Article by Ambassador Extraordinary and Plenipotentiary of the Republic of Belarus to Japan Sergei Rakhmanov in the magazine “Economy of Belarus” (№ 4, 2015)

Opening Japan

Belarusian-Japanese trade and economic cooperation is on the rise

Globalization makes every country adapt to the changing global market conditions and establish and promote new partnerships. Bearing this in mind, Belarusian exporters and importers turn towards Japanese companies in search for promising trade and economic partners. The main reasons behind the drive include the rising competition on traditional markets of Belarusian goods and services, economic slump in many of these markets, the natural need to diversify export, tougher product quality requirements. This necessitates retooling, looking for financial and technology investors, developing more sophisticated marketing and sales strategies to fit in the international manufacturing cooperation schemes.

Japanese Economic System

The system including its foreign economy component has evolved over a long period of time. From the very start it relied on the principles of the so-called state capitalism, which envisages a high degree of the involvement of the state in the national economy. It was Japan’s distinguishing trait as early as the 19th century. These principles still prevail to a considerable extent despite the influence of the Western economic model which implies limited state regulation.

The heyday of the Japanese economy was in the 1960s-1980s. It struck the world with the unusually high growth pace and domination in a number of technological areas. However, due to a number of reasons, including frequent changes of the government and the consequent lack of timely and adequate actions to adapt to new economic conditions, the national economy started losing momentum. Other reasons were tougher competition on regional and global markets and changes in market trends. The demographic problem made the situation even worse.

However, Japan has amassed enough potential to remain a major global financial investor and one of the world’s technological leaders. The country also boasts key positions in automobile engineering, robotics, and other areas.

The international business system in Japan has a lot of branches due to the huge size of the national economy (the country’s GDP exceeds $4.5 trillion per annum) and its orientation towards export (export accounts for about 40% of the GDP). Japan’s successful track record in international business cannot be replicated in Belarus because the economy is much smaller. However, Japan’s lack of considerable reserves of natural resources and the export orientation of the economy make the country’s experience interesting for Belarus. The fact that Japan’s experience reflects all the successful international business practices of the world is one of the reasons.

Thus, Japan has shaped and gradually improves all the components involved in international business, from technologically advanced manufacturing, the management and coordination system, workforce supply and incentives to the system used to access foreign markets and carry out structural reforms to fit those markets. Thus, Japan’s international business is part of the national economy. Agencies of the economic branch of the government take care of it, primarily the Ministry of Economy, Trade and Industry.

Japan’s foreign economic activities are based on thorough analyses carried out by Japanese experts at the level of the state and at the level of large, medium, and small businesses. These experts are highly qualified and have practical experience thanks to the training practices that target specific countries and regions in Japan and abroad. These experts play the decisive role throughout the international business infrastructure since they represent a reliable mechanism for preparing and supporting the decisions that heads of government agencies and private businesses make in the end.

Japan’s entire international business industry seeks to build up and take advantage of the positive image of the country and its individual industries and brands, from food to hi-tech industries. Both government institutions and non-governmental organizations are involved in the effort. The development of all kinds of inbound tourism is considered one of the most important practical mechanisms. The work is supervised by top government officials. Analytical data corroborated by practical results indicates that direct contacts at all levels make up the foundation of successful international business efforts in the globalizing world. Thus, public image enhancement and tourism services export are vital for promoting Japan’s international business.

Close attention is paid to human resources employed in foreign economic activities. Technical specialists knowing peculiarities of Japan’s trading partners make up the majority of personnel working in the field of marketing and management. Therefore, a systemic approach to training such personnel is used. As part of the approach the specialists are given basic university training followed by mandatory lengthy on-the-job training not only in Japanese companies but also abroad, including for the sake of targeting specific countries and regions. The specialists study foreign languages taking into account their future professions. More and more foreign specialists who have graduated from Japanese universities are sought by employers.

Small and medium-sized enterprises (SMEs) in Japan play the main role in the economy as a whole and in foreign economic activities in particular. The number of small businesses exceeds 5 million, while the country’s population is below 127 million people. These businesses generate most of the GDP and provide about 80% of jobs. The situation has a fundamental reason behind it: these companies are the main channel for the practical advancement of technological innovations. In view of the fact, a powerful ever-improving system to stimulate and incentivize SMEs has been created in Japan. The system includes direct financial support and preferential taxation, including zero taxes to secure the steady operation of companies. Close attention is paid to stimulating the involvement of university scientists in the creation of their own manufacturing businesses or cooperation with existing companies. The link between science and manufacturing is secured that way. Thanks to the approach many leading Japanese universities have become world-class innovation and technology hubs like the Silicon Valley in the USA in such areas as robot technology, cell technology, agribusiness, fish farming and other ones.

Belarus-Japan Cooperation

Belarusian-Japanese trade and economic cooperation on the Japanese side is determined purely by the country’s traditional approaches to evaluating its trade and economic partners. The following criteria are used: the presence of considerable the natural resources that Japanese companies need, the partner’s market potential for selling Japanese products, and Japan’s special interest in the partner country in priority areas such as technological cooperation and environmental protection.

Thanks to the efforts of the Belarusian Ministry of Foreign Affairs and individual Belarusian economic operators Japan is starting to understand that the Republic of Belarus is a promising technological partner. Thanks to the foreign policy pursued by Belarus’ government, the country is now viewed as an active participant of integration processes in the post-Soviet space, including the project to set up a new economic zone. Belarus is also perceived as a source of stability, a proponent of the idea of sustainable development based on balancing the interests of the economy and environmental protection. Belarus has a wealth of experience in mitigating the impact of the Chernobyl nuclear accident. This experience is of interest to Japan as it is dealing with the consequences of the Fukushima nuclear power plant accident.

