---
title: How Foreign Companies Decide to Shrink in Japan
description: Japanese labor law puts dismissal last when a foreign company shrinks its Japan business. The four-factor test, filings, and what Ford and Hyundai did.
image: https://nobusato.jp/hubfs/covers-2026-10/how-foreign-companies-decide-to-shrink-japan-cover-en-2026-10.png
---

[Nobu Sato](https://nobusato.jp/en?hsLang=en)

[Profile](https://nobusato.jp/en/profile?hsLang=en) [Method](https://nobusato.jp/en/blog/method?hsLang=en) [Articles](https://nobusato.jp/en/blog?hsLang=en) [Glossary](https://nobusato.jp/en/blog/glossary?hsLang=en) [Contact](https://nobusato.jp/en/contact?hsLang=en)

[日本語](https://nobusato.jp/ja/blog/how-foreign-companies-decide-to-shrink-japan)[English](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan)[中文](https://nobusato.jp/zh/blog/how-foreign-companies-decide-to-shrink-japan)

Launching in Japan

In this article

1. [What usually starts the conversation?](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan#s1)
2. [The options are wider than closing](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan#s2)
3. [How much of the order does Japanese labor law decide?](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan#s3)
4. [Who hears first](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan#s4)

1. [Home](https://nobusato.jp/en?hsLang=en)
2. [Articles](https://nobusato.jp/en/blog?hsLang=en)
3. [Launching in Japan](https://nobusato.jp/en/blog/tag/launching-in-japan)

# How Foreign Companies Decide to Shrink in Japan

The order is half set by law

[Nobu Sato](https://nobusato.jp/en/profile?hsLang=en)7 min read

Contents4

1. [What usually starts the conversation?](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan#s1)
2. [The options are wider than closing](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan#s2)
3. [How much of the order does Japanese labor law decide?](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan#s3)
4. [Who hears first](https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan#s4)

When a foreign company decides to shrink its business in Japan, half of the sequence is already fixed before anyone at headquarters opens a spreadsheet. Japanese labor law decides where dismissal goes in the order: last. Everything a company does before that point, or skips, can be read back by a court later.

## What usually starts the conversation?

Rarely a single number. Headquarters looks at Japan as one position in a global portfolio. How long until the investment pays back? Is market share moving? Would the same money work faster somewhere else?

When Ford announced on January 25, 2016 that it would leave Japan and Indonesia in the second half of that year, it pointed to a weak profit outlook in both markets. Its share of the Japanese market the year before was 0.1%.

A common account is that the serious discussion starts after a few quarters below target, when headquarters builds the next year's budget. No statistic backs that up, but budget deadlines do tend to become decision deadlines. A Japan subsidiary's costs behave like fixed costs. People are hard to reduce once hired, and offices and contracts run on terms. On paper Japan looks like the slowest part of the portfolio to adjust. That reading is fair. The trouble is that it pushes people straight to "close it" and past the options in between.

## The options are wider than closing

There are four broad paths: reduce headcount, narrow the business to one line, hand sales to a distributor, or close the entity. Each has a different cost and a different legal track.

**Reduce headcount.** The most common path. The entity stays and so do the customers. The hard part is labor law, covered below. One trap is worth naming early. In a voluntary retirement program, the first people to raise their hands are often the ones with the best outside options. You hit the number and lose the shape of the team. Decide the scope, the terms and whether the company can decline an individual application before you announce anything.

**Narrow to one line, or keep only the entity.** Hyundai is a public example of the second. According to The Korea Times, it entered Japan's passenger car market in 2001, sold about 15,000 cars in total, and withdrew at the end of 2009. On February 8, 2022 it announced a return in Tokyo with two models, the IONIQ 5 electric car and the NEXO fuel cell car, sold online only. Its Japan company was renamed from Hyundai Motors Japan to Hyundai Mobility Japan, which tells you the entity had survived the exit. Leaving the door unlocked made the return possible.

**Hand over to a distributor.** A local partner takes sales and customer contact; the company keeps the brand and supply. Headcount falls sharply, but customers are not dropped overnight.

