If you are currently doing business in Japan but there has been no sales growth for the past three quarters, you may find the reasons in this issue.

The following are facts of Japan.

• Economy has begun to grow.
• Population of 130 million people.
• Same size as state of California.
• One of world’s longest life expectancy.
• The world’s second largest economic power.
• The world’s highest disposable income holder.
• The world’s highest oral, skin and health care notion.
• The world’s highest quality standard.
• Manufacturing society with world’s topnotch mega manufacturers.
• Highly technically-oriented nation.
• Over 40% of Japanese housewives have Louis Vuitton bags.
• Over 60% of Japanese housewives use PC at home.

As an international business executive, what do you think of the Japanese market and how do you develop the market for your product or service in Japan?

The chances are that you will be able to successfully develop your business in Japan as long as you do not underestimate the Japanese unique business practice and culture.

Remember money is not everything for Japanese people, so there is no custom of tip in Japan. Japanese people in general are motivated entirely differently from Americans. Assuming that there are two same products here, one made in Japan and the other made in U.S.A., and that American product is 10% cheaper than Japanese product. Most Japanese people would buy the Japanese product. Why? Because: The Japanese are after value and peace of mind.

How to know if your product will be accepted in Japan.

• Conduct preliminary research of your new product

If you are seriously thinking about doing business in Japan, you need to check the market response to your product in Japan to find out whether or not your product can be salable. So, the first step is to conduct some market acceptance test on your product.

Caution:

Do not use any market research company or focus group in Japan if your product is already completed.

Our experience shows:

1)    Japanese people in general do not make good comments on the new product because they do not prefer changes and the market research results would just reflect those comments. Negative response.

2)    Focus Group provides critiques about the product and usually ends up with their suggestions for radical changes for improvement. Huge investment.

3)    Integrated marketing strategy by the consolidated efforts among U.S. maker, Japanese distributor (or U.S. sales company in Japan) and retailers can move the Japanese consumers’ mind. Retailers’ opinions and response to your product are the most reliable and valuable information you can get as they know how to convince the customers to buy.

In order to conduct a Product Acceptance Test in Japan, we recommend the following steps.

1) Hire a Japanese market expert.
2) Provide product training to him.
3) He will provide you with his test methodology, test length and the budget for the test.
4) Mutual consent of the test.
5) He will conduct test.
6) Review results.
7) Determine the Japanese business model.

The responsibility of the Japanese market expert is:

1)  To meet the select number of different classes of retail stores in the major Metropolitan areas in Japan, and with the largest TV infomercial firm and catalog houses.

2)  To discuss your product with them for their candid opinions.

3)  To discuss what it takes to successfully sell your product in Japan Without major physical changes.

4)  To discuss provisional pricing structure.

Selection of Your Business Model

If your product receives favorable response from the Japanese retail people and other potential customers, the next step is to determine the business model that best fit your business purpose in Japan.

Based on our experience, there are seven major business models to choose from in doing business in Japan

Build own operation

Appoint national distributor

Form a joint venture with a Japanese company

Sell through Japanese trading company

Sell directly to retail stores and consumer businesses

OEM business

E-commerce

Build Own Operation

You will build your own sales organization in Japan from the scratch. If your company has a right product with sufficient financial resources and sound U.S. marketing and sales strategies, this is the best business model for your company to generate maximum revenue.

Based on our experience, the following process is the best practice in building own operation.

Step 1:    Hire English/Japanese Bilingual VP of Japan Operations in the U.S. Headquarters.

There are several reasons for creating this high position in the U.S. Headquarters.

1) Japan is the second largest market in the world.

2) Japan has spillover effect on other Asian countries.

3) Japan has potential to become your strategic partner.

4) Close communication between Headquarters and VP.

Step 2:    Hire Japan Office Manager

He will run the Japan business under the directive of the VP of Japan Operations and is one of the strong candidates for future President of Japan Office

Caution:

Do not send your non-Japanese speaking junior executive to Japan to run your Japan operations even if he or she has MBA degree. Due to the Japanese unique culture, Japanese people more or less make misrepresentation in business and make untrue remarks in daily life. This unique practice is called “Honne (true) and Tatemae (lie). Unless he or she can understand the Japanese language and culture just like native Japanese, he or she cannot run the real Japanese business satisfactorily.

