Is Japan's Investment Bloom on its Way?

Outward

American roads first saw Toyota cars in 1965. Two decades later, the company set up its first plant in the country. Its growing presence — and subsequent competition to homegrown brands like General Motors — even became a bone of contention between Japan and the US. The shifts were 'alarming', to say the least. Fast forward to the beginning of 2022, Toyota is declared to have overtaken GM as America's top seller for the previous year, having sold 2.332 million vehicles (while the latter saw bookings of 2.218 million). GM blamed this on chip shortages. It could very well have been a chance that favored Toyota's numbers in 2021. But, it isn't easy to rise up the industry ladder.

Today, Uniqlo is aspiring for the same level of growth. Its stores in America are only 47 in number — comparing this with the global presence in 2200 locations puddles the parent company, Fast Retailing's, ambitions. Its CEO, Tadashi Yanai, has a simple target: to make Uniqlo number one globally. And for this, expanding its presence in the US is absolutely important. Achieving this means devising a whole new marketing strategy (that doesn't steer away from its minimalist image) — and giving it an ample budget. Fast Retailing has done just that. Ten new stores are also set to be opened.

Both Uniqlo's and Toyota's stories show how Japan is growing beyond the East and carving out a place for itself in the retail and manufacturing space — Sony is yet another example.

But, what is the state of investments that are coming into Japan?

Inward

In August 2020, Berkshire Hathaway Inc. decided to buy stakes worth 5% in each of Japan's biggest trading companies (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo). Now, it has announced that it'll increase this to 7.4%. That Berkshire is Warren Buffet's company makes the situation more 'fruitful' for the Japanese. He is visiting the country and hopes to invest more, beyond the recent announcement. Buffet's interview with Nikkei in which he shared this new development, has shot up shares of the trading companies in Japan.

It's no secret that Japan's FDI attractions are a result of the same components that drive its international scoping — a strong suit in technology and manufacturing. Its competitiveness, especially in the latter, is among the best in the world.

But industrial R&D, despite it being a point of pride for Japan, has largely remained unproductive. The same can possibly affect companies like Toyota that are yet to dive deep into newer EV tech. In a world that's quickly marching ahead in the face of diversifying consumer choices, failing to keep up with the demand for 'new' products can push back all progress that Japanese companies have so far managed to make. Consistent innovation should become the major target for these organizations. A McKinsey report shows how Japan's share in the number of patents awarded every year has dropped to 10% from 30% in 2000 (figures until May 12, 2020). This can't be a good sign.

One can even say that Japan tends to stay stuck in the past — very few were optimistic about the start-up economy in the country. This scenario is gradually changing today, but the employment numbers still go in bulk toward the established, larger companies. The ecosystem within Japan should become more attractive for non-traditional employment opportunities — given the lifetime offers that are simultaneously floated by the big corps., the competition is stark. Rather than promote youngsters and professionals alike to set up shop abroad, incentivizing employment opportunities (with added benefits) within the country for start-ups is more important now than ever. If foreign investments need to be retained, the promise of a thriving innovative fabric must be concretized.

Evidently, at the core of both its outward and inward flows of business is the necessity of innovation. There's a lot of catching up that remains to be done by Japan. Ceaselessly relying on traditional, long-standing formulas for growth can fall short, especially in a post-pandemic world.