Historically, Japan has been a very hard market for international companies to enter. This case study, Walmart in Japan, highlights not only the barriers to entry that were imposed by the Japanese, but also the barriers to entry that Walmart imposed unintentionally on themselves. This problematic issue provides insight into the importance of understanding local customs and traditions. In this essay we will address the critical issues that faced Walmart, as well as their decisions and the ramifications of those decisions and lessons learned as they entered the Japan. In today's increasingly interconnected economy, the policies of a country can attract all different types of international companies. Here, Japanese economic policies have created conditions that were appealing to a multinational company that specializes in low-cost goods, Walmart.
To better understand why it was difficult for Walmart to enter the Japanese economy and make a profit, one must first understand the historical background of the Japanese economy. To begin, World War II and the post war reconstruction phase had a huge impact on foreign direct investment (FDI) restrictions imposed on foreign companies. In their paper, The Extent and History of Foreign Direct Investment in Japan, Ralph Paprzycki and Kyoji Fukao (2005) state that after the defeat of Japan in World War II, the American Occupation authorities imposed major FDI restrictions fearing that FDI would cause complications during the reconstruction process. As a result, the Foreign Exchange Control Law (FECL) of 1949 and the Foreign Investment Law (FIL) of 1950 were established. It was the American Occupation authority that helped with the reconstruction efforts and the Japanese Government which used the FECL and the FIL to continue screening of foreign investments (pg. 13).
When the Japanese economy strengthened, conditions became increasingly attractive to foreign investors.