US firms must take care in cultivating business relationships in Japan
As the world’s second largest economy, Japan remains a huge market for American goods and services. Despite a weak Japanese economic situation, significant opportunities continue to emerge for American firms, particularly as Japanese companies seek to become more competitive and begin to look increasingly to lower-cost foreign suppliers.
A number of factors are beginning to generate positive results. The Japanese government has embarked upon a multi-year deregulation program, which has eliminated a range of impediments to business activity. Many Japanese corporations have been aggressively restructuring their businesses to reduce costs, enhance competitiveness, and improve profits. Increased foreign investment into Japan is helping to create a more vibrant busi ss environment.
The most competitive sectors for American companies remain in the high technology and service industries. Industrial sectors such as computers, software, semiconductors, pollution control equipment, and medical devices continue to offer exceptional business opportunities for US firms. Expanded Internet use and a rash of dot-com start-ups have created a dynamic business environment for the telecommunications sector.
A number of service industries also offer bright prospects for international trade. New opportunities for service providers are emerging in sectors beyond the traditional US strongholds in travel and tourism and architectural, construction and engineering services. Financial services and health-care are two areas where future prospects for American firms are particularly promising.
Japan’s distribution system is complex, labor-intensive, and full of redundancy. It is also expensive and accounts for much of the differential between prices in Japan compared to prices in other industrial countries. Despite a number of reforms during the 1990s, the traditional Japanese distribution system still survives as a drag on the domestic economy, as well as a formidable barrier to imports.
Difficulties with the Japanese distribution system are partly social and cultural in nature. Japanese business people are often hesitant to disrupt long-standing relationships with suppliers – even when a US supplier can offer a superior product at a lower price. They may also be concerned that a foreign supplier will not be able to make timely shipments or will fail to meet their expectations for a high level of after-sales service. A clear commitment to developing long-term relationships is essential in overcoming this resistance. An established presence in the market is also a decided advantage in winning the trust of Japanese buyers.
The use of agents or distributors is the most realistic marketing strategy for most small or medium-sized exporters to Japan, but this approach also requires great care in selecting a qualified representative. While in some cases an exclusive distribution arrangement may be necessary, US companies should not feel pressured into handing over control of the whole market if there are any doubts concerning the ability or willingness of the Japanese partner to develop the market. Regional exclusivity, a limited term of representation, minimum sales goals, or other performance targets are recommended.
American exporters to Japan must be careful to present an image of dependability, innovation, superior quality, competitiveness, and a commitment to building personal relationships. Attention to cultural requirements such as preparation of high-quality marketing materials in Japanese is important. Prompt response to inquiries from Japan and frequent communication by fax or phone is crucial, and regular visits to Japan are a must.
This article is based on information provided by the U.S. Commercial Service in Japan. For more information about doing business in Japan, contact the U.S. Export Assistance Center in Milwaukee at 414-297-3473. The Commercial Service’s Web site on Japan is located at: www.csjapan.doc.gov
JAPAN AT A GLANCE
National capital: Tokyo
Form of government: Constitutional monarchy
Official language: Japanese
Population: 125.9 million (1998 est.)
Population growth rate: 0.2%
GDP per capita: $24,500
Literacy rate: 99% of people age 15 and over can read and write
Major industries: Steel and nonferrous metallurgy, heavy electrical equipment, construction and mining equipment, motor vehicles and parts, electronics and telecommunications equipment, machine tools, automated production systems, locomotives and railroad rolling stock, ships, chemicals, textiles, processed foods
Exports to: United States 27%, Southeast Asia 17%, European Union 15%, China 5%
Imports from: United States 22%, Southeast Asia 15%, European Union 14%, China 12%
Source: CIA World Factbook
Best Prospect for US Exports:
Electronic components
Computer software
Medical equipment and devices
Travel and tourism
Computers and peripherals
Pharmaceuticals
Health foods and dietary supplements
Telecommunications equipment
Building products
Automobiles
Marine products
Automotive parts and accessories
Electrical power equipment
Source: U.S. Embassy, Commercial Service, Tokyo, 2000
July 6, 2001 Small Business Times, Milwaukee
