Research and risk: Keys to success in Japan

At first glance, the Japanese market appears a dauntingly tough nut to crack. The language barrier is difficult to surmount, staff insist on doing things “the Japanese way,” and regulations create a labyrinth designed to protect domestic companies.

And while the norms of doing business can be baffling to anyone not indoctrinated in Japanese ways since childhood, and consumers look at foreign goods and services with suspicion, experts say these points sound like excuses to justify failure when entering the Japanese market.

In truth, Japan offers excellent opportunities for companies with appealing and competitive products, and starting a company here is arguably no more difficult than anywhere else in the world. Sure, there will be quirks, but the same is true of setting up shop in Beijing, Berlin, or Buenos Aires.

RESEARCH REQUIRED

The key to being a success in Japan, many experts insist, is accepting that it takes meticulous preparation and a lot of hard work.

“Of course, entering Japan with a new business can be challenging, but I would say not more challenging than any other market,” Dr. Steven Bleistein, chief executive officer of Tokyo-based Relansa, Inc., told The ACCJ Journal. Relansa assists companies looking to get a foot in the door of the Japanese market.

“In fact, I would say that—in many ways—it is easier to establish a company in Japan because the business environment is very friendly and it is easy to approach Japanese customers; but a newcomer must also understand that it has to be done correctly and appropriately,” added Bleistein, who has lived in Japan for 19 years and also serves as vice-chair of the American Chamber of Commerce in Japan (ACCJ) Independent Business Committee.

In his experience, a good number of overseas companies virtually demonize Japan as a potential market simply because preconceived notions make it appear much harder to access than it actually is.

Bleistein ticks off familiar fears on his fingers—everything from the language barrier and the fear of “lost in translation” moments to myths that a company cannot legally fire an underperforming employee. Initially, he says, something as fundamental as a demonstrable commitment to doing business here goes far.

“That commitment is shown in your willingness to invest and to set up a legal presence in Japan,” he explained. “A newcomer also needs to carry out diligent market research and staff the new office correctly. Be sure to have a superlative leader; a Japanese guy with industry contacts is not enough. And do not believe everything that you hear about doing business here.”

That mystique about operating in Japan can unnecessarily put companies off, Bleistein said, citing his experience with one company that had been informed that if they severed a relationship with their local distributor because they were dissatisfied with its performance, they would be blacklisted by other potential distributors and their business would shrivel.

“I have never heard of that happening, but this company accepted that advice as gospel and went along with an unproductive business relationship for much too long,” he said with a shrug.

Paul Yang, general manager of the sales department at serviced apartment operator Space Design Inc, agrees that doing business may be different in Japan than elsewhere, which means working with an experienced local partner, agent, or consultant is a sensible first step.

“There is a cultural aspect that is deeply embedded in the Japanese way of doing business,” Yang told The ACCJ Journal. “Companies here tend to be very conservative, and often prefer to do business with firms that are already established and have a good track record of working in Japan. That alone typically rules out many foreign companies that are just entering the market, even if they are solidly established in their home countries.”

As he points out, having that long track record and good client references is very important, but—in some cases—long-running relationships between domestic companies make it virtually impossible for foreign outfits to penetrate a network. In those situations, a capable dealer or agent who can provide the required access is worth their weight in gold.

“After initially studying the market, try to find agents or partners who can assist you in finding appropriate vendors and service providers that meet your professional needs; this is crucial,” he stressed. “Working with the wrong agent can lead to your costs going out of control. And not having aligned interests—especially when engaging agents—can lead to catastrophe.”

Yet Steve Iwamura, vice-chair of the ACCJ–Kansai External Affairs Committee and a partner at Deloitte Touche Tohmatsu, warns against over-reliance on a partner.

“If you have a product that Japan perceives as valuable, get a great adviser, never get angry in meetings, follow advice about business culture, negotiate in English, and make your own final business decisions after talking everything through. Being overly dependent on a Japanese partner—and blindly following them—is not a good recipe,” said Iwamura, who linked Hawaii-based Hoku Corp. with a number of Japanese firms.

He added that critical elements of success include a signi­ficantly superior product, access to top decision-makers, great communications skills, the ability to balance differences between Japan and one’s home country, and having what he describes as “I-can-see-it-in-your-eyes handshake integrity.”

