Business Management

Tokyo Has Plans to Be Asia's Tech HQ - But Are They Enough?

Can you remember the last time you heard a positive IT news story coming out of Japan? Over in China it’s all about inexorable domestic growth, vaunting ambition, huge government investment and the overseas expansion of a new wave of home-grown champions led by Huawei and Lenovo. In the land of the rising sun, things are less optimistic. NEC, Sharp, Sony, Panasonic… the once-proud electronics giants have all recently fallen on hard times. Job losses, debt mountains, forced JVs with foreign rivals are today’s themes, and all amid an economic malaise in the country that has lasted almost a generation. That’s not even to mention the psychological and economic impact of the 2011 Tohoku earthquake and tsunami.

I read with interest then, that the Tokyo government is taking the bull by the horns – very much as new Prime Minister Shinzo Abe has done with his radical Abenomics policies – with a new initiative to attract foreign investment into the country. The awkwardly titled “Special Zone for Asian Headquarters” project is finally up and running with an ambitious aim to attract 500 foreign companies to the capital by 2016. The idea is they will be given tax breaks and other financial incentives to locate their Asian HQ or R&D centres in the zone. IT companies, along with gaming, aviation and other select industries will be a particular focus of local government efforts.

Tokyo certainly needs a lift. According to Toyo Keizai stats quoted in the Japan Times, the number of foreign companies in the city dropped from 2,645 to 2,330 in the 2005-2010 period.

“Tokyo’s high status in Asia is threatened as we face a situation where foreign companies increasingly move to other Asian cities,” project director Noriko Adachi told the newspaper.

To encourage more to come back to Tokyo, the initiative will offer free Accenture consulting and advisory services; up to 5 million yen (about $50,000) in subsidies; the use of a Business Development Center peopled by bilingual staff to provide extra support; and a reduction in corporation tax from 38% to 28.9 %, dropping again to 26.9% by 2015.

It’s argued that Singapore, Seoul and Hong Kong have all managed to increase their standing in the region over the past decade or more, so will these limited tax breaks and other incentives be enough to attract technology MNCs to Japan?

An isle apart

Well, firstly, we should remember that things aren’t all bad for Tokyo. Although Japan has suffered a great deal in the past quarter of a century, the city is still thriving as a business mecca, boasting the headquarters of more Fortune Global 500 companies than any other city globally. The new initiative therefore can probably be viewed more as an effort to attract mid-sized companies to its shores.

The problems facing Adachi and her team in doing so, however, are numerous.

For one, corporation tax is still far lower in Singapore (17%) and Hong Kong (16.5%). Then there’s the cultural stuff. Japan has always stood apart from the rest of Asia, even more so than the UK has to continental Europe – to the point where analyst firm IDC even releases its APAC PC and smartphone sales stats excluding the land of the rising sun. Although now bowing to incursions by foreign tech players, Japan’s domestic IT market has historically been dominated by home-grown players – leading to what many commentators have called its “Galapagos-isation”. English is also relatively rarely spoken for a major international city.

It doesn’t help either that Japanese cities are among the world’s priciest to live in. In fact, four of Asia’s top five most expensive places to live, led by Tokyo, are in Japan, according to stats from HR consultancy ECA International.

IDC Japan research VP Tomoaki Nakamura told me that Tokyo’s plans to slash corporation tax by over 10% would not lead to the desired “landslide” transfer of MNCs to the city. However, he did point to benefits that may encourage some movement, including zero real estate and zero real estate acquisition tax; shortened visa application processing times; and faster patent approvals – down from 22.2 months to 1.9 months.

Japan-based independent technology consultant Serkan Toto was more optimistic still. He told me that although elements of the initiative had been in place for years to attract foreign firms to Japan, this is the first time a cohesive plan to aggressively market a single area (Tokyo) has been attempted.

“It's about time that Japan is sending this signal to the world,” he added. “Year after year, the country has been losing relevance as an R&D hub for technology companies to other places in Asia like Singapore, or China. Japan has been resisting opening itself up to globalisation long enough.”

Innovation works

Another factor, especially when it comes to attracting R&D investment, may be the quality of local talent. Despite the wretched financial performance of its major electronics firms of late, Japanese giants such as Sony, NTT, Fujitsu and others dominated the most recent Patent Power Scorecard from IEEE – a chart which ranks firms according to the size and quality of their US patent portfolios.  China, by comparison, only had two firms represented – Huawei and Lenovo  .

The rich tradition of technology innovation in Japan seems to be still very much alive and well, then. Tokyo will also no doubt benefit from the buzz of the coming 2020 Olympics, and some have argued that the metropolitan government will take steps in the years preceding it to make the city more gaijin (foreigner)-friendly. However, it will certainly take more than the world’s biggest sporting event, and the most Michelin-starred restaurants of any city on Earth, to beat the tax breaks handed out in Hong Kong and Singapore.


John Anderson has been writing about technology and all things Asia for over a decade. From his perch in the Far East he keeps a keen eye on the global significance of emerging trends in the region. 


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John Anderson

John Anderson has been writing about technology and all things Asia for over a decade, having started out on some of the UK's best known best-known IT trade titles. From his perch in the Far East he keeps a keen eye on the global significance of emerging trends in the region. 

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