A Japanese supplier can look commercially strong on paper and still carry an operating risk that is easy for an overseas buyer to miss: weak labor controls at the actual worksite.
That risk becomes especially important when the supplier, contractor, warehouse, factory, franchisee, or service partner relies on foreign technical interns or workers under Japan’s Specified Skilled Worker system. For a foreign company entering or expanding in Japan, this is not only an HR issue for somebody else’s company. It can become a delivery, safety, reputation, acquisition, and partner-management issue for your own business.
Japan’s Ministry of Health, Labour and Welfare provided a useful warning on September 15. It published fiscal 2025 supervision and referral results for workplaces employing foreign technical interns and specified skilled workers.
Among workplaces using technical interns, labor-standards violations were found at 9,619 of the 13,148 workplaces inspected, or 73.2%. The leading categories included machinery and equipment safety standards, at 22.8%; obtaining a physician’s opinion after health-check results, at 15.7%; and premium pay for overtime and similar work, at 15.6%. MHLW also reported 26 referrals involving serious or malicious labor-standards violations.
Among workplaces using specified skilled workers, violations were found at 6,179 of 8,082 inspected workplaces, or 76.5%. The leading categories were similar: machinery and equipment safety at 20.7%, physician opinions following health checks at 16.7%, and overtime premium pay at 16.3%. MHLW reported nine referrals involving serious or malicious cases.
Those percentages are striking, but they need to be read correctly. They describe workplaces selected for labor inspection; they should not be presented as a random national survey proving that three quarters of every Japanese workplace using foreign workers is non-compliant. The practical signal is still strong. When authorities inspect these work environments, they repeatedly find weaknesses in basic operating controls: physical safety, health follow-up, and correct pay.
For an overseas company, the important question is not whether these figures make Japan unusually risky. It is whether your Japan operating model gives you enough visibility into the sites on which your business depends.
The exposure often sits outside your legal entity
Many foreign businesses enter Japan without building every function themselves. They use a local manufacturer, food processor, warehouse, construction contractor, facility-management company, hotel operator, logistics provider, franchise partner, or staffing-related service partner. That structure can be efficient. It can also move important labor conditions one or two contracts away from the executive team making the Japan decision.
The commercial contract may specify price, quality, volume, and delivery. It may say much less about how the partner manages machinery safety, follows up on health examinations, records working time, calculates overtime premiums, or supervises subcontracted labor. A headquarters team outside Japan may see a reputable company name, a clean presentation, and a signed supplier code. None of those confirms what happens on the worksite.
This is the overlooked risk: a company can outsource the work without fully outsourcing the consequences.
If a safety failure stops production, a payroll dispute disrupts staffing, an authority investigation affects a key site, or a labor issue becomes public, the immediate legal responsibility may sit with the Japanese employer. The foreign customer or investor can still face delayed deliveries, an interrupted launch, emergency supplier replacement, reputational questions, or a lower valuation of the operating model.
That is why foreign-worker exposure should be included in supplier and partner diligence when it is material to performance. It should not be treated only as a question for the supplier’s HR department.
Start with controls, not declarations
A useful diligence process does not begin by asking a supplier to promise that it follows Japanese law. The answer will almost always be yes. It begins by asking how the relevant controls actually work and what evidence the supplier can produce.
The MHLW findings point to three practical areas.
First, check machinery and equipment safety. If the partner operates a factory, kitchen, warehouse, maintenance site, construction environment, or other physical workplace, ask who owns the risk assessment, how guards and protective systems are inspected, how safety instructions are communicated to workers with different language abilities, and how near misses are recorded and corrected. A translated poster is not the same as a functioning control.
Second, check what happens after health examinations. The issue is not simply whether workers receive a periodic check. The MHLW categories specifically highlight the process for obtaining a physician’s opinion after results are received. A foreign buyer does not need access to private medical information, but it can ask whether the supplier has a documented follow-up process, assigned responsibility, escalation rules, and records showing that required actions are completed.
Third, check working-time and pay controls. Ask how hours are recorded, who approves overtime, how premium pay is calculated, how deductions are governed, and how discrepancies are raised. Where labor brokers, subcontractors, or multiple operating entities are involved, clarify which company employs the worker, which company directs the daily work, and who is responsible for payroll records and correction.
The purpose is not to conduct a legal audit from abroad. It is to establish whether the partner can explain its system clearly, support that explanation with evidence, and respond credibly when a problem is found.
Which foreign businesses should pay the closest attention?
The issue is most immediate for companies whose service quality or delivery capacity depends on labor-intensive Japanese sites.
