There is no end to the number of companies expanding overseas. While overseas expansion increases opportunities, it also creates risks. It is necessary to consider the necessity of overseas expansion.
目次
need for overseas expansion
While emerging countries are advancing economic growth, Japan’s population is decreasing and domestic industries are becoming saturated. In Japan, with the declining birthrate and aging population, there is a growing tendency for younger generations to consume less. Domestic demand is expected to continue to decline because demographic trends are unlikely to change rapidly.
On the other hand, there are many areas in Southeast Asia where the population continues to increase, and there is ample economic growth potential. In fact, when we compare the trend of minimum wages between Southeast Asia and Japan, Southeast Asia shows a dramatic increase.
In Vietnam, where the minimum wage gap with Japan had been more than 50 times, the gap is expected to shrink rapidly to around 10 times by 2022. It may be possible to expand sales channels for Japanese products and services by targeting regions with growth potential for the future.
Many companies recognize the need to expand overseas, and the number of Japanese companies operating overseas is increasing. In the past, there have been many cases in which SMEs with connections with large enterprises have expanded overseas together with large enterprises. In recent years, however, there has been an increase in the number of companies seeking to expand overseas as a business option.
There are also many companies that aim to expand overseas in terms of cost. For example, we can reduce labor costs by doing business in countries where labor costs are lower. It is also possible to save taxes by expanding overseas to countries with lower tax rates than Japan.
Many regions have preferential tax treatment for foreign capital, which is used to attract foreign companies. By lowering production costs by reducing costs, we can also increase our international competitiveness.
risk of staying in the domestic business
When you look at companies that succeed globally, they don’t necessarily win global competition. Rather, many companies are using their unique ideas and technological capabilities to provide goods and services, and they have grown into a company with no alternatives. In the United States, which is a country with a large number of startups, companies that are digging for needs in niche markets rather than setting up a large market are continuing to grow.
As long as we are global, even niche markets have a large market size and can be expected to grow. On the other hand, targeting a large market in Japan may be a difficult path. This is because competition among large corporations is already intensifying in the large domestic market.
There is a high possibility that foreign companies such as China will enter the large market that many companies are targeting, and they will be involved in price competition. Even if we use our advanced technology, we may be forced to withdraw from the market because other countries sell us cheaper products.
Even if we stay in the domestic business, it does not mean that we can continue to generate stable profits by continuing the same business. Be aware that focusing on the domestic market is also a risk.
Reasons for not expanding overseas
Some companies recognize the importance of overseas expansion but do not do so. The most common reason given in the survey was “”have too much domestic work to think of”” followed by “”Lack of knowledge, information and know-how in international operations””. This was followed by “”Unable to secure local partners and trading companies”” and “”Unable to secure export destinations, local sales destinations, and foreign visitors to Japan””.
The above results indicate that many companies are unable to expand overseas due to a lack of information and know-how, while recognizing the need to do so. In addition, “”Securing local partner companies and trading companies”” was the most common export issue.
In order to expand overseas, we need local partners who are familiar with local legal systems and business practices, as well as human resources to support local sales offices. Smaller companies will find it particularly difficult to find local partners and adequate human resources. However, even with these problems, some companies are making high profits by expanding overseas.
A comparison of enterprises that are making high profits through overseas business development with enterprises that are making low profits shows that a greater proportion of the initiatives undertaken before and after overseas investment were undertaken by enterprises that are making high profits in such areas as “”Clarification of objectives and vision for overseas expansion investment”” and “”Formulation of overseas expansion plans””.
It is important for companies seeking to expand overseas to establish effective plans for earning profits while securing and developing human resources.
Reference: Teikoku Databank
“”Questionnaire Survey on Growth and Investment Behavior of SMEs in FY 2015“”
Summary
Going overseas is both expensive and costly. Therefore, we may not be able to take a step forward unless the necessity is strongly recognized. When expanding overseas, clarify the purpose and necessity of overseas expansion and make detailed plans. If you plan to expand overseas, I also recommend that you consider enlisting the help of specialists and consultants with expertise.
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