CHAPTER NINE
On Entering the Japanese Market
NOTHING SEEMS MORE OBVIOUS to the Westerner than the enormous difficulty of doing business in Japan. But nothing quite so baffles the Japanese as to hear a Westerner say this. “How can this possibly be?” they’ll exclaim. “Just look at all the Western businesses that lead in their markets in Japan: IBM and Citibank, Coca-Cola and American Hospital Supply, Swiss chocolates and Mars bars, Levi’s jeans and McDonald’s hamburgers. And there are any number of smaller foreign companies that are leaders in their market in Japan: the Swedish maker of specialty robotics, for instance, or the midwestern manufacturer of analytical instruments. Provided the product and the service are good, all it takes to do business in Japan is to do it the Japanese way.”
But that’s exactly the problem. The Japanese way may indeed not be particularly difficult. But it is quite different.
The first difference—and the one most Westerners find hardest to grasp—is that you don’t “do” business in Japan. Business is not an “activity”; it is a “commitment.” The purchasing agent orders goods, to be sure. But first he commits himself to a supplier, and to a relationship that is presumed to be permanent or at least long-lasting. And until the newcomer, whether Japanese or foreign, proves itself committed in turn, the purchasing agent will not buy its wares no matter how good their quality or how cheap their price. American Hospital Supply, by now, enjoys leadership in the tightly regulated Japanese health-care market. But when it first opened in Japan, twenty years ago, the company spent five years knocking on doors before it wrote its first order. Indeed, quick results in Japan often mean ultimate failure: you are doing business with the wrong people.
“Lifetime employment”—the best-known in the West of the commitments—is actually becoming somewhat less of a problem for the newcomer from abroad. Temporary employment agencies are flourishing in Japan, supplying everything from salespeople to secretaries to accountants. Older women with previous work experience reenter the market as “temporaries.” Blue-collar workers, who are no longer needed at large companies because of automation but cannot be dismissed because they enjoy lifetime employment, are lent out. And seasoned and well-connected middle managers and professionals are also available. Forced to retire from their Japanese firms at age fifty-five, these men then become available to foreign ones.
In all other areas, however, the emphasis on mutual commitment as the basis for doing business is increasing. This is particularly true of service. The manufacturer of a car, a pump, or a refrigerator implicitly commits itself to supplying parts as long as the article lasts.
It makes little sense, therefore, to try to enter the Japanese market through massive investment in bricks and mortar. The smart way is to invest instead in building a Japanese presence: to invest in a few people and their training, in service, in market research, in market development, and in promotion.
Above all, it pays to invest from the beginning in gaining recognition as a leader. Brand loyalty is probably no more common in Japan than anyplace else. But brand recognition is of far greater importance. When you ask why the supermarkets in Tokyo carry Swiss chocolates, the answer is always “But everybody knows they are the best.” Similar brand recognition underlies the success in the Japanese market of Cross in fine writing instruments, of Massachusetts-based Millipore in water treatment, or of the London stockbrokers Vickers Da Costa (now a Citibank affiliate) in foreign-exchange trading. Every one of these successes resulted from identifying one particular market niche and then concentrating for a long time on attaining leadership in it.
There are considerable structural or cultural differences that should not be disregarded. One such difference—and the one Westerners soon become aware of—is the rule that rank must equal age within a social group, for example, managers in a company. Within such a group a younger man must not be the superior of an older one. I know of no Japanese company where the president is older than the chairman, for instance. If there are nonfamily members in the management group of a family company, even the son and heir will not, as a rule, become a member of senior management until he is forty. And a civil servant automatically retires the moment a younger man is promoted ahead of him. But the foreign company will—and quite rationally—want younger men from its headquarters in the United States or Europe to head its Japanese subsidiary or joint venture. This often condemns the venture to failure. It paralyzes the Japanese, who simply do not know how to behave. To them the congruence of rank and age is not a principle of organization; it is one of morality.
