Market Entry Strategy
U.S. companies that are serious about entering the Japanese market should consider hiring a reputable, well-connected agent or distributor, and to cultivate business contacts through frequent personal visits. Japanese attach a high degree of importance to personal relationships, and these take time to establish and nurture. Patience and repeated follow-up are required to clinch a deal. U.S. business executives are advised to be accompanied by a professional interpreter, as many Japanese executives and decision-makers do not speak English.
Using an Agent or Distributor
Establishing a direct presence in Japan is the best way to penetrate the Japanese market, but this can be an extremely expensive strategy. The use of agents/distributors is a more realistic marketing strategy for a small or medium-sized U.S. firm, but this approach requires great care in the selection of the representative.
Distributors in Japan usually cover a specific territory or industry. Import agents are often appointed as sole agents for the entire country (although there is no statutory requirement that this be done). In some cases exclusivity may be necessary to ensure a strong commitment by the Japanese agent towards expanding sales. But under no circumstances should a U.S. company be pressured into handing over control of the whole market if there is doubt as to the ability or willingness of the Japanese company to develop the entire market. Regional exclusivity, a limited term of representation, minimum sales, or qualitative indicators of sales efforts are good strategies as a safeguard in exclusive agency contracts.
While the Japanese Fair Trade Commission has guidelines applicable to exclusive agency contracts, there are no statutory damages required upon termination of an agency contract. Given the close-knit nature of business circles and the traditional wariness towards foreign suppliers, replacing a Japanese agent or distributor could cause reputation problems if not handled in an extremely sensitive manner. The U.S. company may be viewed as lacking adequate commitment to Japanese business relationships. Japanese agents may request “parting compensation” in the event the foreign exporter decides to dissolve a business relationship. Since this is a common practice domestically, U.S. companies should address this eventuality prior to executing a contract.
A common mistake made by many U.S. firms is to try to use a list of importers as a basis for “cold calls” on prospective agents. The Japanese prefer to do business with someone only when they have been properly introduced and have met face-to-face. To help dispel reluctance on the Japanese side, an introduction by a "go-between" typically serves to vouch for the reliability of both parties. Appropriate third parties for such introductions include other Japanese firms, U.S. companies that have successfully done business in Japan, banks, trade associations, chambers of commerce, the U.S. Department of Commerce and the U.S. Commercial Service in Japan. U.S. state representative offices in Japan, JETRO, the American Chamber of Commerce in Japan (ACCJ), and Japanese government ministries can also offer assistance.
U.S. companies should be selective in choosing a Japanese business partner. Credit checks, a review of the Japanese company's industry standing and existing relations with Japanese competitors, and trust-building are all part of the process. Many problems can be avoided by carrying out comprehensive and professional due diligence. The U.S. Commercial Service can help U.S. companies find business partners in Japan. Find out how by visiting www.buyusa.gov/japan/en/partner.html.
Part of the difficulty in choosing a Japanese agent is assuring that the agent will devote sufficient attention to expanding the market share of the U.S. product. A U.S. company should probably avoid a distributor that targets only limited, high-price niches; is compromised by strong ties to one particular industry group (keiretsu); fails to compete directly with established Japanese products; or is not prepared to pursue volume sales for the U.S. exporter. Also, companies should be wary of distributors that co-handle competitors lines, or products that are complimentary in nature and could present conflicts of interest for the distributor.
To attract a Japanese business partner, a U.S. exporter must present an image of dependability, innovation, superior quality, competitiveness, and a commitment to building personal relationships. A U.S. company should show that it is well regarded in its industry; that it has researched the market; that it is prepared to respond to cultural requirements (e.g., by preparing high-quality marketing materials in Japanese on the company and its products/services); and that it responds promptly to all inquiries from Japan. Frequent communication by fax, email or phone is crucial. Regular visits to Japan are a must, as are offers to host new partners on reverse trips to U.S. headquarters to view manufacturing and operations.
