It’s not an easy market to crack. But Japan is worth pursuing for a number of reasons, including its highly developed infrastructure, strong rule of law and solid customers who value long-term relationships with their suppliers. What’s the best way to penetrate this market?
Japan is the world’s third-largest economy with annual GDP totalling $5 trillion.
With a 10 per cent market share in each of the global drug and medical device markets, Japan has the world’s second-largest life sciences market.
After China, Japan is Canada’s second-largest merchandise trading partner in Asia.
Five country experts share their wisdom:
“SMEs should be partnering with a large organization that has a presence within Japan and leveraging this presence.”
What's your top advice for Canadian companies that want to break into Japan?
If they are really committed to the Japanese market, they need to have some sort of representation office there. It doesn't have to be a full office, just someone to manage relationships and who knows the language and the culture. Ideally this rep should also be taking care of after-sales service and warranties, and be able to make any adjustments and changes your customers need. It’s hard to do that when you don't have someone on the ground.
Given their limited resources, how can small- to mid-sized businesses work their way into Japan?
SMEs should be partnering with a large organization that has a presence within Japan and leveraging this presence. If you've been able to crack into the supply chain of a Japanese company in any other market outside Japan, then leverage those introductions to get into Japan. Nothing resonates better than being introduced by another Japanese company.
What are some of the common mistakes foreign companies make?
Where Canadians or foreigners typically trip up is not doing research in advance to understand labelling or packaging requirements in Japan. You need to know this, so working with a Japanese lawyer is a must. Some foreign companies also fail to grasp the processes in Japan. The Japanese are world leaders in just-in-time inventory management, and in achieving zero errors in their manufacturing and assembly processes. It’s a very lean mentality that some western companies find hard to adopt.
“It is hard to get started here, but once you’ve developed relationships and landed those contracts, business prospects are very solid.”
What makes Japan such a tough market to enter?
Japan is a tough market largely because of cultural and language barriers. But on the other side of the coin, it’s a market where you always get paid and where there’s rule of law. It is hard to get started here, but once you’ve developed relationships and landed those contracts, business prospects are very solid. Foreign companies do make money in Japan.
What resources are available to Canadian companies that want to pursue opportunities in Japan?
There are plenty of resources. The Japanese government has incubation centres and they are very helpful with getting visas for expat employees and guiding foreign companies through the Japanese bureaucracy. There are also programs to help you establish small offices here through organizations such as JETRO (Japan External Trade Organization) and the Tokyo Metropolitan Government.
Given the cost of travel to Japan, is it worth Canadian SMEs exploring this market?
Japanese companies right now are very open; they’re all looking for growth outside their market. They’re looking for new partners. We’re here on the ground to help Canadian SMEs, along with the Canadian Chamber of Commerce and lots of other organizations. We can help identify the various types of potential partners out there. For example, trading companies such as Mitsui, Sumitomo and Toyota Tsusho are interested in growing overseas by acquiring companies and expanding their scope of business.
“A partnership with a solid and well-recognized Japanese company would be a great way to enter the Japanese market because you would be leveraging the established network and resources of this local partner.”
Where will Canadian companies find promising direct investment opportunities in Japan today?
There are a number of attractive sectors in Japan, including the renewable energy sector, ICT and life sciences. Also, the Japanese government has accelerated sector reform, which means more opportunities for Canadian companies. For example, the energy industry saw its first fundamental reform in six years, which includes allowing non-Japanese companies to enter into the electricity sector. In regenerative medicine, it used to take seven years to get product approval, but that’s now reduced to three years.
What direct investment strategies have proven to be most effective or efficient?
A partnership with a solid and well-recognized Japanese company would be a great way to enter the Japanese market because you would be leveraging the established network and resources of this local partner. Sometimes, a friendly M&A can also be quite successful.
How does Japan’s cost of doing business measure against its opportunities?
Japan used to be very expensive, but it is not anymore, especially compared to Canada. The Japanese government is working to reduce corporate tax to around the 20 per cent range in 2017. It’s currently at about 32 per cent. Japan has a lot to offer foreign companies, including a highly skilled labour force. There are so many electronic brands in Japan, which means a big potential client base. As well, Japan is going to host the Olympics in 2020. This will create a lot of business opportunities for Japanese and foreign companies.
“Now you can incorporate with capital of only one yen, and it’s about half the price to register your corporation.”
Is it easy to set up a company in Japan?
The law regarding incorporation has changed in the past decade and made it much easier. In Japan, most people will incorporate as a joint-stock entity called Kabushiki-Kaisha (K.K.), which is considered to have high status because it’s associated with publicly listed companies. But K.K. status has many restrictions and rules, including a requirement for a significant amount of capital. The new law recognizes the fact that many companies will never go public and shouldn’t have to bear the burden of being a K.K. Now you can incorporate with capital of only one yen, and it’s about half the price to register your corporation.
How do employment rules in Japan compare to those in Canada?
One of the key differences is that in Japan, there is no clear law that permits an employer to fire or terminate an employee. Of course, if there’s fraud or theft you can terminate immediately, but if the issue is incompetence, the right of the employer to terminate is not clear. So you’ll need to go through a process where if you want to terminate somebody you offer them a package, which may include severance pay but also bells and whistles such as paying a head hunter to help the employee find a new job.
Some people have observed that business corruption is virtually non-existent in Japan. Is this true?
Decades ago, corruption was a big issue in Japan. But there's been a lot of clean-up. When you’re doing business here, typically you never consider corruption as an issue. The Japanese bureaucracy is considered very high status, and in general the people in the system work hard to uphold the law.
“Quality requirements in Japan are really high. But once you’ve met the standards of one Japanese company, it becomes easier to sell to other companies.”
What export models work best for Canadian companies in Japan?
It depends on the industry. For a fashion manufacturer, I would recommend that you arrange a licensing agreement. For companies with high-tech products or services, a distribution model is better. But a common problem in Japan is the number of layers in a distribution channel. Many end-customers require that products be sold through certain distributors. This means the entrance is very limited, and the cost to distribute your product increases with each middleman.
What are some of the key challenges to doing business in Japan?
Quality requirements in Japan are really high. But once you’ve met the standards of one Japanese company, it becomes easier to sell to other companies. It’s especially good if you get a deal with a big company like Toyota, because you could get approval to sell to a subsidiary as well. Establishing a country office is also very costly, especially in Tokyo. That’s why we provide our clients with a sales representative service in which we set up a liaison office for our clients and we deploy sales and marketing activities on their behalf.
Realistically, how long does it take for foreign companies to start seeing sales in Japan?
If you sell high-tech products, you should expect one to two years to get sales from Japan. If your customers are in automotive, medical devices or factory automation, it takes even longer. They are very cautious. But if you’re selling consumer products, it shouldn't take as long, maybe a few months.