«About Japan » Webinar Series
Japan Entry Strategy
Philippe Huysveld
GBMC (Global Business & Management Consulting)
www.gbmc.biz
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Table of Content
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Introduction
Part 1: Indirect Sales Approach
Part 2: Direct Sales Approach
Part 3: Strategic Alliances & Partnerships
The Most common Market Entry Scenarios (4)
Parameters impacting the choice (4)
Recommendations
Q&A Session
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Introduction
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Own level of cost, benefits, (dis)advantages, risks and
legal/tax issues for each Entry Strategy
Does your company really need an office? Virtual office,
shared office, liaison office, full spec office ….
Most SMEs use the Indirect Sales Approach (Part 1) but there
are more options (Part 2 & Part 3)
General factors: market’s potential, international expertise,
available (internal) resources …
Specific factors to your business requirements
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About your Homework
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Decided to review your Entry Options?
Check with the Centre our related Report
(60 pages): we provide exhaustive data
(examples, case studies, tips), analyze
over 50 EU Success Stories in Japan
and make Recommendations.
Assess each Strategy options, choose the
appropriate Entry Method & adopt the
optimal Legal structure!
It is recommended to search for PRO
advice for complex operations.
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Key Steps in entering the Market
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Evaluate your competitive advantage
Evaluate potential market segments for entry
Determine the best Products/Product Lines to launch
Estimate the required Resources (Start up costs)
Determine the limitations/constraints on the firm
Choose the Market Entry Strategy: safest way? most
profitable way? most practical way?
Involvement at the highest level of Management is key,
developing Global Commitment towards the Project
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Part 1: Indirect Sales Approach
• Exporting is the first Entry Strategy used by SMEs.
(+): - one of the most traditional, well-established and
straightforward form of operating in foreign markets.
- it requires a significant involvement and investment in
marketing strategies, working together with local partners.
- it is however fairly simple with low costs & low risks.
(-): - often high transportation costs, trade barriers, tariffs,
exchange rate fluctuations …
- lower control of distribution and difficult
communication with local representatives.
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Agents & Distributors
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They have local knowledge (language, business, network)
essential for conducting locally the business.
Agent = your Sales Rep, Distributor = your Customer.
Careful partner selection is key and especially recommended
when choosing a sole distributor.
The need for exclusivity might be justified by the
requirements of the business, especially when a lot of
localization/customization work and investment (advertising
campaign) is expected from the Japanese partner over the LT.
When different product lines are being introduced , a
multichannel approach might suit better.
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“Sogo/Senmon Shosha”
(+) Trading Co’s are ideal business match makers:
• They gather a lot of info about Industry trends, about their
clients, their suppliers and their business partners ….
• At the centre of the country’s huge conglomerates (系列),
they are well positioned for making formal introductions.
• they are often shareholders of major supermarkets,
department stores, specialty retail chains & “combini”.
(-) They operate on the basis of economies of scope, seeking to
act as intermediaries for as many vendors as possible, the vendor
may end up feeling underserved.
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Case Study – IRIS (Distributor)
Business Background: Image Recognition:
(Source: BJA, 1997)
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IRIS made a breakthrough in Japan in 1996. The company had a booth at “COMDEX Japan
95”, a computer fair in Tokyo, and was displaying the IRIS Pen, a pen-sized OCR scanner.
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This unique technology attracted the attention of CATENA Corporation, a big Japanese
distributor, leader on the Japanese translation market.
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This first contact led to a cooperation agreement with CATENA, aiming at developing a new
product (Logovista) for the Japanese market: a translation pen that reads English and
translates it into Japanese. The new product became available in October 1996.
About the Distributor:
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Through long product meetings, 6 months of joint development and 3 months of intensive
testing, the Japanese distributor bothered to release a quality product, completely adapted to
the local market. The software, the manuals and the on-line help were fully localised 日本語
Key factors:
Besides the technology, the dedication of the distributor was equally essential to the success.
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Part 2: Direct Sales Approach
The Question: Does my company really need an office?
What are the Benefits and Costs for the business?
(+):
- Get closer to the customers (a key account might ask for a
presence in Japan or for same time-zone response to questions)
- Increase Sales (Japanese customers prefer to deal locally in
Japanese with local staff)
- Make more margin (less dependency on distribution channels)
- Monitor competition and market trends (= customer feedback)
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- Start up costs (legal and administrative costs)
- Operating costs (office rent, accounting+ legal+PRO services)
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Representative or Liaison Offices
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Standalone Market Entries are done by companies ready to
take capital risk & to gain over time the knowledge/experience
• One of the factors in deciding about the type of Entry Strategy
to go for is the cost or investment size.
(+): no registration needed >> no cost (ideal for transition period)
(-):
- no sales permitted, no bank accounts, no office lease in
its own name.
- not a legal entity, the company representative usually
contracts on an individual basis.
- it does not show the LT commitment of the company.
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Branch Offices vs Subs
• for some companies, a Branch as an extension of
Headquarters fits best with their legal and tax structure.
