Prospects of Japan Growth - Case Study Example

Country Analysis Research Project: Japan Executive Summary Japan is a classic example of the developed nations which has shown very good prospects of growth. The demographic trends and the population patterns of the country prove the fact that Japan is one of the best destinations for the foreign investors. The high rate of literacy, the proper health conditions and the stable political scenario make the country conducive for FDI. Along with that the patterns of the GDP as well as the other economic indicators like the trade and the budget figures tell that the country has a positive pattern in the future, with a very low rate of inflation. This report makes a thorough analysis of the various aspects of Japan including the social, demographic, political as well as economic aspects in order to determine whether it is the right investment destinations of the foreign investors. Since the country has already passed through the different stages of development the agricultural sector is declining and the manufacturing sector has matured. The financial markets in the country are also quite stable. A foreign investor has to operate in the specific business model that Japan already has in order to survive in the big picture. Necessary graphs and charts have been provided to elucidate the position in this essay. Population, Population growth and Density Japan is the eleventh largest country in the world in terms of population. At present the population of the country is more than 127,253,075. Japan’s population growth rate is declining by 0.1% because the country has taken appropriate measures to control the burgeoning population of the country. While the birth rate of the country is 8.23 per 100o people of the nation the rate of death is 9.27 as in 2013 (CIA 1). Thus in future the population of the country would decline. Age distribution and Gender The population pyramid as shown in the chart below. It provides an analysis of the age group distribution in the country and helps a business to understand that who would be the target market for the company and how the market segmentation can be done based on age and gender. Thus the social and political stability of the country is reflected through the pyramid. The median population of the country is 45.8 for the population in general. While the median population of males is 44.4 years, the median population of females is 47.2 years. 38.3 of the population are in the age group of 25-54 years which means that there is a huge number of working age group population in the country (Johnstone, Serret-Itsicsohn and Brown 354). The percentage of the 0-14 year’s age group is 13.4% while that of the 15-24 years age group is 9.7 % (CIA 1). These data show that any business that has the intension in opening their operations in Japan would not have much manpower problems in the short run as well as the long run. Figure 1: Population Pyramid of Japan (CIA 1) The sex ratio of the country is 0.95 per female in the country which means that the country has a huge number of female populations. Urbanization 91.3% of the total population of Japan live in the urban areas while the rate of urbanisation as computed by the 2010-15 census is 0.57%. This rate is low because most of the people live in the urban areas. The most important towns and cities of Japan are Tokyo with a population of 36.5 million, Osaka-Kobe with a population of 11.35 million, Nagoya and Fukuoka-Kitakyushu with populations of 3.2 and 2.8 million respectively. This means that most of these people are adding to the production of the country, which has kept the unemployment rate in the economy low to 8%. The female unemployment is lower in the country compared to the male unemployment rate (CIA 1). Ethnic groups People of different ethnicities comprise the population of Japan. About 98% of the people of the country are of Japanese origin, on the other hand the Koreans and Chinese make up for 0.5% and 0.4% of the population. Only 0.6% of the population are from some other background like Asian, African, European origin. The main reason for the lack of the Western population in the country is the barrier of languages as Japanese is the most spoken language in the country. Languages The language that is mostly spoken in the country is Japanese. This means that the companies that intend to set up their subsidiaries or business units in Japan have to be competent in the language in order to understand the local market and to communicate with the various stakeholders involved. Religions The population of the country s constituted of a large number of people who have different religious faiths. About 83.9% of the population believe in Shintoism and 71.4% of the people believe in Buddhism, while Christianity and the other religious faiths comprise of 2% and 7.8% respectively. There is an overlapping in the share of the religious beliefs since a there are a large number of people in the country who believe in both Buddhism and Shintoism. Health and literacy The literacy and the health statistics of the country reflects the development that the country has undergone over the ages. The government of the country spends almost 9.3% of the GDP on the healthcare to ensure a secure and safe future of the Japanese citizens. There is arrangement in the hospitals for about 13 beds for every 100 citizens that need intensive healthcare facilitates. Statistics