Doing business in Japan information
by Venture Japan
The Japanese market has proved to be the world's most profitable for many companies, most notably designer brands such as Louis Vuitton, Christian Dior and Prada etc. but also for a second tier of much smaller specialist component, product and service suppliers. The Japanese market now accounts for 2/3rds of those companies' global profits and they have invested heavily in the Japanese market during the past 2 - 3 years by opening an unprecedented number of new and often unbelievably large stores in Tokyo and elsewhere in Japan.
Early entry into the Japanese market can be one of the most profitable business decisions you ever make - late entry into the Japanese market can be one of the worst. If you are in a fast moving market (and these days which market is not fast moving?) then you need to achieve first-mover status especially in the Japanese market if you want to succeed. As eBay can sadly confirm, in the Japanese market missing the opportunity to become first-mover can results in becoming no-mover. Yahoo! entered the online auction market here while eBay was still considering its Japanese market strategy. By adopting some very culturally sensitive (and sensible) marketing strategies, Yahoo! now dominates the Japanese market for online auctions to the extent that eBay shutdown its Japanese site. To quote one analyst "Yahoo! effectively took the Japanese market and there is no one here who can compete with them.."
Achieving first-mover status in the Japanese market is always a massive advantage because one of the traits of Japan's business culture is that consumers and corporate buyers here tend to be unusually loyal to suppliers; assuming of course the suppliers consistently return that loyalty with excellent service, quality and reliability.
The Japanese market tendency to supplier loyalty is also due to another aspect of Japan's consumers and companies - the extensive pre-purchase evaluations they tend to make. Japanese market consumers and companies tend to exhaustively evaluate and research products prior to buying and when first doing corporate business in Japan, the time taken by Japanese companies to evaluate, test and benchmark products prior to making a decision can be very frustrating for foreign company executives used to much faster sales-cycles in the US or Europe. Japan's consumers similarly can take just as much time when considering purchases ranging from digital cameras to cars.
I (and many others) believe that the corporate 'pre-purchase evaluation' culture derives from the consumer market (corporations are comprised of people who are after all consumers!) and I believe that in the Japanese market one of the reasons that consumers spend so much time considering new purchases is space - living space or rather the lack of it. In the US or Europe, where average apartments and houses are measured in thousands of square feet and most people have yards, gardens and garages, there is plenty of space to put unwanted 'spur of the moment' purchases. In Japan many families live in spaces measured in hundreds of square feet and there is simply nowhere to put unwanted purchases. In fact many consumers here do not have space for more than a few core possessions and that is the underlying reason why they tend to buy more expensive products in the first place and consider the purchase so carefully prior to making it.
The lack of living space is of course linked to Japan's population density - averaging 870 people per square mile nationwide but in Tokyo soaring to an incredible 34,747 people per square mile (13,416 people per square kilometer) as of September 1, 2003! Such population densities also contribute to another reason why companies doing business in the Japanese market need to be so sensitive about their reputation for quality, reliability and service - the Japanese market is one huge rumor-mill which can near-bankrupt a company within weeks if it becomes the victim of a true rumor regarding its stability, product quality or ethics.
Say for example that my wife and I go to a local restaurant and see a cockroach crawling around the floor - we leave the restaurant and walk to my wife's parents (just 5 minutes or 250m away) and pass maybe 20 - 30 people we know on the way. We mention our restaurant experience to each of those people and they in turn within 20 minutes have each probably told another 20 - 30 people. Within a day the entire neighborhood knows and I probably get an apologetic call from the restaurant owner! That is another aspect of the Japanese market - especially in the major cities - most people travel by foot and train and rumors fly by being overheard. If you think I am exaggerating then consider this - a very small upmarket (at least for our neighborhood) Italian restaurant recently opened literally just 20 paces from our apartment. 15 minutes ago my wife told me that while she was walking home from the supermarket (only 1 minute from our apartment) she heard a couple of women walking along the street complaining that they had just been ripped off at that Italian restaurant - my wife just cancelled our Saturday night date there and instead will be going to an Italian restaurant at the next station "..because we have been there before and it was OK.".
A couple of years ago, one of Japan's leading dairy-products vendors (Snow Brand) was almost wiped out by Japanese market reaction (or rather the housewives of the Japanese market) to 2 cases of food poisoning caused in small children by its yogurt. More recently, US beef farmers suffered the effect of the Japanese market's rumor-mill (once again the housewives) when Japan's consumers en-masse ceased buying US beef overnight in reaction to a news report of a single instance of BSE having been discovered on a US ranch. The even more recent outbreak of 'bird-flu' in Asia caused a similar reaction and the President of one of Japan's major poultry producers was arrested just three weeks ago on charges of attempting to cover-up a bird-flu outbreak at one of his farms so as to avoid the predictable Japanese market reaction.
In the Japanese market, women are the consumers who, as a group, will determine many companies' success or failure. Once again Yahoo! has recognized this and put huge efforts into making its Yahoo! BB broadband internet service attractive to women - right down to packaging hand-out ADSL modems and manuals in very expensive carrier-bags more reminiscent of Cartier or Salvatore Ferragamo stores than an ISP! Japanese car makers go out of their way to create 'cute' cars with color schemes and interior designed specifically for women. Whereas in Europe and the US car adverts tend to be targeted to the times when peak male audiences are anticipated, in Japan they are side-by-side with washing powder and baby-care ads during the day. If I were advising Ford, GM or Chrysler how best to breakthrough in the Japanese market I would say by teaming up with a designer brand to produce a car specifically for the age 23 - 30 female market.
In summary then, the Japanese market is a first-mover's market and the Japanese market is a quality conscious, service conscious and brand conscious market. In the Japanese market being #2 is like winning Silver at the Olympics - it will be another 4 years before you get the chance to try again, if ever.
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