**Close the entity.** A separate track through liquidation, contracts and tax, which I covered in [Closing a Japan entity](https://nobusato.jp/en/blog/closing-a-japan-entity?hsLang=en). Ford closed its dealers and stopped importing cars, and still said it would keep providing service and warranty support. That part is worth copying.

## How much of the order does Japanese labor law decide?

A lot. A dismissal for business reasons is a redundancy dismissal (seiri kaiko), and courts test it on four factors: whether the headcount reduction was necessary, whether the company tried to avoid dismissals, whether the selection was reasonable, and whether the process was appropriate. The Ministry of Health, Labour and Welfare (MHLW) describes avoidance effort as using other means such as reassignment and calls for voluntary retirement.

The four factors come from case law. The MHLW's list of cases for its Employment Guidelines places the Toyo Sanso case (Tokyo High Court, October 29, 1979) under this heading. Underneath sits Article 16 of the Labor Contract Act: a dismissal that lacks objectively reasonable grounds and is not socially acceptable is invalid.

The practical meaning for the decision order is simple. Freeze hiring. Look at reassignment. Run a voluntary program. Dismissal comes after those. Reverse the order to save a few months and a court may make you pay those months back.

Encouraging people to resign has limits too. If an employee agrees of their own free will, there is no issue. Pressure that undermines free choice can be an unlawful infringement of rights, according to the MHLW. People who leave after such encouragement are not treated as having quit for personal reasons.

Two procedural items are easy to miss. A dismissal needs at least 30 days' notice or at least 30 days' average wages in lieu (Labor Standards Act, Article 20). If 30 or more people are expected to lose their jobs involuntarily within one month, the employer files with Hello Work under the Act on Comprehensive Promotion of Labor Policies: a reemployment assistance plan by one month before the first departure, and a large-scale employment change notice by one month before the last.

The per-person cost is in [What it costs to let someone go in Japan](https://nobusato.jp/en/blog/cost-of-letting-someone-go-in-japan?hsLang=en). What employees can claim is in [Layoffs at a Foreign Company in Japan: Your Rights](https://nobusato.jp/en/blog/foreign-company-layoffs-your-rights-in-japan?hsLang=en).

Dismissal comes last, and a court looks back at every step before it

Basis: a general decision order for a foreign company's Japan subsidiary that is shrinking, built from the MHLW's description of the four factors courts use and the related filings. The order is the author's judgment; check individual cases with a professional

1. 1The numbers trigger itQuarters below target, a longer payback. The record from this step is how "necessity" gets shown
2. 2Choose a pathReduce, narrow, hand to a distributor or close; each has its own legal track
3. 3Try to avoid dismissal firstHiring freeze, reassignment, voluntary retirement
4. 4Set selection criteria and explain themObjective, reasonable criteria; explain necessity, timing, scale and method to the union or employees
5. 5Filings and notice30 days' notice for dismissal; 30 or more departures in a month means filing with Hello Work a month ahead
6. 6Outside communicationCustomers, distributors and after-sales support settled before the announcement

Steps a court examines when judging whether a redundancy dismissal is valid

Skip step 3 and the last step rarely holds. From the day you decide to shrink, the record counts.

Figure 1. The general order for shrinking a foreign company's Japan subsidiary: a numbers trigger, a choice of path, dismissal avoidance, selection criteria and explanation, filings (30 days' notice; a Hello Work filing a month ahead if 30 or more people leave within a month), and outside communication; steps 1, 3 and 4 map to the necessity, avoidance, selection and process factors courts examine.

## Who hears first

Roughly: decision makers at headquarters, then the Japan leadership team, then the union or employee representatives, then all employees, then customers and distributors.

Bring the Japan leadership in early. They execute the plan, and they know which customers and which people will react badly to which move. They are often affected themselves, and headquarters should work out how to have that conversation before it starts. An email will not do it.

The step with the union or employee representatives carries legal weight. As the MHLW describes it, the process factor asks whether the company explained the need for dismissals, their timing, scale and method to the union or employees in order to win their understanding. Reading out a slide deck and leaving will not count.

