Summary
The current analysis is dedicated to Germany and Japan as two potential countries for the MNC Widget’s business expansion and international trade. The paper covers major historical, political, economic, and social aspects that affect business in these countries. The aim of the comparative analysis is to assess these factors and identify the country with a better environment for the MNC Widget’s expansion and collaboration. The result of the comparative analysis is formulated in the form of a recommendation and its rationale, presented at the end of the paper.
Brief Description of the Countries
Before proceeding with the comparative analysis, it is necessary to briefly describe the two countries. The first one is Germany – one of the largest European countries, with an area of 138,063 sq mi and a population rate of 83,200,000 people (Schleunes et al.). Germany is an influential member of the North Atlantic Trade Organization (NATO) and one of the founding members of the European Union (EU) (Schleunes et al.). Nowadays, the country has significant political and economic weight despite several crises and downfalls that it went through throughout its history.
Germanic peoples have inhabited the present-day territory of Germany since ancient times. However, those were separate political entities for centuries, which were brought together only in the 19th century (Schleunes et al.). Thus, the history of Germany as a state started in 1871, when Prussian Prime Minister Otto von Bismarck unified the territories of various Germanic peoples in the form of the German Empire (Schleunes et al.). The German Empire started to gain more political and economic influence and aimed to change the established power balance, which led to World War I. Germany was defeated and entered the following period of economic depression in a weakened state (Schleunes et al.). At this time, the Nazi Party led by Adolf Hitler used the public’s dissatisfaction and suffering to gain power and start World War II, which also ended with Germany’s defeat (Schleunes et al.). Germany was divided into two parts: the Federal Republic of Germany (the western part) and the German Democratic Republic (the eastern part) till 1990 (Schleunes et al.). In brief, Germany has long historical roots, but its present political, economic, and social systems are relatively new.
One should note that nationalism is still a sensitive issue for Germany. On the one hand, Germans remember the consequences of the Nazi rule in their country, commemorate the victims of the Holocaust, and prosecute all forms of hate crimes and Nazi propaganda (Schleunes et al.). On the other hand, the influx of immigrants and refugees from North Africa, Turkey, and South Asia fuel ethnic tensions and create new challenges (Schleunes et al.). Therefore, the German government must carefully navigate between preserving national interests and controlling interethnic conflicts within the country.
The second country the present analysis focuses on is Japan. It is an Asian island country situated in the western North Pacific Ocean. It occupies a string of islands with a total area of 145,937 sq mi (Jansen et al.). Japan’s current population rate equals 125,497,000 people (Jansen et al.). Japan has demonstrated exceptional economic growth after World War II and is now one of the most developed countries worldwide (Jansen et al.). In this sense, the scenario of its economic development is similar to Germany’s, as both managed to rise after severe downfalls.
Due to its geographical position, Japan has always been a somewhat secluded country. According to Jansen et al., people inhabited this territory for tens of thousands of years, but the first records about it only appeared in the 1st century BCE in Chinese sources. Initially, it was not a unified state, and the first steps to bring together local peoples occurred in the late 4th century CE (Jansen et al.). By the 12th century, Japan’s civilization reached a high level (Jansen et al.). In the following seven centuries, the country was governed by military rulers and was almost fully isolated from the rest of the world (Jansen et al.). That is why the country’s reopening in the 19th century became a significant point in its history. Japan’s ambition to expand its political influence led to its participation in World War II as Germany’s ally. Even though it was defeated, Japan rapidly developed and gained much economic power (Jansen et al.). Thus, despite a long history of isolation, Japan quickly adapted to the changes and became one of the world’s economic leaders.
Political Aspects
To properly assess the business environment in a country, one should consider certain political factors that also impact it. They comprise the forms of government and major political and legal issues that might have an economic impact. These factors demonstrate how politically stable the countries are. Countries with unstable political situations would not be suitable options for international trade and business expansion.
Before sharing any opinion on Germany’s political situation, I will briefly describe its political system. Germany is a federal multiparty republic consisting of several states (Länder) with a considerable level of autonomy to exclude the risk of the centralization of power like in the Nazi era (Schleunes et al.). The German parliament consists of two legislative houses: Federal Council (Bundesrat) and Federal Assembly (Bundestag) (Schleunes et al.).
Officially, the head of the state in Germany is the president, but their authority is quite limited and has a formal character (Scheunes et al.). Contrastingly, the official who has real power and influence in Germany is the chancellor, the head of the government has the authority to initiate government policy (Schleunes et al.). The ministries also have extensive autonomy and powers of initiative (Schleunes et al.). There are two conditions for the chancellor’s deposition: an absolute majority of the Bundestag and assurance for the election of a successor (Schleunes et al.). In brief, the German political system seems quite stable: the power is balanced between several states, parties, and other political bodies, and there are certain procedures to impede the centralization of power if there is a need.
