Recognizing the unprecedented opportunities that have been emerging as a result of the many restructuring and reform initiatives initiated in Japan over the past few years, foreign companies and investors are beginning to take notice. Many notable transactions have been completed and foreign direct investment have grown almost 100% annually over each of the last two years, reducing the gap between Japanese outward versus inward investment flows from almost 13:1 in FY1995 to only slightly over 3:1 during FY1999. This increase will promote additional economic and structural reform, creating a cycle of foreign investment flows and continuing reform, through its ability to introduce risk capital and technology transfer, including new business methods.

The Japan External Trade Organization (JETRO) provides the following information examining these developments in greater detail.

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Japan's Ongoing Restructuring and Reform Program

Building on the broad themes identified in the Program for Economic Structural Reform, an "Action Plan for Economic Structural Reform" was adopted in May 1997. This effort defined clear goals and outlined the steps needed to promote comprehensive deregulation and systemic reform by FY2001. To further expand and accelerate this process, an "Industrial Revitalization Program" was implemented in January 1999. This program promotes the corporate reforms needed to develop industries and the regulatory environment, which will allow Japan to remain a competitive venue from which to conduct business well into the 21st century.

Over the past few years these and other related initiatives have resulted in the implementation of a broad range of policy measures. These will serve to promote additional deregulation as well as corporate and other reforms that promise to nurture the growth of venture companies and other new businesses, technology and research and development, pension transferability, and the financial sector.

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Japan Accelerates Pace of Restructuring and Reform

Additional reforms will help to promote greater economic efficiencies, more effective use of IT and more rapid emergence of the growth industries that have begun to drive extraordinary increases in productivity and economic growth over the past decade. Over time, it will also help to restore Japanese consumer confidence and demand. A more flexible and entrepreneurial environment is critical so that Japan can effectively serve as a venue from which both Japanese and foreign firms can compete and contribute to the "new economy" that has begun to emerge as we enter the 21st century.

Industrial Rebirth Council Organized in July 2000

To further the reform measures enacted under previous administrations, Prime Minister Mori moved to establish the Industrial Rebirth Council in July 2000 to resolve many of the details needed to ensure their long term success. This council is chaired by the Prime Minister himself. In addition to the MITI and other Government Ministers, the council is composed of many senior private sector representatives, including the CEO's of major Japanese corporations including Sony, Fujitsu, Toyota, NTT, Sumitomo Bank and Toshiba. The council focuses on the implementation of corporate and other relevant reforms as well as measures to facilitate the use of IT and to effectively deal with environmental issues and the aging of Japanese society. On August 31, 2000, the Council held their second meeting, to resolve key issues including:

Accentuating the Dynamism of Corporate Management

Promoting entrepreneurship, venture businesses and innovation

• Allow more flexible use of stock options, as well as stock issuance, splitting, and transfers.

Enhancing speed and ability of company management to implement organizational restructuring and change

• Allow shareholders to exercise voting rights by e-mail and reduce minimum quorum needed to hold shareholders meetings;
• Review allocation of power between shareholders and boards of directors; and
• Review ability of shareholders to implement suits against management.

  Facilitating transferability of, and easing regulations governing, corporate pensions

• Allow early introduction of defined contribution plans;
• Establish unified corporate pension system to facilitate career change;
• Enhance environment for efficient finance companies;
• Promote development of electronic securities markets for commercial paper, bonds and stocks;
• Facilitate intra-bank reconciliation processes;
• Introduce tracking stock system;
• Establish private accounting standards in accordance with internationally-accepted GAAP; and
• Provide system to enhance liquidity of debt.

  Establishing an environment that enhances development of new business areas

• Facilitate ability of non-bank companies to enter into field of financial services

Revitalizing Small and Medium Businesses

Encouraging more effective use of IT

• Support use of IT through measures potentially including seminars, training, and tax and recruiting incentives;
• Investment into human resource (HR) development to enhance use of IT; and
• Facilitate use of public and technological information through internet-accessible databases.