Customers and distributors come later in the order, but their preparation comes early. News travels faster in Japan than headquarters expects, and a customer who hears it from someone else is far more worried than one who hears it from you.

Hyundai is the case I keep coming back to. It left its main market but kept a legal entity in place, and twelve years later had something to come back to. Nobody can promise that outcome. But the sequence is the one part of a shrink that headquarters fully controls, and in Japan the sequence is what customers, employees and courts remember.

This article describes general mechanisms and public cases and is not legal advice. Whether a dismissal meets the redundancy dismissal test, or whether encouragement to resign is lawful, depends on the facts. Consult a lawyer, a licensed labor and social security attorney (sharoushi) or the Labour Bureau.

Sources (as of November 2026)

- [IndustryWeek, "Ford to Exit Japan, Indonesia" (2016)](https://www.industryweek.com/competitiveness/ford-exit-japan-indonesia)
- [The Korea Times, "Hyundai Motor announces return to Japanese market" (2022)](https://www.koreatimes.co.kr/business/companies/20220208/hyundai-motor-announces-return-to-japanese-market)
- [MHLW, Rules on ending employment contracts (Japanese)](https://www.mhlw.go.jp/seisakunitsuite/bunya/koyou_roudou/roudouseisaku/chushoukigyou/keiyakushuryo_rule.html)
- [MHLW, Cases listed in the Employment Guidelines (Japanese)](https://www.mhlw.go.jp/file/06-Seisakujouhou-11200000-Roudoukijunkyoku/0000042686.pdf)
- [MHLW, Reemployment assistance plans and large-scale employment change notices (Japanese)](https://www.mhlw.go.jp/stf/seisakunitsuite/bunya/koyou_roudou/koyou/jigyounushi/page06.html)

---

Author

[Nobu Sato](https://nobusato.jp/en/profile?hsLang=en)

Launching in Japan, starting with people and systems. I write about building organizations, sales teams and technology organizations in Japan, in English, Japanese and Chinese.

[Profile](https://nobusato.jp/en/profile?hsLang=en)[Contact](https://nobusato.jp/en/contact?hsLang=en)

## More in this column

1. 01[Before HQ Gets Japan Employee Data: APPI Transfer Rules](https://nobusato.jp/en/blog/appi-employee-data-transfer?hsLang=en)7 min
   
   Under Japan's APPI, an overseas parent is a foreign third party. Pick consent or a conforming system before go-live and ...
2. 02[Why Japanese Enterprise Buying Is Slow: It's the Queues](https://nobusato.jp/en/blog/why-japanese-enterprise-buying-is-slow?hsLang=en)7 min
   
   In a 2026 survey, 76% said half or more of the stamps on a Japanese approval form only confirm. How ringi, PoCs and ...
3. 03[Country Manager Pay in Japan: Split Person, Role, Result](https://nobusato.jp/en/blog/country-manager-pay-japan?hsLang=en)7 min
   
   A global grade band rarely fits a Japan country manager. Public market ranges, and how to split base, role allowance, ...

[Column guide: Launching in Japan](https://nobusato.jp/en/blog/guide-launching-in-japan?hsLang=en) · [Glossary](https://nobusato.jp/en/blog/glossary?hsLang=en) · [The method behind the articles](https://nobusato.jp/en/blog/method?hsLang=en)

[← All articles](https://nobusato.jp/en/blog?hsLang=en)

## Writing about launching in Japan, in three languages.

[Profile](https://nobusato.jp/en/profile?hsLang=en) [Get in touch](https://nobusato.jp/en/contact?hsLang=en)

Nobu Sato

Writing about launching in Japan, in three languages.