However, currently, two issues create uncertainty and possible risk to the country’s stability. The first one is the aforementioned interethnic tensions that might influence Germany’s social and economic policies and inner security. The second one is Brexit, as it caused a major change in the EU structure, maintenance, and cooperation processes that may affect all its members, including Germany (Ben Ameur & Louhichi, 2021). Even though the process started in 2016, it is still difficult to accurately evaluate its impact due to the COVID-19 crisis, which is currently the most important problem worldwide (Holland, 2021). There are still many factors creating uncertainty around the situation. Still, as one of Europe’s largest economies and influential political members, Germany seems to deal with it quite well so far (Holland, 2021). Thus, there are certain political risk factors concerning cooperation with Germany, but they do not seem critical.
Now, it is necessary to present a brief description of the Japanese political system. Japan is a constitutional monarchy, but the emperor has a mostly symbolic role rather than real power, which belongs to the parliament, the National Diet, and the cabinet (Jansen et al.). The latter is organized and headed by the prime minister, who is formally appointed by the House of Representatives (the Diet’s lower house) (Jansen et al.). The House of Representatives has the authority to pass a resolution of no confidence, which would lead to the cabinet’s resignation (Jansen et al.). There is also an independent constitutional body, the Board of Audit, which is in charge of the annual auditing of the state accounts (Jansen et al.). Therefore, there is a division of power in Japan between different political bodies, and there also exist procedures and controlling authorities to impede the unfavorable decisions made by any of them, making Japan’s political system quite stable.
Infrastructure and Education
The important aspect that is vital both for the country’s general affluence and for efficient business operation is infrastructure and logistics. Due to Germany’s geographic position in the center of Europe, Germany’s net of roads and transportation roots also plays a significant role in the region’s economy (Germany Trade & Invest (GTAI)). The quality and reliability of the country’s infrastructure have been noted in a number of recent studies (GTAI). They include the World Competitiveness Yearbook developed by the Institute for Management Development (IMD) and the Investor Surveys conducted by the United Nations Conference on Trade and Development (UNCTAD) (GTAI). According to the World Bank evaluation in 2018, Germany’s logistics performance and infrastructure state are the best worldwide (as cited by GTAI). In brief, in terms of transportation quality, speed, and reliability, Germany is the best option for business expansion and trade cooperation.
Japan is located on several islands, and a well-organized infrastructure is crucial for its maintenance. It also has a highly developed network of transportation and logistics roots, including highways, railways, airports, subways, harbors, warehouses, and telecommunications (EU-Japan Centre for Industrial Cooperation). It enables the quick and reliable distribution of goods and services within the country, which is also vital for efficient business operations. In the World Bank’s 2018 assessment, Japan’s logistics performance was ranked 5th, and its infrastructure was evaluated as the second-best in the world (as cited by GTAI). These are very high indicators signaling the excellent quality of the Japanese transportation system, but its performance is weaker than Germany’s.
There are several infrastructural problems that might have influenced the rating. The major ones include overcrowded public transportation systems, the shortage of better housing and open space for recreation, and the constant natural disasters risks (Jansen et al.). Moreover, the Japanese seem to be very passionate about preserving historical buildings and whole districts, which they skillfully managed to do for many years (Jansen et al.). However, it might become an obstacle to the cities’ infrastructure’s future modernization and development (Jansen et al.). Despite the overall well-developed infrastructure, these issues may be important risk factors.
Another aspect that demonstrates the country’s development is the state of the education system. German educational system includes nine compulsory years of full-time schooling (European Commission). Apart from this, it involves other stages, such as kindergartens for children under six and vocational and higher education organizations for students who want to continue studying after school (European Commission). According to UNESCO, Germany is one of the top five destinations for higher education chosen by international degree students and is the third-largest country sending students to study abroad (as cited by Trines, 2021).
Moreover, despite all the uncertainty with political, social, and economic repercussions Brexit brought to the EU countries, it also might have some positive consequences, including the ones for Germany’s education. As Stafford (2018) noted, the German university system may only benefit from Brexit, as it would reinforce the academic partners within Europe and might attract “the UK-based talents” to Germany (p.13). Thus, the German educational system seems to provide many opportunities to learn and develop skills in German and international students.
One should separately note the role of education in Japan. This country is one of the most literate, and maintaining a high level of education is one of the national priorities (Jansen et al.). Moreover, according to the Organization for Economic Cooperation and Development’s (OECD) appraisal, Japan ranks high among the countries that provide equal educational opportunities for students of various socioeconomic backgrounds (as cited by Chawala, 2021).
