Doing business in Japan information
by Venture Japan
In the previous section on doing business in Japan with Japanese distributors, I noted that many executives of foreign companies felt they had been blindsided by their Japanese distributor in initial the contract negotiation. If you are doing business in Japan with a Japanese distributor, then 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 that data your task in contract negotiation with a distributor eases because you now have some defensible expectations with which to counter their proposals and counterproposals. Distributors, Japanese or otherwise, exist for one purpose and one purpose only: to sell products for more than they paid for them. Good distributors want to sell the best products, the winners not the losers. In a sense dealing with a distributor is akin to dealing with an investor: if you can convince them that you know where you are headed and have a phenomenal opportunity that will give them some strong returns they will want to partner with you at reasonable terms. Just as with an investor they will make a show of disproving your revenue projections but will take note nonetheless!
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 require transfer fees calculated on net revenues, not on your home market price list. The result is that you have a chance to 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 to be aware of, and which if uncontrolled will have a significant impact on the final percentage of revenue you receive, is that the Japanese market is awash with multi-layered distribution channels. Your Japanese distributor may in fact be a 'master distributor' who will pass your products through one or more layers of sub-distributors prior to it reaching its intended consumer or corporate buyer destination. In some situations its unavoidable - for example, if your distributor sells to a large Japanese company you can expect that the customer will mandate a trading company (usually one of it's subsidiaries) to handle the purchase 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!
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