Step 3:    Complete Business Plan

VP of Japan Operations and Japan Office Manager will prepare the business plan.

Japanese people are largely influenced by PR, so it may be a good idea to get a reliable but reasonably-priced PR agency involved in the initial stage of preparing business plan.

Step 4:    Begin hiring

Imagine the average life expectancy of both Japanese male and female is now 82 years old. Given that the retirement age of the Japanese workers is 55 years to 60 years depending on the companies, there are many quality workers in the market who have just retired but still want to work even at the reduced salary. They are experienced, some of them are Japanese/English bilingual, have street knowledge and emphasize relationship-building business that is the practice in most businesses in Japan. Consider hiring such quality workers at greatly reduced salaries.

Step 5:    Find the office

There are many good agents who have good portfolio on the vacant offices that will meet your budget and location requirements.

Step 6:    Finalize the sales and marketing organization

Japan is a highly competitive market and most companies have the similar level of sales and marketing capability. The area you can make substantial difference from your competitors is Customer Support, which gives peace of mind to your customers (retail stores and consumers). You need to provide the same level of customer support as your competitors do.

Step 7:    Complete web site

Web should not be very fancy or complicated. Just states your value proposition.

1. How good your product is.

2. How your product differs from others.

3. Peace of mind (customer support).

Step 8:    Press and media release

As mentioned previously, PR activities are very important. A&P (advertising and promotion) is also very important. However, stereotyped creative does not attract information-rich Japanese consumers.

Out-of-box creativity is needed. Sonicare sonic toothbrush was first introduced in Japan about 10 years ago, when over 10 Japanese electric mega manufacturers were making and selling electric toothbrushes in Japan. How could a small U.S. toothbrush maker of Sonicare compete against the Japanese giants? The editor-in-chief of JapanBusinessConsultancy.com was in charge of developing the Japanese market for Sonicare. He decided not to compete against the giants but decided to change the Japanese consumers’ mentality by implementing very unique marketing strategy.

In Japan, there is a Decayed Tooth Prevention Week starting on June 4 every year. Prior to, on and after June 4, he put one full page ad in the most prestige national newspaper in Japan with the following catch phrases.

• A week before June 4 – Farewell to electric toothbrush (This caused sensation across Japan).
• A week after June 4 – Sonicare is gentle on gum and cleans beyond the bristles. It will help improve gingivitis.

• On June 4 – Don’t brush your teeth. (Japanese people were stunned and many including celebrities rushed to the retail stores to purchase).

The ads cost only US$300,000 and generated the retail sales of US$8 million for that year (for only 7 months).

In the third year from the initial launch of Sonicare in Japan, the annual sales of the maker turned US$11 million with profit of US$10 million. Sonicare is now a Japanese household brand in and is also the best selling electric toothbrush Japan.

We are looking forward to your comments and questions.

JapanBusinessConsultancy.com

Peter H. Sakurai

Editor-In-Chief

Many U.S. companies are successfully doing business in Japan while many others have failed in Japan. There are both large companies and also small companies among the failures. Lots of factors are considered to be the cause of failure but it is said over 80% is controllable factors and uncontrollable factors are only less than 20%.

Uncontrollable factors include regulatory, economic, labor, political, competition and currency variables. Many U.S. companies as well as Japanese companies failed in Japan because of these uncontrollable factors. However, there are also some U.S. companies that had implemented risk management that quickly changed their directions and strategies of the companies and overcame the problems.

Based on our experiences, we have listed the five most common variables that are considered the cause failure in Japan.

Easy thinking

Language barrier

Misrepresentation

Lack of common sense

Your own boss is your enemy

The item 5 seems a quiz but is not. It is one of the most serious common reasons why U.S. companies fail in Japan. Only recently, one U.S. start-up company has failed in Japan due to this reason. So, we decided to take up this case so you will not make the same mistake.

