Automotive Industry
About
For decades, Japan's automotive industry has been key to driving Japan’s economy and its prominent international presence. It was the first Japanese industry to pursue global expansion and to successfully develop a broad range of production bases, ranging from vehicle assembly plants to multi-tier supply chain facilities. However, as the domestic market shrinks and the economic spotlight shifts to developing markets, Japanese automotive manufacturers are under increasing pressure to extend their global footprints while improving operational and financial performance.
The automotive industry is currently facing a number of issues in improving its business performance. For example, an increasing number of auto component manufacturers now see overseas sales accounting for more than 50% of their total sales. This trend is a pressing issue for some companies, as repatriating these profits to their headquarters in Japan has been a challenge. Another prominent example is the inauguration of the ASEAN Economic Community (AEC). Japan's automotive companies have aggressively expanded into Asia for the past several decades. The establishment of the AEC means that these companies now need to reorganize their operations to treat the region as an integrated whole rather than focusing on the individual markets of the member countries. As a result, a growing need has emerged for Japanese manufacturers to consolidate their overseas operations, establish regional headquarters and restructure supply chains.
Proper tax planning is also essential to supporting global business growth while reducing cost and risk. In order to increase their international competitive advantages, Japanese automotive manufacturers need to take advantage of tax incentives. These include schemes like establishing regional headquarters to reduce tax rates and increase returns on equity. Further, capitalizing on tax planning is advantageous in reducing the risk of tax penalties. This is especially important in a time when regulatory authorities around the world are increasing their investigative activities. For instance, investigations in Southeast Asia have become commonplace, and Japan's automotive industry faces growing transfer pricing risks. Similarly, Japanese auto component companies are having difficulties in Europe, the United States, and even Asia, becoming targets of international cartel investigations and class action litigation and forced to pay significant penalties.
In Latin and South America, Mexico is becoming an increasingly important supply center for products for the attractive North American market. Many vehicle and auto component manufacturers are making efforts to expand their production facilities and strengthen their supply chains in the country. However, to successfully develop their business operations in Mexico, Japanese companies must navigate a legal framework on foreign investment, labor, corporate and regulatory compliance issues different from that of Asian markets.
Finally, autonomous vehicle technology is another hot topic with the potential to have a significant impact on the industry. As technologies and concepts developed outside of the automotive sector are vital to the success of autonomous vehicles, companies advancing in this field are facing unprecedented legal issues related to the formation of technology alliances, as well as dealing with the collection, management and use of big data.
Baker McKenzie is one of the largest law firms in the world, with 78 offices in 46 countries throughout Asia Pacific, Europe, North and South America, the Middle East and Africa. For several decades, the Firm's practice groups (Antitrust, Corporate / M&A, Dispute Resolution, Intellectual Property, Tax, etc.) have provided legal services to automotive companies around the world. Leveraging our extensive global network, we have launched the Japan Automotive Industry Focus Group to address all of the issues faced by Japan's automotive industry.