Consulate General of Japan in Edinburgh
在エディンバラ日本国総領事館

Doing Business in Japan

- How to make your business in Japan -

8th June 2007

Inchyra Grange Hotel, Falkirk

Today I would like to speak about the economic relationship between Scotland and Japan, with a particular look to the historic relationship that has provided the friendship between our two countries. Scotland has always been at the forefront in the forging of relations between the British Isles and Japan all the way back to the early 17^th century.

I will start my lecture by talking about the first links between our two countries that were forged in the early 17^th century between Scotland’s James VI and Japan’s ruler Shogun Ieysau. I will then continue by talking how Scots were involved in the opening up of Japan after two centuries of isolation and how they helped develop modern Japan. I will speak about the importance of the Scot Thomas Blake Glover and his importance in developing Japan.

After this I will continue by speaking about the Iwakura mission and how its visit to Scotland developed deeper links between Scotland and Japan, focussing on the role of Henry Dyer and the Imperial College of Engineering. I give a mention to Henry Brunton and his importance in developing Japanese lighthouses and Yokohama.

This will bring this address to the present day with a look at the activities of Japanese companies in Scotland. Finally I will speak about the Scotch whisky industry and Japan before an analysis of Japan being a major Scottish exports market.

In 1600 the English sailor William Adams became the first Briton to go to Japan. Through him the first links between the British Isles and Japan were made with the enthusiastic support of a Scotsman, James VI of Scots who was also James I of England. The King developed relations with Japan’s ruler Shogun Ieyasu who was Adams’ Japanese patron. The King and the Shogun exchanged gifts with King James sending a clock to the Shogun and the Shogun sending a suit of armour to the king. These gifts are now housed at the tower of London.

However Japan fearing the influence of European Christianity shut itself off from the world in the early 17^th century. For over two centuries the Shogunate ruled an isolated Japan which neither welcomed foreigners nor allowed Japanese to leave Japan on pain of death.

In the 1850’s the Scots lead the way in thawing relations between the British Isles and Japan. In 1854 the first Anglo-Japanese Treaty of Friendship was signed between the representatives of the Shogun and Rear Admiral Sir James Stirling who was a native of North Lanarkshire.

However the more important event was the Anglo-Japanese Treaty of Amity and Commerce which was signed in 1858, an event that will be celebrated on its 150^th anniversary next year. The Treaty was negotiated between representatives of the Shogun and Lord Elgin, a member of the Scottish nobility and a direct descendent of Robert the Bruce.

This treaty forced Japan to open up to the West. The treaty made the Japanese open up the harbours of Hakodate, Yokohama, Nagasaki, Niigata and Kobe to British commerce and allowed British subjects to travel within 25 miles of them. It also allowed British subjects to live in Edo (now Tokyo) and Osaka and allowed for a permanent British government representative in Edo.

The conditions of the treaty along with similar treaties forced on Japan by the United States made the Japanese realise that they needed to modernise and open up to the world. Otherwise Japan would become a colony of the Western powers like so many other Asian nations.

The first modern formal visits by the Japanese to Europe happened in 1862 when the Shogunate dispatched emissaries to visit various nations, learn about their technologies and build relations with them. One principal aim was to negotiate the postponement of opening the Treaty ports. The 1862 Embassy visited London and participated in the World Fair.

The opening up of Japan provided opportunities for ambitious Scots. The most noted of these is Thomas Blake Glover who was a native of Aberdeenshire. He was to become extremely influential in the modernisation of Japan. He is known as the “Scottish Samurai”.

Glover came to Japan in 1859, the year after the Anglo-Japanese Commercial Treaty was signed and settled in the treaty port of Nagasaki. His original reason for coming to Japan was to act, as local agent for Scottish owned trading house Jardine Matheson with the responsibility for buying Japanese tea.

Having realised the potential of Japan, he set up his own business in 1861. From that point onwards he made great contributions to the modernisation of the Japanese economy such as importing Japan’s first steam locomotive and developing Japan’s first mechanised coal mine. Amongst his other achievements was the founding of Japan’s first national mint at Osaka and the introduction of Japan’s first telephone line.

He eventually helped set up a shipping and shipbuilding company. This company was to grow into the Mitsubishi Corporation. He would also create the brewing company that would become the Kirin Brewing Company, one of the biggest brewers in Japan.

His other major influence in helping Japan modernise was to help young Japanese men go to the West to learn about Western society and technology. This he did at great personal risk as it was still forbidden for Japanese to leave their homeland.

