Japanese distribution contract negotiation
In the previous section on doing business in Japan with Japanese distributors, we noted that many executives of foreign companies felt they had been blind-sided by their Japanese distributor when negotiating their Japanese distribution contract. The lesson from their experience? When doing business in Japan with a Japanese distributor, reseller or trading company, you absolutely must negotiate a strong agreement before starting in the Japanese market.
First, you must know the Japanese value, not the US, UK, German, French or Italian value but the Japanese value of your product or service before you can negotiate a win-win relationship with a Japanese distributor. If you spent your first month doing business in Japan aggressively networking and information gathering you should have a pretty good idea of your product’s value. By comparing with your home market statistics you should also be able to extrapolate some reasonable revenue forecasts: idealized of course but an invaluable benchmark for contract negotiation with a Japanese distributor.
Armed with the results of your first month’s Japanese business analysis, you stand a good chance of convincing a reputable distributor that they should put your product into their lead portfolio and invest in aggressively promoting it. Your ability to assert the potential Japanese value of your product and your ability to defend that value will support your justifiable contract negotiation claims to demand transfer fees calculated on net revenues, not on your home market price list. The result is that you can get the best possible distribution deal for your company and a deal that could only ever be bettered by a direct entry into the Japanese market using a Japanese subsidiary company or office.
Another issue that if uncontrolled will significantly impact the final percentage of revenue you receive, is that the Japanese market is awash with multi-layered distribution channels. Your Japanese distributor is probably a ‘master distributor’ who will pass your products through one or more layers of sub-distributors before it reaches its intended consumer or corporate buyer. In some situations it’s unavoidable; if your distributor sells to a large Japanese company you can expect that the customer will mandate a trading company (usually one of its subsidiaries) to handle the transaction and take a 5% – 15% fee for its efforts. Be wary though – very often a sub-distributor may in fact be a subsidiary of the distributor you are directly dealing with and you are paying double fees!