Manufacturers and food companies should look beyond product quality certificates to the controls surrounding the people operating machinery and production lines. Retailers and restaurant groups should examine franchisees, central kitchens, cleaning contractors, and distribution partners. Hospitality operators should consider housekeeping, food preparation, maintenance, and outsourced facility operations. Logistics businesses should review warehouses, delivery subcontractors, and shift-management systems. Companies opening offices, stores, clinics, hotels, or other facilities should examine the contractors responsible for fit-out and ongoing maintenance.
Investors and acquirers have an additional reason to care. A target company’s revenue may depend on suppliers or facilities that use foreign labor, even when the target’s own employee records look orderly. If diligence stops at the parent company, it may miss operational fragility inside the supply chain or contractor network.
The decision changes according to the exposure. For a new supplier, the result may affect onboarding. For an existing supplier, it may justify a corrective-action plan or an alternative source. For an acquisition, it may change representations, integration priorities, valuation assumptions, or post-close monitoring. For a market-entry project, it may affect launch timing and the amount of local management capacity required.
Five questions executives should ask before relying on the partner
The first question is whether foreign workers are present in the operations that support your contract. Do not assume the answer from the supplier’s industry or public profile. Ask which sites and functions are relevant.
The second is whether the supplier can show the controls behind its assurances. Policies matter, but so do inspection records, corrective-action logs, working-time records, payroll review processes, safety training, and responsibility charts.
The third is whether communication works at the worksite. A policy written only in Japanese may not be enough where workers need to understand machinery risks, reporting channels, schedules, pay statements, or emergency procedures. The right question is not whether something was translated once. It is whether workers can understand and use the process.
The fourth is how the supplier responds to exceptions. Every operation can have errors. A stronger partner can identify them, investigate causes, correct payments or conditions, document the response, and prevent recurrence. A weak partner relies on general assurances or treats questions as an intrusion.
The fifth is what your own contract allows you to do. Consider whether you have rights to request relevant evidence, require remediation, receive notice of material regulatory action, inspect or commission a review where justified, and activate continuity measures if a key site becomes unavailable.
These questions should be proportionate. A small office-services vendor does not require the same diligence as a factory producing a critical component. The objective is to connect the depth of review to the operational, human, reputational, and continuity risk.
Do not turn the process into a paper exercise
Foreign companies sometimes respond to supply-chain risk by sending a long questionnaire. That can produce a folder of answers without producing much understanding.
A better approach is risk-based. Identify the sites and functions that matter most. Use the MHLW findings as prompts for concrete questions. Ask for a small number of relevant records. Compare written policy with actual responsibility. Discuss past problems and corrective actions. Where the exposure is material, consider local-language review or an appropriate specialist assessment.
It is also important not to treat the presence of foreign workers as the risk itself. Foreign technical interns and specified skilled workers are part of Japan’s labor force, particularly in sectors facing labor shortages. The risk lies in inadequate management, weak controls, poor communication, or a business model that depends on workers while failing to protect or pay them properly.
That distinction matters commercially. A supplier with a diverse workforce and strong controls may be more resilient than a supplier with no visible foreign-workforce program but weak documentation and supervision. The diligence target should be control quality, not nationality.
What this signals about operating in Japan
Japan’s labor shortage means foreign-worker systems are becoming part of normal operating infrastructure in manufacturing, food production, hospitality, logistics, construction, care, and other sectors. Overseas companies should therefore expect foreign-worker management to appear in supplier selection, partner governance, and transaction diligence more often.
The latest inspection results do not tell a foreign executive to avoid Japanese suppliers that employ foreign workers. They tell the executive not to confuse a familiar Japanese company, a signed contract, or a labor-shortage explanation with evidence of sound worksite control.
The practical decision is straightforward. Before you depend on a supplier or partner, identify the worksite behind the commercial promise. Check who performs the work, how safety and health follow-up are controlled, how time and pay are managed, and what happens when the system fails.
In Japan, partner quality is increasingly inseparable from worksite quality. The company that checks both is better positioned to protect its people, its launch, its supply chain, and its reputation.
Relevant to your business?
Need a decision-ready answer for your situation?
Get a focused Supplier Initial Screening based on relevant Japanese-language sources, with key findings, risks and next questions.
Supplier Initial Screening · $299
Need ongoing coverage? Commercial Due Diligence · Quote →
Need help interpreting similar signals?
Japan Watchdesk helps overseas teams understand what Japanese-language developments actually mean for commercial decision-making.
Have you encountered something similar?
Share your experience, perspective, or question. Constructive discussion is always welcome.