This happens often in a certain business model and under the unique situation.  Please visualize the following developments.

A start-up company successfully developed a high-tech consumer product. The CEO was the inventor of the product and, as the budget is extremely important for a start-up as always, he appointed a financial expert as COO of the company. The COO wanted to know, under his micro-management,   everything that his people were doing. He held the management meeting monthly, staff meeting weekly, one-on-one meeting daily and he came to the desk of each manager, director and VP three or four times a day to discuss what they were working on and sometimes even went to the extent of modifying their email contents. Because of his involvement in practically every inch of the company’s work, he came to work at 6:00 AM and left the office at 7:00 PM from Monday to Friday, and came to work at 6:00 AM and went home 5:00 PM on Saturdays.

Due to his micro-management and what the CEO called “his leadership and initiative”, everybody worked extremely hard although under tense and stress. Their marketing and sales strategies were well implemented and the product began to pick up sales momentum about four months after the rollout. A year after the product launch, this entire new product was on its way to the household brand. It was obvious that this company will own the U.S. market for this product soon and the management began to think about the Japanese market, the second largest market in the world.

Here came a Japanese business development expert at the perfect timing. His family came from both Japanese leading retail group and one of Japan’s largest conglomerates, and he is well trusted in the Japanese business society. He could easily move the Japanese retail stores and consumer businesses to distribute the first-in-market U.S. product in Japan. He made the Virtual Vision Sunglass TV and the Virtual i-O large screen head-mounted display very popular in Japan. In fact, Japan became the largest market for these products.

He also introduced Sonicare sonic toothbrush in Japan and developed the Japanese market from the scratch. As you can see, Sonicare toothbrush is about three times bigger and much heavier than the products of the Japanese  competitors. When he first introduced Sonicare to potential distributors in Japan, the trend of the electric toothbrush in Japan was heading for pencil type size. The Japanese pencil type electric toothbrushes were practically five time slimmer than Sonicare, so all the potential distributors in Japan did not like this “baseball bat type” Sonicare. However, he found the way and got the professional, consumer and retail markets all laid down and got business off the ground in six months. Now, Sonicare is a household brand in Japan.

He is an English/Japanese bilingual with an excellent track record and has  tremendous amount of good contacts and connections in Japan, so the COO hired him as the General Manager (GM), Asia-Pacific Operations. The COO wanted him to focus on Japan before he would expand the business to other Asian countries as he knew it would take about three times longer to develop the Japanese market than the U.S. market. However, he brought Japan’s largest conglomerate to the table as the candidate for the exclusive distributor in Japan, got all retail, TV infomercial, catalog and e-commerce business channels laid down in only three months during which he made three trips to Japan.

The Japanese market was ready to sell the product but the Japanese Exclusive Distributor with US$150 billion annual sales could not catch up with the speed of the market development. The Japanese distributor must go through the internal product approval process, securing the budget for sales and marketing expenses, product localization, Japanese manuals, brochures and other prints, Japanese press release and so forth. These are the responsibilities of the Japanese distributor and unless these are ready, the product cannot be delivered to the retail stores. There was a long list of action items but the GM was putting Japan’s largest conglomerate under control and was managing them very well.

The COO was really puzzled how the GM could do everything so fast working with R&D, marketing, sales and production departments in the U.S. head office. The COO had no chance to conduct micro-management to the GM, so began asking him how he did it and also began giving suggestions which were totally irrelevant to the Japanese business.

As the COO really wanted to get involved in the Japanese business and wanted to make Japan success his own achievement, he began telling the GM to update him on the Japanese business on a daily basis. The COO still could not understand why the GM could convince the Japanese retailers and consumer businesses to sell the entirely new U.S. product only in three months. The COO now told the GM that the Japan business must not start until he blesses it. The COO began to contact the Japanese distributor’s U.S. office where there were American people who the COO could communicate in English about the product the GM was selling in Japan.

