The first 3 months of business in Japan
So, you have confirmed the free JETRO or O-BIC office space discussed in the previous section, have the green light on budget from your CFO, and have made the necessary hotel or other accommodation bookings. Now you can start your structured approach to understanding Japanese business and decide the most tax and business efficient way to start business in Japan. It’s time to head for the airport and your first 3 months of doing business in Japan!
Your first 3 months of Japanese business will very likely decide your company’s success doing business in Japan and the Japanese market for at least the next 3 – 5 years. Based on my experience, if you get it wrong in the first 3 months, there’s an 80% chance that your Japanese business will have unjustifiably high expenses and lagging sales at the end of year 2, will have a radical restructuring at the end of year 3, and that your company’s Board of Directors will be pushing for liquidation of your Japanese company or branch-office by the end of year 5. Such claims might seem extreme, but all too often companies approach us that, after setting up very expensive Japanese offices, are considering withdrawing from Japan because sales are not matching expectations and costs are out of control. Some of those companies are small, but some are multinationals with deep pockets. Leasing large offices in prestigious locations and hiring expensive bilingual executives and managers, doesn’t necessarily guarantee success in Japan.
So what went wrong?
Maybe too much credibility was given to those infamous myths of Japanese business and the Japanese market, while not investing enough time in the first 3 months at the JETRO free office researching every aspect of the Japanese market to form a hands-on opinion of the real situation on the street. Those myths, or rather the bilingual mafia that foster them, want you to believe that foreign companies cannot possibly succeed in Japan unless they first spend huge amounts, including paying outrageously high 35% Tokyo recruitment agency commissions, to hire prestigious bilingual executives and lease prestigious offices in some of Tokyo’s glamorous glass-clad office towers. Sadly, there are many large companies, including two of the world’s largest PC vendors in the past two decades, who did all those ‘correct’ things, including US$600k a year executive salary packages, but still failed and withdrew from the Japanese market.
Those PC companies, and others like them, were very successful companies in the US and elsewhere, so their basic business model was certainly not at fault. Those vendors should have succeeded in Japan and it was sad to see them go. The problem, as in any other international market, is that while doing business in Japan need not be expensive, it will be extremely expensive, prohibitively so, if a company expands too rapidly, quickly moves into overly large and prestigious office locations and hires overly expensive executives and managers. In just the past few months, one of the world’s largest BPO companies shutdown its new Japanese business after just 12 months because its Board of Directors decided that its costs, including 5,000sqm of prestigious space for 50 employees in a glass-clad office tower just outside Tokyo, were unjustifiable given its lagging business growth……
Coming to Japan and trying overnight to emulate your US or European market presence is not an easy task to succeed at; Rome, as they say, was not built in a day and neither for that matter were Toyota, Honda or Sony. Control your costs, start small, build as your sales build. Unless you are in a market with huge untapped demand and no domestic Japanese competitor, hold back on making expensive investment decisions early on, especially when it comes to hiring an expensive country manager and other executives. It makes best financial and business sense to make a relatively low-profile but profitable entry into the Japanese market and then aggressively build to a substantial but cost-effective presence over a 3 – 5 year period while maintaining profitability and steadily increasing market share as you go. That is what Yahoo! did through its Yahoo! Japan joint-venture with Softbank and in so doing, Yahoo! Japan quietly achieved an enviable first-mover advantage in Japan’s online auction market. More than a decade ago I wrote that eBay missed the boat and was effectively blocked out of the market; that’s still true today. Can eBay win back in Japan to mirror their dominance of online auction markets elsewhere? Yes they can, but it would take time, commitment and perseverance to succeed.
In fact, it is very possible for a company to dramatically change its the Japanese market strategy late but still win through. One of our former clients did just that. It had been in the Japanese market for more than 15 years with minor distributors but could not recreate its dominance of the global 3D analysis software market. Then, working through a joint-venture with Venture Japan, it achieved a staggering level of market awareness and quadrupled its Japanese sales in less than 18 months!