Japan's distribution system and foreign investment

Japan's distribution system and foreign investment

In Japan's complex distribution system, where you have importers selling to wholesalers selling to smaller wholesalers who finally sell to small retailers, you have several extra layers of middlemen. With each middleman boosting prices maybe 30%, it's easy to see how a ten percent drop in the import price due to currency effects gets lost in all the markups.

Also, with sole import agencies, importers are guaranteed a monopoly on selling the goods of a particular company. With such a monopoly, the incentive to reduce prices to reflect currency changes is very small.

Overall there has been some improvement in the area of exporting goods to Japan, but there has been little, if any, improvement in the area of foreign investment. This is in spite of the fact that in a recent survey of American business people at the American Chamber of Commerce Japan (ACCJ), a majority of respondents said that the current investment climate for foreign investment was favorable.

Part of this favorable atmosphere may be because subsidiaries of foreign firms are able to obtain low-cost loans from the Japan Development Bank. Prior to 1982, this institution provided low-cost loans to 50-50 joint ventures with foreign capital participation, but in 1983 a subsidiary which was 80 percent owned by America's Materials Research Company obtained a low-cost $3.5 million loan. The Japan Development Bank now has extended millions of dollars of loans to foreign subsidiaries in Japan, and one of the requirements was that the subsidiary obtaining the loan had a majority of foreign ownership.

These loans are available for import facilities, factories and research centers. The loans are at attractive rates, and once a foreign firm receives the Development Bank's blessing, other Japanese financial institutions are more willing to extend further loans to the subsidiary.

There is a restriction that the loan must be used to develop a site outside of the overcrowded areas of Tokyo, Osaka and Nagoya. Still, there are a number of attractive sites available for investment.