Since establishing formal Australia-Japan trade relations through the 1957 signing of the Agreement on Commerce, Australian exporters have enjoyed a rewarding relationship with Japan.

Australian exporters are, however, at risk of forgetting this loyal partner market as the focus shifts to rapidly developing China and its large population.

For the best part of four decades, Japan has been Australia’s most important export market, and just because there is a new player in town does not mean that Japan is any less attractive. Japan – a democratic nation – shares many common values with Australia, and, like Australia, consistently enjoys a high international ranking for lack of corruption and ease of doing business.

Japan continues to be an exciting market for Australian industry, and there are myriad opportunities to be found by those willing to tailor solutions to suit Japan’s evolving consumer and business landscape.

To understand trends in the Japanese market requires time in the country, but for those willing to make the effort to understand Japanese business and consumer preferences, this effort can pay dividends. We must be careful not to rely on static, out-of-date perceptions, and instead be willing to invest in understanding the subtle ongoing changes driving consumer and business preferences within this fascinating country.

By way of example, two themes that Japan is currently grappling with that are having a marked impact are the after-effects of the recent triple disaster in northern Honshu, and the rapidly changing demographics of Japanese society.

The disaster

We all watched in horror the scenes following the earthquake, tsunami and nuclear disaster in the vicinity of Fukushima last year.

The backlash against nuclear power, the demand for cleaner energy sources and the increasing competition with China for access to resources will ensure Australia continues to play a vital role in Japan’s future energy security. This year’s announcement of the Japanese backed $33 billion Ichthys liquid natural gas (LNG) development project in the Northern Territory is only one example of the massive investments we are seeing across Australia in this area; however, we can expect continuing opportunities in the field of carbon neutral technology as well.

Japanese consumers have placed particular importance on food safety over the years, following mad cow disease, and tainted dumpling and pickle scares associated with imported products. Localised incidents of radiation-tainted domestic agricultural products have only deepened consumer concern. In response, savvy Australian farmers are targeting lucrative niche markets that cater to the Japanese consumer’s continued hunger for quality. Japanese consumers demand stringent quality control and food labelling, right down to the region of production and the time of harvest. Australian food has a competitive advantage thanks to our ‘clean water, clean air’ image and higher food safety standards than Japan’s closer neighbours. Sustainable farming practices and efforts to keep regions such as Tasmania and South Australia’s Kangaroo Island free of genetically modified crops are excellent examples that are paying dividends in terms of our trade with Japan.

An ageing, shrinking population

Japan’s society is ageing rapidly. With over 23 per cent of Japan’s population over 65 years in age, demographical changes are demanding innovation and creating new opportunities in the aged care, tourism, information technology and entertainment industries. With fewer young people to care for their ageing compatriots, and restrictive immigration policy preventing an influx of younger labour, services targeted towards this cashed-up demographic would be well received.

As Japan’s population ages it has also begun to shrink, with recent Japanese government forecasts suggesting 30 per cent fewer citizens by 2060. This is prompting Japanese industry, long buoyed by support from a strong domestic market, to look outwards for future growth opportunities.

In achieving this international growth, Japan faces a distinct challenge to globalise its workforce. Despite high domestic education standards, Japan is well behind its neighbors in terms of the number of students and young workers that have received education or work experience abroad. Poor spoken English, inability to be effective in an international environment, and the homogeneity of the Japanese workforce (Japan’s population is 98 per cent ethnic Japanese) are significant weaknesses. Australia can assist, especially in the field of education, but also through more creative means such as providing work placements for staff from partner Japanese organisations. Acquiring ‘Global Human Capital’ is often cited as a key challenge by Japanese companies, and Australia, an English-speaking long-term partner country of Japan, is well-positioned to assist with these needs.

Despite unprecedented long-term economic stagnation, many Japanese firms have a strong cash position, and in addition to expanding export markets, Japanese firms are vigorously pursuing M&A opportunities abroad in their bid to reduce their dependence on their domestic market. We have seen much evidence of this in Australia in recent years, with the Department of Foreign Affairs and Trade (DFAT) reporting Japanese foreign direct investment (FDI) into Australia topped $49 billion in 2010: a level three times that of China’s FDI to Australia. Whilst investment into the resources sector has already been noted, there is growing FDI activity in a diverse range of industries, including infrastructure, agribusiness, water and clean technology.

Japan deserves a second look

The aftermath of Japan’s triple disaster and the country’s rapidly changing demographics are only two such examples of change that warrant rethinking our approach to the Japanese market. Japanese consumers are willing to pay a premium for quality, and this will provide many Australian exporters with a competitive advantage, but only if they spend time in-market to understand what quality means to the Japanese.

Japan continues to be an extremely important trading partner for Australia, and the long-awaited Australia-Japan Free Trade Agreement will only deepen this relationship. Despite pressures associated with disaster recovery and domestic and international economic uncertainties, Australia-Japan trade activity remains strong, and opportunities for Australian exporters abound.

This article on Australia-Japan trade appeared in the Australian Industry Group’s Exporters Guide 2012 – 2013.

Paul Smith is a Director of Shinka Management Pty Ltd, which works in association with Japan Management Association Consultants (JMAC) to help Australian Industry increase productivity through Japanese lean management practices and Japan industry study tours. Paul is also active as Chair of the Japan Australia Business Council of SA.

Shinka Management assists Australian companies that trade with Japan through market entry support, localisation and Japanese translation and interpreting.