Japan instead of China - this is how German companies are increasingly deciding with regard to production, management functions and the location of their Asian headquarters. The background to this new trend is ongoing geopolitical uncertainty, which in turn is leading to diversification efforts. This is the result of the current business climate survey "German Business in Japan", a joint publication by the German Chamber of Industry and Commerce in Japan (AHK Japan) and KPMG in Germany, which has now been conducted for the seventh time. 164 subsidiaries of German companies in Japan took part in the survey. Remarkable findings at a glance:
of German companies intend to relocate production facilities from China to Japan.
of German companies intend to relocate regional management functions from China to Japan.
consider the recruitment of qualified personnel in Japan to be the biggest challenge.
say that Germany's reputation in Japan is affected by the increasing frequency and violence of demonstrations.
38% of German companies either intend to relocate production from China to Japan or are deciding directly in favor of Japan as a location for new investments in Asia. Just under one in four companies (23%) are relocating regional management functions to Japan. In addition, the regional headquarters of more than one in four German companies (26%) is now based in Japan. In the previous year, this was still the case for one in five. This puts Japan in second place behind Singapore (28%).
Andreas Glunz
Managing Partner International Business
KPMG AG Wirtschaftsprüfungsgesellschaft
Jörg Grünenberger
Partner, Tax, Head of Country Practice Japan
KPMG AG Wirtschaftsprüfungsgesellschaft
Andreas Glunz, Head of International Business at KPMG in Germany, commented in Handelsblatt: "In the perception of the German economy, Japan has always been an insider tip as an investment location, but now the country's strengths are being increasingly recognized."
The reason for this is the often little-known good framework conditions in Japan:
- Average wages in Japan are 32 percent lower than in Germany
- Unit labor costs in Japan are the lowest among the G7 countries
- Japan has the second-highest robot density in the world
The focus is also on the yen and euro. The current exchange rate is having a positive impact on Japan's location rating. In fact, in March 2024, the yen fell to its lowest level against the euro since 2012: 1 euro is equivalent to 164 yen. For comparison: in 2020, the exchange rate was 116 yen and in 2012 even below 100 yen. As a result, imports from Japan to Europe have become considerably cheaper.
Japan's biggest advantage: economic, political and social stability
In a global comparison, Japan receives top marks for its reliability. German companies see Japan's economic stability (94 percent), the stability and trustworthiness of business relationships (93 percent) and security and social stability (91 percent) as its greatest locational advantages.
Japan is almost unique in Asia. The country offers German companies a level playing field, a reliable and stable legal framework and a compatible set of values.
Japan is increasingly a sales driver for German companies
For 54 percent of the companies surveyed, Japan is one of the five largest sources of revenue and earnings for the group as a whole. This corresponds to an increase of six percentage points compared to the previous year and nine percentage points compared to 2021. 92% of German companies generated profits in Japan last year. Profitability is impressive: a good one in five companies (21%) achieved a double-digit pre-tax profit margin. 66% of companies also expect profits to rise in the current year - and as many as 78% for 2025.
Sales potential is particularly important - but local presence offers other important advantages
For around four out of five of the German companies surveyed, the sales potential of Japan - a market with more than 124 million consumers - is the most important reason for their involvement. Scouting new trends in technology and innovation is the second most important reason - and observing Japanese competitors and participating in the global business networks of Japanese companies is also relevant.
As companies from the third and fourth largest economies in the world, German and Japanese companies meet all over the world - both as competitors and as cooperation partners. The fact that more and more German companies are observing their Japanese competitors and partners in their home market is a strategically clever move.
Keeping an eye on the search for suitable employees and currency risks
The challenge of recruiting specialist staff with adequate qualifications is the biggest obstacle for 82% of companies in Japan. The percentage has not changed compared to the previous edition of the study. Due to the weak yen over the past four years and Japan's high national debt, 76% of respondents cited currency risks (when importing primary products into Japan) as the second biggest challenge, an increase of 13 percentage points compared to 2022. Meanwhile, the relevance of high raw material and energy prices, the impact of inflation and supply chain disruptions is decreasing compared to the previous year.
Focus on Germany's reputation
A new addition to the study series is the question of Germany's reputation as a business location in Japan. According to 39% of survey participants, the increasing frequency of and propensity for violence at demonstrations and protest events in Germany are the main negative factors affecting Germany's image. In addition, climate activism and the outdated infrastructure (27% each) are significant negative influencing factors.
