Direct sales in Japan
If you really want to do successful business in Japan and maximize your Japanese brand value, revenues, profits and Japanese market share, then you got to have direct presence in the Japanese market from day 1. Even the best of Japan’s numerous distributors will not do as well for you as you will do for yourself.
Selling through distributors may be a good solution for specific situations, but in a business environment where accurate projections and market feedback are essential elements of success, it varies from downright difficult to practically impossible to get either from a distributor. Predicting a distributor’s sales and revenues (unless of course you have a guaranteed minimum quarterly payment term in your distribution agreement) is typically unreliable and by their very nature trading companies form yet another layer between you and your customers. It is also an equally difficult challenge, especially with the addition of language and culture differences, to control a Japanese trading company’s sales activity and the extent to which a distributor promotes, enhances and protects your valuable brand image.
So, to do truly successful business in Japan through a distributor you will eventually need to setup a Japanese office or company to support and manage the relationship. Very often you may be better advised to use that cash to establish a direct sales office in Japan while possibly using a distributor to extend your market reach. A distributor can pursue lower margin higher volume markets while your direct sales force concentrates on higher margin lower volume opportunities.
A further challenge to selling through Japanese distributors is that many distributors sell multiple products from competing manufacturers and you may well discover that your chosen trading company sells both your product and those of your main competitors. Very often a Japanese distributor will deliberately attempt to make concurrent agreements with multiple competing producers and then control the market supply and pricing (and of course that can negatively affect your profits).
Other distributors will make agreements with multiple competing vendors because it provides them with a measure of insurance in the event that a foreign company suddenly withdraws from the Japanese market. Whatever a trading company’s motivation the problem for you is the same – if your distributor is representing multiple competing products you are not going to achieve anything close to your full Japanese market potential. The Japanese distributor will naturally tend to promote whichever product provides the biggest margin and in that case your product (assuming you negotiated good transfer fees) may be conveniently sidelined without your knowledge.
Worse even than the lost revenue, a bad relationship with a Japanese distributor can severely damage your brand image, credibility and market share for years. Japan is a very densely populated country and the Japanese market truly is a ‘small, small world’. Rumor travels fast and Japanese consumers and corporations alike act with an incredibly strong herd instinct. If a foreign company gets into a wrangle with a Japanese distributor the domestic reaction will invariably be in favor of the distributor – irrespective of fault. An example in the software industry illustrates the dangers: in 1993 the then #1 vendor of manufacturing software terminated its relationship with one of the largest Japanese trading companies and it has taken them 10 years of hard work to regain market confidence. During that time the reputation they unfairly received as a result of the events of 1993 cost them tens of millions of dollars in lost Japanese sales which in turn no doubt contributed to their worldwide decline. Even now in 2004 some corporate buyers are still reluctant to deal with that company because of misconceptions dating back more than 10 years.
Why put your company’s revenue, sales, brand image and market share for the next 10 years in the hands of a third-party distributor when you can setup your own Japanese office or company at relatively low cost and take control of your own destiny in Japan?