All one has to do, however, is finesse the problem the way the Japanese have for centuries. The younger man is not the “superior”—he is an “adviser,” or he stays on the payroll of the parent company as “liaison” and is not even shown on the Japanese subsidiary’s organization chart.
Another difference is in respect to economic structure. Here the biggest difference is the position of the manufacturer or supplier—based on differences in financial structure and on different social concepts. Grossly simplified, the manufacturer or supplier is expected both to finance the distributor and to look after him. One reason for this is that in Japan distributors, whether wholesalers or retailers, do not have easy access to credit. The banks were originally organized to siphon the public’s savings into manufacturing industry—and that is still the way they see themselves and their function. Hence the manufacturer is expected to finance the distribution of his goods. And although there are large modern distributors—like department stores and supermarket chains—the bulk of distribution is still done through marginally small mom-and-pop stores or by very small local wholesalers.
This explains the importance of the “trading company” and the fact that even large manufacturers use it to distribute their goods. The trading company is primarily a commercial banker for the local wholesaler or retailer and secondarily the provider of management to both, supplying them with the rudiments of inventory control, accounting, and often even training. Newcomers, however, find it harder and harder as a rule to link up with a trading company. Earlier joint ventures by Americans with companies in such groups as Mitsubishi, Sumitomo, Itoh, or Mitsui worked so well because these groups could give the joint venture immediate access to distribution financing and distribution service through their trading companies. Now most of the established trading companies already handle products that compete with those of the newcomer.
This problem is easing, but only slowly. To the extent to which modern distribution systems grow, for example, supermarkets, they are becoming capable of both financing and managing themselves and therefore are becoming independent of—and in fact hostile to—the trading company. Nonetheless, the newcomer, and especially the Westerner, must realize that he will have to provide financing for his distributors. To do this was the secret of Coca-Cola’s success in Japan; it made Coke, within a few years, Japan’s leading soft drink. But the manufacturer will also have to organize—and often supply—the service for his products, because local dealers possess neither the necessary manpower nor the management capacity.
In addition, manufacturers are expected to care for their distributors and, often, suppliers as well. This is implicit in their commitment. It is often the manufacturer’s job to help distributors or suppliers get the bank credit they need—perhaps not by legally guaranteeing their loans but by taking moral responsibility for them. And it is expected, though less and less so, to stand behind them should they get into trouble: to find a buyer for the distributor’s business for instance, when the owner dies, or a chief executive for a small supplier, and so on.
The greatest cultural problem for the Westerner in doing business in Japan is, however, the need for the “go-between” and the dependence on him. To a large extent government in Japan functions through competition between different factions, each organized as a ministry, for example, Ministry of International Trade and Industry, Ministry of Finance, and Bank of Japan—the three main government agencies in the economic field. Each of these constantly strives to increase its power and the scope of its control and considers the others as rivals. And each in turn is allied with groups in the economy and society, for example, a particular industry or political faction or an aspirant to the prime minister’s office.
This is the reason even very large Japanese companies do not deal directly with their own government. They use a go-between, usually a retired high government servant. He knows his way around. He has been to the same university as the men now in power and can therefore talk to them over drinks rather than in their offices. He, in turn, can be told what the score is and how his client, the business, should behave to get what it wants. The go-between can ask difficult questions and receive very frank and direct answers. But unless a foreign investor has a Japanese joint-venture partner, it is not always easy to find and identify the right go-between.
Yes, my Japanese friends are right when they say that it is easy to do business in Japan as long as you do it the way the Japanese do it. But my American friends are also right when they complain how enormously difficult it is to do business in Japan. But do they really have much choice? Although the Japanese do not buy many imports, their appetite for goods made by American firms in Japan is apparently insatiable. According to a study by McKinsey & Co., the Japanese in 1984 spent $600 each on American brands, compared with $287 spent by each American on Japanese goods.
(1985)