Another important factor that merits consideration in the Japanese market is sales commissions paid to agents and distributors. Under an agency contract, the agent normally sells the product to the customer “back-to-back,” at the same price as that paid to the supplier. The supplier then pays a sales commission to the agent at the percentage provided for in the agency contract or agreement. Under a distributorship contract, the supplier sells the product to the distributor, who is then free to add to the purchase price whatever markup it chooses in determining the sales price to the customer. Commission rates vary according to the product and contract terms. Generally speaking, sales commissions range from 10 to 20 percent for “spot” (one-time or irregular) transactions, and from 5 to 10 percent for regular, ongoing business transactions. In the case of bulk materials (e.g., iron ore or coal), however, commission rates are much lower, in the neighborhood of 1 to 3 percent. In the case of medical, laboratory, and scientific analytical instruments, commission rates typically are much higher, in the neighborhood of 20 percent or even higher.
Occasionally, an American exporter deems it necessary, for various reasons, to terminate an existing distributor relationship with an importer in Japan. In such cases, we believe it is essential that the American company not needlessly alienate its existing partner and confuse its current end-users by seeking a new agent or distributor. Japan's business world is small and relatively concentrated, both politically and economically. Business relationships are formed, conducted, nurtured, and ended with an unusual degree of attention to appearances and decorum. Extreme caution and diplomacy are therefore warranted if an overseas company wishes to sever its relationship with its existing Japanese agent or distributor.
Once an agent/distributor agreement is signed and the American company’s products gain a foothold in the Japanese market, the American company may want to consider establishing a representative office in Japan (see below) to support the distributor's sales and marketing efforts and to facilitate communications with U.S. company headquarters. A technical engineer is often best suited for this role because such a person understands product capabilities and end-user requirements. This is, of course, more of a long-term consideration, but one that American companies may wish to consider in putting together their strategic mid- to long-term plan for Japan.
Establishing an Office
Although still costly, establishing a presence and an office in Japan has become less expensive given recent decreases in the costs of labor, office rent, and other expenses. A U.S. company that wishes to collect information or improve communication with business contacts in Japan may wish to establish a representative office. Such an office can obtain market data and other information and provide necessary promotional and service support. A representative office is not subject to Japanese taxes and establishing an office does not require special approval. However, a representative office must not involve itself in commercial transactions or generate income, and therefore cannot directly handle commercial orders. The liaison office may provide guidance and support to an agent and manage all marketing activities except for the actual sale.
A branch office of a U.S. company can engage in trading, manufacturing, retailing, services, or other business. A branch office may take and fill orders and carry out a full marketing program, including advertising, recruiting a sales force, and performing promotional activities. A branch office is liable for payment of Japanese taxes. The branch office must appoint a resident representative in Japan and must register with the Legal Affairs Bureau of the Ministry of Justice. Furthermore, the establishment of a branch office is considered a direct investment under the Foreign Exchange and Foreign Trade Control Law and requires reporting to the Ministry of Finance through the Bank of Japan within 15 days after the establishment of the office. Prior notification is required when the investment involves types of industries that could endanger Japan’s national security, or disrupt the country’s law and order, and which might adversely and seriously affect the smooth performance of the Japanese economy. Industry sectors that may be affected include aircraft manufacturing, arms, nuclear energy and related industries, narcotics and vaccine manufacturing, agriculture, forestry, fisheries, oil, and leather product manufacturing.
An alternative to a branch office is a wholly owned corporation. Prior notification is required when the investment involves the industry sectors listed in the previous paragraph. Setting up a wholly-owned corporation will involve more time and expense, but it can offer an effective means to guarantee better protection for proprietary information, obtain credit, and penetrate markets which have subtle but substantial barriers to imports.
A fourth approach is to pool resources of several firms having complementary product lines. Such a group might establish a marketing association, consortium, or jointly owned export management company, and set up a sales and service branch or subsidiary office in Japan. The financial strain affecting many Japanese companies has provided U.S. companies with excellent opportunities to establish or acquire businesses in Japan.
U.S. companies should also carefully examine the Japanese Ministry of Economy, Trade & Industry’s (METI) programs for promoting foreign investment into Japan. Programs include loans available through the Japan Bank for International Cooperation and the Development Bank of Japan. Entry-level business-support programs are provided by the Japan External Trade Organization (JETRO) as well as by some municipal and prefectural governments. Current information on investing in Japan, establishing an office, and other JETRO programs for foreign businesses can be found on JETRO’s website at www.jetro.go.jp/en/invest/setting_up/.
