Japan Market Entry
Japan is one of the U.S.’s most significant trade and investment partners. In 2021, the bilateral trading of goods and services between the U.S. and Japan was valued at $280 billion, which was far higher than in 2020. As the COVID-19 pandemic restrictions were released, Japan’s imports and exports increased extensively. About $75 billion in goods and $38 billion in services were exported from the U.S. to Japan, depicting an increase of 9.5% from 2020.
Natural gas liquids, pharmaceutical products, livestock and poultry, industrial machinery, medical equipment, civilian aircraft, engines and parts, and corn are some of the top American exports to Japan. Nearly $135 billion in products and $33 billion in services were imported from Japan, making a total of $ 167 billion, an increase of 9.3% from the previous year. Similarly, from January to August 2022, U.S. imports from Japan were $98 billion, an increase of 7% from the previous year during the same period. Autos, auto components, and electronics are the top Japanese imports into the U.S.
The United States has a trade shortfall of around $61 billion in products and a trade surplus of roughly $6 billion in services with Japan. According to 2021 stats, Japan is the largest source of foreign direct investment into the U.S., with an FDI stock of $721 billion, growing from $301 billion in 2012.
Japan’s large and prosperous economy makes it an attractive destination for global firms seeking to expand their operations. By entering the Japanese market, these companies can engage in rigorous competition, which can help them improve their products and services and stay ahead of the curve. Additionally, partnering with Japanese firms provides access to one of the world’s largest and most lucrative markets, offering new avenues for growth and success.
Things to remember about Japan
If you’re planning to set up a business in Japan, it’s crucial to understand and respect the country’s business culture and social practices.
This knowledge is essential for establishing and maintaining successful business relationships in the country. Failing to appreciate local business customs can convey a lack of commitment or international business expertise, which may result in misunderstandings and missed opportunities. Therefore, taking the time to learn about Japanese business culture can go a long way in building trust and credibility with potential partners and customers.
In addition, exporters should make an effort to understand the expectations and requirements of Japanese customers regarding product quality, appearance, packaging, presentation, shipping, and after-sale services.
This knowledge can help exporters tailor their products and services to meet the specific needs of the Japanese market, which can improve their chances of success. By taking the time to understand the unique preferences and requirements of Japanese customers, exporters can demonstrate their commitment to providing the best possible experience for their clients and establish a competitive advantage in the market.
Additional corporate culture concepts to consider in Japan include:
- Japanese society is complicated, well-organized, age-respectful, hierarchical and group-oriented
- In Japan, group decision-making is significant; it could take longer to reach a consensus than in Western corporate culture.
- Japanese companies frequently take long-term approaches to develop business relationships.
- When visiting Japan for business, it’s important to bring plenty of business cards that include your title, as well as multilingual cards to facilitate communication.
- Japanese customers and business partners have high expectations for product quality and services, so it’s crucial to meet or exceed these expectations.
Business Etiquette to keep in mind for Japan
- Punctuality: Arrive at least 10 minutes early for meetings in Japan to show respect by being punctual.
- Preparation: Be well-prepared with documents, ideally in Japanese, business cards in a card case, and professional attire to make a good impression.
- Business Card Exchange: When exchanging business cards, offer them with both hands and a short bow. A slight dip of the head is often acceptable as well.
- Dress Code: Dress in simple, dark clothes that look clean and professional to convey a serious and respectful attitude. Remove any jackets or winter coats outside the office, but suit jackets are generally acceptable during meetings.
- Seating: Wait for the host or support staff to show you to your designated seat in a meeting or seminar, as seating arrangements are typically predetermined.
- Hospitality: If served tea and snacks, it’s generally better not to refuse them, but it’s okay not to consume them if you have dietary restrictions.
- Compliments: Simple compliments can be an effective way to establish a positive business relationship.
- Business Deals: Business deals in Japan are typically not closed in the first meeting…or group of meetings, so patience, persistence and committed investment are going to be necessary.
- Bowing: While bowing is a common way of showing respect in Japan, it’s not necessarily expected of foreigners. For Japanese, a 15-degree bow is appropriate for casual or informal situations, while a somewhat deeper bow held for a few seconds is more formal.
- Communication: Use clear and concise language when communicating with Japanese business partners, avoiding slang, idioms, or overly complex language that may cause confusion.
Rules and regulations
To establish a successful business in Japan, it’s essential to comply with the country’s rules, regulations, and product safety standards, which can vary depending on the industry or product segment. The Japan Industrial Standards Committee is the national standardization body in Japan and plays a central role in standards activities in the country.
It’s important for businesses operating in Japan to familiarize themselves with the relevant license requirements, standards and regulations to ensure compliance and build credibility with customers and partners. In country experts exist and we have a couple of BIJ Partners who can help with this.
Foreign companies need to follow these:
- You need to get a Visa to set up a business in Japan (a 4-Months Business Manager Visa, Start-up Visa, or Investor Visa)
- You must secure an office or shared space. Renting options in Japan include Short-term office rentals and long-term office rentals.