In order to eliminate the mess caused by the COO and to help COO understand Japan business, the GM decided to take the COO to Japan so he could meet and discuss with the distributor and major customers face-to-face. Unfortunately, this was the beginning of the tragedy……a failure in the Japanese business due to the ego of COO.

The following is what happened in Japan and after COO and GM came back to the U.S.

1. Translation

The COO wanted the GM to simultaneously translate everything that attendees spoke in the meeting. The GM had no problem with it but the problem was caused by the COO. Every time the GM interpreted what the COO said into Japanese, the COO said to everybody “I did not say that”. It was really humiliating the GM. The COO claimed that the GM added many things that he never said when he interpreted into Japanese. As you may know, the Japanese word is much longer than the U.S. equivalent. For example, “I love you” is phonetically “ai lav ju:”, while in Japanese, I love you is translated into “watashiha anatao aishitemasu”. 8 characters in English vs. 26 characters in Japanese translation. The Japanese translation is usually two to three times longer than the English. The COO did not want to accept it and believed the GM always added something what he never said. Unfortunately, we know quite a few companies that failed in the Japan business due to similar internal distrust problems.

2. E-mails, letters and phone calls

After they came back from Japan, the COO asked the GM to translate into English all Japanese emails that the GM received from the major Japanese customers, and also asked the GM to explain what he talked to the Japanese customers on the phone that day. The GM’s work was substantially interrupted by the translation and explanation for the COO. Besides, the GM became frustrated. The GM took this problem to the CEO, who said could not complain to the COO as he was the one who hired the COO.

3. Personal contact to Japan headquarters

The COO first sent his “thank you” emails to those who he met in Japan and then began to communicate to the distributor’s headquarters in Japan by bypassing the GM. This is what the GM was very concerned about because he had a very strict management over the distributor in order for them to execute the right marketing and sales strategies to meet the needs and wants of the Japanese consumers in a timely manner. Most Japanese distributors do not correctly and accurately convey the Japanese customers’ requests because they want to take easy and cheaper way to sell your product in Japan. So, the U.S. makers need to have capability to work closely with the Japanese retail stores and consumer businesses to constantly encourage the distributor to go beyond their normal effort at much faster pace.

Now, the COO began to receive three different information on the same subject: from the GM, Japanese distributor and its U.S. office. The COO began to believe the information from the Japanese distributor more than the information from the GM (his own people). Just because the COO established a precedence, the Japanese distributor began to communicate to the COO without copying the GM on the communication. Then, the Japanese distributor began to complain about GM’s strictness and aggressiveness of business to the COO. The mistake the COO made was that he listened to all the complaints from the Japanese distributors and asked the GM for clarification. Now, the GM was under complete micro-management of the COO and it seemed everything began to fall apart. As the orders were coming from Japan as the GM still could manage the Japan business even under such mess caused by the COO, the COO began to believe that he was the one managing the Japanese business with such orders.

4. Personal mails

The COO began to directly send his emails to the Japanese distributor over the shoulder of the GM and told him that by so doing he was motivating the Japanese distributor. The COO often said in his emails to the people at the Japanese distributor that they did a very good job. So, they began to send emails directly to the COO saying that the GM and the Japanese retailers joined and gave too much pressure to the Japanese distributor. The COO began to support the Japanese distributor instead of the GM (his own people) and completely spoiled the Japanese distributor. The Japanese distributor even began to delay the rollout in some retail stores by several months. Those retail stores strongly complained to the Japanese distributor and every time they received such complaints from the retail stores, they told the COO that the GM made the retail stores complain to the distributor to make them feel bad. The COO gave the warning to the GM every time the Japanese distributor sent such complaints to him. Now, the Japanese distributor began to do business in an easier way in which they did not provide assistance to support retail promotion. The COO completely spoiled the Japanese distributor.

5. Tragedy

The COO and CEO concluded that the GM had no capability to maintain good relationships with the Japanese distributor because they directly complained to the COO about the GM. So, COO ordered the GM to stop communicating to the Japanese distributor, retail stores and consumer business. The GM tried many times to correct the relations with the COO with no success. The COO could not accept that such a small Japanese executive was able to develop the Japanese market for the product in three months that the COO took over one year to develop the US market.

