There’s a saying in Japanese that roughly says, “One’s effort brings one’s reward.” It’s a refrain I heard and saw firsthand during my five years as consul and senior trade commissioner in Nagoya, Japan. Without a doubt, the Canadian companies that have chosen to make the effort in the Land of the Rising Sun have been rewarded. Japanese culture is ancient, noble and sometimes complicated. Japanese business people place a high premium on personal relationships. Once formed, a business relationship can last a lifetime and provide rewards well beyond financial dividends.
Slow growth, but growth nonetheless
Much is written about Japan’s aging population and their old-age dependency ratio, which in 2015, reached a fraction above 50. Population wise, that means that the number of people 65 and older was equal to those between 15 to 64. When coupled with Japan’s limited economic growth recently, it’s easy to understand why many look past this market, thinking it’s a market of the past. But that would be a mistake. Despite somewhat lacklustre growth, there is still growth. In fact, Japan is currently enjoying an unbroken stretch of economic expansion that dates back to 1945. While China’s growth trajectory may dominate the headlines, Japan remains the third largest economy in the world, not to mention an undisputed leader in technological innovation.
Canada and Japan enjoy a healthy trade relationship, with two-way trade running close to $30 billion annually. Canadian companies exported close to $12.9 billion in goods to Japan in 2018. In the same year, Japanese investment in Canada hit the $29.6-billion mark. Those numbers are expected to rise, thanks to the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a major regional free trade agreement between Canada, Japan and nine other Asia-Pacific nations. Global Affairs Canada is projecting a $1.8-billion annual increase in Canadian exports to Japan between 2018 and 2040.
CPTPP spells opportunities
Once fully implemented, the CPTPP will provide Canadian exporters with preferential market access to some 500 million people in 11 countries with a combined GDP of $13.8 trillion. The agreement came into force on Dec. 30, 2018. To date, the first seven countries to ratify the agreement, including Japan, have made two tariff cuts. Tariff cuts create preferential market access, which creates a level playing field for Canadian products with respect to their CPTPP competitors, and will provide Canadian companies with a leg up on others that don’ yet have the same level of access to CPTPP markets. Once fully implemented, 99% of tariff lines among CPTPP parties will be duty-free. It’s anticipated that annual tariff savings will be about $338 million.
What does this mean for the average Canadian exporter? If you’re a beef producer, it means big business. Japan’s 38.5% beef tariff has dropped to 26.6%, and will be gradually reduced to 9%, giving our suppliers a huge hoof up over U.S. suppliers. It’s still early days, but our beef industry has posted a sharp spike in beef exports, nearly doubling in the first months of this year compared to the same period last year. Pork producers have also experienced an early export surge of more than 13%. It’s a safe bet that sectors with the biggest gains in tariff elimination are likely to also see the biggest gains in export expansion, including agriculture and agri-food, fish and seafood, industrial goods and forest products. Specific areas where we anticipate new opportunities include:
- aerospace
- chemicals and plastics
- cleantech
- defence and security
- education
- life sciences
To find out where your products fit into the diminishing duties landscape, consult the Canada Tariff Finder tool.
Many non-tariff barriers to trade were also lifted with the CPTPP. Service exporters will have easier access now that temporary entry to the market has been made less complicated for Canadian professionals. Companies looking to do business in Japan at the government level will now be on equal footing with domestic suppliers, thanks to the agreement’s government procurement provisions. If you fall into this category, take a look at JETRO’s online database of Japanese government procurement opportunities.
Making the right connections
If you’ve done some legwork and discovered there’s a viable market for your goods or services in Japan, then it’s time to contact the Trade Commissioner Service (TCS) in the regional office nearest you. They can help evaluate your market entry strategy and point you in the right direction. All the research in the world can’t compare to an in-market visit. The TCS can advise which trade missions to Japan might be most beneficial to your company. Keep in mind, the CanExport program provides financial assistance to smaller Canadian companies that are looking to forge business relations in new markets, so be sure to find out if you’re eligible.
In addition to our representatives across Canada, the TCS has more than 1,000 trade experts located in 160-plus cities around the globe. We have a team of 47 trade professionals stationed in Tokyo, Sapporo, Osaka, Nagoya and Kitakyushu. They specialize in a number of industry sectors and excel at forging relationships with associates who can help Canadian companies do business in Japan. If you’re looking for an agent or distributor, the TCS can provide access to vetted professionals who you can rely on when assembling your own trade team in Japan. From lawyers to accountants, translators, cultural advisors, customs brokers and government officials, our in-market team can pave the way with invaluable introductions.
Slow, but steady, wins
Japan affords a highly developed, exceptional business environment. Consider their track record of innovation, enviable infrastructure, commitment to the rule of law, extraordinary educational standards and resultant skilled workforce. It also requires an understanding of the value placed on personal bonds. Sometimes that runs contrary to Western thinking, where the maxim is to separate personal from business lives. But in Japan, personal relationships often eclipse business protocols. Once established, Japanese companies tend to be extremely loyal to their trading partners. Plan for frequent visits to Japan, especially during the early stages of your business encounters. It’s advisable to have a local partner, as well, to help you navigate any cultural or linguistic challenges.
Perhaps it’s appropriate to end this piece the same way it started, with a saying. In English, the proverb goes, “Slow, but steady wins the race.” The Japanese have a similar expression: “Fast is slow, but continuous and without interruptions.” There’s much to be said about approaching global business in the same vein. Take your time, keep your eye on the hurdles, but above all, keep going.