Franchising
The latest industry statistics, which are from 2005, show the total number of franchise brands at 1,146 (up 5.3% or 58 brands from the year earlier) with the number of outlets exceeding 234,000. The aggregate size of the franchise market in 2005 was 19,389 billion yen ($176.1 billion), as compared to 18,722.3 billion yen ($173.1 billion) in 2004. Approximately 38.4 percent of total sales at franchise outlets are from convenience stores (CVs), and about 20.9 percent from food service chains.
American franchising has heavily influenced the development of Japan franchise industry since the early 1970s. Although Japanese consumers are generally receptive to American franchise concepts, products and services must be adjusted to the local flavor to ensure success in Japan. U.S. franchisers are more often successful when they seek either a master franchisee or joint venture partner to develop the market in Japan.
Identifying the right business partner in Japan requires time and effort, and it can be difficult to find companies that are willing to invest in master franchise rights in the case of business concepts where they do not believe there is a market or growth potential in Japan. Therefore, prudent market research and long-term commitment are required for foreign companies to launch franchise businesses in Japan.
Direct Marketing
Direct marketing, which includes mail order, telemarketing, direct response television, and Internet sales, is still modest by U.S. standards, but increasing, particularly in the case of Internet sales. Internet sales and mail order are attractive methods for suppliers attempting to reach the Japanese consumers, while bypassing traditional distribution channels. Recently, shopping through mobile phones has been rapidly increasing.
Shopping from foreign catalogs, whether hard copy or on the web (generally referred to as ersonal importing , surged in the mid-1990s as a combination of novelty, a very strong yen, and an appreciation of foreign consumer goods grew. Although providing adequate customer service and handling product returns challenged those firms that did not have in-country representation, many U.S. companies enjoyed an enormous expansion of orders from Japan. Since 1996, however, the strengthening of the dollar and the passing of the ad component of the boom has caused the market to cool considerably. The recovery of Japanese economy since 2004 has not been reflected in wages and salaries, and consumers propensity to spend has not much improved. Nevertheless, opportunities still exist for companies that can offer Japanese consumers quality products with unique attributes.
U.S. companies must overcome a number of challenges such as language, international shipping costs, tariffs, and other issues that pertain when marketing directly to a Japanese consumer (e.g., sizes in the metric system). U.S. companies aiming to enter this market should be prepared to make an investment in service and what is generally referred to as direct marketing infrastructure. A representative in Japan can act as a liaison with the U.S. supplier to handle receipt of claims, customs clearance, and provide assistance in the preparation of Japanese-language materials. A local representative can also manage warehousing, and returns. In the case of ersonal imports to which regulatory systems like import permits generally do not apply, goods must be shipped directly to the consumer from the United States. Also, promotion by local representatives of certain items (cosmetics, supplements, etc.) for personal import will be restricted.
Joint Ventures & Licensing
U.S. companies with limited resources or a short investment horizon may wish to consider product licensing as a way to enter Japan. The direct costs of finding an appropriate licensee are small compared to other forms of market entry. Once an agreement is reached, licensing fees and royalties are low-cost, low-maintenance income for the U.S. company. However, U.S. companies should note that licensing represents a minimal form of participation in the Japanese market. Whether a company should license its technology depends upon several factors. First, a U.S. company should consider its long-term plans for the Japanese and other Asian markets. Licensing necessarily means a loss of control over market strategy, and perhaps “opportunity costs.” Second, U.S. licensors should understand the strength of their company’s patent protection in Japan. Japan uses a “first to file” patent system, and this has ominous implications should a licensee explore becoming a competitor. And this does happen. Finally, the degree to which U.S. firms must disclose trade secrets or proprietary information is a key consideration.
A Japanese licensee’s interest or enthusiasm for a U.S. technology is a direct reflection of the licensee’s assessment of the product’s competitiveness and sales expectations in a technologically sophisticated market. Thus, a U.S. company’s long-term interest might lie in another form of market entry, even if it carries higher costs and longer payback periods. A licensor also sacrifices potential returns from manufacturing and marketing efficiencies. While Japan is a high-cost country for marketing, it is also a large market over which to spread the costs of marketing, even for relatively specialized technology. So, even after adapting a product for the Japanese market, U.S. manufacturers may realize better profit margins and market penetration by selling their own product, as opposed to through a licensee. Harder to quantify are the costs of managing or in some instances “policing” the licensing agreement. In the worst cases, a licensee will improve upon or modify the U.S. product or technology, patent it as its own, and become a competitor in Japan, the United States, or other countries.