At the shareholders meeting, the COO showed his big picture taken in front of the office of the Japanese distributor in Tokyo (Mitsui $ Co., one of Japan’s largest conglomerates) and told the meeting that he closed the deal with this company. The COO never mentioned the name of the GM at the shareholders meeting.

Now, the company was in a big problem. The GM left the company and the news spread overnight in Japan as Japan is such a small country, the same size as the state of California. The news was that a U.S. company humiliated the Japanese GM who was one of the most trusted persons in Japan.

Many Japanese retail stores decided to withdraw the product from the shelf or reduced the size of the product display and relocated it to much less traffic location. In order to keep the sales of the product in Japan, the distributor began to sell to heavy discounters and low-end department stores. Only the price war awaited the product and all high-end and the prestige retail stores stopped selling the product. You know what resulted in after all prestige retail stores withdrew the product simultaneously. Their business went down to the tubes in Japan.

Your own boss was your enemy, and then became the company’s enemy, too. It is really hard to believe that such a thing happened and destroyed the growing business that the top notch Japanese business development expert had developed, but we know it happens occasionally.

Based on our experiences, if your boss is a micro-management person and his age is in his mid-forties or early sixties, the chances of his making the same mistake are quite high. Young COO has a big ambition to conquer two largest markets in the world (US and Japan), and the senior top management would like to try his last success chance to make the Japan success his own achievement. It is really hard to believe and sounds foolish but we see such cases occasionally.

How can we prevent such tragedy?

We are looking forward to hearing from you.

JapanBusinessConsultancy.com

Peter H. Sakurai

Editor-In-Chief

Under the current slow economy, company needs to conduct its business extremely effectively and efficiently within the planned budget. As a result, many U.S. companies, particularly Fortune 500 companies, are moving toward one of the following three directions in terms of cost reduction purpose.

1.  Give up the Japanese market and close their Japanese offices.

2.  Cut down the budget on market development activities in Japan.

3.  Relocate the Japanese office to other Asian countries.

While we understand their decision under the current worldwide economic situation, it looks like “penny-wise and pound-foolish” in a sense. So, we would like to do Japan reality check-up.

1.  Is the characteristic of the current Japan’s slow economy same as that of the U.S., Europe and other countries?

2.  Do most major U.S. companies make right approach to the Japanese market under the slow economy?

Let’s first discuss Japanese economy:

It is true that the Japanese economy is also slow as many U.S. newspapers, magazines and trade journals write. So, many U.S. major companies with the few exceptions concluded that it was not wise to spend money to aggressively develop the Japanese business. As frequently pointed out, however, Japan is different from the rest of the world in many areas. The biggest difference is its

unique economy. If you have ability to analyze the overall Japanese economy that involves market situation, industry trend, banking, government new policy and consumers’ attitude, you will see that Japanese economy is different from that of the U.S. and it is the right time to take an aggressive attitude toward the development of business in the Japanese market.

Then, how Japanese economy is different from that of the U.S.

The definition of “bad economy” that we say here in the U.S. is summarized as follows.

1)   Bad mood surrounding stock market and real estate.

2)   Consumers’ bad appetite for purchase.

3)   Low disposable income.

However, the Japanese situation is a little different from the rest of the world.

1)   Bad mood surrounding stock market and real estate (same as U.S.).

2)   Consumers have appetite for purchase.

3)   Very high disposable income and highest cash savings in banks.

The Japanese purchasing power is really amazing, but unless you actually live in the Japanese community, you cannot see it with your own eyes. The survey results released in March 2006 reveals that the total amount of cash held by the Japanese people in Japan including bank savings is U.S. $7.8 trillion. The total population of Japan at present is 130 million people. This means the average amount of cash that one Japanese is holding, whether an adult or a baby, is US$60,000.

The following are some of the examples showing the current Japanese high purchasing power.

1)         The women in their fifties spend about US$250 – US$300 from time to time without asking their husbands.

