How easy is it to start a business in Japan?

Japan has seen a slow but steady influx of foreigners and foreign businesses into the country. One study shows a more than 10% increase in two years. Working in Japan has several benefits, ranging from its large market to its stable economy and relative safety. However, that doesn’t mean it is easy for an individual or small business to get started in Japan. How easy is it to start a business in Japan?

Your legal status as an investor/owner

One of the good things about doing business in Japan is that you don’t have to live in Japan to open a business there. You can use a representative office, though they can’t open bank accounts under your business name.

Note that this approach doesn’t require registration. You can set up a branch office, though this requires registration with the government, or you can set up a subsidiary company that has to meet the same rules as a Japanese company. An alternative to this is creating a joint venture with a Japanese company. If you want to be a director or partner in the company you’ve started in Japan, you must have either an investor or business manager visa.

The organisation of the business

Japan has four major categories of corporations. A Kabushiki-Kaisha, or KK, is the most popular because it limits liability and can be started for little money. You only need one investor and one yen. It requires articles of incorporation and public notice of financial statements; these forms are unnecessary for the other types of corporations but these filings give the KK more credibility.

A limited liability corporation in Japan is somewhat different from an American LLC. It has the same minimum number of investors and capital as a KK. It requires a representative partner instead of a representative director and is cheap to set up. Unfortunately, this organisational form is somewhat new to Japan and thus has less credibility. However, it does limit the investor liability to the capital they’ve invested.

A limited partnership corporation in Japan requires relatively little capital and has fewer regulations than a KK. On the other hand, there is no limit to the liability the investors face. A general partnership company can have both limited and unlimited liability for investors.

The more complex business structures take more time to set up. The simplest ones can be approved in a matter of weeks. Understand the tax implications of the type of company you set up.

The logistics of running the company

If you need to hire workers in Japan, you’re going to have to jump through more legal hoops than you would if running a sole proprietorship. Japan has very strict laws regarding worker safety and the minimum wage. These laws apply to both Japanese and non-Japanese companies operating in Japan, whether or not your employees are Japanese.

Everyone living in Japan is required to contribute to the public health insurance program and pay for pension insurance. Employers themselves have to contribute to employment insurance and workers’ accident compensation insurance as well. This can be daunting for foreign companies.

One of the ways that you could facilitate the whole process would be to work with an Employer of Records. However, when you start looking for an employer of record (EOR) in Japan, find a partner that does far more than find qualified candidates.

One solution is to work with an Employer of Record like New Horizons. They’ll take care of payroll and human resources administration, but they can handle a lot of other functions as well. If you want to learn more about them, you can get more information on this site. Not only will they be able to handle human resources for you, but they can also help with things like taxes and accounting, regulations, and immigration law if you want to bring foreign talent in. This will then give you the chance to focus on growing your new business.

The day to day cultural differences

The differences between Japanese culture and that of the West can cause a variety of issues if you’re not prepared. For one, Japanese business owners have very different attitudes towards meetings.

For example, Japanese meetings are mostly held to convey information. This is one reason why they may send 20 people to a meeting that only requires 5 in the U.S. Japanese meetings also focus on consensus building much more than in the U.S. Note that this could all happen in one long meeting or a series of meetings. You will also need to be patient as business is not as straightforward here as it is in the United States. Foreigners who try to push for a decision in a single meeting could alienate their potential clients or employees.

Also, know that bowing is not a stereotype, but a real part of Japanese culture. However, there are many rules regarding this, and you shouldn’t overdo it either. As a matter of fact, it is actually better not to bow than to make a mistake.

Then there’s the issue of salutations and how to address people of different ranks. You will need to understand a few essential linguistic rules before you go there so you can avoid some faux pas. Don’t say sayonara as if you’re saying goodbye, for instance. It means farewell, and telling a potential partner this translates into “you won’t be seeing me again”. Fortunately, many Japanese people are fluent in English and understand that foreigners are going to commit a few mistakes. You also don’t need to be perfectly fluent in Japanese, though you should take efforts to improve your Japanese, and they will appreciate your effort no matter your level of fluency.

Another thing you’ll need to be careful with is when using titles, like “san”, for instance. Adding “san” to the end of someone’s name can be an honorific, but you might run into trouble if you refer to a customer that way, since it is considered disrespectful.

One thing you should know is that in Japanese culture, the customer is considered more important than the business person. Note that this means excellent customer service is essential to staying in business, and poor customer service is highly frowned upon.

The economics of doing business in Japan

Japan has suffered a long period of deflation, which has made labor and rent much cheaper than it was 20 years ago. This has the benefit of making the cost of entering the Japanese market relatively low. It also benefits those looking for commercial space.

Expect it to take 12 to 18 months to earn a good profit in Japan. Having an effective team on the ground to sell your products or a partnership to manufacture it can speed up this process. Invest in bilingual services and relationship-building to maximise your odds of success

Japan remains a land of opportunity for new business ventures and is a very fertile and welcoming ground for foreign investors. Make sure that you understand the realities of doing business there, and find the right team to maximise the return on the investment and minimise the potential problems you may encounter.