show that the entire population of Japan has access to healthy drinking water and hygienic sanitary facilities throughout the country. A negligible figure of the Japanese population is affected by diseases like HIV/AIDS. Businesses that intend to send expatriates to Japan would not face any kind of health hazard by serving the country. Along with the good health standards the country has also ensured that the population remains enlightened as much as possible. The government allocates 3.8% of the GDP for the education expenditures. The literacy rate of the country is as high as 99%. Most the Japanese people have obtained education for an average of 15 years of schooling. Political Environment and Political system The prosperity of a country depends to a large extent on the people who are in power and the kind of administrations and governance that is exercised in the country. The democracy of Japan has a parliamentary form of government in which there is a monarchy on a constitutional basis. The national capital of Japan is Tokyo, from where the entire governmental control is exercised. The administration of the country is spread across the 47 divisions of the nation. The legal framework of the country rests on the constitution and the civil laws which have been formulated based on the model followed by Germany. The Supreme Court acts as the apex body of the adjudication and the legislative functions. There are a number of political parties like the Democratic party of Japan, Japan Communist party or the Restoration party which have their prominence in the country. Political stability The businesses planning to operate in Japan would also face pressure from the various trade unions and the other business groups which influence the decision making of the government. However the government ensures that there is enough stability in the country. The country maintains diplomatic relations with the other countries of the world like US, China and other European nations. The country participates in the different types of associations like the G8, ASEAN which has helped the country to make a proper place among the countries in the globalised world. Through there are disputes related to territorial occupancy with the countries like Russia and South Korea the company has been able to deal with these problems well. Japan has been one of the superpowers of the World War II. The country also has a good military strength which has provided a lot of power among the other nations of the world. Membership in international political/economic organizations The country has membership in large number of international organisations which has made the country lie at a strategic position compared to the other nations that are at a strategic advantage. Japan is a member of the popular economic organisations like the Asian Development Bank, the international labour organisation, International Monetary Fund, UNCTAD, BIS as well as the OECD nations. The country is seeking a permanent membership in the Security Council of the United Nations Organisation. The other international organisations that promote the social and environmental harmony are UNICEF, UNESCO, WHO as well as considered in the G-20, G-5, G-7 and G-8. Nature and degree of political risk The present government of Japan is taking various steps to promote the growth of the country through the implementation of the fiscal and the monetary policies. The country has undergone negotiations with China on the grounds of trade relations and the military activities (The New York Times 2013). The country intends to pursue a model with high-cost, high wages as well as very high degree of regulations in order to compete with the countries that are in the same phase of development. This might lead to an improper budgeting and allocation of funds by the government may lead to an adverse position of the economy in the long run. Economic Environment Japan is one of the classic examples of developed economic being the third largest economy of the world. The reason for the success of Japan as a technologically advanced economy is that in the post World War II period the government of the country focused on the development of the industry as well as the nurturing of the technological progress of the country. Japan has a GDP of $ 4.704 trillion and the rate of growth of GDP in the nation is 2%. This is because the country has already crossed the various stages of economic development (Flath 45-62). During the 1960s the growth rate of the economy has been 10%, in the 1970s it was 5% and in 1980s the average rate of growth was 4%. This shows that the country has steadily progressed in its path of development. (Trading Economics, 2013) Per capita national income - size, growth rate, income distribution The per capita GDP of Japan is $ 36900. The saving rate of the country is as high as 21.6%. The Gini-Coefficient for Japan is 37.6. The number of people below poverty line id 16% of the total population. Agriculture comprises of 1.1% of the GDP, industrial sector contribution is 26.3% while the services sector contribute 72.5% of the GDP (Gerald and Seers 173-184). Labour Force About 65.55 million of the population of Japan constitute the labour force. Out of this almost 69.8% are in the services sector, 26.2% are in the manufacturing and industry and the remaining 3.9% of the people are in the agricultural sector. These characteristics prove the