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Profile of Japan
Japan consists of four main islands (Hokkaido,
Honshu, Shikoku, and Kyushu) and a number of
smaller islands.

• Political and legal system

The branches of the Japanese government are
very similar to those in the US. Legislative,
Executive and Judicial. Legislative power is
vested in which consists of a popularly
elected House of Representatives and House
of councilors. There are five major political
parties. The strongest of these is the liberal
Democratic Party, which is conservative and
generally supported by the two most powerful
groups in the country business and
agriculture.

• Diet
The branch of the Japanese government in
which legislative power is vested: it consists
of a popularly elected House of
Representatives and house of councilors

• Population and social patterns

The Japanese are a group-oriented people.
This social behavior carries over to business
relationships as well, where school ties and
friendships are often major factors. The
Japanese also place a strong emphasis on
harmony, orderliness, and respect for other.
Japanese employees place a high value on
the work ethic. Unlike the culture in many
western countries job attendance is viewed as
mandatory and everyone shows up every day
Managers are required to stay late and work
on weekend, this is part of the job and is well
accepted by the rest of society.
There is also a strong bond between workers
and their companies. Employees identify with
their firms and are often unwilling to leave
even when they are offered more money to
join foreign firms.

• Gaitojin

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A japans person who leaves his or her

company to work for a foreign firm
• Gaijin
A Japanese word, which means “outsider”, it
is used to refer foreigners doing business in
Japan

• Business and the economy

Japan has a gross domestic product (GDP) of
approximately $4.7 trillion and one of the
largest per capita incomes in the world.
However, in recent years Japan has also faced
a prolonged economic slowdown. In
particular, the nation's banks were awash in
red ink with bad debt in excess of $1 trillion in
1998 in 2001 the bank's non performing or
questionable debt was estimated at anywhere
between $145 billion and $845 billion.

• Ministry of international trade and industry

(MLTI)
A Japanese ministry charged with providing
information about foreign markets and with
encouraging in vestries and, in the process,
helping to direct the economy
The ministry serves as the coordinating body of the
country's powerful commercial machinery. It is
MLTI's job to identify and rank national commercial
pursuits and business opportunities and to guide
the distribution of national resources to meet these
goals. MITI encourage Japanese companies to
pursue targeted opportunities such as developing
advanced computer technology high industrial and
agricultural machinery.

Keiretsus
A Japanese term for a business group
consisting of a host of companies and banks
linked together through ownership and/or
joint ventures

• Barriers to business
Japan has removed many of its import quotas
and duties, major non tariff barriers still prevent
foreign firms from gaining a foothold

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• Large retail store law

A Japanese law that limits the size of retail
stores and requires that local competing of
any facility that is more than 500 square
meters
Trade imbalances

Achieving success in Japan; seven basic steps

First; research the Japanese market

The initial step that successful firms undertake is to
research the market. A number of successful firms
have supplemented this approach with cultural
training. This training typically covers Japanese
history, customs, culture, and business practices.
Additionally for those who will be direct involved in
on site operations, rudimentary conversational
Japanese is often included. The company-applied
Materials Japan does this through an orientation
program that includes
(1) Specially chosen reading on Japan.
(2) talks by Japanese executives who are in the
US on assignment,
(3) and weekly visits by groups of four to five
managers and engineers from Japan's
semiconductor companies
Through this process each executive is immersed
in Japanese culture, customer demands
Manufacturing technology quality principles,
geography and everyday language skills.

Second; put the customer first

In the Japanese market customer service is used as
a strategic weapon to beat the competition. Every
firm tries to outdo its competitors in pleasing the
buyer, and this result in outstanding service. For
example, when a customer buys a new car in Japan,
the auto dealer delivers it to the buyer. If there is a
problem with the car and servicing is required the
dealer will have the auto brought in and will provide
a replacement while the car is being fixed.
Services are so important that many Japanese
customers will not buy from a company that they
feel is unable to provide support for what it sells.

Third; maintain control of operations

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Successful MNEs have found that it pays to operate

as close to the customer as possible in Japan. This
means eliminating third party agents. Therefore,
while exporting licensing and distributorship are
often employed to help firms break into the
Japanese market, the most successful foreign
companies limit their use. Rather, they opt for joint
venture or direct operating subsidiaries with their
own Japanese management and local sales
marketing, manufacturing, and development
capability. Other reasons for using the most direct
channel possible include. (1) The firm is better able
to develop an image as a Japanese company and
thus to increase the opportunity for more local
business unable or unwilling to spend more money
to protect their domestic market share lose out to
foreign competitors.