It is also possible that the Japanese licensee could falsify sales reports in order to lower its royalties to the U.S. company. The final drawback of licensing is that it provides the U.S. company with very little information or practical experience in the market. The Japanese market is highly demanding and, ultimately, it’s important for a U.S. exporter to have direct experience in order to expand its presence. Japan is also a very good, though demanding, training ground. U.S. firms can apply the lessons learned here to other markets, as well as improve their product or technology through direct contact with the market.
The pitfalls mentioned above account for the declining popularity of licensing in some industries. However, it may still be the best choice for products with short life cycles and where short-term income generation is desirable. Licensing also makes business sense in industry sectors where market entry costs are prohibitive or where there are political sensitivities (such as defense-related equipment).
The key to a successful licensing agreement is a Japanese partner whose goals match those of the U.S. company. A strong licensee will have something to bring to the partnership as well. For example, the ideal license agreement might provide for an exchange of technology and know-how to strengthen both partners. It is essential that the U.S. licensor maintain close and frequent contact with the licensee, which should include regular visits to Japan. A local representative, other than the licensee, can provide additional perspective on the market and can help represent the licensor to the licensee. Royalties paid by the Japanese licensee to the U.S. licensor are subject to a 20 percent withholding tax, which may be reduced to 10 percent if the necessary documentation is filed under the provisions of U.S.-Japan tax treaties.
According to Japan’s Foreign Exchange and Foreign Trade Control Law, a foreign company granting a license to an independent Japanese corporation, either a wholly-owned subsidiary or a joint venture corporation that involves manufacturing in Japan, must notify the Ministry of Finance through the Bank of Japan in cases involving the transfer of specially regulated and/or designated technologies. Additionally, the export of any form of technical data from the United States is subject to U.S. export control laws. In this case, a thorough review of the U.S. Department of Commerce’s Export Administration Regulations (EAR) should precede the signing of any licensing agreement.
Joint ventures remain a popular form of selling to Japan. Advantages include access to local market information and conditions, a stronger market presence, technology development, and gaining immediate access to a distribution system and customers. Most joint ventures take the form of a separate or third company established between a U.S. and Japanese company, with a range of agreements covering shared functions, personnel, management, and ownership. In most cases, the Japanese partner has control over marketing and distribution functions. U.S. companies should be prepared to share ownership, control, and of course profits, with their Japanese joint-venture partner, and therefore issues of communication, trust, and common business interest are crucial.
Joint-venture partnerships that involve technology transfers or license agreements with Japanese partners have the same pitfalls as license agreements. The value of the joint venture may diminish as either party becomes less dependent on the other’s marketing prowess, customer base, or technological innovations. U.S. companies should also understand that many large trading companies have a large “ready-made” pool of existing customer relationships. This produces a rapid increase in initial sales, but once its share of the market is tapped, the Japanese partner often has little interest in prospecting for new customers, unless the product has extraordinary technological or price advantages. U.S. firms should take the same precautions about divulging proprietary know-how in a joint venture as with license agreements.
A joint venture in Japan can be an unincorporated, contractual joint venture, or an entity created by the acquisition of the stock of an existing corporation. More typically, a joint venture is the incorporation either in the United States (but more commonly in Japan), of a new company in which the Japanese and U.S. corporation mutually decide upon management control and the roles and responsibilities of each party. The Ministry of Finance (through the Bank of Japan) must be notified of the establishment of any joint venture. In addition, if the joint venture is intended to last more than one year, the joint venture agreement must be submitted to the Japanese Fair Trade Commission for review within thirty days of its execution.
Distribution & Sales Channels
Traditionally, imported consumer goods have been found at larger outlets such as department stores and discount houses. But there has been dramatic growth in specialty retailers, notably foreign names that import foreign goods. This direct importing — bypassing trading houses and as many other intermediaries as possible — has become increasingly popular as companies become leaner and more cost conscious.
As larger retail outlets have spread in Japan, the regulation of “large stores” (those with more than 500 square meters of sales space) is now part of the bureaucratic landscape. In 2000, the Large-Scale Retail Store Location Law went into effect. The law gives local authorities the power to regulate new large stores on the basis of environmental considerations. The Japanese Ministry of Economy, Trade and Industry has clarified its intent to assure that stiffer environmental standards be used and that the new law will be applied with reasonable uniformity to all localities. The law applies to new store openings and to significant changes in the business operations of existing stores (such as an expansion of floor space or an extension of business hours). Many municipalities are taking advantage of the law to draft ordinances that mandate parking space provisions and operating restrictions that are stricter than national norms or those recommended by METI.
