Running head: COUNTRY RISK AND STRATEGIC PLANNING

Country Risk and Strategic Planning
University of Phoenix
Global Business Strategies
MGT 448
Jun 18, 2007

Country Risk and Strategic Planning Taking a new business concept overseas and installing facilities in a foreign country involves a great deal of preparation and forethought. Introducing a fitness/entertainment hub such as City Beach to the Japanese people, despite positive preliminary evidence, could end up being a catastrophic failure. With any overseas business venture, there are inherent risks that one must take into account. Doing business in Japan begins by appointing a representative in Japan. This representative may be a person chosen from the headquarter office or a Japanese national. According to (Jetro 2007) The representative must have the decision-making powers to make sure that the initial venture happens without any setbacks. The major regulations of doing business in Japan include laws and regulations that apply to any business startup. Foreign companies can begin by establishing their business presence as representative office, branch office, subsidiary company, or limited liability partnership. Since the setup procedure for establishing a business can be very complicated, it is advisable to procure outside help from a professional service firm in Japan. Human resource management pertaining to Japan’s laws on labor and protection of workers include the Labor Standard Laws, Industrial Safety and Health Law, and Minimum Wage Law. These laws set forth the minimum standards. According to (Jetro, 2007), one major regulation pertaining to foreign investment requires submitting proof of government notification to the to the Bank of Japan within fifteen days of the company being established. Tax notices of the business established must be submitted to both national and local tax offices. All companies in Japan employing workers are required to have social and labor insurance, which include health, welfare pension, unemployment, worker’s compensation, and nursing care insurance if the employees are between 40 and 64 years of age. In 1971 Japan and the United States agreed on a tax treaty that helps to avoid double taxation of income internationally while also guarding against tax evasion. Article 4 of the treaty sets the general rules of taxation, which indicate that the resident of one country can be taxed on income incurred in another country. Under Japanese law, a person who is a non-permanent resident of Japan can only be taxed on income derived from sources within Japan. Article 5 provides for relief from double taxation. The United States provides a credit for the appropriate amount of Japanese tax payable by a United States citizen. (Internal Revenue Service [IRS], 1973) According to (fpo.gov, 2007) there are no restrictions to taking profits out of Japan. “No limitations are imposed on the repatriation of capital, earnings or the sales proceeds for goods imported, provided the underlying transactions are proper and legal.” In Japan there is both National and Local tax. One local tax is the Inhabitants’ Tax assigned by local municipalities. Beyond the individual income tax, there are taxes on transactions that include registration, and licenses. A US citizen would be obligated for individual income tax if they spend 183 days in the country over a 12-month period. Consumption tax is payable by enterprises for transfer or use of assets and provision of services in Japan or import of goods. Consumption tax is an in and out tax, business will be subject to consumption tax on supplies they purchase and will withhold it on goods they sell. Certain supplies are non-taxable as well as some foreign owned business may be exempt for the first two years. A Stamp Tax exists in Japan, similar to our notary fees. (JETRO, 2007). A company needs to make sure a tax agent is part of the team to assure that the tax regulations of both Japan and the United States are understood and adhered to. Japan is the largest market outside the United States—larger than those of Germany and France combined, and almost three times that of the UK. Yet it is generally believed that Japan is the most difficult place to do business among the industrialized nations. However, despite this many companies have, and can be successful in Japan. It does require the discipline to execute well and Japan can extract a high price from those that do not. (Japan business article, 2007) Bringing a recreational, dining and entertainment facility to Japan fulfills many needs for the consumers. Japan has the world's tenth largest population, with about 128 million people. The Greater Tokyo Area, which includes Tokyo and several surrounding prefectures, is the largest metropolitan area in the world, with over 30 million residents. (Retto, N. 2007) The people of Japan are very structured and disciplined, in how they manage and live their daily lives. Most feel that physical activity is important, as it relates to health and longer life. As the population continues to increase, the people of Japan are looking to unwind mentally and physically. City Beach will allow consumers to do what they enjoy most, total body workouts for some, less physical activities and more entertainment for others. Entering the market in Japan can be very risky, as business owners in Japan are very competitive. When doing business in Japan it is important to make sure the pricing structure is competitive with rival businesses, and still turning a profit. Doing business in Japan can be costly if you do not align yourself with pricing that will appeal to consumers. Pricing targets for City Beach will consists of club memberships. Club memberships will vary in pricing depending location and club amenities. Facilities that contain fitness centers will offer specific memberships for fitness and/or entertainment. City Beach will also offer discounted corporate memberships to organizations. City Beach recreational facilities will be conveniently placed for their customers. Locations will be near to both residential and business centers. Success can depend wholly on where the facilities are placed, and the surrounding area. Promotions for City Beach will consist of a wide array of perks and special opportunities. There will be a marketing campaign, special sales and promotions at each City Beach locations. City Beach will also be advertised