Fourth; offer the right products

Successful foreign owned MNEs realize that many
products sold elsewhere in the world must be re
engineered and specially tailored for the Japanese
market. For example Kentucky Fried Chicken (KFC)
Japan customized its product from the very start.
Units are positioned as upscale; trendy stores
rather then fast food outlets. The Japanese menu
includes friend fish, smoked chicken coleslaw has
reduced sugar content, and French fries are
substituted for mashed potatoes. These
adaptations for the Japanese market closely with
Japanese hospital and pharmacies in order to
obtain feedback on product requirement to gain
acceptance for new products through the
regulatory process and to research new chemicals
and process.

Fifth attack and counterattack

MNEs doing business in Japan have learned that no
product is immune from attack for more than six
months. For example soon after McDonald's Japan
had to modify its menu continually introduce
aggressive advertising and use discounting
campaigns. In this way the firm has been able to
maintain market leadership.
Procter & Gamble (P&G) faced a similar situation
for the first few years after it introduced disposable

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diapers the company's market share down to 5 per

cent by offering new improved product.

Sixth; stay the course

One of the most important challenges that
successful firms have to meet is staying the course
when market share is small and the competition is
strong. This has been particularly true in the case
of small firms looking to gain an initial foothold.
Allen-Edmonds a small high quality footwear
manufacturer from Wisconsin found that it had to
persevere in the market and to keep plugging away
despite the strong competition. Today Japan is a
major market for its product. In other cases a
partnership agreements with Fujitsu, Toshiba, and
Fuji Xerox that provide it with access to technology
and markets IBM has partnership agreements with
Ricoh steel for selling and services IBM equipment
in Japan.

Seventh; use Japan as a jumping off point

Many successful MNEs establish Japanese
operations because they believe that this provides
them with the experience and competitive edge that
can be used worldwide. For example Texas
instrument (TI) was one of the only surviving US
manufactures of dynamic random access memories
(DRAMs) the largest single segment of the
semiconductor market.

Choosing a start-up strategy

Many companies that want to business in Japan
cannot afford to keep control of operation.

• Exporting
The Japanese government is now taking
numerous steps to encourage exports.
Imports tariffs have been eliminated on a wide
number of products in areas such as
agricultural machinery, base metals,
chemicals, combustion engines, furniture,
glass home appliances, pharmaceutical
products, precious metals. The third largest
EU export market after the US and
Switzerland, helps to explain why exporting

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will continue to be a viable strategy for many

firms.

• Japan external trade organization (Jetro)

A non-profit, government-supported
organization dedicated to the promotion of
mutually between Japan and other nations
JETO provides a number of services to exports.
These include
(1) General information on the Japanese markets
in the form of economic data such as
consumption trends trading conditions and
distribution channels.
(2) Information on market trends for various
products such as clothing food household
products, and sporting goods.
(3) Trade fairs that are held in Japan and
designed to help overseas business to find
trading partners and investigate sales
channels.
(4) Information databases that is available to
potential exporters.

• Licensing agreements
An arrangement whereby one firm gives
another firm the right to use certain assets
such, as trademarks patents, or copyrights in
exchange for the payment of a fee.
This approach has been extremely common in
Japan.
Overall there are two basic advantages to licensing
1. First it can help a company to establish
a market and to set operating
standards for new technologies and
products.
2. Second it is a method of earning short
term fees with the promise of longer
term profits.
Sun Microsystems (sun) for example has licensed
its microprocessor technology to Toshiba and to
other leading computer manufactures in Japan in
order to promote.

• Joint ventures
Joint ventures are another popular method of
tapping into the Japanese market. In recent

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years many Japanese firms have recognized the

need to diversify operation and to offer
additional goods and services thus expanding
their base of operations. Often joint ventures
include.
1- Reduction of risk of failure by sharing
the burden with a partner.
2- Rapid market access and the
opportunity for quick profits.
3- An increase in company and product
acceptance brought about by having a
local firm serves as the direct interface
with the customer.
Some primary drawback to joint ventures
includes.
a- Domination of the local market
by the partner thus effectively
insulating the foreign firm from
direct contact with the customer.
b- Creation of business outlets by
the local partner, which are in direct
competition with the joint venture.
c- Inability to work well with the
foreign partner resulting in either a
sellout to the latter or a cessation of
the arrangement.
One of the most important steps in creating a Joint
venture is to research the partner and to learn
about its resources and abilities to contribute to the
arrangement.

