doing business in Japan


Japanese business expense policy and entertainment

7.  Japanese business expense policy and entertainment

In the previous section on Japanese business expenses, I stressed that you must impose a business entertainment policy on your Japanese subsidiary to safeguard your Japanese business profits, Legitimate business entertainment is a fact of life when doing business in Japan and in 13 years of Japanese corporate sales to some of Japan's largest companies, some of my most profitable relationships were strengthened over beer, sake (Japanese rice wine) and whisky. The question is not whether Japanese business entertainment is necessary but when, and to what extent, is it necessary?

The difficulty with determining a metric for appropriate Japanese business entertainment expenses is that different industries and different customers all have different expectations. I have been present (as an invited guest) at entertainment hosted by financial companies where the check for the evening would have funded the software subsidiary I was then managing for a month! At the opposite end of the spectrum, I once received a US $100k first order and a letter of intent for several million US dollars after having drank just 1 small beer with the customer in a small bar at Tokyo Station!

I suggest that the objective of your Japanese business entertainment expense policy is not to prevent legitimate business entertainment, but rather to:

  • instill a sense of responsibility and forethought into the Japanese company executives and mangers authorized to entertain customers,
  • encourage legitimate customer interaction and cost-effective customer entertainment
  • encourage legitimate internal interaction (in Japan, allowing the 'team' to enjoy an occasional 'Japanese style' evening 'team bash' will return $$millions in increased revenue and reduced HR costs)
  • prevent abusive business entertainment,
  • prevent your Japanese business entertainment expenses climbing out of control,
Remember that social drinking is part of life when doing business in Japan and to impose a 'no alcoholic beverages' clause into your Japanese company's business entertainment policy will affect your Japanese business revenues. Walk through Tokyo in the late evening and you will see groups of Japanese businesspeople drinking. Take a late train in Tokyo and you will see groups of Japanese businesspeople, often one of whom is buyer and the other seller, laughing and joking on their way home after an evening's drinking. Social drinking 'oils the wheels' of Japanese business.

Encourage cost-effective business entertainment. Many Japanese businessmen have a favorite (and usually inexpensive) 'hole-in-the-wall' backstreet restaurant or bar where they go alone or with very close colleagues or customers. When a Japanese businessman who previously entertained you only at high-class restaurants invites you to his 'haunt' you have earned his trust. Use that approach to control business entertainment expenses while providing Japanese customers with a feeling that they are special' guests. Find 2 or 3 small restaurants with good food close by your Japanese office, establish business accounts and be on first name terms with the staff. Also get to know 1 or 2 reasonable restaurants in a couple of other areas of Tokyo that are reasonably priced and where you at least know the name of the waiter/waitress. Now you can wine and dine Japanese customers and they will appreciate you letting them into your personal world. It leverages the fact that you are foreign and most Japanese do not get to deal with foreigners.

A meal with a key customer at one of 'your places' will strengthen a business relationship or resolve differences away from the negotiating table without breaking the bank. When trying to establish a bridgehead sale with a larger Japanese company, suggest a dinner meeting at one of 'your places' as an opportunity for the customer to introduce senior managers and executives who have crowded daytime schedules. "Your places' are also great to improve the visibility of your Japanese business vision and keep in touch with new developments by networking with influential journalists and academics. Use 'your places' to avoid the expensive mistake of trying to entertain large Japanese companies in expensive restaurants such as those where they entertain you.

"Legitimate business entertainment reinforces legitimate business relationships.."

It is not necessary to spend huge sums in expensive restaurants. Some of the best and most enduring Japanese business relationships I have were strengthened by eating, drinking, talking and laughing with Japanese customers in ordinary cheap Japanese bars and afterward trying my best to sing like Tom Jones in one of Japan's numerous karaoke rooms! Legitimate business entertainment reinforces legitimate business relationships and helps discover new opportunities for your Japanese company and the customer to work together.

Once again you will be be relying on the character and professionalism of that key hire, your Japanese company President, to ensure that whatever the potential distractions of business entertainment may be, the focus is locked on doing ethical, professional, cost-effective and profitable business in Japan!

8.  Japanese office space rent and lease terms >>

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