German managers in Japan anticipate significant growth in sales and earnings. Over 90% of German companies see Japan as an anchor of stability in uncertain times / Key cooperation partner with opportunities in relevant future growth areas No sense of new impetus from the Olympic Games.
- Japan remains an important and profitable market: 83% of German companies generated pre-tax profits in Japan in the pandemic year of 2020.
- Medium-term outlook also positive: German managers in Japan anticipate significant growth in sales (73%) and earnings (55%).
- 86% regard high sales potential as the most important reason for their presence in Japan.
- As the world’s third-largest economic power, German companies consider Japan to be even more important from a strategic perspective: 59% of them have a presence in Japan in order to identify new trends and 53% to observe their Japanese competitors on their domestic market.
- German companies also use their Japanese customer base to generate significant sales outside Japan: 53% generate just as high sales with these customers outside Japan as they do in Japan, while 16% generate sales that are three times higher.
- 48% of respondents cooperate with Japanese companies in third markets in order to benefit from their good access to Asia and the whole world.
- The biggest challenges cited by German companies are the travel and visa restrictions resulting from the pandemic (76%) and population decline (74%). 79% also experience difficulties when it comes to recruiting well-trained employees.
- The most important area of future cooperation with Japanese companies is fuel cell and hydrogen technology (48%), closely followed by digital technologies and GreenTech (each 39%).
- One in every five German companies expects the Olympic Games to result in substantial economic losses for Japan, while almost one-third of those surveyed expect them to deliver no new impetus.
Despite the difficult conditions resulting from the COVID-19 pandemic, 83% of the German companies surveyed were able to generate profits in Japan in the past financial year. Almost one in every five companies (19% compared with 14% in the previous year) achieved profit margins in excess of 10% of sales.
The medium-term outlook for German companies is even more positive: Almost three-quarters of them (73%) anticipate sales growth, while 55% expect to see earnings growth. By contrast, only 5% and 4% respectively expect these figures to decline.
These are the key findings of the “German Business in Japan 2021”. The survey was conducted by German Chamber of Commerce and Industry in Japan (AHK Japan) and KPMG Germany between 19 and 30 April 2021. It focused on the business expectations of German companies in Japan.
Stability is the no. 1 location factor
Japan’s stability remains the outstanding location factor as far as the German economy is concerned: 95% of the companies surveyed said that the stability of their business relationships and the reliability of their business partners were the biggest advantage of the location. However, economic stability (90%), security and social stability (90%) and the stable political environment (84%) also score extremely well in an international comparison. In times of geopolitical tension and with a continued disconnect between the two major economic powers, the US and China, Japan is viewed as an anchor of stability and an important cooperation partner for German companies in Asia. “Investments always have a long-term horizon. Accordingly, German companies are right to place a particular emphasis on stability and security. Japan occupies a leading position compared with its international peers,” commented Marcus Schürmann, CEO of AHK Japan.
Japan is more than just a sales market
In addition to its high sales potential (86%), the most important reasons for a presence on the Japanese market are strategic considerations such as identifying new trends (59%) and observing Japanese competitors on their domestic market (53%). “There is a good reason why Japan is the world’s third-largest economy. Japanese corporations are the global leaders in many sectors thanks to their innovative strength, particularly in the electronics, high-tech and automotive industries. Innovation in Japan is typically less conspicuous but instead is evolutionary and long-term-oriented and occurs silently. If you want to find out what is happening, you need a local presence and be on the ground,” noted Andreas Glunz, Managing Partner International Business at KPMG Germany.
Benefiting from Japan’s strength
German companies also use their globally active Japanese customers as a springboard for generating sales outside Japan. More than half of all German companies (53% compared with 47% in the previous year) generate sales with their Japanese customers outside Japan to at least the same extent as in Japan itself, while 16% generate sales outside Japan that are three times higher.
Furthermore, around half of the German companies surveyed (48% compared with 63% in the previous year) cooperate with Japanese companies on joint projects in third markets in order to benefit from their good access, especially in ASEAN (36%) and China (28%). The year-on-year reduction of 15% in 2020 was due to the extensive travel restrictions resulting from the pandemic. With the above in mind, it is not surprising that 16% of the German companies surveyed have chosen Japan as the location for their regional headquarters in Asia, just behind Singapore (22%) and China (17%). “For German companies, Japanese customers and cooperation partners can open up not only the Japanese market, but also the rest of Asia and the whole world. This makes Japan unique and often underestimated,” commented Andreas Glunz.
Challenges for German companies
The fundamentally positive view of Japan should not conceal the challenges and critical aspects. The ageing population – Japan is the country with the highest average age – is now considered to be almost as much of a threat as the consequences of the COVID-19 pandemic, with 74% of respondents citing it as a risk factor (previous year: 60%).
HR issues also continue to concern German companies, with 79% of companies stating that recruiting well-trained employees is the biggest challenge. The inflexibility of Japanese employment law is also a concern for almost half of all companies (48%).
Hydrogen, digitalisation and GreenTech are the leading areas for cooperation
The Japanese government illustrated its focus on the topics of the future with its “New Growth Strategy”. The response from German companies already proactively reflects these topics. Almost half of those surveyed (48%) consider fuel cell and hydrogen technology to be one of the most promising future growth areas for Japan. This is followed by digital technologies and GreenTech (each 39%) and automation and robotics (38%). “Standards, multilateral regulations and cooperation already play a significant role in these areas. As partners who share the same values, Germany and Japan are likely to be able to develop attractive cooperation and business opportunities in the Japanese market and in third markets,” commented Marcus Schürmann.
Japanese subsidiaries of German companies suggest dialogue with China
Like Germany, Japan is faced with having to navigate the tension between the economic powers of the US and China. 40% of those surveyed believe that the Japanese government should engage in dialogue with China and seek to integrate it into its own strategies and projects rather than pursuing a policy of confrontation (22%).
The extent to which German companies in Japan are directly impacted by Chinese competitors on the Japanese market has declined slightly compared with the previous year. Although an unchanged 16% of respondents cited China as a strong competitor, China is not at all relevant for 36% of the companies surveyed – an increase of ten percentage points.
Doubts surrounding the positive impact of the Olympic Games
Just under one-third of those surveyed (29%) consider the manner in which the Olympic Games are being organised to be more a sign of the continued crisis than a positive indicator of new impetus. Meanwhile, 20% believe that Japan will suffer substantial losses as a result of hosting the Olympic Games.
About the Business Climate Survey
In preparing the “German Business in Japan 2021”, AHK Japan and KPMG in Germany conducted a survey of the Japanese subsidiaries of German corporations. A total of 105 companies took part. The survey was conducted between 19 and 30 April 2021. The questions focused on the economic outlook for German companies in Japan and their challenges and business opportunities.
The study is available for download here:
German Business in Japan 2021 (PDF)
Press Contact
Yuko Makita
Press and Publications
Communications
German Chamber of Commerce and Industry in Japan (AHK Japan)
Tel.: +81(0)3 5276 8741
Email: press(at)dihkj.or.jp