The decision earlier this year to award France and its company DCNS the Australian submarine project could be described as a classic example of how Australia has forgotten about our friends in Japan.  The Japanese viewed this project as being much more than just flogging submarines to Australia, but that was certainly the way it was pitched in the Australian media and public discussions.  The Japanese submarine build had the potential to reinvigorate manufacturing investment in Australia, and greater supply chain integration throughout Asia. This is not to suggest that Australia and Japan cant reinvigorate a relationship in another form, but it will certainly be much harder to achieve. Its probably a sliding doors moment.

But lets leave the technical details of the defence manufacturing industry to instead look at some of the underwhelming approaches to Japan from many in Australia and beyond. When was the last time you heard a business leader suggest that they were going to target Asia, and Japan would be the key market of entry? It would probably be a while. Australian companies still do business with Japan, but new business is not growing as fast as it probably should be, and perhaps that is down to the besotted nature that Australia and the various federal, state and local governments have had with China. Its hard for Japan not to be swamped and overlooked in favour of its bigger East Asian neighbour. But is this a fair comparison?

Over the past two decades Japan’s economy has been characterised by low growth and persistent deflation which has reduced the overall living standards throughout the country.  As a consequence the Japanese government began to attempt to reverse this economic slowdown with new policies, culminating into what has become labeled the ‘three pillar approach.  There is some debate whether this new approach has had much success.  However, Japan is still one of the largest economies in the world and continues to be a major market for global exports, and particularly food exports.

Japan was Australia’s largest export destination in much of the 1980’s and 1990’s. Regardless of the changes in the Asia-Pacific region relating to Australian trade opportunities; Japan still remains a very important market and supplier for Australia. Two-way trade between Japan and Australia reached $70.8 billion during 2013, more than 10 percent of Australia’s total overseas trade. The Japan-Australia Economic Partnership Agreement (JAEPA) was ratified and officially entered into force in January 2015.  The Agreement provides valuable preferential access for Australia's exports and supports growth in two-way investment. JAEPA is the most liberalising trade agreement Japan has ever concluded, and provides Australian exporters preferential trade access compared with comparative exporting economies from North America and Europe.

Despite the economic challenges in the Japanese market, it still retains a level of competitiveness and productivity, which continues to make it an attractive market with which to conduct business. Japan is ranked 6th in “Global Competitiveness report 2015-16”, higher than most developed economies, and positions Japan as a regional leader as far as competitiveness is concerned. Japan has at hand many of the building blocks important for future economic growth. These include high technology industries and developers, a highly educated labor force, large amounts of capital, some of the best modern infrastructure globally, a legacy of industrial development and innovation and a highly urbanised population (93 Percent), which continually drives the economy through domestic spending.

We need to remember that Japan continues to be one of Australia’s largest agricultural export destinations, it continues to invest heavily in Australian industry and has for many years been a mainstay of Australia’s manufacturing industry.  The recently signed Japan Australia Economic Partnership Agreement (JAEPA) provides Australian with duty free access to 99.7% of Australian existing export commodities to Japan. In 2034, once full implementation of the JAEPA comes into effect, all of Australia’s manufactured goods, resources and energy will become listed as duty free upon entry into Japan. The JAEPA has further paved the way for the immediate elimination of tariffs on all manufactured products relatable to the aerospace industry. Changes under the JAEPA have also meant that Australian service providers will be at a further advantage. Australian professionals will now benefit from guaranteed existing market access and visa access arrangements.

If nothing else this story should reshape your expectations of the Japanese market, and what has for many years been one of our most important Asian trading partner. We may very well have forgotten about the opportunities in Japan, but in the future we need to grasp the opportunities and seek to realise more opportunities in the future. When you think of the Asian Century, and the opportunities that are available, don’t forget Japan.

Dr Nathan Gray is Managing Partner of AsiaAustralis – a strategic management advisory firm that specialises in markets throughout Asia. Over the past three decades our consultants have assisted companies achieve their market objectives in Asia.