German Companies Select Japan as Asia Manufacturing Hub

A strategic pivot to Japan amid global uncertainty

German manufacturers are recasting Japan from a sales destination to a production base for Asia. New survey findings from the German Chamber of Commerce and Industry in Japan (AHK Japan) show that companies with factories in the country are using Japan to serve nearby markets, pulled by stability, cost efficiency, and proximity to key customers. A weaker yen has lowered euro denominated costs, a reliable legal system reduces business risk, and Japan sits close to Southeast Asia and China, which remain central to German supply chains and revenue plans.

The footprint is larger than many assume. About 730 German companies operate in Japan, and at least 84 run production or assembly sites across 132 locations. These plants are not only for local sales. AHK Japan reports that 41 percent of surveyed manufacturers export Japan made products to the Association of Southeast Asian Nations, 38 percent ship to China, and 29 percent send goods to North America. The pattern is mixed, with 71 percent of respondents serving both Japan and overseas customers from the same facilities. That versatility is part of the appeal.

Expansion is on the table. In the AHK Japan survey, 57 percent of companies plan to increase production capacity in the country in the coming years. Interest from headquarters is rising as well, with 35 percent noting greater attention to Japan as a base for manufacturing and diversification. For firms weighing where to add capacity in Asia, the case for Japan is strengthening.

What the latest AHK Japan survey reveals

The survey, AHK Japan’s first focused look at German manufacturers with plants in the country, polled 34 companies from 69 relevant corporate groups. Respondents span chemicals and pharmaceuticals, mechanical engineering, medical supplies and health care, and automotive suppliers. Many have long histories inside Japan. Three out of four have produced in the country for more than 20 years, and a fifth have operated even longer. A majority run a single site, while two out of five operate multiple facilities nationwide.

Why produce in Japan rather than import

Companies cite proximity to customers, strict and specific requirements from Japanese clients, and steady supply chains as core reasons to build locally. Managers also highlight access to highly qualified personnel who meet exacting quality standards. These factors add up to fewer delays, faster product adaptation, and lower defect rates. Risk diversification plays a role too, with Japan used as a stable anchor within broader Asia strategies.

Where the output goes

Export data from the survey points to a regional hub model. From Japanese plants, 41 percent ship to ASEAN markets, 38 percent to China, and 29 percent to North America. Many companies produce for Japan and for export in parallel, taking advantage of the country’s dense logistics networks and a web of regional trade agreements that can help with market access in Asia.

Costs and the yen, why Japan can be cheaper than Germany

AHK Japan reports that 95 percent of surveyed manufacturers say unit labor costs in Japan are lower than at home, and nearly half estimate the gap at up to 30 percent. Unit labor cost is the cost of labor for each unit of output, which combines wage levels with productivity. Hourly wages in Japan may not be the lowest in Asia, yet high productivity, stable processes, and less scrap can push the cost per finished unit below German levels. For export oriented factories, that efficiency is a critical lever.

A weak yen changes the math

Exchange rates are another factor. When the yen weakens against the euro, euro denominated costs fall for wages, rent, and other local expenses. This improves margins on exports produced in Japan. Companies with large imported input bills from outside Japan still have to manage currency swings, but many can hedge purchases, source more locally, or adjust pricing with customers. The yen has given German manufacturers more room to compete from Japanese soil.

Unit labor costs versus wages

Lower unit labor cost does not mean the cheapest labor. It signals efficient plants, refined methods, and a workforce that hits quality targets without costly rework. German producers in Japan often run lean lines with high repeatability, trained operators, and strong supplier coordination. The outcome is consistent output at lower cost per unit, even if headline wages are higher than in some neighboring countries.

Location, logistics, and fast access to Asian customers

Japan’s geography and infrastructure slot neatly into German production plans. The country sits within short shipping times of South Korea, coastal China, and Southeast Asia. Port capacity is deep, and domestic logistics are reliable, which matters for just in time production and export scheduling. Japan also has a network of economic partnership agreements across Asia that can reduce tariffs or simplify customs for goods made in Japan.

Serving ASEAN and China

ASEAN remains a growth engine for German industrial suppliers, and China is a vital market in autos, chemicals, machinery, and medical devices. The AHK Japan survey shows that large shares of German output from Japan is destined for these two destinations. Producing in Japan shortens the distance to regional customer engineering teams and speeds up product iteration for local standards.

Shipping to North America

Nearly a third of the surveyed manufacturers ship from Japan to North America. That share is meaningful, yet companies are watching trade policy closely. Management teams are balancing tariff exposure, lead times, and customer delivery needs. Some firms will continue to supply North America from Japan when products require Japanese inputs or processes that are hard to replicate elsewhere.

Stability and rule of law reduce risk

Business surveys show that German companies value Japan’s predictability. In a recent AHK Japan and KPMG business climate survey, 94 percent of German companies highlighted economic stability as the top advantage. Profitability is solid as well, with a large majority reporting profits in Japan and a significant share achieving double digit pre tax margins. As global trade policy turns more uncertain, Japan’s regulatory clarity and contract enforcement offer reassurance to corporate boards.

Volker Treier, head of foreign trade at the Association of German Chambers of Industry and Commerce (DIHK), warned that rising protectionism is complicating overseas business for German exporters. He said the trend is hardest felt in the United States, where policy shifts have clouded planning for manufacturers.

Protectionist tendencies are complicating foreign business for German companies, particularly in the United States, and postponing a recovery in exports.

