July 24, 2007

Launching a Product in Japan: 5 Action Points + Dos & Don’ts

SUMMARY: Anyone who has considered doing business in Japan has probably heard the warnings: Japan has a unique business culture that’s likely to trip up Western companies who don’t know the rules.

For B-to-B or consumer marketers, those rules are made to be broken, says one expert, who gives us five tactics on launching a product or service in Japan. Plus, how to emphasize personal relationships the right way and overcome their convoluted distribution system.

“Japan as nation has been selling the idea of, ‘We are unique. We have our own way of doing things.’ A lot of companies have bought into that going over there. It’s a very difficult and touchy issue, but I firmly believe that there are times when you should be counter-intuitive,” says William Evans, Professor, The MBA Institute. Evans grew up in Japan and spent decades in the country working for companies such as Motorola and Sodexho launching new products and services in Japan.

Global marketers -- business to business or consumer marketers -- can't ignore Japan. With a gross domestic product of $4.9 trillion (US), it features the world’s second largest economy. The country's unemployment is about 4.1%, according to data from the US Commerce Department, while the average Japanese household has more than $100,000 in savings and a disposable income of about $4,000 per month. Japan is the largest overseas market for US exporters, importing more than $59 billion in 2006 (11.8%).

Leading US exports to Japan were:
o Computers and electronic products, $10.7 billion
o Transportation equipment (mostly aircraft), $9.1 billion
o Agricultural and food products, $8.1 billion
o Chemicals, $7.7 billion
o Non-electrical machinery, $5.6 billion

While respecting some aspects of Japan’s business culture is key, and wrestling with some of the system’s complexities is inevitable, marketers can make the transition quicker and less painful. Here are five tips for all types of marketers interested in launching a product or service in Japan, with a focus on two of the country’s most challenging business factors: its convoluted distribution system and emphasis on personal relationships.

-> Tactic #1. Find a contact to help you establish a foothold

Diligent marketers who read books about Japan and follow general business practices for a market expansion often approach the market like this: They research their industry or product category to find the best opportunities, brush up on unique aspects of the Japanese business culture, then fly to the country to find potential partners or customers.

But that’s an expensive approach that generally doesn’t deliver terrific results, Evans says. “A guy spends $6,000 on a business class flight, goes to Tokyo, has a few meetings and is confounded by everything. By the time he gets back to the home office, he might have spent $20,000 to $30,000 and gotten one or two names to follow up on.”

Instead, Evans recommends accelerating the process by making arrangements with one business partner who can do the preliminary research and business meetings for you -- typically, a Japanese accounting firm, consultant or even marketing or advertising agency that’s willing to represent you in this way. These firms are well connected in the Japanese business community and will do much more than advertised.

A local partner can:
o Conduct market research
o Meet with potential partners and customers
o Identify distribution outlets
o Target marketing opportunities

To establish a business contact, network with businesses that have a presence in the country to see if they can help arrange a meeting with a potential local partner.

Another option is to contact the Tokyo Chamber of Commerce and Industry and ask for help finding a consultant or partner in Japan. Business assistance agents can put you in touch by telephone with potential partners who can begin laying the groundwork before you even get on a plane.

-> Tactic #2. Establish a representative office before launch

After your partner completes the preliminary research and legwork (but before you actually begin selling), establish a representative office in Japan. This would be a small operation that isn’t incorporated under Japanese law and can’t actually conduct transactions but can act as a PR or marketing office.

Operating a representative office for six months or a year before launching actual operations in Japan allows a company to begin marketing, attend trade shows and conduct important personal meetings among distributors and customers who have agreed to take on the product.

It also gives you time to build out a full-fledged office in Japan. “A representative office is the least risky way of having presence.”

-> Tactic #3. Manage the complex Japanese distribution system

One of the biggest challenges for companies entering the Japanese market is working within the country’s notoriously complicated distribution channels. Traditionally, business was conducted based on long-term relationships and complicated hierarchies, making it difficult for outside businesses to find partners willing to take on their product. When they did, many layers of resellers made it tough to make a profit.

“There are a lot of players in the Japanese distribution system. I have seen distribution channel charts that made absolutely no sense.”

Although you might assume this system is one of the unique aspects of the Japanese market that you must accept, Evans says companies shouldn’t be afraid to challenge the traditional network. If you can identify ways to improve the distribution channel and then offer business metrics (such as improved margins) that demonstrate why the changes are necessary, you can get your Japanese partners on board.

- For example, when Evans launched the Swatch watch brand in Japan in the late 1980s, he faced a retail system that included thousands of small, mom-and-pop shops that could only stock a tiny amount of inventory. Supplying those shops was inefficient, so he convinced his distributors to eliminate one-third of all the resellers and retail outlets. “We showed them the numbers. We said that no one is making money this way. They were hurt, but they also understood."
- Evans faced the opposite problem in the 1990s when introducing a new Motorola mobile phone in Japan: too few distribution outlets and a high retail price. He showed distributors that such limited distribution was stifling sales. “It was a process of continual education, with lots of charts and graphs showing that if we pushed more product through the pipeline, they would benefit ultimately.”

-> Tactic #4. Personal touch pays the best dividends

It’s true that personal relationships are more important in the Japanese business culture than in other countries. Potential partners and customers need to feel a level of personal trust with a foreign company’s representative before completing a deal, and that process often takes an exceedingly long time by the standards of US or European business.

Still, there are points in that process when marketers should be more focused on the personal touch and certain efforts that pay off more than others.

- DO: Increase your personal interaction as you reach the later stages a deal. The longer you negotiate with a Japanese customer and partner, the more involved you should become with that company.

Evans once represented the international food and facilities management company Sodexho in its bid to support a Japanese pipeline construction project. As the company neared the end of its bid evaluation process, he went to their office at least one day each week just to be available to answer questions face-to-face. “I was a fixture in their reception area for about 90 days.”

Sodexho won the contract, based in part on his ability to respond personally to questions and concerns.

- DON’T: Obsess about learning the language. Foreign marketers entering Japan often try to learn the language before and during their short stints to establish partnerships or to secure distribution. Learning a few phrases can help, but you’ll rarely have time to become proficient in the language. The early stages of an expansion is a time to focus other aspects of your project.

Instead of signing up for lessons right away, hire a local assistant who speaks your language well and can act as a translator during the busy start-up phase.

-> Tactic #5. Connect with the expat community

Besides connecting with local companies, new entrants in the Japanese market can look to their fellow foreign companies for assistance. Informal networking with the expatriate community can deliver hiring tips, marketing leads, introductions to potential customers and partners, and the like.

Here are a few of Evans’ top networking resources for expats in Japan:
o The Weekender, an English-language magazine
o The Tokyo American Club, a social club where you can network with fellow business people
o The Yokohama Country & Athletic Club, a sports club founded by British and favored by foreign workers
o Universities such as Sophia University, International Christian University and Keio University, which enjoy close connections to the business community and with educational institutions in other countries

Useful links related to this article

Doing Business in Japan, a guide from the U.S. Commercial Service:

Japan External Trade Organization:

Tokyo American Club:

The Weekender:

Yokohama Country & Athletic Club:

International Christian University:

Keio University:

Sophia University:

The MBA Institute:

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