1. Distribution channels and large customer

associations.
2. Recognized technical leadership in the
field.
3. Support and service capabilities.
4. Geographic coverage.
5. Market image and reputation.
6. Complementary/competitive product fit.
7. Industrial or banking group associations.
8. Long- term synergies.
The most successful joint ventures have been
those in which each side views the
partnership as a long running commitment
and is determined to be successful as a team.

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There are a number of important steps that

must be carried out in accomplishing this
objective including.
1- Each must be prepared to accept
out in accomplishing this objective
venture.
2- Each must be sensitive and
hospitable to the other in day-to-day
dealings.
3- The two sides must meet
informally so that each gets to know the
other on a personal level and to create a
deep sense of trust between them.
4- Personnel at all levels of the
organization must interact and work
together.
5- Victories and successes should
be celebrated together.

• Acquisitions
In the US acquisitions are often used as a
means of creating synergy and adding valve
to a company. In recent year’s acquisition
have become a very attractive way of entering
the Japanese market. This is quite different
from the situation in the early 1990s when
high stock prices and the increasing value of
the yen made it prohibitive for foreign buyers
to purchase Japanese firms. As a result in
recent years the Travelers Group has
purchased 25 per cent of Nikko Securities
Japan’s third largest brokerage firm and
foreign investors now have substantial
ownership in Japan firms.

• Creating a local subsidiary

One of the most popular approaches to doing
business in Japan is the wholly owned or
majority owned Japanese subsidiary.
Some advantages of a subsidiary include.
1- The achieving of closeness to
the customer and thus improving
market responsiveness and the ability
to assess future opportunities.
2- The creation of a unified strategy
and objective on a world wide basis.

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3- The attainment of world class

performance.

Managing on-site operations

Managing on site operations requires attention to a
number of important areas. Primary among these
are recruiting choosing site facilities, organizing the
business and financial operation.
• Recruiting
One of the first and certainly the most difficult
tasks for subsidiaries managing on site
operations in Japan is that of recruiting
personnel. Unlike the US where top managers
are often recruited from other firms in Japan it
is difficult to get executives to change
companies.
One of the prime sources of recruiting is
college graduates. Every year recruiters from
industry work feverishly to attract these
individuals. The problem for foreign firms is
that most graduates of the first tier
universities such as Tokyo University Kyoto
University and Waseda University prefer to
work for Japanese companies.

• Choosing location and organization

Two of the major operation decisions that
must be made are where the firm will be
located and how local operation will be
organized.

• Making a location decision

The cost of doing business in Japan can be
prohibitive, especially if the firm wants a
location in Tokyo. Land here is costly
construction rates are high and rents are
steep. Rental costs is Tokyo in recent years
have been more then double those of many
other location.

• Organizing for operations

There are a number of differences between
the way that the Japanese manage their
operations and the way that this is done in
most other countries. One is the relationship

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that exists between managers and employees.

Managers are extremely paternalistic and
concerned about the well being of their
people.
A second important guideline is that of
delegating operating authority to the
subsidiary. There are two reasons for this.
First home office personnel typically do not
know headquarters have received extensive
cultural training and on site experience. It is
often at best to defer local decision to the
subsidiary managers. Second the subsidiary
must gain clients deal directly with
headquarters staff.

• Financing operations
There are two major areas of financial
consideration when doing business in Japan.
The first is establishing a banking relationship
to handle day-to-day and short-term financial
demands. The second is deciding how to
finance long term operations
• Banking relationships
Banking in Japan is based on personal
relationship of course it is possible to walk
into a Japanese bank, deposit funds and start
paying bills and handling other financial
obligation that is associated with running the
subsidiary.

o Development bank of Japan (DBJ)

A publicly funded financial institution with
a mandate to advance business projects
in accident’s social and economic policies
(previously known as the Japan
development bank)
Raising capital
Most MNEs finance their initial foray into the
Japanese market with funds from abroad.
However, once the operation is established,
the company can consider raising long term
capital in the local market. A number of
foreign firms that have gone international in

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recent years have been quite successful in

floating local issues to cover of their
Japanese operations.

Japan as a triad power

It is important to remember that Japan is a triad
power. The country has experienced the fastest and
longest period of sustained economic growth in
world history over the last 40 years. Although the
rate of growth began to slow down in the 1990s
Japanese momentum will keep it going into the 21st
century. Indeed this century may be the pacific
century with other Asian nation following the
Japanese model of rapid growth and development.

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