Promoting Technological Innovation and Creation of Growth Industries

Strengthening Japanese R&D capabilities

• Build international competitiveness of Japanese universities; and
• Enhance transferability of HR between firms and public sector and academia.

  Rationalizing the allocation of financial resources

• Encourage use of bidding and more efficient procurement mechanisms; and
• Enhance corporate profitability through adoption of cost accounting systems

Strengthening Human Resource Development and Labor Flexibility

Establishing a system that encourages transferability of labor and human resources

• Enrich recruiting process using the internet;
• Facilitate portability of pensions;
• Expand employment categories (i.e. part time, full time, freelance, etc.);
• Place less restrictions on use of short-term and temporary employment;
• Expand length of fixed term employment contracts;
• Provide HR development system that meets current needs of employers;
• Change university curriculums to enhance viability in a changing economy, and
• Strengthen adult education and training systems that focus on needs of individuals.

Meeting the Needs of an Aging Population

Enhancing development of new businesses in areas of medical and geriatric care

• Expand access to medical records through internet and other digital methods;
• Facilitate privatization of nursing homes and geriatric care; and
• Allow more flexible standards for construction of nursing homes.

  Providing environment that encourages employment of elderly

• Review industrial practices in order to reduce age discrimination.

Enhancing Environmental Protection and Proper Waste Disposal

Promoting and expanding recycling systems

• Review of waste product classifications; and
• Efficient disposal of industrial waste through expanded treatment facilities.

  More effectively disposing of hazardous materials to minimize pollution and global warming

• Establishment of treatment facilities for dioxins and PCBs ; and
• Investigation of methods to reduce CO2 and NOX waste gases.

Strengthening the Cost Competitiveness of Doing Business in Japan

Maximizing efficiency of logistical systems

• Promote development of ITS (Intelligent Transportation Systems); and
• Encourage shift from private to mass transportation.

  Promoting reform to rectify Japan's high cost structure

• Evaluate results of current deregulation efforts in logistics and transport, energy, telecom, and other key sectors to enhance future progress.

Prime Minister Mori directed Japan's Ministry of International Trade and Industry (MITI) and the other Ministries to maximize their efforts to implement these agenda items, to maximize economic structural reform in Japan.

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Foreign Direct Investment Rises Dramatically as a Result of Japanese Reform Initiatives

While a recovery in consumer demand is not yet clear, foreign corporations and investors have begun to take notice, recognizing the attractive opportunities that are emerging as Japan proceeds to restructure and reform its economy. Direct foreign investment flows have grown by almost 100% annually over each of the last two years, reducing the gap between Japanese outward versus inward investment from almost 13:1 in FY1995 to only slightly over 3:1 during FY1999.

This increasing supply of foreign direct investment is helping to replace the main bank system as the primary supplier of risk capital in Japan. Its effect on key sectors such as automobiles is already apparent, and many notable transactions have taken place in recent years. These include GM's purchase of additional shares in ISUZU, Daimler-Chrysler's investment into Mitsubishi Motors during the current year; and Renault's investment into Nissan, Ripplewood Partners' purchase of the Long Term Credit Bank as well as major investments by Haeger Clothing, Costco, and Amex Investment Consulting in FY 1999.

Foreign direct investment will also help to promote economic and structural reform through its ability to introduce risk capital and technology transfer, including new business methods. The resulting changes to Japan's business environment will create an ongoing cycle of additional reforms and investments. This will further strengthen Japan's attractiveness as an investment venue, creating an environment that will reward still greater inflows of direct investment capital into Japan.

While the preliminary evidence points toward the success of Japan's current reform and restructuring initiatives, much more needs to be done. Moving forward, the Japanese government intends to redouble its efforts to accelerate and expand the initiatives needed to create an attractive business environment for both foreign and domestic corporations and capital.

Focus: Economic Recovery
Focus: Economic Recovery 2
Focus: Economic Recovery 3
Focus: Steel
Focus: Economic Recovery 4
Focus: Small Business Development
Focus: Industrial Revitalization