It’s way too early to determine whether disgraced former Nissan Chief Carlos Ghosn’s bizarre escape from the justice system in Japan will create a ripple effect in how business leaders think about investing in the country.
But at a bare minimum, Ghosn’s odd story has probably kept alive an ongoing discussion in countless board rooms about doing business in Japan.
“There is a concern that business leaders from other countries who are executives in Japan would be treated very differently than Japanese CEOs or executives. It looks like there could be a double standard… and this could discourage investment by those locating to Japan,” David Kass, University of Maryland Smith School of Business professor, said on Yahoo Finance’s “The First Trade.”
Ghosn was arrested in November 2018 in Japan on charges of financial wrongdoing. Allegations against Ghosn included the understatement of his income for years and that he sent $5 million of funds from Nissan to an auto dealership he controlled. Ghosn was being held in a Japanese jail, reportedly under unfavorable conditions (the norm in Japan, where conviction rates notoriously hover around 99%) that included limited contact with family and insight into when his trial would commence.
Ghosn has denied all wrong-doing.
The former auto industry titan was released on $13.8 million in bail and was required to stay in Japan. But Ghosn has made international headlines this week for surprisingly fleeing Japan for his home country of Lebanon. It’s unclear how Ghosn snuck out of Japan given he was forced to hand over his passports and was on around the clock supervision by law enforcement. Speculation has surfaced that Ghosn fit inside an instrument case after a band played at his residence in Japan — in what is being viewed as a carefully planned escape plot.
Even absent the Ghosn saga, foreign direct investment data suggests business leaders globally have remained hesitant about putting money to work in Japan despite various pro-business reforms by Prime Minister Shinzo Abe since 2012.
According to the latest data from the United Nations Conference on Trade and Development (UNCTAD), foreign direct investment in Japan fell to $9.9 billion in 2018 from $10.4 billion in 2017 and $17.8 billion in 2016. UNCTAD lists several likely reasons for the weakness:
“Excessive regulation that hinders economic growth as it increases the cost of starting activities.
The difficulties the country faces in restoring public finances and deflation.
International competition restricted by a very insular local business culture: Japanese prefer to do business (especially M & A transactions) with known partner companies. In the same way, it is preferable to establish networks and alliances with companies and national professional organizations.
Cultural and linguistic challenges that can be complicated to overcome for a small or medium-sized business.”
When all is said and done on Ghosn, tough court system may join UNCTAD’s above list.