2)         Many young Japanese office ladies keep buying expensive Gucci and Louis Vuitton bags. Louis Vuitton is the most popular brand bags that the Japanese high school girls have.

3)        Many Japanese women in their forties and fifties go to the U.S. Europe and Korea on vacation.

4)         Many of those who have retired from their companies at the age of 50 to 55 began going to professional schools, paying US$1,500 to US$2,000 tuition a year to get education of new fields instead of looking for a new job.

5)         Sonicare sonic toothbrush is the most popular power toothbrush in Japan. It is retailed for US$160 to $190 in Japan.

It is true that when the economy is bad, people do not want to spend money for fear that they might lose their jobs. However, it is the art of business to motivate the Japanese consumers to open their wallets by implementing well-crafted, integrated, innovative, relationship-building marketing strategy and sales tactics working with the Japanese distributors, retail stores and consumers.

Many U.S. companies have been successfully doing business in Japan under the current slow economy. They have studied Japanese consumers’ mentality and mind-set, and implemented unique sales and marketing strategy in Japan. The company that makes Sonicare sonic toothbrush mentioned above had a real Asia-Pacific business professional who made Japan the largest and the most profitable market outside of the U.S. for Sonicare manufacturer. The US$190 Sonicare toothbrush was one of the best selling products in many high-end department stores in Japan. His basic strategy is how to convince the money-rich Japanese people to open their wallets.

When consumers do not have money, you cannot sell the product to them no matter how excellent your marketing program may be. The fact is many Japanese consumers DO have money and it all depends upon your marketing ability how you can convince the tight-fisted Japanese consumers to spend money to buy your products.

Many major U.S. corporations state that Japan is a very expensive place to keep their Asian Headquarters. It is true but how much business they have lost just because their Asian Headquarters are located outside of Japan. Many U.S. companies whose Asian Headquarters are located outside of Japan can not obtain first hand very important, sophisticated market information on Japan.

Let us remind you of how Japanese companies deal with the U.S. business.

Many large Japanese companies such as Mitsui, Mitsubishi, Sumitomo, Hitachi, Panasonic, Sony, Toshiba, NEC, Canon and Sharp have their U.S. Headquarters inside the U.S. with their branch offices in almost all major cities in the U.S., although it is much more economical for them to maintain their offices outside of the U.S. such as in Mexico or Bahamas.

Japanese head offices in Japan send only English-speaking Japanese to their  U.S. offices to conduct business because they want to get information first-hand from the market and conduct better communication between the U.S. market and the head offices in Japan.

The U.S. Headquarters of the Japanese companies are located right in the major cities and Japanese people doing business in the U.S. are speaking the same language (English) as spoken in the market, while U.S. companies’ Asian Headquarters are not located in Japan (the largest purchasing power in Asia) and the U.S. business executives doing business in Japan are not speaking the Japanese language. It seems Japanese companies are more logical than the U.S. companies when it comes to approaching the market.

How can American businessmen holding MBA degree use their ability in the Japanese market when they cannot communicate in the Japanese language with his market?

It seems the U.S. top management needs to learn more about the Japanese market, in which they can do lots of business if they really have commitment.

Japan is a very small country (same size as State of California) but has the population of 130 million people. What does this mean? It means you can implement very unique marketing and sales strategies extremely effectively and efficiently if you are in the middle of the Japanese market. Then, why there is no commitment in many U.S. companies regarding the Japanese business? The reason is two-fold:

1) There is nobody in their U.S. headquarters that conveys with confidence to the top management that the Japanese market has huge potential.

2) The U.S. top management stays away from Japan because they cannot understand the unique Japanese culture.

To correct this problem, the U.S. companies need to restructure their organization in such a way that they can conduct Japanese business in an effective way.

The ideal model is as follows.

1) You will have the VP of Asia-Pacific Region in the U.S. home office who is English/Japanese bilingual, multi-cultural Japanese national, having extremely profound knowledge on the Japanese business practice, market and industry and maintains good relationships with the major Japanese companies.