Japanese deflation has made consumers appreciate low prices. Large foreign distributors and retailers who have survived fierce competition in their home and other markets have entered Japanese. For example, Toys 'R' Us, which entered the market in 1991, now operates 140 stores in Japan. Wal-Mart, which is in the process of buying out a Japanese chain store, Seiyu, has several hundred stores in Japan. In 2002, Germany’s Metro opened its first store in partnership with Marubeni and the United Kingdom's Tesco entered Japan by acquiring a medium-size supermarket chain.
However, Japanese consumers do not always accept foreign retailing practices and it important for U.S. firms to consider partnering with a Japanese firm. The experience of France Carrefour, one of the world largest retailers, offers a valuable lesson. In early 2005, after a presence of a just over four years, Carrefour sold all eight of its Japanese stores to a domestic company. At the time of the divestiture, Carrefour announced that its strategy had not been effective in Japan's environment and that it should have entered the market in partnership with a Japanese firm. This result came about despite Carrefour’s attempt to style its newest stores according to traditional Japanese tastes and expectations.
Selling Factors & Techniques
To be successful in Japan, U.S. exporters must pursue sustained personal contact with their customers. A visiting U.S. company representative should accompany the firm’s Japanese agent or distributor on visits to existing or potential customers. Such joint sales calls demonstrate a commitment to clients and are an excellent way to obtain market feedback. A common mistake of U.S. companies in this market is failing to provide ample support for Japanese business partners after enjoying initial success. Needless to say, this quickly sours the honeymoon period. It’s important to prevent a distributor from implementing a conservative, low-volume, high-markup marketing strategy that protects its own interests but fails to develop the full sales potential of the U.S. product. To avoid this: stay engaged!
To increase their chances for success, U.S. exporters also should learn how to negotiate and maintain relationships with Japanese. Japanese language skills and familiarity with the nation’s culture and etiquette can be invaluable. Be prepared to attend after-hours social events: these informal gatherings go a long way towards establishing mutual trust and understanding between new partners. It has been said that most business deals in Japan are made “after five.”
Initial contact between Japanese firms is usually formal and made at the executive level, with more detailed negotiations often delegated to the working level. Typically, the first meeting is to become acquainted, to establish the interest of the calling party, and to allow both sides an opportunity to size each other up. Don’t expect too much from a first meeting — sometimes the actual business subject may be overtaken by more mundane topics. A series of meetings with a large number of Japanese company representatives is common, as part of the “sizing up” process. Business negotiations may proceed slowly, as the Japanese side might prefer to avoid an agreement rather than being criticized later for making a mistake.
While many Japanese business executives speak some English, a skilled and well-briefed interpreter is essential to prevent communication problems. A good interpreter is worth the extra money and firms who choose to skimp on or forego this expense significantly reduce their odds of success. Though there are some U.S. firms that do business in Japan without a signed contract, written contracts between U.S. and Japanese firms is an accepted practice. Contracts satisfy tax, customs, and other legal requirements. Japanese companies prefer shorter and more general contracts as opposed to lengthy, detailed documents spelling out every right and obligation in detail. Again, personal contact and relationships are important and a contract should be viewed as just one element of a broader effort to create a mutual understanding of obligations and expectations.
Electronic Commerce
According to the statistics published in March 2006 by the Ministry of Economy, Trade and Industry (METI), the market size of business-to-business (B2B) electronic commerce in Japan in 2005 was 140.4 trillion yen ($1.3 billion). The industry sectors that are the biggest users of B2B electronic commerce are wholesalers (41.7 trillion yen or $379 billion), followed by electronic/IT (21.9 trillion yen or $200 billion), and transportation-related parts and equipment (21.7 trillion yen or $197.5 billion). The same report noted that the market size of the business-to-consumer (B2C) electronic commerce market in 2005 at 3.5 trillion yen (or $31.4 billion), and identified the biggest users of B2C electronic commerce as IT/telecommunication (858 billion yen or $7.8 billion), general retail (832 billion yen or $7.6 billion), electric appliances (380 billion yen or $3.5 billion), and travel and accommodations (360 billion yen or $3.3 billion).
