Business climate survey by AHK Japan and KPMG AG Wirtschaftsprüfungsgesellschaft
Japan attracting more attention in German corporate headquarters
Growing interest in Japan as a Value Partner in more than one third of German corporate headquarters (36%)
- 96% of German companies value Japan’s economic, political, and social stability as its biggest advantage as a location
- 93% of German companies generated profits before tax last year in Japan (+11 percentage points from 2021)
- Japan increasingly relevant for sourcing/procurement: more than one in two German companies (51%) make use of the direct access to innovative and highly specialised suppliers from Japan (+9 percentage points year-on-year)
- Co-operation in third markets has expanded: 66% of respondents (+8 percentage points year-on-year) co-operate with Japanese companies in third markets
- The recruitment of qualified staff is rated as the biggest challenge by 84% of respondents (+12 percentage points year-on-year), while it is inflation for 67% (+23 percentage points year-on-year)
13 March 2023 | Tokyo/Berlin. In these times of geopolitical tensions and “friendshoring”, German companies are increasingly turning their attention to Japan. This is revealed in the latest business climate survey “Economic Outlook – German Business in Japan 2023”, conducted jointly by the German Chamber of Commerce and Industry in Japan (AHK Japan) and KPMG in Germany. A total of 113 subsidiaries of German companies in Japan took part.
Japan’s greatest strength remains its economic, political and social stability
In a global comparison, Japan consistently achieves absolute top scores in all surveys when it comes to the subject of reliability. German companies once again confirm that Japan’s greatest advantages are its economic stability (97%), the stability and trustworthiness of business relationships (96%) and its safety and social stability (95%).
“The figures are an impressive confirmation of Japan’s role as a guarantor of stable business relationships. That’s an even greater advantage in these uncertain times. That’s why more than a third of German corporate headquarters are showing a greater interest in Japan as a partner with shared values”, says Marcus Schürmann, Managing Board Member of AHK Japan.
For the first time, situation of German companies in Japan better than before the pandemic
The fundamental data for German companies in Japan give grounds for optimism again: 93% of German companies in Japan generated profits before tax in 2022, more than in 2019 again for the first time. This is an increase of 11 percentage points over 2021. Profitability has also risen: the proportion of companies with a profit margin before tax of more than 10 percent increased by 6 percentage points over the previous year. 48% of the companies surveyed (45% in 2021) confirm that Japan is one of the five largest sources of sales and earnings in the corporation as a whole.
German companies are also confident looking forward to 2023 and 2024: three quarters of them (75%) expect sales to increase again in both years. Moreover, a growth in profits in 2023 is anticipated by 63% of them and in 2024 by 65%.
Japan is not only a sales market: sourcing/procurement has gained considerable relevance
As in the previous two years, the high sales potential on the Japanese market with over 125 million inhabitants is the most important reason for being active in Japan for 85% of the German companies.
What is new is that German companies are boosting their purchases in Japan: for every second German company in Japan (51%), direct access to innovative and highly specialised suppliers is a decisive factor. This corresponds to an increase of 9 percentage points. “To become more resilient and reduce their dependence on China, German companies are diversifying their procurement. They value the ‘Made in Japan’ quality very highly. What's more, the constant weakening of the Japanese yen over the past three years has made purchasing in Japan an attractive proposition”, notes Andreas Glunz, Managing Partner International Business at KPMG in Germany.
As Japanese companies are often innovative world market leaders in their industries, analysis of their competitors in Japan (60% vs 55% in the previous year) and trend scouting (57%) play an appropriately large role for German companies in Japan.
The investment activities of the companies surveyed are relatively restrained. As in the previous year, three quarters (75%) intend to invest less than EUR 5 million in Japan. Only 4% are planning investments of between EUR 50 million and EUR 250 million.
Co-operation with Japanese companies in third markets on the rise again
The number of German companies that are co-operating with Japanese companies in third markets is increasing. Two thirds of all surveyed companies (66%) are currently doing this, which is 8 percentage points more than in 2022 and 18 percentage points more than in 2021. Joint projects are being conducted primarily in Asia excluding China (69%), Europe (51%), China (47%) and North America (40%).
“Japanese corporations have been embedded regionally on all continents of the world for decades and have had a presence in Germany since the early 1960s. They have developed excellent business contacts everywhere and are frequently complementary to those of German companies. These can be used in joint projects”, says Andreas Glunz.
German companies see the greatest chances for success for co-operation projects with Japanese companies in the fields of environmental protection (66%), technical innovations (59%) and energy (55%).
Challenges are increasing
Alongside the positive aspects, companies also see several challenges. “The recruitment of well-educated personnel remains the greatest challenge (84%) and has even increased in significance compared with the previous year (+12 percentage points). This has an impact on growth and exerts a long-term influence on the competitiveness of the German companies on site”, comments Marcus Schürmann.
The challenge for German business in Japan that has seen the greatest rise in relevance is inflation, which is named by 67% of the respondents (23 percentage points more than in the previous year). “In December 2022, inflation in Japan reached its highest level, at 4%, for four decades. That’s still a relatively low level in an international comparison. One of the reasons for the rise has been the indirect impacts of the Russia-Ukraine war. They are felt to a significant degree by 47% of the respondents (35% in the previous year)”, according to Andreas Glunz.
Asian headquarters primarily in Japan, China and Singapore
One in five of the companies surveyed (20%) confirm that Japan is the location for their regional headquarters in Asia, level with China and ahead of Singapore (18%). China and Singapore are up 5 percentage points and 3 percentage points respectively compared with last year’s survey, however, Japan is down 2 percentage points.
In view of the geopolitical developments, corporate headquarters are increasingly reviewing the role Japan should play in the further alignment of the China and Asia strategy.
The survey reveals: “Japan is not first choice when it comes to diversifying and reducing dependencies on China. But, this notwithstanding, one fifth of all German corporations are including Japan in their considerations on this subject. Comparatively low personnel costs, government subsidies and the general framework provided by a partner who shares the same values can play a role here that should not be underestimated”, believes Marcus Schürmann.
You can download the survey results here:
German Business in Japan 2023 (PDF)
German Business in Japan 2023 (Japanese/PDF)
About the business climate survey
AHK Japan and KPMG AG Wirtschaftsprüfungsgesellschaft asked 403 subsidiaries of German companies in Japan to participate in the business climate survey “German Business in Japan 2023”. A total of 113 companies took part. The survey was conducted between 27 January and 6 February 2023. The questions focused on the economic outlook for German companies in Japan and their challenges and business opportunities
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