David S. Abraham, F03, & Ira Wolf
Changing consumer habits make the world's third-largest economy more attractive to multinationals.
Japan's recently announced corporate tax cuts of 5% and newly proposed subsidies and tax incentives for overseas firms are unlikely to reverse the country's economic fortunes on their own. Taxes are still far lower elsewhere in Asia and burdensome regulations will continue to stymie broader economic growth. But many CEOs who instinctively bypass Japan for faster growing markets in China and India, should rethink establishing a presence here.
To be sure, Japan's economic malaise is well documented. Annual GDP growth over the past 15 years has averaged below 1%. Deflation has been a drag on the economy by deterring borrowing and spending as consumers and businesses postpone purchases waiting for prices to fall and demand to rise. Moreover, decision-making and government bureaucracy is slow, while entrenched relationships often challenge the patience of new market entrants. With China's economy eclipsing that of Japan's to become the world's second largest, a large shadow now obscures investment possibilities.
But Japan as No. 3 still presents opportunities in many sectors due to a large, concentrated population with purchasing power per capita ten times greater than China. Japanese consumers are also showing an increasing acceptance of innovative foreign products and price competition...