American Company's Investment in Lapan - Essay Example

The Japanese market as such can attract many American companies at present due to major advantages which would include the market of more than 127 million consumers in a 3,74,744 sq km area when compared to the vast spread of land area of 91,61,923 sq km which has a market of 303 million consumers in America according to the CIA The World Fact Book. For the size of the area and the number of consumers, It's easier to establish a market at the least cost. Not just the consumers, In Japan the well-equipped and advanced cheap labor force with valuable expertise helps in controlling the production costs hence by gaining more profits which are practically not possible in the United States of America where the labor cost is enormous. The high Japanese GDP shows the technological and economic standard of the country which surely can attract American industry to set up its business. As the facts can be considered, the Japanese market constitutes 75% of the entire Asiatic market and thus controls the Asiatic market. The high rate of saving in Japan allows people in Japan to purchase goods if he likes even at a higher price as he/she will have the financial assets.  A well-organized infrastructure in the fields of commodity distribution and information and communication; and a good business environment with improved laws and systems is an added advantage for American companies. The Communication advancements and the connectivity by all the 3 modes such as Air, water, and land make Japan a favorite FDI place for Americans. The currency exchange rates tempt America the most for them to invest in Japan, The exchange rate being 108.180 Japanese Yen for one US Dollar according to www.xe.com. The inflation also accounts for -.06% so it's more reasonable for the company to produce the products in an economical way.

Other than that, the Japanese External Trade Organisation called JETRO assists Individual investors with meetings and laws who is specialized in international investments and taxation. JETRO also provides free use of private offices for a period of a maximum of 2 months for private bodies and a maximum of 6 months for public bodies.

Japan also provides a 30% depreciation rate or a tax credit of 7% up to 20% of the corporate tax liability for the purchase of certain machinery and equipment. When there is an increase in staff training expenses, compared to the previous average, the company is entitled to get 25% of the additional expense or 10% of the corporate tax. And also Companies with high R&D expenses compared to the previous 3 years' average are entitled to a tax credit of up to 20% of the corporate tax. The Government set up 22 foreign access zones in Japan known as FAZ helps in attracting foreign capital into the country. The companies set up in these areas are eligible for tax and financial benefits along with advisory services and rented premises. The companies in these areas are eligible to get loans at a reduced interest and are also exempted from local taxes. The companies have guarantees from Government funds and also get an increased rate of depreciation.

Risks an American company would face if they choose Japan for FDI and handling them.

Overseas sales amount to 80% of the production in Japan. Japan as such will face international political risks, such as war, terrorism, and other events,  economic risks, such as fluctuations in foreign currency exchange rates and trade imbalance, and also social risks, including disease and labor problems because of the differences in cultures and customs. In every country, we face similar problems. They are inevitable and have to be handled over the course of time and there is no escape from them.

The rapid change in technology is one of the major risks fronting Japan. Every day it’s a new technology and the investment in technology is higher. This risk can be solved by installing the newest technology and continuing till the technology becomes obsolete and then mergers and acquisitions help in a great way. That would reduce the cost of investing in a new company.

The Japanese industrial sector is mostly dependent on the imports of raw materials and fuels. Getting the right material at the right time is the greatest threat. But signing the agreements initially would help and also through proper stocking, this should be solved.

            A rise in taxes is a fear seen by American companies. The Government debt is high and therefore the rise in tax would be inevitable. The pricing of products and proper budgeting and cost-cutting measures should surely help in overcoming the issue of a rise in taxes.

            Finally, People in Japan are strong towards their mother tongue. But recently, so many measures are taken to overcome this issue and we can see that exports and imports take place in all the countries where English is predominant.