In spite of 21st century challenges, Japan remains a powerhouse in the global economy, standing as the 4th largest economy by GDP as a market renowned for its dominance and competitiveness. Its industry supported by government and university backup gathers several centers of excellence in the field of advanced materials and advanced manufacturing deep tech.
Japan strong economy
Japan boasts a nominal GDP of $4,212 billion in 2023, placing it forth globally behind the United States, China and Germany. Engaging in Japanese markets means tapping into large regional markets that compares in GDP to whole countries as showed in the below map. Accessing markets equal in size those of several countries added up, in a compact geographical space, while being under the same regulations, business culture and language is a huge benefit in term of business efficiency and opportunities. Japan is also a privileged location to establish an Asia market entry regional platform.
Its market size, thirst for innovation and quality standard continue to attract global investors, reinforcing its position as a critical player in the international market. Inward Foreign Direct Investment (FDI) in Japan reached $21.4 billion USD in 2023 (statista.com).
Japan as an Innovation Hub
Japan is among the world leaders in innovation with its industrial clusters, such as the Tokyo/Yokohama industrial complex. It ranks No.7 country for R&D investments as a percentage of GDP which reached 3.3% in 2021 (statistics bureau of Japan). In addition, transparent import/export regulations, efficient administration, patent enforcement policies removing IP concerns, continuous hosting of international exhibitions and overall society safety make Japan a fertile ground and ideal country for innovative companies and their technological advancements.
Japan addressing challenges
Its regional technical leadership is increasingly challenged by China and South Korea. In order to answer these critical challenges, the Japanese government has taken several aggressive measures over the past decades which are progressively yielding concrete changes and positive results.
Especially over the past 20 years, the research has been reorganized at the national level by the government to better channel innovation between national R&D centers, academia and industry.
In 2003, the Japanese government made independent both the Japan External Trade Organization (JETRO) and New Energy and Industrial Technology Development Organization (NEDO) for bettering their respective management and leadership.
At last, the granting procedures for patent granting have been accelerated to enhance efficiency in intellectual property management, and new entrepreneur and highly skilled foreigners VISAs have been created for attracting global talents.
In 2013 the Ministry of Education, Culture, Sports, Science and Technology (MEXT) mandated the Japan Science and Technology Agency (JST) to create Center Of Innovations (COI) which is an industry-academia collaboration initiative where universities define visions for future society and promote research to establish enduring centers of industry-academia-government co-creation, ensuring continuous results even after project completion. Noticeable COI are spread over Japan and organized around famous universities. For example, the University of Yamagata and its Research Center for Organic Electronics lead by Prof. Tokito focuses on organic materials for electronics, printed flexible circuits, sensors and OLED. Other COI works on various topics such as advanced materials and processes, brain studies, modern infrastructures, coherent photon technologies.
On his side, over the period of 2018-2020, the Ministry of Economy, Trade and Industry (METI) created the J-Innovation Hub and J-Startup organization to respectively develop the industry/academia/government collaboration at international and regional level, and support high-potential startups with mentorship, funding, and networking to enhance global competitiveness and drive economic growth.
All these actions are contributing to the modernization of the Japanese innovation machine and development of international collaborations. It also show the will Japan has to face current challenges rejuvenate its economy.
Regional geopolitical tensions, patent conflicts and the West seen as an alternative.
Japan has still not settled several historical conflicts and territorial dispute with neighboring Asian countries. The resulting political tensions, sometimes lead to events such as the 2019 Korean boycott of Japanese brands and the 2012 Chinese protests. This atmosphere can damage trust and complicate technological cooperation within the region.
In addition, since the early 2000s, Japan's technological leadership has been contested by China and Korea which have been developing at very fast pace. High-profile patent conflicts, such as the disputes between South Korean companies Samsung and LG or Chinese companies Huawei, Xiaomi and BOE with Japanese companies Sony, Panasonic, Sharp and Hitachi over LCD and OLED displays, semiconductors, DVD, smartphones and mobile communication technologies etc… exemplifies these economic battles.
As a result of these tensions, Japan often seeks alternative partnerships in other regions of the world more respectful of economic rules and patent regulation such as Europe and USA.
Japan searches for innovative companies, M&A and foreign investment strategy changes.
Japanese companies are increasingly engaging in outbound mergers and acquisitions to import innovative technologies, keep up with regional competition and expand their global footprint. Over the past decade, Japan has massively grown its outward FDI toward Europe ($47 billions in 2023, JETRO) and USA ($65 billions in 2023, JETRO). The industrials and chemicals sectors have seen significant activity, reflecting Japan's commitment to maintaining its technological and economic edge.
For instance, acquisition by Panasonic of laser diode business of Teradiode (USA) in 2017, acquisition by Showa Denko (now Resonac) of the carbon electrode business of SGL Carbon (Germany) in 2017, significant investment by Teijin in sensing wearable business of Elitac (Hollanda) in 2018, acquisition by Mitsui Chemicals of optical coating business of Cotec (Germany) in 2020, significant investment by Mitsubishi Chemicals in 3D memory business of Aveni (France) in 2020, are few examples illustrating this trend.
Conclusion
Japan's industrial landscape is characterized by its strong economy, attractiveness for foreign investment, and status as an innovation hub. While it faces challenges from economic stagnation, technological competition, and geopolitical tensions, Japan's proactive measures and strategic initiatives position it well to overcome these hurdles. The ongoing efforts to foster innovation, streamline regulatory processes, and engage in global M&A activities underscore Japan's resilience and adaptability in a rapidly changing global economy. Overall, for European and USA’s startup and SME’S, Japan remains an excellent country for new technologies and product development, market growth, investments and strategic partnerships.
We can help you!
Ludovic Ferrigno, our partner at Sun Nano in Tokyo, Japan, specializes in business development for advanced materials and deep tech ventures, particularly in printed electronics, nano-materials, and specialty chemicals. With 22 years of professional life in Japan, he offers expertise in local networking, market entry strategies, and technical support, leveraging his background in companies like Nikon Essilor, Solvay, and Mitsubishi Chemicals. His focus includes industries such as PCB manufacturing, optical coatings, automotive, and IoT. Ludovic can help startups build a footprint in Japan through local collaborations and sales growth strategies.
For more information, visit Sun Nano's website.
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