Entering a foreign market can be daunting, and Japan’s language, cultural differences and regulations affecting business can act as a deterrent for Australian SMEs unfamiliar with the nuances. Understanding these potential barriers and how to overcome them can help SMEs take advantage of the export opportunities that are available in this market. By Andrew Watson, Executive Director, Export Finance at Efic.
Australia has long had a close relationship with Japan, which has resulted in strong business ties between the two nations. Japan is Australia’s second-largest export destination and trading partner, presenting a broad range of opportunities for Australian SMEs wishing to export their products or services.
Japan’s size and proximity has meant that it has always been a promising destination for Australia’s export industries. Australian exports to Japan were worth US$50bn in 2014, and with Japan’s high levels of disposable income and demand for premium, high-end goods and services, this is likely to continue at a similar level, even grow.
Research recently conducted by the Export Council of Australia, the Australian International Business Survey 2015, found that 64% of Australian businesses that operate in Japan expect business to get better over the year ahead, pointing to a positive outlook for Australian exporters in Japan. Australia’s key export industries, including mining, agriculture and services, all have strong markets in Japan, providing a number of exciting opportunities for Australian exporters.
Building on the strong partnership that already exists between the two nations, Japan and Australia’s bilateral economic relationship was further strengthened by the signing of the Japan Australia Economic Partnership Agreement (JAEPA) in July 2014. This agreement entered into force in January of this year, and will provide Australian exporters with various advantages over their international competitors when entering the Japanese market.
Once JAEPA has been implemented in full, 97% of Australian exports to Japan will be duty free. This will make a significant difference to resource, energy and manufacturing exports, which will all be duty free on entry to the Japanese market – a substantial benefit for exporters by reducing the costs associated with goods exports. In order to obtain these benefits, the goods being exported into Japan must be of Australian or Japanese origin, and will require a certificate of origin as evidence.
JAEPA is also expected to open up the market for Australian exporters from a cost perspective, making it easier for Australian firms to compete with both multinational players and local businesses.
Understanding and overcoming barriers
Japan’s business climate is generally on par with most other advanced economies, with the World Bank ranking Japan 29th out of 189 economies in terms of ease of doing business. There are, however, some notable differences to operating in the Japanese market compared with the Australian market, which Australian businesses should bear in mind.
The Australian International Business Survey 2015 identified several possible barriers holding some Australian businesses back from entering the Japanese market. A high proportion of Australian businesses stated that the language and culture are the biggest barriers to doing business in Japan. English is not widely spoken in business in Japan and therefore most Australian SMEs will find they need to use an interpreter when meeting potential customers and partners.
Related to this are issues of local business practices, norms and quality standards. One Australian exporter Efic has supported – a wine producer based in NSW called Cassegrain Wines – has exported its wines to Japan for almost 20 years. It noted that the attention to detail and quality control in Japan is of a higher standard than we are used to in Australia.
Recognising and adapting to these local requirements is not something a business manual can tell business owners, but requires in-depth knowledge of the Japanese market and how business is conducted there. Doing extensive research before entering the market can assist in this.
Another potential barrier to entering the Japanese market is local regulations, which can create difficulties for Australian firms. The World Bank’s rankings indicate that while generally Japan is an easy market to do business in, paying tax can be significantly harder relative to other OECD nations. Seeking the advice of a local accountant or tax adviser can help Australian SMEs to understand the finer details of local tax law, ensuring this doesn’t create complications when operating there.
Protection of intellectual property rights was also identified by Australian international businesses as an important consideration in Japan, as in all foreign markets. Japanese companies are generally experienced in this area of business and understand the need for confidentiality in the early stages of setting up an export relationship; flagging this clearly and early is important.
Capitalise on opportunities
With Japan and Australia’s close trading relationship, and JAEPA opening up the Asian market even further, there are numerous opportunities for SME exporters to capitalise on in Japan. Australia is well placed to meet Japanese demand in mining, agriculture and services, given our high-quality products and services. However, being aware of the potential difficulties and risks around entering the Japanese market will help ensure Australian SME exporters are well-prepared and positioned to leverage the opportunities available.