Survey on Attitudes of Foreign-Affiliated Companies toward Direct Investment in Japan 2007 March 2008 Japan External Trade Organization Invest Japan Department Foreword Investment in Japan from abroad creates employment and also brings to Japanese industry new technologies and innovative management. In addition to this, the introduction of new goods and services gives rise to fresh competition in the marketplace, and new markets are created supplying more competitive goods and services. For these reasons, foreign investment in Japan is expected as one of the “keys to the vitalization of the Japanese economy” which will promote the vitalization of our domestic economy. In fact, whereas the leading economies of Europe and North America have been very active in introducing and utilizing foreign investment to promote the rejuvenation and vitalization of their domestic industries, the level of Japan’s inward investment is remarkably low by comparison with these countries. JETRO, as Japan’s central investment promotion agency, strives vigorously to expand foreign investment in Japan by widely promulgating Japanese business opportunities across the world, and by working closely with individual foreign companies to encourage their entry into the Japanese market. This “Survey on Attitudes of Foreign-Affiliated Companies toward Direct Investment in Japan” has been conducted annually since 1996 with the objective of serving as a fundamental document for the examination of various policies relating to investment in Japan. The 13th Survey carried out in this fiscal year took up the topics of “Japan Business Strategies” and “Japan in the Midst of Asia” in addition to the regular subject. Under the topic of “Japan Business Strategies,” we asked companies about their intentions regarding future business expansion in Japan, and also the feasibility of “triangular mergers.” Under the topic of “Japan in the Midst of Asia,” we made analysis focusing on the positioning of Japan within Asia principally as a destination region for investment and on how investors view other Asian countries. To compile this survey, questionnaire forms were sent to 2,766 Japan-based foreign companies during September and October 2007, and the responses of 864 companies (response rate: 31.2%) were processed. We would like to take this opportunity to express our deep appreciation to the foreign companies whose assistance made this survey possible. We hope that this publication proves to be a useful reference for understanding foreign companies in Japan. March 2008 Invest Japan Department, Invest Japan Division Japan External Trade Organization (JETRO) TEL: 03-3582-5234 FAX: 03-3505-1990 I. Overview of Survey Methodology ....................................................................................................1 II. Summary ..........................................................................................................................................2 III. Major Themes.................................................................................................................................4 1. Summary of Responding Companies .......................................................................................4 (1) Industry Categories ..........................................................................................................4 (2) Nationality of Parent Companies .....................................................................................4 (3) Times of entering into Japan ............................................................................................5 (4) Form of Incorporation in Japan........................................................................................5 (5) Scale of Capital................................................................................................................5 (6) Foreign Capital Investment Ratio ....................................................................................5 (7) Sales.................................................................................................................................6 (8) Increase/Decrease in Sales...............................................................................................6 (9) Roles of Japan-Based Business Operations (multiple responses)....................................6 2. Impediments to Business in Japan............................................................................................7 3. Strategies for Investment in Japan............................................................................................9 (1) Views on the Current State and Outlook of the Japanese Economy and Earnings Performance..................................................................................................................................9 (2) Market Outlook for Companies’ Own Products and Services and Future Business Development...............................................................................................................................10 (3) Specific Business Expansion Strategies.........................................................................11 4. Triangular Mergers.................................................................................................................13 5. Japan in the Midst of Asia ......................................................................................................14 (1) Business Development in Asia and Japan......................................................................14 (2) Asian Countries and Regions Seen as Strategically Important for Business .................15 (3) Function as Management Base for the Asian Region ....................................................16 IV.Survey Results in Detail.................................................................................................................19 1. Summary of Responding Companies .....................................................................................19 (1) Industry Categories of Responding Companies and their Parent Companies................19 (2) Nationality of Parent Companies ...................................................................................21 (3) Time of Entering into Japan...........................................................................................24 (4) Form of Incorporation in Japan......................................................................................25 (5) Scale of Capital of Responding Companies...................................................................26 (6) Foreign Capital Investment Ratio ..................................................................................28 (7) Sales...............................................................................................................................29 (8) Sales Increase/Decrease in FY2006...............................................................................31 (9) Roles of Japan-Based Business Operations ...................................................................36 2. Impediments to Business in Japan..........................................................................................44 (1) Impediments...................................................................................................................44 (2) Impediments to Business — Trends...............................................................................54 (3) Specific Suggestions on Eliminating Business Impediments.........................................56 3. Strategies for Investment in Japan..........................................................................................58 (1) Assessment of the Japanese Economy — Current State ................................................58 (2) Assessment of the Japanese Economy — Outlook ........................................................59 (3) Market Growth...............................................................................................................60 (4) Company Performance...................................................................................................62 (5) Expected Future Performance........................................................................................64 (6) Future Business Development .......................................................................................66 (7) Business Expansion Strategies.......................................................................................68 (8) Triangular Mergers.........................................................................................................73 4. Japan in the Midst of Asia ......................................................................................................76 (1) Future Business Development in Asia ...........................................................................76 (2) Future Business Development in the Japanese Market..................................................77 (3) Asian Countries and Regions Seen as Strategically Important for Business .................78 (4) Reasons to Give Priority to Particular Country or Region.............................................82 (5) Management Arrangements for Non-Japan Asia ...........................................................88 Appendix Questionnaire Survey Form I. Overview of Survey Methodology This survey was carried out via a questionnaire that was sent to 2,766 Japan-based foreign companies during September and October of 2007. Questionnaire