Makoto Yamanaka, ambassador of Japan to Singapore

Highlighting those strong ties and that optimistic outlook, the number of Japanese expatriates in Singapore rose to more than 26,000 in 2008.

“This is perhaps the largest number of expats in Singapore from all industrialized democracies,” points out Japanese Ambassador Makoto Yamanaka.

Japanese companies have traditionally been heavy investors in Singapore, using the city-state initially as a manufacturing base. But the nature of those ties changed dramatically in the mid-1990s as labor and production costs grew with rising prosperity in Southeast Asia’s first tiger economy.

Today, economic relations between them have become more a partnership of equals.

With the help of the Singaporean government, many Japanese Singapore as a hub for regional operations. According to unofficial estimates, there are at least 1,000 Japanese companies with regional headquarters in Singapore.

“The current investment trend from Japan is toward ASEAN nations. Singapore plays an important role for this and is widely considered a very competitive place for investment,” says Yoshichika Terasawa, managing director of the Japan External Trade Organization (JETRO) in Singapore.

Despite trends in other parts of the world, the Japanese invested more in ASEAN nations than in China in 2006 and 2007.

“The business environment is good, the location is good and the infrastructure is good, But the key factor is the sense of security,” says Yamanaka about Singapore’s advantage over its neighbors.

Yasuhiko Kitagawa, president of the local Japanese Chamber of Commerce and Industry, and head of Mitsubishi Corp. in Singapore, agrees.

In a clear display of its innovative thinking and strong organizational expertise, Singapore successfully staged the world’s first Formula One night race and the region’s first street race.

“Safety is a big issue for Japanese companies with regional headquarters functions here. Japanese staff are often traveling and they leave their families behind in Singapore. One can really concentrate on business and not worry about the safety of the family,” Kitagawa says.

While Japan remains one of the top three foreign investors in Singapore, Singaporean investments in Japan have also increased dramatically over the last few years.

According to the JETRO head, Singapore is the second-largest direct investor in Japan, with investments exceeding $1 trillion in 2008 alone.

Such strong bilateral relations encouraged Singapore to sign the region’s first economic partnership agreement with Japan.

Healthy economic partnership

The EPA, first signed in 2002 and amended in 2007, was originally intended to facilitate a freer flow of goods, people, services, capital and informati on between the two countries, as well as harmonize frameworks in trade and other fields.

Since the signing of the original agreement, Singapore and Japan have seen high-level diplomatic events in recent years.

During the 40th anniversary of Singapore-Japan relations, Emperor Akihito and Empress Michiko made an official visit to Singapore. Last year, Prime Minister Lee Hsien Loong paid a reciprocal visit to Japan.

“We are at a point where Singapore-Japan relations are at their strongest in history,” says Yamanaka.

Setting the bar higher

As Singapore evolves to accommodate a growing number of foreign companies using the citystate as a regional headquarters, the government has found more ways to offer value-added services to potential investors.

Tan Choon Shian, the Singapore Economic Development Board’s assistant managing director for the Asia-Pacific, says that Singapore offers unique opportunities for Japanese companies looking to globalize.

“We offer a mixture of West and East, so it makes it easy for Japanese companies to expose their Japanese employees and managers, and their future leaders to the global way of doing business. Here, we are harmonious but not homogenous,” he says.

That atmosphere, according to Tan, allows Japanese companies to get a “crash course into a microcosm of a globalized world.”

Chua Taik Him, deputy CEO of International Enterprise Singapore, agrees.

“Singapore can be a closer partner to Japan in terms of this next phase of growth. We can play a major role in Japanese companies looking to take on international partners,” Chua says.

The next phase of the Singapore-Japan relationship will rely heavily on the characteristic strengths of the two nations and their companies.

“Japanese companies and Singaporean companies now have much more opportunity to collaborate because Singaporean companies are internationalized and Japanese companies continue to be very advanced,” says Chua.