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By Wang Hong and Gao Kai Against the backdrop of the gradual maturity of information and transportation technologies, the accelerated advancement of globalization, and long-term sluggish domestic growth, Japanese companies began to expand overseas on a large scale in the 1980s.

As of 2022, Japan's total overseas investment stock accounts for 40% of its capital stock. Among them, overseas direct investment accounts for about 8% of Japan's capital stock and about 20% of its total overseas investment stock. As of 2023, Japan's outbound investment stock accounts for 20% of Japan's totalGDPJapan's net foreign assets account for nearly 50% of the world's total, amounting to approximately US$3 trillion, ranking first in the world for 33 consecutive years.

In the macro sense, the overseas expansion of enterprises has formed a huge stock of overseas capital, creating sales revenue that is half of the domestic GDP. In other words, Japan has recreated half of Japan outside of its home country, which will provide a useful reference for Chinese enterprises to go overseas.

Japanese companies’ overseas expansion trends

First, Japan integrated its production layout with the global production network and continued to expand its overseas investment.

First, relying on the "global production-global sales" model, Japan has increased its global market share. The overseas production ratio of Japan's manufacturing industry has increased from about 6% in 1992 to 25.8% in 2021, and the overseas production ratios of different industries have shown an upward trend year by year. The overseas production ratio of typical industries such as "transportation equipment" is close to 50%. In 2023, Japanese auto brands led the world with sales of 23.59 million vehicles, with only 4.77 million sold domestically. The rest were either produced in factories abroad or exported to all parts of the world.

Secondly, the overseas expansion of small and medium-sized enterprises has accelerated. According to the data from the Basic Survey on Overseas Business Activities, in 2000, enterprises with a scale of less than 1 billion yen accounted for 43.4% of the total number of overseas enterprises, and this proportion rose to 76.5% in 2020. After 2006, the proportion of Japanese small and medium-sized enterprises with a capital scale of 50 million to 100 million yen in overseas expansion increased rapidly, becoming the main participants in overseas investment. As of 2021, small and medium-sized enterprises with a capital scale of 50 million to 100 million yen accounted for 37% of overseas expansion, and are currently the main force of Japanese companies going overseas.

Third, Japan's investment in Europe and the United States continues to rise, while its investment in Asia has leveled off. Japan's investment in Europe and the United States is mainly aimed at circumventing trade barriers and expanding overseas markets. Japan's investment in Asia is mainly based on cost advantages, but with the rise in China's labor costs, Japanese companies' direct investment in Asia has gradually shifted from China to the four ASEAN countries. From 2016 to 2022, Japan's investment in Europe accounted for 31.8%, the investment in the United States accounted for 29.1%, and the investment in Asia accounted for 23.7%, which is a decrease compared with the past.

Second, the main force of Japan's overseas industries has gradually shifted from manufacturing to services. In 2008, Japan's non-manufacturing overseas investment accounted for more than the manufacturing sector, and has continued to maintain its leading position since then. As of 2022, Japan's manufacturing and non-manufacturing overseas investment accounted for 31.9% and 68.1% respectively.

Among them, manufacturing overseas investment is mainly concentrated in capital and technology-intensive industries. Such as transportation equipment, food, chemicals and pharmaceuticals, ferrous and non-ferrous metals, general machinery and equipment, electrical machinery and equipment, etc. As of 2022, the top five sub-industries in Japan's overseas revenue share are semiconductors, automobiles, technology hardware and storage, aerospace and electronic equipment. As of the first half of 2023, chemicals/pharmaceuticals, electrical equipment, and transportation equipment accounted for 20%, 18%, and 9% of manufacturing overseas investment, respectively.

At the same time, the financial and insurance industries are the leaders in Japan's non-manufacturing overseas investment, and the overseas expansion of consumer goods industries such as food and beverages, pharmaceuticals and biology has accelerated. The financial and insurance industries are in a leading position among Japanese overseas investment companies, accounting for more than 10% in each year.

