by Yongkyung Kim, Chief Researcher

 

(The original article in Japanese was posted in December 2022)

 

Since I work at the Seoul Branch of Yano Research Institute Ltd., a Japanese market research firm, I have seen both Japanese and Korean business styles and am familiar with characteristics of typical management practices in both countries.

The biggest difference that I found between the two countries was extent of markets that companies in each country target. Korea is a small country with a total population of about 50 million, which is much less than half of Japan. Possibly for or this reason, most Korean companies tend to do business internationally from the beginning. On the other hand, Japanese companies, except for major ones, seem to do business domestically in many cases.

Yano Research Institute has coordinated business meetings between Japan and Korea organized by the Japan-Korea Industrial Technology Co-Operation Foundation and the Korea-Japan Cooperation Foundation for Industry and Technology for the recent several years. Due to the COVID-19 pandemic continued for a couple of years, the meeting this year was held both online and offline. One participant from a Japanese company in the meeting held in Korea in 2022 was surprised the most at the fact that Korean companies, even small-sized ones with a few employees, develop business globally, and said that Japanese companies need to “reconsider” the target markets.

I agree with the participant’s opinion. The Seoul Branch of our company sells our own market research reports, as with the headquarters in Tokyo, and Korean companies often ask us why the regions covered in the report are limited to Japan. Most of our publications target the Japanese domestic markets, and sales of these reports to Japanese companies have been successful. This means that even research reports only on the Japanese domestic markets are in demand from Japanese companies at this time.

There are many small and medium-sized Japanese companies that have high level of technological strengths that can be proudly stood on a worldwide scale. Nevertheless, such technologies may have not been developed and utilized in the global market. We should consider once again whether the excellent technologies of such companies in Japan are fully exploiting the global markets.

I expect the Japanese companies get out of their "comfort zone," or the limited domestic market, and expand their business on a worldwide scale to gain greater demand and profits. Of course, to achieve this there are many challenges to be solved such as securing of human resources and restructuring of management policies to develop the overseas markets, and further investment in establishment of overseas bases. Although not many companies can solve all of these issues at once, when these are finally solved, those who run their domestic business with the global market in mind and those who do not may produce different outcomes.

The factors such as shrinkage of the domestic market, the large potential market and inexpensive labor costs overseas, clients who have been expanding their business worldwide, etc. should lead Japanese companies to target the international market rather than the domestic market.

In Japan, the population has been continuously decreasing due to falling birthrate and aging population. This means that domestic consumption has also been declining. While the population in Japan has been on a downward trend, the world population has been continuously increasing on the other hand. Currently, large population growth has been seen in Asia and Africa, namely India, Nigeria, Indonesia, etc. These countries are expected to further expand their market size according to population growth.

The declining birthrate and aging population make it difficult to secure labor force, resulting in higher labor costs. Currently, labor costs in developing countries are lower than those in developed countries. It is said that the labor costs in developing countries are estimated to be as low as 20% of those in Japan. However, even such countries will eventually have higher labor costs in the future, following the national economic development. Therefore, it is necessary for Japanese companies to have a long-term viewpoint when considering their international business expansion, and they should not make a decision just because some other countries have low labor costs. In addition, many major companies that globally operate their businesses strongly desire to procure parts and materials near their overseas bases, and some Japanese companies consider the business expansion overseas to maintain the relationships with their business clients. As mentioned above, the advantage for Japanese companies to enlarge their business worldwide is that they can have access to broader sales channels and lower costs including labor costs, taxes, and material costs.

The global market is a few times to several tens of times larger than the Japanese domestic market, and it is highly likely they find great business opportunities there. I would like to see Japanese companies not only target Japan but also expand their markets internationally and spread the technological prowess of Japan to the whole world.