Direct sales in Japan in this context, does not mean direct sales using a pyramid or MLM model, but rather a Japanese branch-office or subsidiary of your company, with a sales and support team hired and paid by you.
Any foreign company that really wants to succeed doing business in Japan and wants to maximize its Japanese brand value, revenues, profits and Japanese market share, needs to have a direct sales presence in the Japanese market from the start. Ultimately, even the best of Japan’s numerous distributors, resellers or trading companies will not do as well for your company as its own Japanese branch-office or subsidiary sales team can do.
Selling through distributors is a good solution for specific situations, as described in the previous section about Japanese distributors, but in business, accurate projections and market feedback are essential elements of success; it ranges from difficult to practically impossible to get either from a distributor. Predicting the sales and revenues a distributor will generate (unless you have a guaranteed minimum quarterly payment term in your distribution agreement) is typically unreliable. By their nature, Japanese trading companies, distributors and resellers add yet another layer between you and your customers. It can also be a challenge, especially when you add language and culture differences, to control a Japanese distributor’s activity and the extent to which it promotes, enhances and protects your valuable brand.
In my experience, to successfully do business in Japan through a distributor or reseller you will at some point need to invest in setting up a Japanese office or company to support and manage the relationship. Very often you might do better to use that same investment to start a Japanese sales office, while using a distributor to extend the reach of your Japanese sales team in lower margin higher volume markets, thus leaving your sales force to focus on higher margin lower volume opportunities.
A further challenge to selling through Japanese distributors is that many distributors sell multiple products from competing manufacturers; you will often discover that your chosen Japanese trading company, distributor or reseller sells both your product and those of your main competitors. Very often a Japanese distributor makes concurrent agreements with multiple competing producers to control the market supply and pricing, which can negatively affect your sales.
Even worse than lost sales, a bad relationship with a Japanese distributor can severely damage your brand image, credibility and market share for years or even decades. 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, regardless of fault. An example in the software industry illustrates the dangers: way back in 1993 the then #1 vendor of manufacturing software terminated its relationship with one of the largest Japanese trading companies and then wasted more than 10 years to regain market confidence. During that time the reputation they earned because 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. More than two decades later, most of the corporate buyers who were so reluctant to deal with that company back in the late 1990s have retired; but would you want your company’s Japanese fortunes put on-hold for the decades it takes for today’s generation of influential buyers and management to retire? The Japanese market is small, very small, so avoid getting a bad reputation.
Why put your company’s revenue, sales, brand image and market share for the next decade in the hands of a third-party distributor when you can set up your own Japanese sales office or company at relatively low cost and take control of your own destiny in Japan?