From the perspective of overseas expansion trends, from 2008 to 2022, the five industries with the fastest increase in overseas revenue share are household goods, food and beverages, air cargo and logistics, pharmaceuticals and semiconductors, mainly concentrated in the consumer and technology fields. The overseas expansion of the wholesale and retail industry is also accelerating. From 2012 to 2019, the proportion of wholesale and retail overseas investment in the service industry overseas investment increased from 25% to 45%.

In addition, demand and technology drive the Japanese industry to go overseas. The "Current Status and Prospects of Overseas Expansion of Japanese Manufacturing Based on Foreign Direct Investment Questionnaires" by the Central Research Agency of Japan mentioned that Japanese companies regard China and ASEAN countries as the most promising investment countries, mainly because of the "future growth potential of the market". Japanese companies' investment in Europe and the United States continues to rebound, and the number of Japanese M&A (mergers and acquisitions) continues to expand, mainly due to improving the level of globalization and better technological competition.

Third, a number of supporting policies help companies accelerate their overseas expansion.

The first is the gradual liberalization of foreign investment. Against the backdrop of Japan's growing international competitiveness, the Japanese government's policy on foreign direct investment management has gradually gone through a process of "from tight to loose" according to Japan's own economic development level. By 1978, Japan had basically achieved 100% capital liberalization, completely clearing the policy barriers for multinational companies to conduct international direct investment.

Secondly, the government provides tax and financial policy support, including tax exemptions for overseas companies. The Japanese government regards Japanese companies that invest in developing countries and receive tax exemptions as having paid taxes, allowing them to deduct them from domestic corporate taxes to avoid double taxation. A loss reserve system has been established to enable the government and companies to jointly bear the losses of overseas companies.Business RisksThe Export-Import Bank of Japan (now Japan International Cooperation Bank) was established to provide loans specifically for overseas enterprises. In view of the policy-based financial support for small and medium-sized enterprises, low-interest financing is provided to small and medium-sized enterprises for their overseas direct investment.

The third is information convenience and economic cooperation. Specialized institutions are set up to promote information exchange and transparency, such as the Overseas Site Selection Research Council, which helps domestic light and heavy industrial enterprises such as petrochemicals, steel, aluminum, light machinery, and pulp to select overseas sites, and helps transfer related domestic industries. Maintain good cooperative relations with investment recipient countries. For example, through government assistance, Japanese companies are helped to establish good relations with investment recipient countries and improve the economic development foundation of investment recipient countries, mainly involving hardware infrastructure, software infrastructure, and industrial talent training.

Other people’s wisdom

What experiences of Japanese companies in going overseas can be used as reference for Chinese companies going overseas?

First, we need to vigorously cultivate new quality productivity, accelerate the layout of the integrated "sales and production" model, and promote the high-quality overseas expansion of Chinese companies.

Focusing on the development of new quality productivity, we will lay out the global industrial chain and supply chain, and break through the key core technologies in the industrial chain and supply chain. We must improve the new national system and strengthen the top-level design. We must organize and coordinate different fields, disciplines, departments and institutions to concentrate their efforts on jointly tackling "stuck neck" technologies. Through policy support and financial support, we will increase R&D investment in cutting-edge fields such as chip manufacturing, artificial intelligence, quantum information, and biotechnology, comprehensively promote scientific and technological innovation around new quality productivity, smooth the innovation chain, industrial chain and supply chain, and realize the effective transformation and wide application of innovative technological achievements.

Adhere to the "ecological overseas expansion" strategy, accelerate the global layout of the integrated "sales and production" model. Enterprises should accelerate the layout of overseas markets and improve the localization of products. They should respect the local market, guide enterprises to build local decision-making teams, and establish localized marketing and service systems.

Companies need to conduct solid field research, truly understand local market needs, and build brands in a way that is consistent with local culture. Companies also need to establish a localized team that can make independent decisions. It is best to set up an independent company and give core personnel sufficient equity andOptionsIncentives: To create localized value and enhance the driving force for high-quality development of overseas companies.