2) This VP of Asia-Pacific Region will visit their subsidiary office in Japan and/or key distributors, dealers and major retail customers in Japan on a regular basis so he can really manage the Japan business.

3) He will keep the U.S. top management updated on the Japanese business, so there is always communication between the Japanese market and the top management of the U.S. home office.

Most Fortune 500 U.S. companies with the few exceptions do not have such executives in their U.S. home offices. Non-Japanese speaking U.S. executives with MBA mean nothing in this rapidly changing market and economy in Japan.

There are many Japanese nationals with such capabilities in the U.S. Unfortunately it is because many U.S. major companies here still do not want to put Japanese nationals in such high executive positions. We have noticed many times that resentment and jealousy by his colleagues is one of the major reasons. That’s why top management must make commitment and give his full support to this VP of International, Asia-Pacific Region. Japan is not only one of the two greatest economic powers in the world but also the second largest market in the world. If the Fortune 500 U.S. companies make real commitment to developing their business in Japan, it will surely increase their revenues and profits, and the trade imbalance existing between the U.S. and Japan will also be greatly improved.

How many own offices does Toyota have in the U.S.? Many.

How many offices does GM have in Japan? None.

Which company makes more effort? Who should make more effort to help improve the US/Japan trade imbalance?

We would like to emphasize the following facts: Japanese market is open and all you need to do is make effort.

Japanese are currently holding US$7.8 trillion cash and savings even under the current slow global economy. Hire Japanese business professional in the executive positions in your U.S. home office because he can do much better job than the non-Japanese speaking U.S. executives who were sent from the U. S. to Japan.

We are looking forward to your comments.

JapanBusinessConsultancy.com

Peter H. Sakurai

Editor-In-Chief

Whether you are planning to found a technology start-up company or you are now in the early stage with sufficient capital fund, it would be advisable for you to include Japan as part of your global marketing strategy from the beginning and also start seeking investment money from Japan. Money runs out very quickly even if you try to use it wisely.

While we have seen many U.S. technology start-up companies becoming very successful in a global market, many other U.S. technology start-ups have gone out of business within one to two years after the inception of the company. The following case study explains the most common process in which many start-ups failed.

• Most U.S. start-up companies are engineering groups and do not have business strategies

A great engineer invented an epoch-making technology and raised capitals. In many cases, U.S. start-up companies are “technology and finance” companies in nature. The founder is the inventor – the owner of the technology and the president of the company. He hired an excellent chief financial officer who would manage the working capital that the president raised. They also hired VP of Sales & Marketing of the president’s choice, who has strong technical background. So, the company is basically technically-oriented group rather than operationally-oriented management.

The technology was finally productized and the first production would soon start. Everybody was very excited about the ambition of the company. The VP of Sales & Marketing was busy visiting the potential distributors in the U.S. and Europe to finalize the sales plan. The Director of Marketing did a very good job in handling media relations, creating marketing collaterals and implementing marketing programs. Many national newspapers, magazines and trade journals wrote good articles about their high-tech product. It looked tremendous amount of interest of this new product was generated and in fact the company had many successful trade shows. The VP of Sales & Marketing got all distribution channels laid down across the U.S. and Europe.

Orders began to roll in and delivery started. It was about two years after the inception of the company. In order to secure more money for overhead expenses and to buy more parts to build up the inventory for future orders, they went to the second round financing. They had no difficulty in getting additional money from the existing and new investors. Orders, although small, continued coming in.

Then, they were beginning to experience what they had never anticipated in the beginning.

• Orders stopped about six months after product launch

No body from this company visited their major retail customers to check the sell-through of the product. So, to their surprise, they found out later that those who initially purchased the product were mostly research and test institutions and their competitors. They also found that after they filled their pipeline, there was no actual sell-through to the consumers on the street. The management learned the lesson that great interest from the mass media was not orders.