Apart from that, the Japanese promote a holistic approach to education and develop children’s mastery in different disciplines (Chawala, 2021). It led the country to outstanding academic results: in the OECD’s Program for International Student Assessment, Japan was second in science and fifth in math in 2015 (Chawala, 2021). Enough attention is paid in Japan to higher education, with this sector being one of the largest in the world (Chawala, 2021). Therefore, Japan also provides sufficient educational opportunities for its citizens and upholds a high literacy level.
Economic Aspects
While considering business collaboration and expansion, one cannot ignore economic factors. These factors include national output, the level of unemployment, and the inflation rate. Several economic indicators are crucial for assessing the national output and the country’s economic performance. The first and one of the major ones is gross domestic product (GDP). According to the data provided by the World Bank, Germany’s GDP in 2020 amounted to 3.846 trillion US$, while Japan had a higher indicator of 5.058 trillion US$. Figure 1 demonstrates the GDP indicators of these two countries within the last twenty years. One can see that Germany has lower GDP indicators, but at the same time, it shows stable growth over this period, while Japan’s development seems more stagnant despite overall better economic performance.
However, knowing the country’s GDP is not enough to accurately evaluate its economic performance and potential. Another important indicator is GDP per capita, which additionally considers the countries’ population rate. Germany’s GDP per capita equaled 46,206.429 US$ in 2020, while Japan’s was 40,193.252 US$ (The World Bank). Figure 2 shows the GDP per capita rate of the two countries within the last twenty years. From this perspective, Germany shows both higher indicators and obvious economic growth. Thus, Germany’s economy seems stronger than Japan’s in terms of GDP per capita.
The next index utilized for economic assessment is the inflation rate. This index shows the prices’ growth, with the optimal rate set by the US Federal Reserve around 2% (Warr, 2019). According to the data presented by the International Monetary Fund (IMF), the average consumer prices in Germany increased by 0.4% in 2020 and by 2.9% in 2021. The projection for 2022 is an inflation rate increase of 1.5% (International Monetary Fund (IMF), Germany). The inflation rate in Japan is lower: in 2020, it was 0%, in 2021, it decreased by 0.2%, and the projection for 2022 is an increase by 0.5% (IMF, Japan). Such low indicators demonstrate low demand for goods and services, which, in turn, signals slow economic growth and might even lead to increased unemployment in the future (Warr, 2019). Therefore, Germany seems to have more potential and would be a more reliable direction for business expansion.
Another indicator of a healthy economy is a low unemployment rate. In Japan, it amounted to 2.8% in 2020 and 2021 and is predicted to be reduced to 2.4% in 2022 (IMF, Japan). Germany also demonstrates a reduction trend in unemployment, but with slightly higher overall indicators: 3.8% in 2020, 3.7% in 2021, and 3.6% as projected for 2022 (IMF, Germany). Therefore, both countries have a low unemployment rate that continues to reduce, but Japan demonstrates better indicators in this regard.
Finally, the economy’s strength is significantly impacted by the national currency exchange rate. The currency used in Germany is the euro, and Japan’s is the yen (Schleunes et al.; Jansen et al.). The present currency exchange rates are 1 US dollar equals 0.88 euros and 115.63 yens (Bloomberg). This ratio shows that the euro is currently much more expensive than the Japanese yen, making Germany a more reliable and profitable option for potential expansion and business collaboration.
Methods to offset international trade risk
To mitigate potential international trade risks, I suggest the following steps. Firstly, conducting a deeper regulatory check is necessary to avoid unfavorable conditions or to break local economic laws (UniCredit). Secondly, one should also consider intercultural differences that affect business operations with foreign partners (UniCredit). It is recommended to hire expert legal and financial consultants to guide Widget’s business expansion and international cooperation (UniCredit). Another method to minimize risk factors is regularly monitoring exchange rates and other economic indicators to quickly adjust the business strategy when necessary (UniCredit). Finally, one should stay up-to-date and open-minded and use innovative business instruments to facilitate business operations and mitigate potential risks (UniCredit). By applying the methods listed above, the Widget can minimize international trade risk.
Recommendation
Both Germany and Japan are influential and economically developed countries with a high potential for profitable cooperation. Nevertheless, after analyzing the presented data, I would recommend Germany as a country with a more favorable environment for Widget’s international trade and business expansion. The rationale is based on several political, social, and economic factors. Precisely, the comparison of the country’s GDP, the GDP per capita, the inflation, and the national currency exchange rates demonstrated the German economy’s strength and continued growth. Moreover, its well-organized infrastructure and logistics system is another compelling argument in favor of Germany. Several political risks were outlined in this report, but no imminent disturbances likely to prevent the Widget’s successful expansion in Germany were identified.
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