Advantages and Disadvantages of doing Business in Japan by BeunaventuraLongjas

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This is a marketing plan for companies that are planning to venture into the Japan Market, coming from a reputable source from a company that is a leader in assisting technology-based ventures to be incorporated into the well established and competitive Japanese market.

Japan owes its market stability to the business-making systems and economic policies that its internal players ethically adheres to. With greater oppoprtunities for a sophisticated and challenging market comes not much less bigger a test on a company's commitment to market in Japan. As the shift in economic impetus from Europe to Asia progresses, Japan has become increasingly known to exact quality procedure and products from businesses that brave to enter its market. Consistency in claims is a key factor in its assesment of the investors.

It appears that technology-based or technology-oriented types of businesses are potentially bankable in this country. Japan has one of the most technology-educated citizens, and therefore sophistication is a way of life. There is already an established market for it, aside from its highly qualified human resources. But there are the cultural barriers to doing business in Japan - the language factor which may amplify a process or to create new processes to support it when it would have been simple if executed in an inter-racial community with a common language. This will add up to the cost of building a strong financial foundation based on the products ability to captuer the local mood of teh country.

But compared to other oriental countries such as China, India and Korea which are the new emerging players, in the world economy, Japan offers a long-term engagement because of its inclination to contracting businesses of high quality, and not by the cheaper options.

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									 Entering the Japanese market
                                 Triangle Technologies assists relatively                  • A plethora of sophisticated customers with a
                                 mature technology-based ventures in                         hefty and consistent appetite for the latest tech-
                                 penetrating the market in Japan. Dr. Daniel                 nology
                                 Isenberg, Triangle’s CEO, discusses the benefits          • A very advanced technology development
                                 of doing business in the Japanese market and                capacity enabling its corporations to serve as
                                 the steps that high-tech companies should take              development partners
                                 to realize a successful market entry.                     • Laws to protect IP and a legacy of IP
                                 The economic shift to Asia                                • Segmental technology leadership (WLAN,

                                              ne of the dramatic changes in the              mobile data services, broadband, consumer
                                              global venture community in the past           electronics, some medical devices, storage,
                                              five years has been a shift in the             displays – and increasingly biotechnology and
                                              economic “center of gravity” from the          drug discovery)
                                              US and Europe towards Asia. This is a        • Low cost of doing business (despite impres-
                                 process that will take many more years, but it is           sions to the contrary) due to high concentration
                                 inevitable and inexorable. A generation from now            of businesses in the greater Tokyo area
                                 India, China, Japan and Korea will be the world’s           (although human resources are expensive,
                                 major consumers of technology and, to a large               roughly on a par with the US)
                                 extent, its major producers as well. The shape of         • A large pool of capable, highly educated
                                 this new regional economy is forming rapidly.               human resources with a very strong work ethic
                                 Japan, China, India, and Korea have a total popu-         • Increasingly, a gateway to China, as Japan’s
                                 lation exceeding 2.4 billion people, a combined             exports to China grow rapidly.
                                 GDP exceeding $13 trillion (versus the US $10.5
                                 trillion) and growth rates ranging from three to          Japan’s disadvantages
                                 nine percent.                                             Japan’s many advantages should not cloud
                                      Although now increasingly recognized by VC           objective consideration of the shortcomings. Its
                                 fund managers, this economic sea change initially         disadvantages include:
                                 caught the predominantly Western VC community
                                 unprepared, since US (and, to a lesser extent, Israeli)   • A high degree of thoroughness in evaluating
                                 VCs have been traditionally oriented toward US              new products and technologies, which leads to
                                 institutions for fund raising, US financial markets         long assessment periods and slow decision-
Dr. Daniel Isenberg,             and acquirers for fund liquidation, and US                  making
CEO, Triangle                    customers and revenues for value creation.                • A strong customer service ethic, which creates
Technologies                                                                                 demands on venture firms to provide the same
                                 The Japanese economy                                        level of service as their larger, domestic coun-
                                     Whereas the Chinese and Indian economies are            terparts, including customized solutions with
                                 rapidly emerging, exhibiting dizzying growth                little or no customer participation in the
                                 rates in the 4-9 percent range, the Japanese market         necessary investment.
                                 is well-established, with a long legacy of devel-         • An aversion to certain forms of risk taking,
                                 opment and acquisition of technologies and                  which impedes the uptake of really new and
                                 products, and (now that the 12-year recession is            emergent technologies, particularly as they are
                                 officially ending) slow to moderate growth. And             deployed in service industries.
                                 even while emerging from its long, painful                • High expectations regarding documentation –
                                 recession, the Japanese economy is much larger              quantity, quality and consistency between
                                 than China’s (in real terms), with modern and rela-         documentation (e.g. spec sheets) and reality
                                 tively transparent legal systems, patent laws,              (actual product features and performance)
                                 financial markets, governance systems, and a              • “Followership” in certain key segments, such
                                 highly ethical and predictable business code.                 as networking and data security
                                 China, on the other hand, has a long way to go in         • Language and cultural barriers that decrease
                                 modernizing its financial and legal systems, which          transparency for the novice
                                 are riddled with problems such as non-performing
                                 loans and non-economic criteria for credit issuing.           Insight into the advantages and disadvantages
                                                                                           of doing business in Japan can help the entre-
                                 Japan’s advantages                                        preneur or manager of high growth ventures
                                     In the context of the above macro factors, Japan      mitigate the risk of doing business in Japan and tap