- To set up a business, you need to prepare your Articles of Incorporation and put them in two categories: Articles of incorporation for a Foreign Individual and for a Foreign Country.
- To claim ownership of your company, you must register a trademark
- Understand everything about Hanko and Inkan Seals
- If you are setting up a G.K. company, you need to notarize revenue stamps
- After registering the company, get your registry certificate, seal certificate, and corporate number
Some of the trade barriers faced by U.S. exporters in Japan are:
- Standards unique to Japan, including formal, informal, de facto, or otherwise.
- A requirement in certain sectors or projects for businesses to demonstrate past experience in Japan, which essentially excludes new entrants from the Market
- Official regulations that discriminate against foreign items and favor domestically manufactured goods
- Licensing powers of industry associations with limited memberships, substantial market influence, and the authority to control information and operate without oversight
- Cross-stock holdings and interconnection of business interests among Japanese companies disadvantage suppliers who aren’t a part of the traditional business group.
- Cultural importance is given to personal relationships in Japan and the reluctance to end or change business relationships.
Most U.S. and western countries prefer setting up business in Japan; while some get successful, like Christian Dior, Louis Vuitton, Chanel, and Prada, most others fail.
How to enter the Market?
- Selling to a dedicated distributor
- Direct exporting
- Joint venture
- Turnkey projects
- Buying a company
Keys to marketing in Japan
Your marketing strategy in Japan must use the Japanese language to communicate with local consumers and business customers. Government regulations mandate the use of the Japanese language for many product labels. Even though efficient interlocutors and qualified interpreters are frequently employed in companies, Japanese business people will value the attempts to communicate even in basic Japanese. The top priorities in Japanese marketing include the following:
- Use of business cards
- Detailed product marketing information
- Detailed technical specifications
- Efficient customer service and reliable point of contact
- A website with detailed product information
- Self-introduction in basic Japanese
- Have an interpreter or bilingual assistant whenever needed
Industry-wise entry market strategy
Different industries in Japan have their own unique marketing strategy. However, the successful ones are the ones who can customize the strategy according to local requirements.
Some of the leading sectors for U.S. exports and Investments are
- Aircraft and related parts
- Industrial machine tools
- Medical devices
- Civil nuclear power
- Cloud computing
- Defense procurement
- Nuclear decommissioning
For example, we are considering the E-commerce industry in Japan.
E-commerce marketing strategy
The eCommerce market in Japan is the third largest and fastest growing Market in the world, and the growth rate has become stable for the last few years, estimated at 9.1% annually in 2017.
The current market trends in Japan
The Ministry of Economy, Trade and Industry has divided the e-commerce expense into three types: Sales of goods, services, and digital.
- Sales of goods comprise 52.1% of the total e-commerce expenditure. The top position is acquired by clothing items, whose market size has grown to 7.6% since 2016.
- Service comprises 35.4% of the total e-commerce expenditure. The most popular train in the nation involves travel Services, which has grown to 11% from 2016, including the online booking service, followed by food and beverage service.
- Digital accounts for 11.7% of the overall e-commerce expenditure. The most popular one in Japan was online gaming, followed by ebooks.
The e-commerce channels to reach Japanese customers or businesses must include the following:
- E-commerce platforms
- Payment methods
- Shipping logistics
- Customer service returns, and after-sales service
Popular e-commerce platforms in Japan are Rakuten, Amazon Japan, Apple, and Yahoo! Japan Shopping.
Popular department stores and retail outlets are Seibu & Sogo, Isetan, Mitsukoshi, Daimaru, etc.
Popular apparel eCommerce websites are ZozoTown, Mash Style Lab, Trinity Arts, etc.
1. Companies that have failed
Case Study: Uber failed in Japan
Uber Japan began its taxi-hailing service in 2014 and was initially expected to disrupt the Japanese taxi business. However, after eight years, it was only available in 15 cities in Japan, and it failed to spread across the country. Why? Japan didn’t allow Uber to run its own ride-sharing service as it did in the United States since the local regulations prohibit non-professional drivers from transporting paying clients.
Some of the companies that failed to run business in Japan are:
- Vodafone Japan
2. Companies that have succeeded
Case Study: P&G Japan
Proctor and Gamble were established in Cincinnati, Ohio, in 1837 and is known to be one of the leading companies in Japan manufacturing daily life goods. It is popular for its localizing marketing strategies and focuses on employing local experts in charge of local Enterprises.
Case study: Japan Coca-Cola K.K.
The Coca-Cola Company launched its business in Japan in 1957. It has attained success due to its ability to customize its strategy according to Japanese regulations.
Japanese doesn’t consume as much coke as an average American; therefore, the company developed original products like “Soukenbicha” and “Aquarius,” which was a major hit locally.
- Some of the American companies successful in Japan are:
- Hewlett Packard
- Harley Davidson
- Johnson & Johnson
- American Express
- Morgan Stanley, and many others
Market entry in Japan is proven to be profitable for most companies. However, you need to be serious about curating a good business strategy, respect locals and follow government regulations, learn business etiquette, and gain major lessons from successful companies in Japan.