The future of cross-border ecommerce in Japan

By Kelvin Phua, Global Head of Payment Networks at PPRO 

Today, the Japanese e-commerce market is the third-largest in the world. In fact, it is already worth over USD 160 billion and is growing by an impressive 9% a year, according to PPRO research. Statistics from Pitney Bowes cite that 70% of Japanese consumers shop online and are spending an average of nearly $1,500 per person annually.

With records suggesting that 98% of Japanese consumers are now banked, and 93% have an Internet connection. Japan is not only one of the largest global ecommerce markets, but it is also the leading mobile retail market in the world, adding to the many attractive opportunities for cross-border merchants.

However, whilst Japan is a highly prosperous, developed, cosmopolitan and well-connected market, there is a growing perception among Japanese consumers that they are getting less value for money than in the past. This is down to what economists call “shrinkflation”, when manufacturers face rising costs and, rather than put up prices, reduce the size or quantity per unit of their product. This is causing many Japanese consumers to look for other ways of getting better value for money.

 Cross-border shopping

Currently, only 10% of Japanese consumers shop on overseas websites. But PPRO’s data analysis shows that this figure is much higher for other countries in the region, with Hong Kong at 75%, the Philippines at 50% and 43% in China. So, what’s different about Japan? This feels like a loss for both merchants and consumers.

It’s also something of a mystery. It could be that some of the explanation lies in long-standing misperceptions. Western companies may think that Japan, with a culture perceived as being very different from their own, is a difficult place to do business.

There has also been a long-running pessimism in Western media about Japan and its economy, which has misled Westerners into thinking that the Japanese market is less desirable than it really is. For years, Western economists, pundits and politicians have been speaking about “Japanificiation”. This refers to the economic conditions that prevail in most of the developed world: relatively low growth rates (compared to previous eras) combined with persistently low inflation.

However, this is a highly distorted view of Japan’s attractiveness as a consumer and retail market. If you ignore the gloom around the country’s supposed “low-growth” economy, what emerges is a picture of a highly connected economy with low rates of penetration by cross-border e-commerce specialists. It’s important that whilst we may not be able to pin down precisely the reasons why this should be the case, it suggests a vibrant and rich market with opportunity for experienced cross-border sellers.

Low competition – high demand

Japan’s ecommerce market has quickly established itself as one of the most competitive markets in the world, and for good reason. With its large economy and industrial maturity, Japan has been one of the best markets to attract worldwide business. Japan has the resource to invest in future-proof retail solutions, and its population has the disposable income to drive a strong consumer marketplace.

However, Japan is a tough market for ecommerce merchants to break into, with one of the lowest cross-border shopping rates. But since Japanese consumers are incredibly loyal to their shopping platforms, they are an excellent place to start for foreign companies interested in entering the Japanese market.

In fact, on the World Bank’s Ease of Doing Business Index, Japan ranks higher than countries such as France, Spain, Switzerland and the Netherlands. According to the rankings, Japan scores well in areas such as ease of starting a new business, protection for investors and ease of trading across borders.

The Ease of Doing Business index helps to assess the level of regulatory performance over time whilst also capturing valuable insights from economies in various regions across the world. Rankings within this report are determined by the aggregate scores from 10 topics, which include low competitive market penetration, high levels of connectivity, good financial infrastructure, high level of online spend and a growing emphasis on value for money.

These factors demonstrate that Japan is a lucrative market with potential for ecommerce merchants. Still, retailers must utilise the local insight to give Japanese consumers what they want to be successful. With the Japanese eCommerce market continuing to grow – who will be the first to overcome their trepidation and go on to make it big in Japan?