fact that Japan is a developed nation because the major chunk of the labour force participation is in the services sector. Government disbursements and revenues as a percentage of GNP As on 2012, the allocation of the budget expenses is $2.591 trillion ad the revenue that the Japanese government generates is $2.001 trillion. The public debt consists of 214.3% of the GDP. The taxes account for 33.5% of the GDP. Japan at the present day experiences a deficit budget. Trade Japan is an active trade partner with a large number of nations. The country exports motor vehicles, iron and steel products, semiconductors, auto parts, generating machinery, power plastic materials etc. The value of exports of Japan to China is about 18% of the total trade volume. The other trade partners of Japan are United States which accounts for 17.7% as well as South Korea that constitute about 7.7% of the trade volume of Japan. On the other hand, liquid natural gas clothing, Japan imports petroleum, semiconductors, audio visual apparatus and coal. The import partners of Japan are China having 21.3% of the share of trade, United States, Australia, Saudi Arabia, South Korea and Qatar. In the last two decades the country has faced several issues of trade because of the Japanese Asset bubble during the 1990s phase. A large number of companies based In Japan had to take resort to foreign trade in order to get the funds. A huge amount of the Japanese products were imported back to the country at much lower prices which led to an adverse effect on the BOP position of the country. Foreign exchange rates and trends Japanese Currency, Yen is considered to be a safe bet to the investors in the currency markets as well as for those who intend to start a business operation in the country. In most of the phases when in the global financial markets scenario there had been incidents which have exposed the countries to loads of risks then the Japanese currency has been found to appreciate in comparison to US dollars. The company has implemented the quantitative easing policies as well as the flexibility in the fiscal stimulus in order to encourage the flow of foreign currency in the economy and to restrict the outflow of Yen out of Japan (Neumann and Devalier 1). Figure 2: Movement of Yen (Botman, Filho and Lam 8) Inflation rates and impact on foreign exchange Japan has a very low rate of inflation which is at 0% at the present day. This has helped the country to maintain a stable exchange rate in the international currency markets. Thus the foreign investors could hedge the risk that arose out of the variation in the inflation rates in the other countries of the world. Trade and Investment Opportunities through FDI The industrial market in Japan is a mature one and thus there is a lot of opportunity for the foreign business to set up their operations because a specific kind of a business model would be used in this case. The country has an external debt of amount $ 3.024 trillion. Foreign investors have made investment in the manufacturing and the other related sectors in Japan for an amount of $202 billion. On the other hand the businesses based in Japan have provided FDI in various other nations of $ 1.049 trillion (Hasegawa 8). The amount of FDI abroad is greater than the domestic FDI because Japan being a developed country there is less scope for the companies to have a high rate of growth like the countries that are developing at the present day. (Trading Economics 1) The level of FDI in Japan, have fluctuated over the period from 1998 to 2012. The amount of investment has increased to a large extent during 2011-12. The country being a part of the OECD nations have to abide by the rules and regulations in the formulated by the union of the OECD nations (OECD 2013). There are several laws relating to the radio waves shipping and freight as well as the aviation regulations which the foreign investors have to follow when they intend to invest in Japan. Necessary laws have to be followed and filings have to be made with the government of Japan in order to make the FDI as per the regulatory norms. Works Cited Botman, Dennis P. J., Irineu E. Carvalho Filho and Raphael W. Lam. “The Curious Case of the Yen as a Safe Haven Currency: A Forensic Analysis.” IMF Working Paper No. 13/228: 8. November 06, 2013. Central Intelligence Agency. The World Factbook: Japan. Central Intelligence Agency. 2013. Web. 12 December 2013. . Flath, David. The Japanese Economy. Oxford: Oxford University Press, 2005. Print. Gerald, M. Meier and Dudley Seers. Pioneers in Development. Oxford: Oxford University Press, 1984. Print. Hasegawa, Naoyuki. FDI Regulations and Export Control. Center for Information on Security Trade Control. 13 Sep 2008. Web. 12 December 2013. . Johnstone, Nick, Yse Serret-Itsicsohn and Zachary Brown. World Social Science Report 2013 Changing Global Environments: Changing Global Environments. OECD Publishing, 2013. Print Neumann, Frederic and Izumi Devalier. “Japan's Best Stimulus Bet: Foreign Investment.” The Wall Street Journal. 11 April 2013. Web. 12 December 2013. . OECD. FDI in figures. OECD Investment Division. April 2012. Web. 12 December 2013. . The New York Times. “Opportunity and Risk in Japan.” The New York Times. 22 July 2013. Web. 12 December 2013. . Ujikane, Keiko. “Japan’s Growth Slows More Than Forecast to 1.1% on Investment.” Business Week. 09 December 2013. Web. 12 December 2013. . Read More