through TV commercials, posted corporate discounts, direct mailings, entertainment and dining coupons that focus on the uniqueness of our facility, and promote business as something “different”, since there are no clubs like City Beach in Japan. Japan is a center of new trends through creativity, and is a preferred testing ground for new products. Today, increasing numbers of companies around the world are partnering with Japanese companies to develop products and services, create innovative technologies, and conduct R&D projects. (JETRO, 2007). "Everything is always changing in Japan. The customer wants new things all the time." (Fashion accessories retailer) "The Japanese consumer has an understanding of products, and a very clear view about what he or she wants in a product." (Consumer electronics maker) "Japan is a consumer society where quality is highly valued. Companies that deliver strong quality and have a clear vision of their purpose can succeed and earn a fair price for their products." (Real estate provider) (JETRO, 2007). Residents of Japan may see our organization as a risk because it is not the “norm”. City Beach offers a variety of different types of entertainment, social games, virtual games, physical activities, team building activities, as well as health and fitness. Consumers of Japan may want to have a traditional fitness gym instead of an interactive dining and social hub. Residences of Japan are concerned about image and desire to have the best. One risks in the marketing position could be placement, making sure that City Beach facilities are strategic placed will be critical to the overall success of the business. Fitness centers have become very popular in Japan, as physical health and appearance are very important to the people. It is even considered politically correct to be in good health, and take care of oneself. Everything we do is about brining people together to share in an experience that is interactive, challenging, stimulating and self-fulfilling. We recognize that human interaction; a sense of community and camaraderie is essential to the existence and substance of life. When you walk out the door you’ll feel better than you did when you walked in. Dream, believe, dare and do! By bringing City Beach in to the country of Japan, we feel that that we will be able to be competitive in a very competitive market. Our product is different, and there is none of its kind in Japan to compare. By bringing City Beach into Japan we will offer a wide variety of activities both mental and physical. By opening up the market and also offering team-building courses through organizations, it enables another avenue of growth and possible greater market penetration. As the level of interest increases and we identify the need for additional activities, we will make necessary adjustments to the variety of activities provided. Of particular note is the entertainment form of Karaoke. Karaoke is the most widely practiced cultural activity. A November 1993 survey by the Cultural Affairs Agency found that more Japanese had sung karaoke that year than had participated in traditional cultural pursuits such as flower arranging or tea ceremony. (Retto, N. 2007) It may be beneficial for us to do some additional research into our customer base, to determine if introducing Karaoke as one of our activities would be worth while. Possible objections to bringing City Beach into Japan would be surplus on market. Although there are no facilities like City Beach in Japan, consumers may have some reluctance to working out and participating in physical activities in such a close, open proximity to a restaurant setting, they are accustomed to the separation and do not have facilities like City Beach. However, the consumers in Japan open to modernized ideas and are more willing to try the latest things. Aside from electronic games, most of the activities at City Beach will involve manual physical participation. Being at or near the forefront of modern ideas and technology, Japan’s people are quite connected to the World Wide Web and the information superhighway that it entails. Making good use of the technology available will be done through keeping detailed member account information on hand, at all times. A database of all vital statistics and billing information will have to be created and maintained. While this type of technology is very helpful in providing information and mapping trends, it is also a viable target for cyber identity theft. However, there are many security programs and measures that will be taken, and implemented to ensure the stability and integrity of members account information. City Beach is a company that provides a service, so our selected mode of entry will be a combination of franchising and joint ventures. According to (Hill, 2005, P.496) “the competitive advantage of many service firms is based on management know-how”. Since City Beach is a service-based company, losing control over technology is not an issue for the company. The franchising portion will realize the advantage of lower development cost and risk. The advantages of a joint venture is gaining the knowledge and marketing expertise of the local partner. We will have City Beach holding a majority share to maintain control while benefiting from the local managements knowledge of the country’s market conditions. City Beach will provide the management know-how to maintain the company’s high service quality.

References
Jetro (2007, June 16, 2007). Doing Business in Japan. Retrieved June 16, 2007, from http://www.jetro.go.jp/en/invest/setting_up/ fpo.gov (2007). . Retrieved June 16, 2007, from http://e-fpo.fpo.go.th/e-fiscal/PWGuides/individualguides/DOCS/wcd00004/wcd004cc.htm
Internal Revenue Service (1973). Thecnical Explanation of the United State-Japan Income Tax Convention. Retrieved June 16, 2007, from http://www.irs.gov/pub/irs-trty/japatech.pdf
JETRO (2007). Laws & Regulation on Setting up Business in Japan. Retrieved June 16, 2007, from http://www.jetro.go.jp/en/invest/whyjapan/pdf/full.pdf
Six Critical Steps to Business Development in Japan (2007) Retrieved June 16th, 2007 from: http://www.htm.co.jp/Bsixsteps.
10 Advantages to Investing in Japan Retrieved June16th, 2007 from: http://www.jetro.go.jp/en/invest/whyjapan/
(Retto, N. 2007) Daijirin / Yahoo Japan dictionary. Retrieved on June 16th, 2007 from: http://en.wikipedia.org/wiki/Japan