In times of geopolitical tensions and the focus on friends of business partners - the so-called "Friend-Shoring" - German companies are increasingly also focusing on Japan. This is shown by the current business climate survey "Economic Outlook - German Business in Japan 2023", which has already been conducted for the sixth time, a joint survey by the German Chamber of Industry and Commerce in Japan (AHK Japan) and KPMG in Germany. 113 subsidiaries of German companies in Japan participated. The most important findings at a glance:
Andreas Glunz
Managing Partner International Business
KPMG AG Wirtschaftsprüfungsgesellschaft
Japan is "a guarantor for stable business relations"
The partnership of values between Germany and Japan has led to a growing interest in Japan at the corporate headquarters of more than one in three German companies (36 per cent). According to the respondents, Japan's greatest advantages are its economic stability (97 per cent), the stability and trustworthiness of business relations (96 per cent) and security and social stability (95 per cent). "The figures impressively underline Japan's role as a guarantor of stable business relations. In the current uncertain times, this is all the more advantageous. Thus, more than one in three German corporate headquarters shows growing interest in Japan as a value partner," says Marcus Schürmann, Managing Director of AHK Japan.
Situation of German companies better again than before the Corona pandemic for the first time
The fundamentals for German companies in Japan are right again: in 2022, 93 percent of them achieved pre-tax profits, for the first time again more than in 2019. This is an increase of eleven percentage points compared to 2021. In addition, profitability increased significantly: The share of companies with a pre-tax profit margin of more than ten percent increased by six percentage points compared to the previous year. Looking ahead to 2023 and 2024, the majority of German companies in Japan are also confident: three-quarters continue to expect rising sales and more than six out of ten companies expect growing profits.
Japan is not just a sales market: sourcing and procurement are becoming more important
The sales potential in the Japanese market with approx. 125 million people is particularly relevant for companies - what is new is that German companies are increasingly buying locally: For every second German company in the island state (51 per cent), direct access to innovative and highly specialised suppliers is crucial. "In order to become more resilient and reduce their dependence on China, German companies are diversifying their procurement. They value 'Made in Japan' quality very highly. In addition, the yen, which has been steadily weakening for three years, makes purchasing in Japan attractive," says Andreas Glunz, Head of International Business at KPMG in Germany.
Cooperation with Japanese companies in third countries on the rise
Since Japanese companies are often among the global market leaders in their industries, competitive intelligence and trend scouting play a major role. In addition, cooperation with Japanese companies in third countries is increasing. "Japanese corporations have been regionally anchored on all continents for decades and have been present in Germany since the early 1960s. They have established excellent business contacts everywhere, often complementary to German companies. These can be used in joint projects," says Andreas Glunz.
Recruitment of skilled workers is the biggest challenge
However, there are also problem areas. According to 84 percent of the respondents, the biggest challenge is the recruitment of qualified personnel. The situation has worsened by twelve percentage points. Managers are also much more concerned about inflation than in the previous year: 67 per cent of respondents consider it to be the biggest challenge - 23 percentage points more than a year ago. The inflation rate in Japan recently reached four per cent. This is the highest level in four decades.
At 4%, inflation in Japan reached a four-decade high in December 2022. In international terms, this is still at a comparatively low level. The indirect effects of the Russia-Ukraine war among other things have caused this increase. These are significantly noticeable for 47% of respondents (35% in the previous year).
Methodology
AHK Japan and KPMG AG Wirtschaftsprüfungsgesellschaft in Germany analysed the responses of 113 companies for the business climate survey "German Business in Japan 2023". The period of implementation was between 27 January and 6 February 2023. Publication of the study results on 13 March 2023, five days before the start of the German-Japanese intergovernmental consultations led by Chancellor Olaf Scholz and Prime Minister Fumio Kishida in Tokyo.
