The first question many foreign companies ask is: Can we do this ourselves, or do we need a Japanese partner? While direct entry is possible, a majority of small and medium-sized companies rely heavily on their local partners. JapanLinx will recommend the optimal entry strategy, and help you target and recruit the right partners.
Market Entry Options
It all starts with a thorough understanding of your business and goals. Together we will develop and execute a roadmap for long-term success. The most common entry models are:
- Export of finished goods
- Technology licensing
- Joint ventures
The use of local distributors is preferred by a majority of U.S. companies. Agents and reps can also be useful to facilitate new contacts and look after things on the ground. Some companies find partnering via a joint venture or licensing arrangement most effective. Whatever the model, skillful partner selection is a make-or-break issue and must be pursued with great care, including the negotiation of favorable agreement terms.
Rarely will a large Japanese distributor, wholesaler or retailer import directly from overseas suppliers. Instead, they prefer to purchase foreign products from the thousands of smaller, often highly-specialized Japanese importers/distributors. These importers have deep market knowledge, trade expertise and English-language skills that play a pivotal role in the overall system.
Be advised that most Japanese importers will require nationwide exclusivity given the small geographical size of the country and the desire to maintain control over pricing.
Agents and Reps
The use of agents and reps is relatively uncommon in Japan, although they be of value in building your network and providing local representation. These middlemen generally have deep industry experience and operate on a small scale. They can be based in the U.S. or Japan, and hold no inventory in their limited capacity as a “go-between”.
While utilizing agents and reps is perhaps the simplest way of doing business in Japan, caution is still warranted. If you are unsatisfied with their performance and decide to terminate, complications may arise that can damage your company’s all-important reputation. It’s vital, therefore, to connect with the right people from the outset. Following selection, it’s necessary to proactively manage these relationships.
Japanese and foreign firms will often combine their knowledge and resources to work as a single team. U.S. companies frequently look to joint ventures or licensing partnerships given the complexities of doing business in Japan. These partnerships come in all shapes and sizes.
Finding the Right Partner
It’s necessary to invest sufficient time and energy into finding the right partner for long-term success. As in other parts of Asia, business in Japan is driven by a network of relationships built over time. It’s essential to stay actively engaged with your partners, and foreign companies should strive to be seen as fully committed to their Japanese business relationships.
Due diligence should be performed on candidate partners, including their track record, domain expertise, marketing strategy (short-mid-long term), market coverage, credit standing, business network, and English skills.
* Remember, you are also being evaluated. Japan is a very competitive, sophisticated and information-driven market. Capable partners will be busy with other business and will only take on additional products with high innovation and potential.
Direct Market Entry
A minority of companies does approach the market directly, but this can be a very expensive strategy with challenges around execution. Going direct involves supplying your products without reliance on the involvement of local intermediaries.
Benefits of this model include valuable feedback gained through direct engagement with customers, and (perhaps) higher margins that allow for lower prices. However, on the flipside, you must be prepared to deal with a large volume of communication directly, often in Japanese, which can result in misunderstandings and problems.