(+): - May open bank accounts, office lease in its own name.
- Sales permitted, less costly, much simpler procedures.
(-): registration needed but no own legal corporate status.
• A subsidiary is however the preferred structure:
(-): in spite of higher registration costs
(+): - Sign of LT commitment to the Japanese Market
- Ability to sell shares of the Japanese company to raise
funds for strategic operations
- A legal shield that prevents liability in contract and labour
disputes to impact Headquarters
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Subsidiaries
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Specificities:
• limited liability of the shareholders to the assets,
• separate corporation from Headquarters,
• registration needed (higher registration costs)
• Joint-stock corporation or “Kabushiki Kaisha” (KK): separation
of ownership from management, yearly approval of financial
statements, financial results to be published, with or without
board (different options possible)
• Limited Liability company (LLC) or “Godo Kaisha” (GK):
unification of ownership and management
(owners=managers), greater freedom (in writing the articles of
association), also suitable for a small-scale business
• Attention: GK can be upgraded into KK but not a Branch office!
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Basic Comparison between 3 common types of business operations (Direct Sales)
Branch Office
KK (joint-stock) Sub
GK (LLC) Sub
Capital
Number of investors
Classification for tax
purposes
None (in theory)
Foreign corporation
1 yen (in theory)
1 or more
Domestic corporation
1 yen (in theory)
1 or more
Domestic corporation
Liability toward
creditors
Number of executives
required
Unlimited
(foreign-affiliated)
Limited to amount of
equity participation
Min. 1 resident
Representative
Shareholder meeting
None
(foreign-affiliated)
Limited to amount of
equity participation
Depends on company
size and if KK is
publicly traded or not
Every year
Losses of the entity
Losses are included in
the Head Office’s
income statement.
Distribution of profits
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Taxation of profits
Income arising within
Japan is taxed in
principle
Losses of the
subsidiary are not
included (before
consolidation).
Allocated according to
equity participation ratio
Taxed according to
profits of KK and
shareholders
Losses of the
subsidiary are not
included (before
consolidation).
Depends on articles of
association
Taxed according to
profits of LLC and14
shareholders
Min. 1 resident
Representative
None
E-Commerce or E-business Operations
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Selling products directly to Japanese end-users
No intermediary costs. Higher control over prices and profits.
Severe competition: Rakuten, Amazon, Yahoo Japan ….
Unless new entrants create a “compelling multichannel
proposition”, the Entry Strategy in B2C online business should
focus on less-developed market segments (smaller but
growing faster) like, for example, online groceries and skin
care/cosmetics.
High-level service, packaging & speedy delivery should be key
elements of the Marketing Mix.
If interested, other Webinar: “Know your Client and Adapt”.
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Case Study – BARCO Japan (Sub)
Business Background: Advanced Electronics
(Source: BJA, 1997)
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BARCO gained a foothold in Japan in the early 80s with video projector sales entrusted to local
distributor Electori. Other distribution contracts for other BUs of the group followed soon.
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In 1995, BARCO opened a Liaison Office (1 person) in Tokyo, renting space from a distributor.
Mission of the Liaison Office:
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Preparation of take over of existing video projector business from distributor-importer Electori:
transfer of key Japanese staff from the distributor, buy back of Electori’s stock in Japan …
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Local business development and Project Management in new key Market segment
(Planetarium-Simulation) with potential new key Account (GOTO Optical).
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Company set up preparation: office search in Tokyo, staff recruitment, registration procedures
Key factors:
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Intention to tap into new market segments not covered by current local distributor
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Careful preparation of the (sensitive) take over of the distributor’s activities
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Ambition to progressively open offices in various towns of Japan.
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Part 3: Strategic Alliances & Partnerships
• Strategic Alliances are simply a business-to-business
collaboration, formed for all types of purposes, and provide
immediate market access and knowledge, without the need to
engage in a formal agreement or to commit to a LT contract.
• Partnerships can be formal or informal. An informal
arrangement is one where a foreign firm agrees to work
together (to produce/market a product/service) with a local firm.
• A formal partnership is when there is a legal agreement to do
the same thing but with detailed objectives and targets defined.
• Partnerships require a long-term commitment and should not
be rushed into. The nature of the collaboration depends on the
complementary resources to be shared.
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Formal Partnerships
Limited Liability Partnership (LLP) or
“Yugensekinin Jigyo Kumiai”
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registration needed but no corporate status
foreign individuals/corporations abroad can be members
limited liability
greater freedom (no need for shareholder and board
meetings, flexibility in sharing profits).
taxes paid by equity participants rather than by LLP itself
Examples: joint R&D by universities/ventures/corporations,
movie making, venture spin off, group of SMEs …
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Licensing & Franchising Agreements
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Licensing: (example: Disney Japan to apparel/toys marketers)
• best used by co’s with distinctive and legally protected assets
• adaptation of the product to the market done by the “licensee”
• Allows rapid entry, with little investment and quicker returns.
