The Japanese market is one of the world’s most profitable markets for many global companies, not only for high-profile designer brands such as Louis Vuitton, Chanel, Christian Dior, and Prada, but also for a large number of specialist part, product, and service suppliers. Some brands such as Bvlgari, Salvatore Ferragamo, and Gucci, earn 27% or more of their global revenue from the Japanese market and have invested heavily in it. Louis Vuitton, which earns almost 50% of its global profits from Japan, has always sold direct in Japan, never used Japanese distributors, and has nearly 60 stores across the country.
Early entry into the Japanese market could be one of the most profitable business decisions your company ever makes; late entry into the Japanese market could be one of the worst. If your company is in a fast-moving mass market, it needs to secure first-mover status, especially in the Japanese market, if it wants to succeed. In 2004, I wrote that eBay could sadly confirm that in the Japanese market, missing the opportunity to become first-mover can easily result in becoming no-mover. Yahoo! Japan, Yahoo!’s successful joint-venture with Softbank, localized the Yahoo! Auction platform and entered the Japanese online auction market in the late 1990s while eBay was still considering its Japanese market strategy. Yahoo! Japan dominated the Japanese market for online auctions to the extent that eBay never seriously competed in Japan. More than a decade later, nothing much has changed for eBay in Japan; eBay does now offer Japanese sellers the ability to sell in English to overseas buyers, and offers Japanese buyers the ability to buy in Japanese through the Sekaimon service. Meanwhile, Yahoo! Japan’s dominance has grown such that its closest rival, Rakuten Auctions, closed in 2016.
The Japanese market’s tendency to supplier loyalty is also due to another aspect of Japan’s consumers and corporate buyers; the extensive product and service evaluations they tend to make before buying. For foreign company executives starting B2B business in Japan, the time Japanese corporate buyers take to evaluate, test, and benchmark products before buying, is often very frustrating for foreign company executives used to much faster sales-cycles in the US and Europe. Japan’s consumers often take even more time when considering purchases ranging from cosmetics to cars.
The lack of living space is a natural result of Japan’s population density; averaging slightly less than 6,200 people per square kilometer in Tokyo. Such population densities also give rise to another reason companies doing business in the Japanese market must guard their reputation for quality, reliability, and service; the Japanese market is one huge rumor-mill which will severely damage a company within weeks if it becomes the victim of a true rumor about its stability, product quality, or ethics.
Consider a Japanese couple who go to a local restaurant and see a cockroach crawling around the floor; they leave the restaurant and walk to their apartment, maybe 500m distance, and pass maybe 20 – 30 people they know on the way. They mention their restaurant experience to each of those people and they in turn within 20 minutes have very likely each told another 20 – 30 people. Within a day the entire neighborhood knows and the couple will probably receive an apologetic call from the restaurant owner. That is another aspect of the Japanese market, where many people travel by foot and train; rumors fly by being overheard. If you think this is an exaggeration, consider this: In 2006, a 16-year-old boy very tragically died in an accident in a Schindler elevator installed in a Tokyo residential building. Schindler claimed that a third-party company was responsible for the elevator’s maintenance and it was not because of the elevator’s failure. In 2015, Tokyo District Court upheld Schindler’s maintenance engineer’s innocence, which would seem to uphold Schindler’s claim. Sadly, in the preceding 9 years, the rumors of Schindler’s product quality persisted and Japanese feared Schindler elevators to the point of refusing to use them. In 2016, Schindler sold its Japanese business to Otis. Chairman Alfred Schindler complained that Schindler was the victim of a witch hunt that resulted in its Japanese business collapsing; maybe that witch hunt was the Japanese rumor-mill.
Consider another example from the early 2000s. In 2000, 14,000 people suffered food-poisoning from contaminated Snow Brand products, with two infants dying. Throughout Japan, housewives immediately shunned all Snow Brand products and the company, then the largest dairy products company in Japan, collapsed. In early 2003, the company merged with two farm organizations and eventually re-branded as Megmilk Snow Brand. US beef farmers suffered the effect of the Japanese market’s rumor-mill when housewives across Japan stopped buying US beef overnight in reaction to a news report of a single instance of BSE having been discovered on a US ranch. Bird-flu in Asia caused a similar reaction such that police needed to arrest the President of one of Japan’s major poultry producers, who knowing how the Japanese rumor-mill would destroy his business, tried to cover-up a bird-flu outbreak at one of his farms.
Japanese women buy more cosmetics, and maybe decide more cosmetics companies’ fortunes, than any other consumer group in the world. In the Japanese market, Japanese women are also the consumers who, as a group, will decide many other companies’ success or failure. Japanese companies understand this and put huge efforts into making their products attractive. Contract with NTT Docomo , Softbank, or aU for a mobile phone, and they will package them in expensive carrier-bags more reminiscent of Cartier or Salvatore Ferragamo stores than a telecom. Japanese car makers go out of their way to create ‘cute’ cars with color schemes and interior designed specifically for women. Whereas in Europe and the US car adverts are often targeted to the peak male audience viewing slots, in Japan they are side-by-side with washing powder and baby-care ads during the day. If I were advising Ford, GM, or Chrysler how best to break into in the Japanese market, I would say by teaming up with a designer brand to produce a car specifically for the age 23 – 30 female market.
In summary then, the Japanese market is a first-mover’s market, it’s an extremely quality conscious market, it’s a very service conscious market, it’s a uniquely brand conscious market, and it’s a market where positive rumor can make a company but negative rumor will break it. In the Japanese market, being second might mean always being second, but messing-up, failing to control the damage, or worse trying to cover-up, will destroy a business for years until the rumor-mill forgets.