                                 has numerous advantages for venture-backed,               into tremendous opportunities.
                                 early stage high technology companies:
 Israel Venture Capital &
 Private Equity Journal

 June 2004 Vol. 4, No. 2    34
Advice to foreign start-ups (and                              Use intermediaries. The prerequisite of inter-
their boards)                                            personal (and intercompany) trust for conducting
Have a strategic rationale for entering Japan.           business in Japan obviously poses a dilemma for
Since decision-making and other processes take           start-ups, which by virtue of their age have not had
longer in Japan and require a commitment of              the time to establish long-term relationships, cred-
resources, it is important that Japan be a strategic     ibility and reputation. In Japan, it is common to
market and not only just another big market.             “lend” or “broker” trust using formal or informal
Typically, Japan accounts for 10-20 percent of a         intermediaries – if A and B trust each other, and B
technology-based company’s worldwide sales, but          and C trust each other, then if B introduces A and
if Japan is a strategic market, and if penetration is    C, then A and C are trustworthy vis-a-vis each
managed professionally, relative sales in Japan can      other.
be higher and more profitable. Moreover, the                  Commit to the market. Since processes tend to
impact on a company’s reputation, product                be long in Japan, it is important to both be
planning and quality can be significant.                 committed to the market over a relatively long
                                                         period, and also to signal this commitment. A
Manage expectations and strive to improve.               corollary to this is the need to show presence, with
Since a company’s initial products are not               frequent visits to Japan and, eventually, establish a
completely mature in terms of performance and            local presence.
features, it is important to keep expectations                Acquire respected customers. As a relatively
accurate and not over-commit, even at the expense        homogeneous and concentrated market, with
of losing business. Once a reputation for accurately     informal and formal channels for information
communicating reality is damaged, it is very hard        sharing among companies, success at a respected
to restore.                                              lead customer in Japan will be noticed and have a
    At the same time, the concept of continual           relatively large impact on receptiveness to new
improvement is fundamental to Japanese culture,          products and technologies, and thereby reduce
and partners and customers expect that suppliers         marketing costs.
will recognize any shortcomings, and continually              Get support from the board. Penetrating
strive to improve products and services. The             Japan is not a frivolous affair. It requires significant
notion of resting on one’s laurels does not have         commitment of resources to generate the signif-
currency in Japan.                                       icant positive value. Therefore, it is important that
    Build relationships based on trust. Japan has a      one’s board of directors be solidly behind the effort
concentrated, relatively homogeneous population,         and understands the investment required, as well
with tight, long-lasting networks of relationships.      as the level and timing of expected returns. s
Collective memory is long, and one’s sins and
                                                         Triangle Technologies, founded in 1989, has executed over
virtues are ultimately recognized and accounted for.     100 transactions in the Japanese market. Dr. Isenberg,
In short, it pays to invest in long-term relationships   Triangle’s CEO was on the faculty of the Harvard Business
built on interpersonal trust, which, once firmly         School from 1981-1988 and holds a PhD from Harvard
established, form the infrastructure for healthy and     University.
fruitful business relationships.

                                                                                                                           IVC J
                                                                                                                          Israel Venture Capital &
                                                                                                                          Private Equity Journal

                                                                                                                          June 2004 Vol. 4, No. 2

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