Glover first did this in 1863 when he smuggled out five youngsters from the Choshu clan out of Japan and sent them to Britain where they were educated at the University of London. These young men were exposed to the ways of the West and returned to their homeland with the belief that Japan must modernise. These five young men were to become influential in the history of Japan with one becoming the first Prime Minister of Japan whilst the others became the father of Japanese railways, the creator of a single Japanese currency, the first Japanese foreign minister and the father of the Imperial College of Engineering in Tokyo which later developed into Tokyo University.

In the 1863 mission contrasted slightly with their predecessors the year before. The 1862 delegates attended the World Fair in kimonos, Chonmage - topknot and straw hats. In contrast in 1863 they had adopted Western-style clothing.

Such is the importance of the Choshu Five in the history of Japan that a film was made about it last year. The film was released in February this year and won the best feature film award at the World Film Prize Festival in Houston, gaining the Remie World Grand Prix.

In 1865 he sent another mission of Japanese youngsters to Britain, this time nineteen members of the Satsuma clan. Again most of these youths studied at the University of London. Again several of these young men rose to prominence and helped to shape modern Japan with one becoming the founder of the Osaka Stock Exchange while another becoming a founder of Japan’s first commercial college and later ambassador to the UK.

Glover’s achievements were recognised by Japan when he became the first non-Japanese to receive the honour of the Order of the Rising Sun. He died in 1911 in Tokyo and is buried in his adopted city of Nagasaki. His home in Nagasaki became the Thomas Glover Garden that attracts 2 million visitors a year. It is now one of Japan’s major tourist attractions.

Glover was also influential in the changing how Japan was to be governed. The Choshu and Satsuma clans along with others had grievances with the ruling Shogunate and rebelled against it. Glover supplied both the rebellious clans and the Shogunate with weapons but eventually ended up supplying just to the rebels when the Shougunate ran out of money. He was also influential in persuading the British government to withdraw their support from the Shogunate to a more neutral position before persuading them to back the rebels. The result of the rebellion was the defeat of the Shogunate and the establishment of the Meiji Emperor as the ruler of Japan.

The new regime decided to send the Iwakura fact-finding mission to 12 Western countries to learn about the technologies and cultures of Western nations and to establish better relations between them and Japan. Its hidden aim was to revise the unequal treaties imposed on Japan by the Western powers. The mission would therefore be much bigger than its predecessors in size of delegates that ranged from government officials to students. This mission was to be the first formal contact between Scotland and Japan.

I might add that this was not the first contact between the Japanese and Scotland. Three of Glover’s Satsuma delegations were not allowed to attend the University of London due to their young age. Therefore they were sent to Aberdeen to live with Glover’s family and were educated at Glover’s former school. One of the three Kanaye Nagasawa was later to emigrate to the USA and set up a winemaking business in California. He became known in his lifetime as the “Winery King”.

The mission arrived in London in 1872 and split into groups to visit prominent British cities including Edinburgh and Glasgow. It was during these visits that relations were built between Japan and Scotland’s industries and academic institutions.

They visited railway engine factories in Glasgow and established commercial relationships with Dubs, Neilson, North British and Sharp Stewart locomotive manufacturing companies. By 1911 Japan had imported 626 of its 1023 British built locomotives from these companies.

One noted result of the visit was the visit to Glasgow University by some of the delegation. When they asked one of the academics Professor Rankine how it would be best for Japan to be able to build factories which manufactured firearms, the academic recommended the opening of an institution to teach the Japanese engineering so such factories could be founded by the institution’s graduates.

When the mission returned, Yamao Yozo who was one of the Choshu Five was tasked to found the institution recommended by Professor Rankine. Yamao founded the previously mentioned Imperial College of Engineering.

Professor Rankine recommended that one his students Henry Dyer should be appointed principal of the new institution. Dyer, a native of Bellshill, was only 25 years old when he was appointed principal and professor of Engineering in 1873.

Dyer had just recently graduated from the University of Glasgow. Before going to University he was an apprentice engineer who had studied at the Anderson College (now Strathclyde University) along with the aforementioned Yamao Yozo.

Dyer implemented a series of courses at the new institution that provide transfer of knowledge of Western technology to Japanese students. He also helped set up Akabane Engineering works to provide practical training for his students several of whom he sent to Glasgow University to complete their studies.

The Imperial College of Engineering contained many Scots on its staff apart from its first Principal. These included Thomas Lomar Gray from Lochgelly. Gray was later to collaborate with fellow Scot Sir Alfred Ewing of the Imperial University of Tokyo in the development of modern seismology.