People in Japan, especially young consumers, are counting more and more on state-of-the-art cell phones to access the Internet, check information, buy tickets and goods, listen to music, play games, and even watch TV. In the B2C market, shopping-related mobile e-commerce accounted for 407 billion yen ($3.7 billion) in 2005 for shopping-related sectors (not including contents such as music and games, advertisements, solutions, etc.), according to Ministry of Internal Affairs and Communication report. This indicates a 57% increase from the previous year and represents 12% of the total BtoC e-commerce market. Mobile e-commerce is expected to continue to grow rapidly as the use of QR codes and flat-fee systems get more popular, and the easy payment/collection methods that mobile phones provide will further contribute to the growth. U.S. companies that wish to expand their Internet sales transactions into the mobile market should select the products and construct new web pages that fit nicely on the small screen of cell phones as one part of their B2C e-commerce strategy.
In 2004, METI, the Next Generation Electronic Commerce Promotion Council of Japan, and NTT Data Institute of Management, Inc. jointly published urvey on the Current Status and market Size of Electronic Commerce for 2004 in English at:
www.meti.go.jp/policy/itpolicy/statistics/ECEnglish2004.pdf.
Though no updated version of the full survey is currently available, a summary of METI survey report for 2005 was posted on METI home page on June 26, 2006, at:
http://www.meti.go.jp/english/newtopics/Backissueindex.html.
Trade Promotion & Advertising
Because many U.S. products fit a cultural or industrial environment that may not exist in Japan, educating the Japanese consumer about a product's purpose, use, features, and quality might be necessary. However, not all companies can afford to place advertisements in Japan's major national daily newspapers or commercials on Japanese television. Regional and local newspapers and television stations and daily sports newspapers are less expensive and might make sense for a product with strong potential in a specific region. A more affordable option for small- to medium-size or new-to-market U.S. companies might be advertising in some of Japan's 2,250 weekly or monthly magazines. These publications often represent a cost-effective means to reach a specific target consumer — whether gourmet or gardener, cyclist or camper. For industrial and commercial products, Japan's many industrial daily, weekly or monthly newspapers and trade journals might offer the best advertising option. Japan has relatively few radio stations (Tokyo has just four AM and six FM stations), but radio advertising is worth investigating.
Most of Japan's broadcast and print media do not deal directly with advertisers but go through Japan's top five advertising agencies: Dentsu, Hakuhodo, Asatsu, Tokyu Agency International, and NTT Advertising. Generally, mood or image advertising achieves the best results. Hard sell, comparative, or combative advertising used to be considered bad taste and counterproductive, but comparative advertising is becoming more mainstream in an increasingly competitive and tight economy.
Japan’s railways, as the primary transportation option for commuters in major cities, carry more than 21 billion passengers every year. So, transit advertising should not be overlooked. Transit advertisements can be found inside commuter rail cars, buses, and in stations. Advertisements inside trains and buses include hanging flyers, framed posters, stickers, and flat-panel video. As with other media and outlets, the major advertising agencies control space. Another common means of introducing, promoting, and selling consumer goods is to participate in large events such as regional import bazaars or U.S. product festivals at shopping centers. Such public events can be a cost-effective means to deliver a product message to a large audience and allow new-to-product consumers to sample and purchase. Industry specific trade shows might include some exhibition days that are open to the public, thus providing another means of reaching a large consumer audience.
Advertising and promotions should be part of a coordinated strategy, usually in cooperation with an advertising agency and/or a PR firm. A slick advertising campaign in the hottest magazine can go bust if it’s not coordinated with a distribution program that makes the product available to consumers.
Advertising agencies and PR firms can also assist U.S. firms with free or low cost publicity.
It is key for any U.S. exporter to get plugged into Japan’s trade event circuit: not only in Tokyo and Osaka, but also in the huge regional economies and industrial centers where 65 percent of more than 1,000 international conferences, seminars, and trade shows take place. Regulatory officials and decision-makers throughout Asia are showing up at these events in increasing numbers, so a U.S. firm’s message has the potential to stretch into other Asian countries.
U.S. firms should also consider U.S. Department of Commerce-sponsored trade shows and trade missions, as well as events that U.S. states and industrial organizations sponsor. In some cases, U.S. government facilities such as rooms at the U.S. Consulates in Osaka, Nagoya, Fukuoka, and Sapporo can be used for trade promotions, seminars, meetings, and receptions. Interested companies should inquire directly with the consulates regarding the prospects and costs for a single company promotion.
