparatively large local domestic market with 125.7 million people. As China's pull is gradually diminishing, Japan is increasingly becoming the focus of German business", emphasizes Andreas Glunz, Head of International Business at KPMG in Germany.
Different perspectives
The survey revealed clear differences between non-Japanese and Japanese executives: Japanese executives at the German companies surveyed in Japan are significantly more cautious and conservative regarding future expectations than their non-Japanese counterparts. Looking ahead to the next year, for example, 78% of non-Japanese executives expect profits, but only 60% of Japanese executives.
At the same time, Japanese executives are less progressive on the issues of climate protection and sustainability and act much more cautiously: 72% of non-Japanese executives but only 65% of Japanese executives consider these to be relevant investment areas.
When asked what Germany could learn from Japan, the topic of avoiding cluster risks stands out. 33% of respondents believe that Germany could learn from Japan here, but only 12% believe that Japan could learn from Germany in this respect. On the other hand, Japan should clearly pursue a more agile immigration policy in order to increase the availability of labor in Japan. In this case, 50% of the companies believe that Japan could learn from Germany, but only 7% say that Germany can learn from Japan.
"In addition to many similarities between Japan and Germany - such as their strong positions as the third- and fourth-largest global economies, the aging of the population, and the lack of available labor - the survey results also reveal differences in mentality and culture. The more cautious assessments on the Japanese side express the different understanding of how to assess and manage risks. It is worth taking a closer look at the risk management of Japanese companies and learning from it”, comments Marcus Schuermann, Managing Board Member of AHK Japan in conclusion.
The result is available for download here:
German Business in Japan 2022 (Englisch/PDF)
About the Business Climate Survey “German Business in Japan 2022”
AHK Japan and KPMG in Germany surveyed 400 subsidiaries of German companies in Japan for the business climate survey "German Business in Japan 2022". A total of 115 companies took part. The survey was conducted between May 12 and 23, 2022. The questions focus on the economic outlook of German companies in Japan as well as their challenges and business opportunities.
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