The Imperial College of Engineering was extremely important in the development of modern Japan. It brought to the Japanese people the knowledge of the technologies of the West. Its graduates went onto build modern Japan from the knowledge they attained there.

Dyer returned to Scotland in 1882 to become a governor of several Scottish academic institutions. He however remained highly supportive of Japanese people coming to Scotland to learn about Western technology until his death in 1918.

Another important person is Henry Brunton who like Glover came from the Aberdeen area. Brunton was an engineer came to Japan in 1868 on the request of the government of Japan.

Brunton is primarily important in Japan for helping construct 28 lighthouses in Japan, an extremely important thing for an island nation. The lighthouses that still stand are known colloquially as “Brunton’s Children”.

He also helped develop the harbour of Yokohama into the modern commercial port today. Also he was also instrumental in founding a mathematics school for Japanese engineers that developed into the University of Yokohama.

However Brunton did not make a permanent home in Japan and returned to the UK in 1876. He died in 1901.

Since the nadir of Anglo-Japanese relations during the inter-war years and the Second World War, the economic relationship between Scotland and Japan has greatly changed through Japanese investment in Scotland.

In the post-war era Japan started to invest in Scotland and at present there are 48 Japanese owned companies in Scotland employing around 5000 people. Whilst these businesses can found all over the country, many businesses are concentrated around Livingston, Cumbernauld, Paisley and Clydebank.

The majority of these businesses came to Scotland in the mid to late 1980s and this started a trend of Japanese companies investing in Scotland up to the present day. The bulk of these businesses are involved in the electronics and engineering industries. However Japanese economic investment is not just restricted to those of what is seen as “traditional” Japanese industries related to computer manufacture but also in medical products, chemical manufacture and finance amongst many others.

Major Japanese employers include electronics manufacturers JVC Manufacturing and Shin-Etsu Handotai to name just a few. And of course Mitsubishi, the company that Thomas Blake Glover has a presence in the land of the Scottish samurai in the fields of air-conditioning manufacture and financial services.

At present 54.2% of Japanese companies in Scotland are involved in manufacturing whilst 20.8% are involved in service and sales. The transport sector accounts for 10.4% whilst research and development accounts for 8.3%.

Unfortunately since the late 1990’s, the amount of Japanese-owned businesses in Scotland has fallen. In 1999 there were 70 such businesses. However some Japanese companies have increased their economic activities and although the amount of companies is two-thirds than it was, the amount of workers in Scotland employed by Japanese companies has not reduced as that ratio.

A good example of this is Vascutek that makes vascular prosthetic grafts that are inserted into damaged or diseased blood vessels. Japanese company Terumo owns Vascutek, which was based in Inchinnan, Renfrewshire. The company uses the Paisley tradition of weaving to manufacture the vascular prosthetic grafts with loom machinery. Terumo recently made a ￡ 5 million investment into Vascutek that has given the company the spur to expand its factory and add another 200 potential employees to the present workforce of 350.

I might add that last year that Vaskutek won the prestigious Prince Phillip award for producing polymers in the service of mankind. This is not an annual award but rather an award given out occasionally when a product or service deemed to be prestigious enough to merit the award.

Another example of the changing nature of Japan’s economic relationship with Scotland is the recent plans by Canon. Canon intends to expand their sales and service offices in Livingston, Glasgow and Aberdeen to employ 100 workers. So Scotland is no longer just a base for constructing Japanese goods but also a place where they can be sold and serviced.

One positive aspect of this long relationship between Scotland and Japan is the degree of economic integration between the two countries. Today only 28 of the 48 Japanese companies in Scotland have Japanese employees. This shows the degree of trust that many Japanese companies have that they do not need Japanese people to show Scots how to make things to Japanese standards. The Scottish people have learned to work to Japanese standard.

A good example of this is NEC that was a major Japanese-owned employer in Livingston. Now there are no Japanese employees at the Livingston plant as the local management are knowledgeable of Japanese management practice.

Japanese business has also been investing in traditional “Scottish” industries such as Mizuno that manufactures golf clubs in the birthplace of golf. Of course a talk about Japanese investment in traditional Scottish industries cannot miss out a mention of Japanese interests in that most Scottish of products ? whisky!

Scotland as you can expect had a large involvement in the development of the Japanese whisky industry. From about the time of the Meiji restoration till the 1920’s the Japanese made Western-style spirits artificially with the use of chemicals. Amongst these drinks was a beverage that was claimed to be whisky.

However in 1918 a worker for one of these spirit manufacturers Masataka Taketsuru was sent to Scotland by his employer to study Scotch whisky distilling. He worked at various distilleries in the highlands of Scotland and studied organic chemistry at the University of Glasgow.

