The Interpreneur survey: Understanding mid-market business trends in Japan

Japan’s economy has largely stood still for decades. A low growth, low interest, low unemployment, low birthrate and a poor exchange rate. After a recent near-miss into recession, there are no signs things might be changing in the country, including an improving stock market.

To understand how this landscape is affecting mid-market businesses, we recently surveyed 1,400 C-suite business leaders in 14 countries, in private sector companies earning up to £300m a year that have expanded internationally. We call these CEOs ‘interpreneurs’.

We have analysed the Japanese data to better understand what drives Japanese business owners when expanding abroad.

This report provides useful and important insight as to the challenges and opportunities faced by SME business leaders when expanding overseas. Compared to regional peers, Japan is showing greater caution towards global expansion and growth patterns, likely tied to domestic labour and economic pressures.

However, for those that have expanded internationally themselves or for those looking to expand into Japan, the benefits are clear. Japan offers strong market growth opportunities and a number of competitive advantages for those looking to operate within the region.

For those entering into the Japanese market, this report highlights the importance of working with a local in-bound specialized partner who can bridge the regulatory, cultural and commercial forces to ensure a productive entry into a dynamic market.

Marek Lehocky
CEO and Founder
Kreston Proworks

Global business trends: Do Japanese business leaders believe more business will expand overseas in the next 12 months?

Japanese business leaders pessimistic about overseas business expansion

59% of respondents said they expect the number of businesses expanding overseas to increase in the next 12 months. 11% of respondents said they expect to see a decrease in international expansion, one of the least optimistic countries along with Germany (12%).

Which markets do Japanese businesses prefer to expand into?

South Asia is Japan’s top choice for global expansion

38% of Japanese respondents said their business would consider expanding to South Asia, sharing this view with China (52%) and Nigeria (45%). Close behind was closer to home in North Asia, with 30% saying their business would consider expanding there.

North America was the third top choice for Japanese expanding businesses at 28%, showing that although primary choices are geographically close, companies aren’t afraid of truly going global.

What makes a country more attractive to Japanese businesses looking to expand globally?

Economic growth prospects primary attractor for Japanese CEOs

38% of Japanese respondents said that future economic growth prospects are one of the most attractive traits for international expansion.

This was followed by skills and talent, such as the availability of local talent and openness to skilled talent immigration (34%) and alignment with long-term growth strategy, such as regional investment into specific industries (33%).

Geographic proximity to existing operations was viewed as least attractive, which is surprising considering local regions of North Asia and South Asia were chosen as the most attractive for international expansion- suggesting that other business expansion opportunities make these countries desirable rather than their geographic proximity to Japan.

What motivates Japanese interpreneurs to expand internationally?

36% of respondents said sales and revenue are among the biggest benefits their business has found following international expansion, a view shared with over half the global respondents.

What are the biggest international expansion challenges in 2024 according to Japanese interpreneurs?

Finding local partners a challenge to doing business internationally say Japanese CEOs

Just under a third (30%) said that one of the biggest challenges faced by businesses during international expansion was finding the right local partners (e.g. building reliable and trustworthy relationships), highlighting an opportunity for Asian networks to make distinct services supporting Japanese businesses to expand into the region.

Understanding the complex compliance requirements, like ESG and legal compliance, was also ranked top concern for Japanese businesses.

Risk: What do Japan CEOs think are the biggest risks to global business expansion in 2024?

How much of a risk do the following pose to your business’s international expansion or planned international expansion?

Cybersecurity a concern for Japanese business leaders looking to expand globally

38% of respondents felt cybersecurity threats and data breaches pose a disruptive or significant risk to their business’s international expansion or planned expansion.

33% felt that economic slowdown or recession poses a disruptive or significant risk, and an additional 31% felt that financial market and foreign exchange volatility poses a disruptive or significant risk to their business

Private Equity vs Venture Capital: Which is the preferred international expansion funding source for Japanese businesses?

Private equity top choice for international expansion funding in Japan

23% of respondents said their business would likely consider or have used venture capital or private equity to grow internationally. 22% would consider or have used employee equity schemes or management buyouts (22% each) to grow internationally.

Understanding global tax: Is the C-suite ready for a global tax threshold?

Japanese interpreneurs least confident about global tax knowledge of all countries surveyed

64% of respondents shared they have a good grasp of key principles and can navigate common scenarios but may seek external guidance for complex situations, with 9% of respondents are extremely confident that they understand the global international tax rules that govern multinational businesses –they have a deep understanding of global tax rules and their implications for multinational businesses.

7% were not confident at all, relying entirely on external advisors for their advice, guidance, and/or decision-making, which was higher than the global average of respondents (1%).

The growing importance of ESG for Japanese investors and interpreneurs

Japanese CEOs less likely to place ESG as a priority

84% consider ESG practices when evaluating potential new markets for expansion, and 19% of respondents consider them a top priority when expanding globally. This is line with European scores, which showed depressed results in comparison to the rest of the world.

5% don’t consider ESG practices at all when expanding, the highest score out of all countries.

The benefits of AI in international business operations

Japan apprehensive about the use of AI in global operations

Over 6 in 10 (63%) agree that they feel prepared to harness AI’s benefits in global business operations in the next two years. The global respondent results showed that only 3% disagreed with this statement, so at 21%, Japan finds itself as one of the most apprehensive countries, highlighting an opportunity to prepare and harness AI.