Companies going overseas should speed up the construction of their own value ecosystem, including upstream and downstream partners and the external ecological environment. They should take a comprehensive approach and maintain long-term cooperation on the basis of creating value for the local area and establishing a credible and mutually beneficial product system.

In addition, we also need to focus on promoting the high-quality export of new energy vehicles. Promote the international mutual recognition of automobile carbon footprint accounting standards, methods and data, especially strengthen low-carbon development cooperation with the EU, remove carbon emission-related obstacles for China's new energy vehicles to export to Europe, and learn from the EU's advanced carbon footprint accounting experience to guide domestic automobile carbon footprint accounting. Accelerate the identification of potential and actively exporting parts companies, especially private parts, provide fiscal and financial support, and encourage high-quality supply chains to go overseas. Explore the establishment of a national green electricity trading mechanism to promote chain-leading companies to lead the green transformation of the supply chain. Prioritize the promotion of the connection mechanism between the "Points Method" and the carbon emission reduction system. Support enterprises to deploy overseas intellectual property rights, and establish and improve special overseas intellectual property dispute response guidance measures and service mechanisms. Support battery, material, overseas marketing and after-sales operation and maintenance companies to "go overseas" with the whole vehicle and deeply integrate into the global supply chain system.

Second, we must accelerate the construction of a cross-border e-commerce ecosystem to open up new channels for enterprises to "go global".

First of all, we need to open up the entire chain of cross-border e-commerce. We need to deepen the reform of customs facilitation and implement "online" and "one-stop" processing of various businesses such as cross-border e-commerce export list review. We need to build a comprehensive cross-border logistics service provider, encourage and support qualified and capable enterprises to develop into a "one-stop, door-to-door" comprehensive cross-border logistics service provider with full-chain resource integration capabilities and strong comprehensive service capabilities. We need to encourage the construction of overseas warehouses and develop overseas warehouses and overseas warehouse operating enterprises that are self-built, leased, and operated by Chinese enterprises.

Secondly, we need to make up for the shortcomings of financial support. Facilitate cross-border fund settlement, encourage qualified banks and payment institutions to provide cross-border fund settlement services to cross-border e-commerce market entities based on electronic transaction information. Strengthen credit financing support, support banks and other financial institutions to expand diversified cross-border e-commerce trade financing methods, and innovate financing mortgage methods and trade financing products.

Cross-border e-commerce companies also need to innovate their development models, adopt a channel development strategy that combines multiple platforms and independent websites, get rid of excessive dependence on third-party platforms, and promote new cross-border live broadcast models, DTC models (Direct to Consumer, a business model for brand products to directly reach consumers), etc. Strengthen the penetration and application of emerging technologies such as blockchain, AIGC (artificial intelligence generated content), VR (virtual reality technology), and big data.

Third, we must accelerate institutional opening-up and continue to promote high-level opening-up to the outside world.

First, give full play to the pioneering role of free trade pilot zones and free trade ports. We must strengthen the function of institutional innovation and create a new high ground for opening up with a higher level of openness, a better business environment and a stronger radiation effect. We must implement the strategy of upgrading free trade pilot zones, expand the scope of institutional opening up, speed up the formulation of standards for opening up key trade and investment areas, and promote trade and investment liberalization and facilitation. Explore the direction and focus of institutional innovation to promote breakthroughs in key technologies, actively and orderly expand the opening up of service industries such as telecommunications, medical care, education, and tourism, and better meet the market's demand for high-quality service consumption.

Second, actively participate in the formulation of international rules and enhance my country's institutional voice. Actively participate in the formulation of relevant rules in the field of international economy and trade, promote the formation of a fair, reasonable and transparent international rules system, and enhance my country's voice and influence in the reform of the global governance system. We must closely follow and firmly grasp the international investment,International TradeThe high-standard evolution trend of the prevailing rules will realize the transformation of my country from a "rule acceptor" to a "rule leader". Make full use of the international cooperation platform of the "Belt and Road" construction, summarize, innovate and promote the Chinese solution for global governance, and create a demonstrative institutional arrangement for the docking of high-standard economic and trade rules between countries and regions.