Franchising: (example: 7-Eleven convenience stores)
• is becoming a more popular entry strategy
• a rapid replication strategy with the benefit of having highly motivated
owners/managers at each outlet.
• suitable when strong brand recognition in your own country
• not suitable for culturally based products or services.
• business format & operating models are fixed
>> less adaptable to local trends or tastes.
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M & A (Mergers & Acquisitions)
• a quick way to launch your business in Japan rather than
incorporating your business from scratch, as a new company.
• More and more Japanese SMEs are for sale >> opportunities!
• Acquisition is preferable in the following cases:
• When speed of entry is an important factor
• When barriers to entry (like high economies of scale of local
competitors) can be overcome by acquisition in the targeted
industry
• When the entrant firm lacks key competencies in the new
business area.
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Joint-Ventures
• the most sophisticated type of Partnership
• EU-Japan examples: Sony-Ericsson, Renault-Nissan
• creation of a third independent company owned, but
not necessarily managed, by the partners.
• Joint-Ventures (JVs) require financial, time and
resources commitment from all partners.
• they are viewed as a practical vehicle for knowledge
transfer, such as technology transfer, and can be a
first step towards a complete acquisition.
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Case Study – Unic Japan (M&A)
Business Background: professional coffee machines:
• Unic, French SME, has been active and successful in Japan since 1985,
selling through an importer coffee machines to bars and restaurants, as well
as servicing them.
• In 2007, the importer was in financial trouble. Unic grabbed the opportunity
and took over the importer’s assets to create own subsidiary Unic Japan.
About the M&A:
• facing initial distrust from existing customers, it took 2 to 3 years (kind of test
period) in order to overcome it and to get acceptance
Key factors:
• Human Resources Management: the previous boss of the importer became
the new boss of the subsidiary.
(Source: Investir au Japon maintenant, CCE International #545, Sept. 2009)
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The Most common Market Entry Scenarios (#1)
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The Most common Market Entry Scenarios (#2)
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The Most common Market Entry Scenarios (#3)
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The Most common Market Entry Scenarios (#4)
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Parameter (#1): by Company Size & Risk-level
For Small Firms, Indirect
Sales are the obvious Entry
Strategy. A more LT working
formula is the careful
appointment of a (exclusive)
Japanese distributor.
LARGE Companies/High Risk
M&A,
JV,
sub.
Liaison/Branch
Offices
For Large Firms, with
different BUs selling different
kind of products through
different sales channels, the
set up of a Subsidiary is the
obvious Entry Strategy.
Distributors, Partnerships
Licensing-Franchising
Agents, Trading Companies, E-Commerce
SMEs/Low Risk
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Parameter (#2):by Degree of Product Complexity
Centre’s Report Results:
Activities of the SMEs
established in Japan (Direct
Sales) were more oriented
(60% of total) towards
providing high technology
goods and services.
Comparatively, food-related
SMEs were more oriented
towards finding local partners
(Indirect Sales).
JV, M&A
Subsidiary,
Partnership
Distributors,
Licensing-Franchising
Agents, Trading Companies,
SIMPLE (« box sales », food, non-technical/standard products,
requiring less support & service)
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Parameter (#3): by Types of Sales Channels
Depending on their line of
business, some companies
have a limited number of
strategic key accounts or
OEM accounts. In that case,
a first phase Entry Strategy is
to appoint an OEM sales
representative to sell on a
direct basis. Later, the foreign
company can set up a Direct
Sales/Joint-Venture operation
or appoint a Japanese
systems house.
Sub., OEM
sales
agent, JV
DEALER/
Distributors, JV,
RESELLER
Partnership, Subsidiary
SALES
E-Commerce, Franchising-Lincensing
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END-USER/FRANCHISEE/LICENSEE SALES
Parameter (#4): by Degree of Market Approach
For the foreign entrant, Sales
Growth & Market Potential will
impact the level of
Commitment to the Market of
the company, as well as the
level of Investment. With time
and efforts, the company will
evolve from an Initial Approach
Phase towards an Expansion
Phase and ultimately a
Maturity/Advanced Phase.
M&A
MATURITY
PHASE
JV,
Subsidiary
Liaison/Branch Offices,
Distributor, Partnership
Indirect Sales, Licensing-Franchising
MARKET APPROACH PHASE
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Recommendations
• Don’t rely too much on second chances (rebuilding or starting
over). Try to get it right from the start by carefully planning.
• When setting up business in Japan, especially involving entity
issues, seek appropriate legal/professional counsel. Consider
a capital under 100 Mio JPY (lower Corporate Tax) and above
5 Mio JPY (to get Business Management Visas).
• When going for Indirect Sales, carefully select the right
partners, dedicated, who are ready to prioritize your products.
• When going for a M&A, beware of HR & Change Mgt issues
• When going for a JV, keep the Japanese cultural touch of the
operation: what counts most is to be local.
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Q&A
• Questions submitted previously
• Please submit your questions, if
any, via the chat option
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Many Thanks!
ありがとうございました。
Philippe Huysveld
GBMC (Global Business & Management Consulting)
www.gbmc.biz
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