Christoph Schemionek, who leads the Delegation of German Industry and Commerce in Washington, described the policy environment in blunt terms when asked about investment planning in the United States.

The approach is primarily chaos, which always means planning uncertainty.

Industry footprint and the role of automation

German manufacturers in Japan cluster in sectors where quality and engineering depth matter. Chemicals and pharma, mechanical engineering, medical supplies, and automotive suppliers dominate the list. Many have evolved from small assembly lines into full process plants with local supplier networks, testing, and customer application support. That evolution reflects the demands of Japanese customers and the standards required to export to other advanced markets in Asia and beyond.

Japan is also one of the world’s most intensive users of industrial robots, which helps explain the cost and quality profile of its factories. The International Federation of Robotics reports that 44,500 industrial robots were installed in Japan in 2024, and the country’s operational stock reached about 450,500 units. Automation supports precision, repeatability, and uptime, benefits that ripple across production for German companies operating in Japan.

What this means for German firms

Plants with higher automation can handle product complexity shifts and small batch runs without big cost spikes. That suits German suppliers that often produce specialized components, custom machinery, or high reliability medical or chemical products. When demand fluctuates across Asia, these plants can scale more smoothly.

Constraints that companies must manage

Hiring and retaining skilled staff is the top challenge reported by German manufacturers in Japan. In the AHK Japan survey, 82 percent said recruiting qualified employees is difficult, especially for machine and plant operators, technicians, and technical specialists. Half now require English skills for managerial roles in manufacturing, which narrows the candidate pool. Companies are responding with on the job training, partnerships with technical colleges, more structured career paths, and targeted relocation packages within Japan.

Currency risk is another concern. A separate survey of German subsidiaries in Japan found that 76 percent view currency volatility as a major challenge. Firms are expanding the use of hedging and looking for ways to match yen revenues with yen costs through local sourcing. Some are redesigning price lists to adjust more quickly to shifts in exchange rates. Inflation and energy costs are monitored closely, yet respondents suggest these have been less disruptive than the labor market and currency swings.

How Japan compares with China, India, and the United States

China de risk moves without abandoning the market

German corporations are rebalancing exposure to China while keeping a presence there. A 2024 business climate survey by AHK Japan and KPMG showed that 38 percent of German companies are relocating production from China to Japan. Another 23 percent are moving regional management functions to Japan. At the same time, many Japanese plants still export to China. The shift is about diversification, not a full exit.

India’s rising role in Asia plans

A 2025 survey by KPMG and the Indo German Chamber of Commerce found that 79 percent of German companies plan to invest in India by 2030. More than half expect to use India as a production site for Asia by that date. India brings political stability in the current cycle, a large pool of specialists, and lower wage costs. Challenges remain, including bureaucracy and regulatory complexity. Many German manufacturers will pursue a multi base approach, combining Japan for high spec and proximity to Northeast and Southeast Asia with India for scale and services such as shared capability centers.

United States uncertainty reshapes timing

German firms also weigh the United States as a production or export destination. A recent survey by the Ifo institute found that almost 30 percent of German companies with investment plans in the United States postponed them, and 15 percent canceled projects amid tariff uncertainty. New tariff measures on vehicles add another layer of complexity for auto related exporters. Companies continue to sell into the United States, yet investment committees now apply stricter risk screens, which makes stable locations like Japan more attractive for Asia focused capacity.

Technology, quality, and the brand effect

Global consumer research helps explain why German products made in Japan can travel well across markets. A recent survey by the Nuremberg Institute for Market Decisions found that the Made in Germany label is the most trusted product origin in major countries. Japan also scores highly on manufacturing quality and electronics. The combination of German engineering, Japanese manufacturing precision, and dense supplier networks can support export strategies that rely on trust, durability, and consistent performance. For many industrial buyers in ASEAN and China, that is a compelling set of attributes.

What growth could look like

Planned capacity increases in Japan suggest a steady build out rather than a dramatic surge. The AHK Japan survey shows 57 percent of manufacturers intend to expand, and more than a third see rising headquarter interest in using Japan as a base for production and diversification. Robots will likely do more of the heavy lifting as labor markets stay tight. Global robot installations are forecast to grow to about 575,000 units in 2025 and surpass 700,000 by 2028, with Asia as the main engine. Japan’s established automation ecosystem means new lines can adopt advanced processes with less friction. That favors German producers that need stable output, low defect rates, and short lead times for customers around Asia.

Key Points

• German manufacturers now view Japan as a regional export base, not only a sales market.
• About 730 German companies operate in Japan, and at least 84 run factories across 132 sites.
• From Japan, 41 percent export to ASEAN, 38 percent to China, and 29 percent to North America.
• 71 percent of surveyed firms serve both Japan and overseas markets from the same plants.
• 57 percent plan to expand capacity in Japan, and 35 percent report rising headquarter interest.
• 95 percent say unit labor costs are below German levels, with 47 percent estimating up to a 30 percent gap.
• Top challenges are hiring skilled staff and currency risk, with 82 percent reporting recruitment difficulties.
• 38 percent are moving production from China to Japan, and 23 percent are relocating regional management to Japan.
• Japan’s automation depth is a key asset, with 44,500 robots installed in 2024 and about 450,500 in operation.
• Trade policy uncertainty in the United States and growing investment plans in India shape the case for Japan as a stable Asia hub.