Third, connect with high-level digital trade rules and explore the establishment of a cross-border data circulation and trading mechanism. Carry out a national pilot project for cross-border data security circulation, explore the establishment of a whitelist system for non-important data, formulate and publish the "Guidelines for Important Data Certification" and the "Negative List for Exemption from Declaring Data Outbound"; establish a cross-departmental coordination mechanism for cross-border data flow; accelerate pilot cross-border data flow cooperation, explore the construction of a "Guangdong-Hong Kong-Macao Greater Bay Area Data Special Zone"; develop digital trade and international data industries, explore the construction of offshore data centers and offshore data trading platforms; and establish a national cross-border data security fast review channel.

Fourth, explore the reform from the credit method to the tax exemption method to reduce the tax burden of enterprises going overseas. In the context of reducing taxes and fees and encouraging enterprises to go overseas, the practice of Hainan Free Trade Zone can be promoted in a timely manner, changing the credit method to the tax exemption method, gradually relaxing restrictions such as shareholding ratios and tax exemption amounts, so that enterprises going overseas can make full use of the tax preferential policies of the destinations going overseas and reduce the tax burden of enterprises going overseas.

Fourth, improve overseas services to give private enterprises more confidence in “going overseas”.

First, build an overseas service platform. Create parks for private enterprises overseas, support private enterprises to establish international R&D centers, and guide private enterprises to develop towards both ends of the "smile curve"; build a foreign-related legal service system, and create a "one-stop" service center with highly intensive foreign-related legal resources and efficient and convenient business services for enterprises. Strengthen the effectiveness of foreign-related law enforcement and judicial work and the construction of talent teams, strengthen cross-regional and cross-departmental coordination, and set up a joint meeting mechanism to solve outstanding problems when necessary.

Second, increase financial service support. Promote financial institutions to develop financial products and services suitable for enterprises to "go global", such as setting up overseas investment funds, optimizing the approval process for overseas investment loans, and reducing the overseas investment and financing costs of enterprises; improve cross-border investment and financing facilitation policies, carry out integrated foreign currency and RMB fund pool business for multinational companies, and facilitate private enterprises to coordinate the transfer and use of funds at home and abroad.

Third, increase the international functions of national-level industry associations to guide and serve enterprises to go global. Promote domestic industries or enterprises to go global. For example, industry associations can take the initiative to participate in international technical exchanges, connect with foreign chambers of commerce, and lead enterprises to go overseas in groups. It is recommended that relevant national departments and overseas institutions strengthen communication and coordination with local governments, increase the sorting and introduction of authoritative information such as local business environment and industrial policies, and strengthen compliance guidance for relevant overseas enterprises.

Finally, we must maintain good international relations and actively expand our foreign trade “circle of friends”.

Actively explore international markets and build global industrial chains. Through mechanisms and regional cooperation organizations such as the Belt and Road Initiative, the Asia-Pacific Economic Cooperation (APEC), and the Regional Comprehensive Economic Partnership (RCEP), we will actively expand our circle of foreign trade friends and maintain good cooperative relations with target countries. Pay attention to maintaining good economic and trade relations with the European Union, and advocate the integration and integration of global economy and trade; stabilize and upgrade the supply chain and industrial chain trade network of ASEAN countries; actively explore emerging markets and expand trade to Central Asia, the Middle East, Latin America, Africa and other regions.

Actively carry out international economic cooperation in multiple fields and at multiple levels. For example, strengthen cooperation with trade rivals in key areas such as promoting green development, supporting people-to-people exchanges, and promoting technological innovation, and help domestic enterprises alleviate the problem of overcapacity through economic cooperation, while promoting domestic industrial upgrading.

(Wang Hong is the president of CEIBS and a national second-level professor; Gao Kai is a researcher at CEIBS and an associate professor at Shanghai University of Engineering Science)