Doing business in Japan information
by Venture Japan
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 direct presence in the Japanese market from the start. Ultimately even the best of Japan's numerous distributors will be unlikely to do as well for you as you will do for yourself.
Selling through distributors may be a good solution for specific situations (as described in the section on deciding to use a Japanese distributor or subsidiary office) but in business accurate projections and market feedback are an essential element of success and it ranges from difficult to practically impossible to get either from a distributor. Predicting the sales and revenues a distributor will generate - 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.
To be really successful doing business in Japan through a distributor you will inevitably need to invest in setting up a Japanese office or company to support and manage the relationship - very often you may be better advised to use that same investment for direct sales while possibly using a distributor to extend the reach of your Japanese office or company (to distribute only in lower margin higher volume markets while leaving your direct sales force to concentrate 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: 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. Probably by this time (2009), the majority 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 to be put on-hold for a decade while you wait for a 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 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?
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