Pricing
Tough economic times have made price an increasingly important consideration for Japanese consumers. Traditionally, many people made their buying decisions based on a product's attributes, quality, and brand name and they were willing to pay more for superior quality. However, Japanese consumers are now more price conscious and notions such as bargains and value have become mainstream. If an imported product can be purchased more cheaply than a domestic product, consumers will be interested. This has proven to many Japanese that U.S. products can be affordable and of a quality that’s similar or even superior to Japanese goods.
This recent ability to compete on price has opened doors for U.S. products. However, landed cost is only one part of a total pricing scheme and should not be the only consideration for U.S. firms interested in exporting to Japan. Distribution mark-ups often cause imports to price at levels far higher than comparable domestic products. For instance, shipping costs between the port of Osaka and Tokyo have been shown to be three times higher than shipping costs from the U.S. West Coast to Osaka. A good example is imported U.S. apparel products, where street prices often are three to four times FOB.
Japanese manufacturers traditionally set prices at each level of the distribution chain and enforce compliance using complicated rebate systems. This price maintenance has come under pressure from consumers who are demanding lower prices and from manufacturers who themselves find the rebate system burdensome. As distribution practices have undergone reform, costs have been coming down and distributors have gained additional flexibility in selecting and purchasing items.
The pricing structure of imported goods varies according to the types of distribution channels and services importers or wholesalers provide (e.g., inventory, advertisement costs, packaging costs, financing, acceptance of unsold/returned goods, etc). It is a multi-layered system with established lines of product flow. In recent years, more and more middlemen have either been eliminated or forced to cut prices.
As Japanese consumers have become more price-sensitive, markups along the various distribution stages have tended to become smaller. There are now some retailers who import products directly in order to offer lower retail prices. But U.S. suppliers should understand that retailers usually import smaller quantities. And other importers and wholesalers usually are uninterested in representing products that retailers import directly.
Finally, U.S. exporters should also consider yen fluctuations in their product pricing and sales strategies.
Sales Service & Customer Support
Excellent product service and customer support throughout the sales cycle are highly important in Japan. This includes establishing a close working relationship with and long-term commitment to a U.S. exporter potential Japanese partners. Every effort should be made to answer technical questions in detail, to ensure delivery dates are met, and that other issues regarding shipments are absolutely clear. Problems most often arise from misunderstandings, lack of communication, language difficulties, and differing business practices.
The arrival times and condition of shipments are critical. Shipments should arrive on time, they should be well packed, and they must not be damaged upon arrival. Customs documentation should be complete and accurate; if it is not, the entry of the merchandise could be delayed or, in certain cases, the merchandise might be returned to the sender. Japanese buyers are highly concerned with the quality of packing and have used poor packaging as an explanation for market entry problems. Missed deadlines and goods damaged through poor shipping practices will lead to lost business. Many U.S. companies that have succeeded in Japan have established a local presence to handle sales and to provide customer support and service. In some cases, local agents or distributors can provide this support.
Due Diligence
A U.S. company resident in Japan is not legally required to use a Japanese attorney for filings, registrations, contracts or other legal documents, which can be prepared by in-house staff, but retaining a competent Japanese attorney (bengoshi), patent practitioner (benrishi), or other legal professional is a practical necessity. A U.S. company not resident in Japan should also retain competent Japanese counsel. Patents and trademarks must be filed through a Japanese agent, which should be a licensed attorney or patent practitioner.
In recent years, Japanese industry has been shaken by a record number of bankruptcies. Japanese commerce has also witnessed an unprecedented number of mergers and acquisitions. This rapid pace of industrial restructuring has created an increased level of risk for American companies selling into Japan.
The U.S. Embassy in Tokyo continues to see trade dispute cases of all kinds. It has become more common for small- and medium-sized Japanese trading companies to run into payment problems. Importers, wholesalers and distributors without real estate assets may find it more difficult to obtain trade financing in the present environment. Banks in Japan have become less inclined to provide credit to small- and medium-sized enterprises of all types. Larger companies with excessive debt may also experience problems obtaining financing. As a result, American companies are well advised to perform due diligence procedures and check the bona fides of their Japanese agents and/or customers.