Belarus has not yet overcome the stereotype of Japan as a country with a hard-to-penetrate market, high tariff barriers, and tough competition. However, any stereotypes can be destroyed by systematic analysis and the development of the relevant approaches followed by concrete actions.

Thanks to the previously mentioned efforts of the Belarusian Ministry of Foreign Affairs and Belarusian economic operators the negative trends that existed prior to 2011 have been overcome. Systemic efforts are channeled into increasing Belarus’ merchandise export to Japan. In 2013 Belarus’ export to Japan increased by more than six times in comparison with 2010. After the figure dropped in 2014 due to the bad market situation with regard to potash fertilizers, the positive trend was revived in 2015. Yet, the merchandise export to Japan is still below the potential of the two countries.

Another important circumstance is that Belarus-Japan trade and economic cooperation goes well beyond the traditionally unified indicators like the volumes of direct export of merchandise and services and the volume of direct investments. Indeed, other considerations also play an important part in Belarus-Japan relations. The number includes the export of the Belarusian products made using Japanese equipment to third countries. These products account for 9% to 100% of the total output at enterprises of the Belarusian petrochemical concern Belneftekhim alone, with the overall export exceeding $6 billion per annum. Another factor is the export of products made via technological and financial cooperation with Japanese companies (Horizont in 2012-2013). Belarusian products are also exported with financial assistance of Japanese companies and via trade channels of these companies. Belarusian Potash Company started the relevant successful practice in 2014. Apart from that, Japanese brands are used to export Belarusian tobacco products to third countries, earning the equivalent of dozens of millions of U.S. dollars for the state budget per annum. Trade and economic partners from Japan also offer commodity loans on preferential terms. The holding company Amkodor received the first major interest-free commodity loan to buy state-of-the-art Japanese equipment without guarantees of the Belarusian government in 2015. Japanese investments in Belarusian IT industry as part of manufacturing cooperation of the Hi-Tech Park residents are worth mentioning. For instance, Japan’s top online retail corporation Rakuten invests millions of U.S. dollars per annum and may invest more in the future.

All these factors considered, the real volume of Belarus-Japan trade and economic cooperation already exceeds the figures listed as official Belarusian statistics.

Some other factors deserve mention while speaking about the positive dynamics of Belarus-Japan trade and economic cooperation. These include the invigoration of cooperation in hi-tech industries. For instance, positive dynamics has been secured in the export of Belarusian services to Japan in the area of information technologies (export of services steadily gains 30-50% per annum), education (the export of education services quadrupled in 2011-2014), healthcare (the export of medical services skyrocketed by 21 times in 2011-2014), science (a steady increase by 2.5 times per annum). In 2012-2015 the first offices of Belarusian manufacturing and information technology companies were opened in Japan. Belarusian-Japanese business associations were created for the first time in a number of important regions of Japan, including those specializing in the technological sphere. For the first time the Belarusian Chamber of Commerce and Industry appointed the Chamber’s public representatives in Japan. Direct ties were established with a number of leading Japanese universities and corporations that can offer state-of-the-art technologies.

On the whole, one of the most important aspects of Belarusian-Japanese trade and economic cooperation is connected with technological interaction within the framework of the overall international business system. Japan is one of the few technologically advanced countries that impose no official political restrictions on cooperation. The Japanese private sector is coming to the understanding that the Republic of Belarus has a number of technological advantages in comparison with many other economic partners. The number includes quite a high overall level of the economy and its technological component, the well-developed manufacturing and logistics infrastructure, a high level of education and science with highly qualified workforce at various levels, the stability and safety of the state as a whole, preferential access to integration markets, and other things.

In turn, the Belarusian side needs to further develop and modernize the manufacturing base focusing on cutting-edge technologies without limiting itself to medium-level technologies. The interest is mutual in this regard. Favorable conditions for technological interaction have been evolving recently. Belarus should make a maximum use of them.

Promising Approaches

The approaches meant to further advance Belarusian-Japanese trade and economic cooperation are unified, targeted and country-specific. They can be divided into analytical and organizational ones.

The former include efforts to identify cooperation avenues and the specific projects that match the current trends and should be offered to Japanese partners. Belarus should determine the range of products and services fit for trade and economic cooperation with Japan at present and in the future. Belarus should work out a concrete vision of technological, financial, and investment cooperation. Parameters of international business between Belarus and Japan should be polished across the board. Belarus should focus on saturating the domestic market with quality products and on increasing its export to Japan and third countries via manufacturing cooperation with Japan. Belarus should advance direct contacts with the promising Japanese partners. All the available mechanisms should be used for it such as mutual visits, participation in international expos, establishment of permanent representations and so on.

The organizational approaches include: systemic and coordinated promotion of Belarus’ positive image in Japan, including a general image of the country and its image in specific areas; systemic advancement of all kinds of the export of tourism services to Japan taking into account international practices; creation of preferential business terms to Japanese companies in Belarus; provision of all kinds of incentives to encourage SMEs to establish trade and economic cooperation with Japan; development of multilateral trade and economic cooperation involving the Japanese private sector and the countries, which are important partners for both Belarus and Japan; ensuring a high level of coordination of trade and economic cooperation with Japan at the level of state and private structures; provision of adequate human resources to further trade and economic cooperation with Japan, including training and retraining of specialists; development of practice-oriented conceptual approaches to trade and economic relations with Japan at the level of government agencies and economic operators.

Considerable efforts of Belarus’ entire foreign economic activities system will be needed to work out the specifics of these approaches and implement them in practice. Targeted efforts of international business operators and the government agencies that oversee them with constant assistance of the Ministry of Foreign Affairs and the Embassy of Belarus in Japan will be needed first.