starting business in Japan

 

Japanese distributor, Japanese office or both?

6.  Japanese distributor, Japanese office or both

In the previous section on the power of networking in the first month doing business in Japan, I noted the importance of gathering the data necessary to decide how best to start in the Japanese market. That data puts you ahead of many executives of foreign companies starting business in Japan who come here for one or two weeks, sign an agreement with a Japanese distributor and return home with no idea of the Japanese market value of their product. For those executives it was a foregone conclusion that they would start doing business in Japan using one of the numerous distributors or trading companies. The decision not to setup a Japanese office and not to do direct sales was probably based on preconceived ideas of doing business in Japan that were the result of hearing those infamous Japanese market and business myths, or maybe it just seemed that faced with the Japanese language and culture, setting up a Japanese office was too difficult and using a Japanese distributor seemed more simple.

Yet that decision to distribute or go direct with your own Japanese office or company is the first of many critical decisions that will decide a foreign company's success or failure doing business in Japan and the value it derives from the Japanese market. That decision cannot be made without first-hand experience of the Japanese market and definitely not without knowing the Japanese value of your product.

If you spent your first month doing business in Japan by aggressively networking and information gathering, you will now have that first-hand experience and very likely a good understanding of the potential Japanese market value of your product or service. You are now in a position to rethink previous decisions to distribute and consider the possibility of setting up a Japanese office or company to do direct sales with all the control, accountability, growth opportunity and brand equity advantages that a Japanese subsidiary company or office will deliver.

So how do you make the final decision?

Having lived and worked in Japan for the past 13 years, I am fortunate to have a good understanding of the Japanese market and the cost, ease and potential profits of doing business in Japan. I firmly believe that for most foreign companies starting Japanese business, incorporating a Japanese subsidiary company or office and doing direct sales is the most likely way to succeed. In my experience people need to be accountable for a business's performance and unfortunately most distributors by their very nature (they are after all third-party companies with their own business objectives and agendas) are anything but accountable. Your Japanese subsidiary company or office is not a third-party entity and is equally as accountable for its performance as is any other sales office you have.

I do believe in using distributors as a secondary channel, especially in lower price-per-unit and higher volume markets. There are some good distributors in Japan and they do have a role to play in certain situations, for example:

  1. if selling your product is capital intensive,
  2. if your product's price is low relative to the effort required to sell it,
  3. if it is more tax efficient to distribute than to sell direct,
  4. if your home market business model is distributor sales only,
  5. if you operate in an industry which is tightly regulated by the Japanese government and the only way to compete in Japan is through a Japanese partner,
  6. if you are not looking for high growth in Japan.

If you fall into one of categories 4 - 6, then the decision to distribute (or possibly to create a joint-venture for category 5) is simple. You will not know if you fall into one of categories 1 - 3 unless you did your homework in your first month in Japan.

"foreign companies that succeed in Japan find that their Japanese revenues per employee exceed those of their home country"

Assuming you spent that first month doing business in Japan aggressively networking and information gathering, by the second month you should have a pretty good expectation of your product's value in the Japanese market. By comparing with your home market sales statistics you should then be able to extrapolate some reasonable 3 - 5 year revenue forecasts which will be invaluable for decision making.

Most foreign companies that succeed in Japan find that their Japanese revenues per employee exceed those of their home country so using your home country performance as a benchmark for Japanese performance is not unreasonable. Anyway, why would you want to measure your Japanese performance any less stringently than that in your home market?

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starting business in Japan

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