Walmart in Japan

Case 1 – Walmart

Historically low levels of FDI in Japan

Japan’s foreign direct investment (FDI) as a percent of its GDP did not mirror its global counterparts. In 2011, the stock of FDI as a percentage of Japan’s GDP was just shy of 4 percent (pg. 249). This lack of net inflows within the country was a result of various political, cultural, and economic challenges foreign firms would face upon an onset of investment within the Japanese market.

 At first glance, it would appear as though Japan’s government was intentionally discouraging foreign investment as it had a number of laws in place that protected local firms from foreign competitors; thereby, restricting inward FDI. Japan had a high level of government regulation around non-Japanese companies establishing a presence within the country. For example, the country had a law in place, the Large Scale Retail Store Law, which was devised to protect small local retailers from large foreign investors. As a result of the strict regulations, many external firms did not find the Japanese market to be attractive; thereby, deterring them from entering the market. Second, the country was experiencing stagnant economic growth. Therefore, it was difficult for foreign firms to warrant an investment in the Japanese market because of the unattractive economic growth within the country.

Although poor forecasted economic growth and the high amount of government regulation were main drivers in the lack of FDI, cultural differences were also a barrier for foreign firms. Despite the attractive financial incentives foreign firms bring to the table many Japanese’s companies held out on being acquired because of cultural qualms. In Japan, loyalty was often times valued higher than financial benefits. As a result of cultural mindset, local firms did not want to succumb to the demands and expectations foreign firms would enforce. In Japanese’s culture, the workforce prefers to be with a firm throughout the entire duration of one’s career.

Therefore, it would be difficult for foreign firms to recruit the talent necessary to run a multi-million-dollar operation.

Benefits to Japan’s economy upon a greater scale of FDI

The inward flow of foreign earnings would have a positive impact on Japan’s balance of payments. In short, the economy would benefit through an increase in FDI as it now has more cash coming into the country than it would have had otherwise. Another benefit of a greater amount of FDI would have on Japan’s economy would be the increase in demand for employment. The foreign firms coming into the country need local workers and managers to run the firms. Therefore, an increase in employment is imminent upon an increase in FDI.  The economy also benefits from a greater amount of FDI through a more skilled and valuable workforce. Prior to the increase in FDI, the Japanese’s workforce was not exposed to many foreign business-practices. Therefore, more exposure would increase the total value of the workforce as workers can now transfer these new skills to other firms within the market.