Why Are Companies Leaving Japan? Let’s Break It Down

Japan may be the world’s third-largest economy, but lately, we’re seeing some big names pack their bags and head out.

What’s going on? Time to dive into why companies are scaling back or leaving Japan altogether, and what this means for businesses eyeing the Japanese market.

Who’s Heading Out?

The list of companies planning to or have already left Japan reads like a who’s who of global business. Domino’s Pizza is closing 20% of its stores in Japan, additionally, retail giant Walmart sold off its Seiyu business in 2020.

South Korean e-commerce powerhouse Coupang has a fascinating story – they initially withdrew in 2023 to focus on their home market and Taiwan but made a strategic comeback in 2024. Their return with a revamped, more localized approach shows how companies can successfully adapt to the Japanese market. We shall see if they are successful in a competitive and saturated market.

Even specialized tech players aren’t immune – DIC Corporation, a major player in liquid crystal materials, announced in March 2024 that they’re exiting that business entirely. The pressure from overseas competitors, especially Chinese manufacturers, proved too intense. They ended up transferring their tech know-how to a Chinese company, Slichem – a move that shows just how tough it is for Japanese firms to maintain their edge in high-tech sectors.

The wholesale sector is feeling the heat too. German wholesale giant METRO Cash & Carry tried everything – tweaking their store formats, improving their product mix, and even boosting delivery services. Unfortunately by August 2021, they had to throw in the towel, closing all 10 of their stores in the Tokyo area.

Local players are also making tough calls – Japanese supermarket chain Ito-Yokado is shuttering 33 stores by February 2025.

So What’s the Deal?

Japan is a high-stakes market with unique challenges that have tripped up even the biggest global brands. Success here isn’t just about having a great product—it’s about understanding the landscape. From consumer expectations to business regulations, every aspect of the market requires a tailored approach.

Here’s six things to keep in mind:

1. Cultural Fit Is Everything
Here’s the thing – Japanese consumers know exactly what they want, and they won’t settle for less. Walmart learned this the hard way when they tried to apply their usual playbook without really adapting to local tastes. Japanese shoppers are serious about quality and service, and if you’re not meeting those expectations, they’ll shop elsewhere.

2. Competition Is Fierce
Think you can just walk into the Japanese market? Think again. Local brands have spent decades building customer loyalty, and they’re not about to roll out the welcome mat. Just ask Tesco, who found out that competing with established Japanese grocery chains was tougher than expected.

3. Red Tape and Business Culture
Japan’s business world comes with its own rulebook. Between complex regulations, unique distribution networks, and distinct business practices, many companies find themselves tangled in red tape before they even get started.

4. Demographics Matter
Japan’s population isn’t getting any younger, and that’s a real challenge for businesses. With fewer young consumers and a shrinking workforce, companies – especially those targeting younger demographics – are finding it harder to grow their customer base.

5. The Supply Chain Squeeze
Running operations in Japan isn’t cheap, and companies like Unitika (who recently exited the textile business) are feeling the pinch. Between rising costs and global competition, maintaining profitability is becoming a real challenge.

6. It’s Not All Doom and Gloom
While we’re seeing some companies exit, others are thriving by nailing the Japanese market formula. Take Kit Kat – they’ve become a cultural phenomenon in Japan by doing exactly what others failed to do. They didn’t just bring their chocolate bars to Japan; they transformed them.

By creating unique, region-specific flavors and tying them to local customs, Kit Kat showed that foreign brands can become part of Japan’s cultural fabric when they truly commit to localization.

What This Means for Businesses Looking at Japan

Despite all these challenges, Japan’s market is still incredibly valuable – if you play it smart.

Here’s what successful companies get right:

• Make It Local: Don’t just translate your brand – transform it. Understanding and adapting to Japanese consumer preferences is crucial.
• Find Local Allies: Partner with Japanese companies who know the ropes and can help you navigate the market’s complexities.
• Think Long-Term: Building trust in Japan takes time. If you’re looking for quick wins, this might not be your market.
• Stay Flexible: Be ready to adapt your business model. What works elsewhere might need a complete overhaul in Japan.
• Learn and Adapt: Coupang’s journey is a perfect example. After their initial exit in 2023, they took some time to regroup and returned in 2024 with a strategy better aligned with Japanese market needs. Sometimes, taking a step back to reassess and refine your approach can make the difference between failure and success in Japan.

The Bottom Line

Japan remains a land of opportunity, but it’s not for the faint of heart. Even global powerhouses can stumble if they don’t do their homework. Success in Japan requires careful planning, deep market understanding, and a genuine commitment to meeting local expectations.

While some companies are leaving Japan, success stories like Kit Kat prove that those willing to innovate and truly localize can thrive in one of the world’s most unique and challenging markets.

The key? Don’t just enter the market – become part of it.

For more detailed insights on market entry strategies and success stories in Japan, check out the btrax e-books on Japan or the btrax blog, which offers a wealth of practical advice and case studies for businesses eyeing the Japanese market.