Development of business relationship in Japan - part I.

Based on experience of small European companies (SMEs) doing business in Japan, a company presence in Japan, either in the form of branch office or representative office, is the best investment from long term perspective. Your direct presence in Japan will give you the most up to date direct feedback from the Japanese customers and you can adjust your product accordingly. This cannot be achieved through distributors who in fact resell your product in Japan. Questions regarding long term business perspective as well as customer support and after sales services must be clearly addressed. Such commitment to Japanese customers can be made only by the manufacturer, not by the local distributor. In general, the Japanese cannot deal with uncertainty.

How to find business partner n Japan? This is a very frequent question companies are asking. A company has branches in EU countries, USA and now is looking to expand in Asia. Everybody, who has experience in doing business in Japan, will agree that it is a long term process. Without perseverance and patience you will not get too far with your Japanese business partner and better way would be skip Japan when thinking about Asia market so that you can save money and protect your nerves. There is one proverb, which very much characterize business relationship in Japan -「お客さまは神様です」 which means "The customer is God".

How to find a business partner in Japan? In reality, all companies have to go through same difficulties, their success depend mostly on company's effort and dedication, experience with foreign market, available resources and also on their product. Based on interviews with European SMEs already established in Japan, as well as European Embassies' trade representatives or European Member States' Chamber of Commerces, small and medium sized companies usually do not follow standard ways of large corporations - i.e., doing market analysis, sales estimates etc., but rather taking chances of meeting people either via exhibitions, conferences or B to B matching governmental support programmes, or using consultants. Luckily, you may find a perfect partner for your business by taking part in those activities. However, the best approach is to utilize network of personal connections and recommendations, especially if you already have some Japanese customers. Also, if a company is successful in Japan it is a supreme reference for starting business in Korea or China.

The degree of a commitment to Japanese market as well as the level of investment reflects sales growth of the company's products. Most SMEs, after the first step of using a distributor or trading company realizes the potential of the Japanese market and decides to be present in Japan. Company's physical presence in Japan is viewed by the Japanese as a sign that you are really committed to do business in the country. Your chance to find out new business partners and nourish your relationships with them is much higher.

In reality, establishing an office in Japan depends on your business volume. Usually, in case of smaller scale businesses (usually food sector), Japanese importers take care of all aspects, such as import procedures, dealing with authorities for compliance with Japanese law and regulations, marketing etc. For more capital intensive businesses such as machinery, your (manufacture) management has to assure your Japanese customers, that the Japanese market is important and that you intent to stay. This strong commitment for long term businesses is critical, because the manufacturer has to provide customer support and after sales service. Such commitment to Japanese customers can be made only by the manufacturer, not by the local distributor. In general, the Japanese cannot deal with uncertainty. Also, Japanese are typically loyal to their customer, but less to their supplier.

The main disadvantage of having office in Japan is cost - legal and administrative costs depending on the legal structure chosen as well as the operation cost i.e., cost of office, service of law/accounting/HR firms etc. Guidelines on the different types of offices in Japan and the relevant laws and regulations are available on the JETRO's website here.

To sum up, considering your management visits to Japan a few times per year in order to visit your potential customers is in reality not a fruitful approach.

Reference: Tomášková A." Brief Guide for European Companies on Importers and Wholesale Distributors in Japan", EU- Japan Centre for Industrial Cooperation, Tokyo 2015, here.