Japanese business entertainment expense policy

Japanese business entertainment expense policy

In the previous section on Japanese business expenses, we noted that your company must impose a business entertainment expense policy on its Japanese office. A business entertainment expense policy doesn’t just safeguard your company’s Japanese business profits; it also protects against accusations of unethical business entertainment practices and unwanted embarrassment on social media. The latter is increasingly important; recently one of Tokyo’s smaller recruitment agencies suffered accusations of unethical business practice after several of its female search consultants published a photo on LinkedIn of them ‘out for the evening’ with a foreign client’s executives. Business entertainment is a fact of life when doing business in Japan, but keep it legitimate. In more than two decades selling to some of Japan’s largest companies, small amounts of beer, sake (Japanese rice wine), or whisky strengthened relationships with some of my employer’s most loyal customers, most of whom paid the check! The question is not whether your company’s Japanese subsidiary needs to engage in business entertainment, but when and to what extent is it justified and how can your company protect against unscrupulous executives or managers abusing it?

One difficulty with setting metrics for appropriate Japanese business entertainment expenses, is that different industries and different customers all have different expectations. I was present as an invited guest at entertainment hosted by a financial company where the check for the evening would have funded a 3 – 4 person Japanese subsidiary for a month! At the opposite end of the spectrum, the Japanese subsidiary I managed once received a US $100,000 first order and letter of intent for several million US dollars of business, after my having drank just one small beer with the customer in a small bar at Tokyo Station. Did a JPY400 beer bribe the customer? I very much doubt it, but it made him feel that we were partners in the deal and that I was not just selling something to his employer but taking an interest in his business problems.

From time to time, your company’s Japanese subsidiary executives and managers will need to entertain customers and potential customers. Your company’s Japanese business entertainment expense policy should not prevent legitimate business entertainment, but rather should:

  • Instill a sense of responsibility into the Japanese company executives and managers authorized to entertain customers.
  • Encourage legitimate customer interaction and cost-effective customer entertainment.
  • Encourage legitimate internal interaction; allowing your company’s Japanese subsidiary team to enjoy an occasional evening ‘team bash’ will return $millions in increased revenue and reduced HR costs.
  • Prevent immoral or unethical business entertainment.
  • Prevent your Japanese business entertainment expenses spiralling out of control.

Assuming your company’s CFO creates the Japanese business entertainment policy, he or she should consider that social drinking is a fact of business life when doing business in Japan. Imposing a ‘no alcoholic beverages’ clause into a Japanese company’s business entertainment expense policy could negatively affect your Japanese business success and unfairly penalize subsidiary salespeople who may feel obliged to pay for customer’s drinks from their own pocket. Stroll through Tokyo in the late evening and you will see groups of Japanese businesspeople drinking. Take a late train in Tokyo and you will see groups of Japanese businesspeople, often one of whom is buyer and the other seller, laughing and joking on their way home after an evening’s drinking. I certainly don’t condone the excessive drinking during business entertainment that results in some of the very drunk businesspeople seen on late-night commuter trains, but after two decades doing Japanese business, I realize that light social drinking ‘oils the wheels’ of Japanese business.

Your company should consider inserting a ‘no hostess clubs’ clause into the business entertainment expense policy. One of the most expensive forms of business entertainment in Japan, is the restaurant dinner followed by a visit to a Japanese customer’s favorite club. This might happen as follows: dinner proceeds very amicably, you pay the check, then your Japanese customer suggests going to a bar he knows. The bar is probably a hostess bar where young Japanese, other Asian, and East European girls pour your drinks, laugh at your jokes, and of course look glamorous. Be warned that the girls are there to urge you to drink as much as possible, sing karaoke as much as possible, buy them as many drinks as possible, and order as many almost inedible food items as possible. Every drink, song, and food item has a very inflated price-tag plus there’s a per hour charge; when you leave, you find yourself paying an unbelievably expensive amount, possibly thousands of dollars. If you are a foreign executive facing such a situation, tell the Japanese customer that a regular bar is fine, but anything involving hostesses is strictly off-limits. For a company, the business entertainment expense policy should clearly state that the company will not reimburse any dinner expense exceeding a certain amount per person, such as $100 per person, without prior approval, and entertainment in hostess bars is strictly forbidden.

The business entertainment expense policy should encourage cost-effective business entertainment. Many Japanese businessmen have a favorite, and often relatively inexpensive, ‘hole-in-the-wall’ backstreet restaurant or bar (not hostess club) where they go alone or with very close colleagues or long-term customers. When a Japanese businessman who previously entertained a business partner only at high-class restaurants, invites the business partner to his ‘haunt’, it’s an indication the partner has earned his trust. Your company can use a similar approach to control its Japanese business entertainment expenses while providing Japanese customers with the feeling that they are special guests. The subsidiary employees need to find two or three reasonably priced restaurants with good food close by the subsidiary’s office, set up business accounts at the restaurants, and be on first name terms with the staff. Now the subsidiary executives and managers, and of course your company’s visiting executives, can wine and dine Japanese customers at these ‘exclusive’ venues in a cost-effective way.

A lunch or dinner with a key customer at one of your company’s chosen restaurants, can strengthen a business relationship or help to resolve differences away from the negotiating table. When trying to win a bridgehead deal with a larger Japanese company, suggest a dinner meeting at one of the restaurants as an opportunity for the customer to introduce his senior managers and executives who have crowded daytime schedules. Your company’s chosen restaurants are also great places to improve awareness of its Japanese business vision and keep in touch with new developments by networking with influential journalists and academics. The secret is to use your chosen restaurants to give customers and business partners a sense of being on the inside, while avoiding the expensive mistake of trying to entertain large Japanese companies in expensive restaurants such as those where they entertain you.

Regardless of what one hears, it is not necessary to spend huge sums entertaining customers in Tokyo’s most expensive restaurants. Some of the best and most enduring Japanese business relationships I have, benefited from eating, drinking, talking, and laughing with Japanese customers in ordinary Japanese restaurants and afterward trying my best to sing like Elton John in one of Tokyo’s numerous karaoke rooms. Legitimate business entertainment reinforces legitimate business relationships and helps discover new opportunities for your company and the customer to work together.


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