[info@nobusato.jp](mailto:info@nobusato.jp) [Substack](https://nobusato.substack.com)[Newsletter](https://www.linkedin.com/newsletters/the-japan-entry-memo-7519750783555518464/)[Medium](https://medium.com/@nobusato5888)[LinkedIn](https://www.linkedin.com/in/realnobusato/)[X](https://x.com/nobusato5888) [RSS](https://nobusato.jp/en/blog/rss.xml?hsLang=en)

[Profile](https://nobusato.jp/en/profile?hsLang=en)[Method](https://nobusato.jp/en/blog/method?hsLang=en)[Articles](https://nobusato.jp/en/blog?hsLang=en)[Glossary](https://nobusato.jp/en/blog/glossary?hsLang=en)[Contact](https://nobusato.jp/en/contact?hsLang=en)

Views here are my own and don’t represent any organization I work or have worked for.

© 2026 Nobu Sato. All rights reserved.·[Privacy and disclaimer](https://nobusato.jp/en/privacy?hsLang=en)

```json
{
  "@context" : "https://schema.org",
  "@type" : "BreadcrumbList",
  "itemListElement" : [ {
    "@type" : "ListItem",
    "item" : "https://nobusato.jp/en",
    "name" : "Home",
    "position" : 1
  }, {
    "@type" : "ListItem",
    "item" : "https://nobusato.jp/en/blog",
    "name" : "Articles",
    "position" : 2
  }, {
    "@type" : "ListItem",
    "item" : "https://nobusato.jp/en/blog/tag/launching-in-japan",
    "name" : "Launching in Japan",
    "position" : 3
  }, {
    "@type" : "ListItem",
    "item" : "https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan",
    "name" : "How Foreign Companies Decide to Shrink in Japan",
    "position" : 4
  } ]
}
```

```json
{
  "@context" : "https://schema.org",
  "@id" : "https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan",
  "@type" : "WebPage",
  "about" : {
    "@type" : "Thing",
    "name" : "Launching in Japan"
  },
  "author" : {
    "@id" : "https://nobusato.jp/#person"
  },
  "description" : "Japanese labor law puts dismissal last when a foreign company shrinks its Japan business. The four-factor test, filings, and what Ford and Hyundai did.",
  "inLanguage" : "en",
  "isPartOf" : {
    "@id" : "https://nobusato.jp/en/blog",
    "@type" : "Blog",
    "name" : "Articles"
  },
  "keywords" : "Launching in Japan",
  "name" : "How Foreign Companies Decide to Shrink in Japan",
  "url" : "https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan"
}
```

```json
{
  "@context" : "https://schema.org",
  "@id" : "https://nobusato.jp/#person",
  "@type" : "Person",
  "alternateName" : [ "佐藤伸明", "Nobu Sato", "左滕" ],
  "description" : "Japan market launches: organization, sales and technology",
  "knowsAbout" : [ "Japan market entry", "Organization design", "Talent acquisition", "Sales organization building", "Technology organization building", "Japanese labor law" ],
  "name" : "Nobu Sato",
  "sameAs" : [ "https://www.linkedin.com/in/realnobusato/", "https://x.com/nobusato5888" ],
  "url" : "https://nobusato.jp/en/profile"
}
```

```json
{
  "@context" : "https://schema.org",
  "@type" : "BlogPosting",
  "author" : {
    "@type" : "Person",
    "name" : "Nobu Sato",
    "url" : "https://nobusato.jp/en/blog/author/nobu-sato"
  },
  "dateModified" : "2026-11-12T11:29:29.287Z",
  "datePublished" : "2026-11-12T11:29:29.000Z",
  "headline" : "How Foreign Companies Decide to Shrink in Japan",
  "image" : [ "https://nobusato.jp/hubfs/covers-2026-10/how-foreign-companies-decide-to-shrink-japan-cover-en-2026-10.png" ],
  "mainEntityOfPage" : {
    "@id" : "https://nobusato.jp/en/blog/how-foreign-companies-decide-to-shrink-japan",
    "@type" : "WebPage"
  },
  "publisher" : {
    "@type" : "Organization",
    "logo" : {
      "@type" : "ImageObject",
      "url" : "https://nobusato.jp/hubfs/seo/logo-nobusato-2026-10.png"
    },
    "name" : "nobusato.jp"
  }
}
```