Japan Is the 29th Easiest Country In Which To Do Business. Here’s What That Means
In the latest findings from the World Bank’s Doing Business 2020 publication (based on 2019 data), Japan ranked 29th in the Ease of Doing Business rankings. Today, we dive deep to discover the reasons behind this lackluster score.
Doing Business 2020 is the 17th in a series of reports that the World Bank has published, which measures and compares how 190 countries do business. These reports provide a critical look at regulatory practices businesses must navigate to open and operate.
Image Credits: World Bank Group (worldbank.org)
Reports and rankings like this matter because they provide a critical review of regulatory practices around the world. While some regulation is needed, over-regulation stifles economic growth with far-reaching effects.
Japan’s 29th placement and what it means
Considering Japan has the world’s third-biggest economy, Japan’s Ease of Doing Business ranking is rather low. (Although, if you have experience doing business in Japan, this might not be too much of a shock.) For context, here are the top 5 GDP countries with their Ease of Doing Business rankings.
GDP 1st - US - Ranks 6th in ease of doing business
GDP 2nd - China - Ranks 3rd in ease of doing business
GDP 3rd - Japan - Ranks 29th in ease of doing business
GDP 4th - Germany - Ranks 22nd in ease of doing business
GDP 5th - India - Ranks 63rd in ease of doing business
The top 10 countries with the highest Ease of Doing Business rankings are as follows:
Hong Kong SAR, China
Notable rankings that were ahead of Japan’s 29th placement include Malaysia, Taiwan, Estonia, Thailand, and the Russian Federation.
The methodology behind the rankings
Each country was assessed against 41 indicators across 10 categories, cumulatively determining its ranking. Here is what Doing Business 2020 had to say about how they calculated each country’s score:
“The ease of doing business score measures an economy’s performance with respect to a measure of regulatory best practice across the entire sample of 41 indicators for 10 Doing Business topics (the employing workers and contracting with the government indicators are excluded). For example, for starting a business, Georgia and New Zealand have the lowest number of procedures required (1). New Zealand also holds the shortest time to start a business (0.5 days), whereas Rwanda and Slovenia have the lowest cost (0.0). Australia, Colombia, and 118 other economies have no paid-in minimum capital requirement.” (Doing Business 2020, pg. 78)
You can find out more about their score calculations here.
The challenges of doing business in Japan
The following list shows Japan’s rank in each of the 10 categories, which cumulatively determined Japan’s Ease of Doing Business placement:
Starting a business: 106
Dealing with construction permits: 18
Getting electricity: 14
Registering property: 43
Getting credit: 94
Protecting minority investors: 57
Paying taxes: 51
Trading across borders: 57
Enforcing contracts: 50
Resolving insolvency: 3
Among the 10 categories, Japan’s 106th placement for starting a business is startling yet probably well-deserved—it takes 11 days to start a business and 8 official procedures to get up and running.
For the uninitiated and the curious, the following is a summary of the 8 official procedures required to start a business in Japan:
Procedure 1: Search the company name, ensuring that it is unique and not already registered.
Procedure 2: Make a company seal (¥10,000 for a machine-carved seal or ¥20,000 for a hand-carved seal) and register it with the Legal Affairs Bureau.
Procedure 3: Register the company at the Legal Affairs Bureau of the Ministry of Justice.
Procedure 4: File the notification of company incorporation and the opening of a payroll office and apply for the approval of blue tax returns.
Procedure 5: File the notification of commencement of business at the local tax office.
Procedure 6: File the labor insurance notifications and employment rules at a Labor Standards Inspection Office.
Procedure 7: File the applications for health insurance and public welfare pension at a Japan Pension Service office.
Procedure 8: File the company application for employment insurance at a Public Employment Security Office.
If this number of procedures does not alarm you, you are likely a veteran of doing business in Japan and have grown accustomed to reams of applications and forms. But must it be this difficult? Imagine if Japan instituted New Zealand’s regulatory practices and only required 1 procedure to start a business!
The data in Doing Business 2020 makes one thing clear: Business owners in Japan can feel validated; it is not as easy to do business in Japan as it is in other countries.
Where to go from here…
Business owners in Japan face numerous procedures that involve minute precision—one little mistake, and you will need to do it over. Additionally, filling out documents and sending in applications is complicated for even those who understand Japanese, let alone those who are not native speakers.
On the other hand, there are advantages to owning a business in Japan. Because of the difficulties involved in starting a business here, the startup scene is not as saturated as in other top GDP countries. So there is plenty of potential for finding a ready audience and customer base for your startup or business.
With a possibility of hanko reforms on the horizon and the present administration focusing on pushing more procedures online, there is some hope that doing business in Japan will get easier.
As for the challenging aspects, knowing where to turn for help is one of the best methods to set your business up for success.
Related articles on business in Japan