After marrying a lady from Kirkintilloch, he returned with his bride to Japan in 1921. After a disappointing return to making artificial spirits and brewing Sake, Taketsuru decided to go into business for himself. In 1934 he moved to northern Japan to set up the Nikka Whisky Distilling Company. Nikka is now Japan’s second largest whisky producer. It also retains some interests in Scotland as owner of Ben Nevis Distillery. And Nikka is not the only Japanese company to have an interest in Scotch whisky.

The biggest whisky maker in Japan, Suntory, owns the Scotch Whisky Company Bowmore Morrison that owns the Islay distillery of Bowmore, the Glasgow distillery of Auchentoshen and the Aberdeenshire distillery of Glen Garioch. Apart from producing single malts from these distilleries, the company also produces a couple of blended whiskies.

Three Japanese companies also own the Tomatin Distillery in Inverness-shire. The major shareholder is the Japanese drinks company Takara Shuzo who owns the distillery with two junior partner companies that work in the distribution business.

Whisky as you might be aware is important in the manufacturing sector of the Scottish economy. In 2005 whisky made up nearly 16% of Scottish manufactured exports. And much of this whisky ended up in Japan. In 2005 Japan was the 11^th largest importer of Scotch whisky in terms of value and 18^th by the size of volume. In 2005 Japan imported 5% of all Scotch whisky distributed that year.

I might add that unfortunately Japan has slipped down the table as a Scotch whisky consuming nation. For many years Japan was well within the top ten of Scotch whisky consumers but now Japan produces its own fine brands of whisky (which as I mentioned earlier we learned to make from the Scots!) we now consume our own!

This is just an example of how Japan is an important market for Scotland. For several years Japan has been within the top twenty export markets for Scottish goods. Japan is one of Scotland’s major non-EEA markets along with the USA and has been a lead market in Asia.

Scotland’s trading record with Japan has improved during the decade. In 1998 Japan accounted for 3% of Scotland’s manufactured exports but now in 2005 Japan accounts for 5% of manufactured exports. During that period the value in exports to Japan has risen by 19.3%.

Much of Scotland’s exports to Japan are from the electronics industry but other important export markets for the Scottish economy in Japan are in the fields of textiles, chemicals and of course the aforementioned whisky. In 2003 electrical and instrument engineering made up 29% of Scottish exports to Japan with the same proportion of exports coming from the food and drink sector. The textiles and clothing sector produced 8% of exports with cashmere wool goods being particularly popular in Japan.

Scotland also has strong economic links with Japan through the service sector. In 2000 for example 3.4% of Scotland’s invisible exports went to Japan, its tenth largest market. Another major contributor to Scotland’s invisible trade sector with Japan is of course tourism. Around 26,000 Japanese people come to Scotland a year mainly as tourists contributing around ￡15 million a year to the Scottish economy.

The strength of Scotland’s strength in service exports to Japan tend to be in the area of commercial research and development, particularly in the area of biotechnology. In 2003 the service sector made up 22% of Scotland’s exports to Japan.

Therefore I would conclude that Scotland and Japan have an extremely good and prosperous economic relationship. It is one based on investment, niche goods and interaction between our peoples that bring about our close economic relationship.

The Scottish economist Adam Smith said that for nations to economically succeed, they have to concentrate on their economic strengths and specialisations. Japan specialises in electronic goods amongst many other things. That is what we are good at. Scotland specialises in whisky but also in many other things such as the biotechnology sector which is so prominent in Dundee and of course the very successful Scottish financial services sector. That is what the Scots are good at. We as trading partners compliment each other like a good blend. Like a good blended malt whisky.

Scotland has a good branding image. I can think of two examples of Scots being used to advertise drinks in Japan. Firstly there is the aforementioned Thomas Blake Glover. A few years ago, the brewing company he founded, Kirin, ran an advertising campaign showing simply Glover’s face beside a bottle of Kirin. It simply said “It was the beer Mr Glover loved”.

And another famous Scot was to follow in his footsteps. And some would say parodied in the Bill Murray film “Lost in Translation”. Whisky is Japan’s favourite icon of Scotland and it was being advertised by Japan’s second favourite icon of Scotland. You probably know whom I am going to mention. It is well known that Sean Connery did advertising for Suntory Whisky. It seems a bit ironic that just as the Japanese needed the Scots to teach them to make whisky all those years ago that even today the Japanese need help from the Scots to sell it! Very much an example of the economic interaction between our two nations.