LEARN FROM FAILURE

There are many examples of companies that failed to do their homework on Japan, ignored advice, and paid the price.

In 2000, Boulogne-based supermarket operator Carrefour S.A. laid out plans to open 12 French-style hypermarkets in Japan. It managed to open eight, but the entire network was sold within five years to the Chiba-based Aeon Group.

Similarly, British supermarket chain Tesco left with its tail between its legs in 2011, after struggling for eight years to crack the world’s third-largest grocery market.

However, there are companies which demonstrate that success is most certainly possible in Japan, says Robert Heldt, president and co-founder of Tokyo-based bilingual content-creation and communication agency Custom Media K.K., publisher of The ACCJ Journal.

“Look at IKEA,” he said. “When they first came into Japan, they were with a local partner that turned out to be the wrong choice and they failed. But they were committed to being here. They did their due diligence on how Japanese people live, the spaces they live in, and the things they want. Then, some years later, they were back.”

There are now 10 IKEA furniture stores across Japan, the most recent opening in Aichi Prefecture last October, and they have cleverly made shopping exciting for the whole family.

“They identified their mistakes, saw how they could do things differently, decided to give a full-service experience to their customers, and did not give up on Japan,” Heldt added. “And now look at them.”

Similarly, few believed Costco Wholesale Corporation’s warehouse shopping concept could work in Japan—primarily because it sells products in large volumes, and homes here are simply too small to accommodate stockpiles of food. That notion was quickly dashed and Costco is now going strong.

“I think that foreign companies can actually be a bit more bold and direct than local companies traditionally tend to be,” said Heldt. “They do not have to do things ‘the Japanese way,’ and they can get away with that purely because they are not Japanese. It’s okay to think—and act—outside the box.

“In terms of local partners, I suggest working with younger Japanese companies who think differently,” he added. “Younger management is often a lot more open-minded about different ways of doing things, and I think we are slowly seeing that generational change work its way into Japanese corporations.”

Foreign companies coming to Japan can also take advan­­tage of the consumer base, Heldt pointed out, which is not shy about spending on new services or products, is constantly looking to try new experiences, loves brands, and is constantly on the lookout for the next big thing.

Hit the spot with a new product, such as the Dyson hairdryer—aimed at the middle-aged male market—or Tangle Teezer hairbrushes and the sky’s the limit, he added.

TECH ADVANTAGE

Scott Sugino, vice chair of the ACCJ Foreign Direct Invest­­ment Committee and a partner at the Tokyo office of the law firm O’Melveny & Myers LLP, said opportunities in his area of specialization—technology companies seeking to enter Japan—are extremely positive.

“In the internet space, Japan is considered a promising country because it is a developed economy, is technology-friendly, and there are not a lot of large incumbent domestic companies that are the equivalent of Google, Amazon, or Facebook,” he said. And, he added, it helps that foreign tech companies are not permitted to operate in China—meaning they must find another home for their Asian operations.

For Sugino, being able to negotiate local regulations and workplace cultural differences—such as the layers of management that are typically in place at Japanese corporations—is important, but the biggest challenge is hiring the right people to move the company forward.

“For tech companies, they will need a country manager, a sales team, and engineers. And it can be very difficult to find competent people to fill those positions who are also bilingual.”

For companies that make the right appointments and decisions, Japan is a very good place to be, he said.

“In my space, things are looking very positive as Japanese corporations are divesting themselves of some of their non-core assets. One of my foreign clients bought a tech division from a Japanese company, invested heavily, and the value of the company has grown by 10 times its initial investment in the space of four years.”

Bleistein is equally bullish.

“Absolutely, I’m an optimist on Japan,” he said. “Historically, Japan goes through cycles and has the capacity to change rapidly when it needs to. Commodore Perry arrived in Japan in 1853 with the ‘black ships’ to open up the country. By 1905, Japan had defeated Imperial Russia at the Battle of the Tsushima Strait. And only 20 years after the nation was utterly destroyed in World War II, the economic miracle was underway. By 1964, Japan had the most advanced high-speed railway system in the world and Tokyo was hosting the Olympic Games.

“And now I see a changing attitude in young people in business—again. They are more aggressive, more entrepreneurial, and more internationally motivated. Smart investors go long on Japan.”

Custom Media publishes The ACCJ Journal for the American Chamber of Commerce in Japan.

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