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3.  good distribution contract terms

Based on my experience of contract negotiation for doing business in Japan, I recommend the following list of terms to require in a negotiation of a Japanese distributor agreement:

• transfer fees calculated on net revenue not on your head-office price-list,
• transfer fees to include not only product sales but any support, maintenance and ongoing consulting provided in association with your product,
• floor or minimum price,
• price-list with a schedule of maximum discounts,
• restriction on the use of sub-distributors or the total percentage retained by sub-distributors, especially if they are subsidiaries of your distributor,
• guaranteed minimum transfer fees paid quarterly,
• monthly submittal of accurate in-progress sales forecasts and monthly (minimum) review of those sales forecasts,
• terms to ensure that you do not take the full hit of any adverse exchange-rate fluctuations,
• direct access to key customers allowing direct product feedback to occur - you do not want precious and valuable feedback going through the unnecessary filter of your distributor's management chain,
• direct access via VPN, Outlook Web Access etc. into a secured zone of the distributor's contact management system to allow you 24/7 up-to-date account and forecast data irrespective of time zone differences,
• minimum level of advertising required to properly promote your product (e.g. at least 5 magazine advertisements per month, a dedicated Web site, etc.),
• minimum staffing level required to properly promote your product (e.g. full-time salesperson, full-time marketing person etc.) and preferably name them in the agreement,
• minimum performance criteria with clearly stated termination terms,
• minimum performance terms required to maintain any exclusivity,
• protection against being used as a loss-leader (e.g. minimum prices etc.),
• protection against your distributor quietly developing a competitive product to your product (while of course using your product to build their future customer base!).

A final comment - in addition to skilled contract negotiations at the outset, a Japanese distributor relationship needs to be very closely and locally monitored if it is to produce consistent revenue and profits and not degrade into a frustrating mess with a very negative effect on your Japanese market brand image. In fact, to properly support a distributor you will probably need to setup a Japanese office and very often it will require almost as many local staff to support the distributor as to sell direct. I suggest that before starting any distribution contract negotiation, you carefully consider the substantial benefits of setting up a Japanese subsidiary company or office to do direct sales in Japan - only after eliminating the direct sales option would I consider committing to a distributor-only strategy.

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pages in this section:

1. Japanese distributors
2. Japanese distribution contract negotiation
3. good distribution contract terms

Japanese distributors