So, before it was too late the management decided to spend more money to implement various kinds of marketing programs to motivate the retail stores to aggressively promote the product to the consumers. Then, the early adaptors began to buy in the U.S., but the orders were sporadic and far between. Meantime, having been concerned that he might not be able to get the real sales off the ground in the U.S. in the immediate future, the VP of Sales & Marketing began to think of Japan as a backup (not as business strategy). He knew Japan is a high-tech society, so he thought Japanese people must like their products. Once the product becomes salable in Japan, it is very likely that it will also be selling well in other major Asia-Pacific countries such as Korea, Taiwan, Hong Kong and Australia. So, the top management hired the Managing Director of Asia-Pacific Operations who would report to VP of Sales & Marketing. He was an English/Japanese bilingual, multi-cultural business development specialist in Asia-Pacific Region. He is respected in the Japanese business society and would work in the U.S. headquarters.

He strongly suggested to the VP of Sales and Marketing that the company pursue a strategic partnership with a major electric manufacturing giant in Japan to increase the awareness of the product and secure support to enhance the quality of their product to meet the Japanese quality standards and consumers’ expectations.

If one of such technology giants as Matsushita (owner of Panasonic), Sanyo, Hitachi, NEC, Toshiba, etc. sells your product successfully in Japan, the chances are that their relations would develop into either 1) joint sales venture in Japan, 2) their purchase of your technology for specific market or 3) their investment in your company to further expand the business jointly.

The technically-oriented VP of Sales & Marketing could not understand the significance and importance of this strategic partnership with the Japanese major companies that the Managing Director of Asia-Pacific Operations suggested, and insisted on just finding a master distributor in Japan who he hoped would be willing to sell the product in high volume to the consumers through retail stores.

Meantime, the U.S. domestic sales had not yet generated sales momentum and the company’s working capital was running short. So, the VP of Sales & Marketing, the Managing Director of Asia-Pacific Operations and the Chief Engineer flew to Japan and met several Japanese potential distributors and major electric manufacturing giants. The manufacturers evaluated the product

while the distributors conducted a pilot market research. To their surprise, both VP and Chief Engineer were told the following same comments on their product in practically every business meeting.

• Your quality is not up to the Japanese standards

They were told that the technology was very innovative and impressive but the final product does not reflect the high technology and high quality image     because of poor workmanship and inferior quality in performance. In fact, Japan is a manufacturing society, and extremely tough competition among the Japanese manufacturers has boosted the quality standards of Japan.

There are many world-class manufacturers in Japan such as Panasonic, Sony, Hitachi, Toshiba, Sanyo, Sharp, Mitsubishi, and NEC to mention a few. They all have their own retail stores selling their brands throughout Japan. So, the quality of practically any products made by most Japanese companies is extremely high and the Japanese consumers, whether children or adults, are so used to enjoying such high quality standard in their daily life. It was really painful to see the VP of Sales and Marketing repeatedly saying at the meetings that his product was the best in the world.

Although no distributors in Japan wanted to sell the product of this U.S. start-up company because it still needed lots of time-consuming refinement and enhancement to meet the needs and wants of the Japanese consumers, the Managing Director of Asia-Pacific Operations successfully negotiated with the largest electric manufacturing company in Japan to mutually explore the possibility of forming a joint venture in Japan, in which the Japanese company would enhance the quality of the product at their own expense and exclusively sell the product in Japan, while the U.S. company would sell the quality-enhanced product in the U.S. and outside of Japan. It seemed a win-win situation and would be an ideal arrangement for the U.S. company.

They signed the Letter of Intent (LOI) and Non Disclosure Agreement (NDA). There were lots of meetings both in the U.S. and Japan regarding the joint venture. In Japan, however, full approval by the board members for a joint venture or a strategic alliance usually takes as long as a year. So, the board members of the U.S. company were no longer patient and fired the founder and brought the president of their choice from outside. However, they did not receive any substantial orders and began to sell off parts of the company, while still negotiating with the Japanese company for strategic partnership. The Japanese company learned that the president of the U.S. company was fired in the middle of the joint venture negotiations, and was becoming to worry about business uncertainty with the U.S. company.

Meantime, the U.S. company finally filed for Chapter 11 and became debt-free. The management proudly informed the Japanese company that their financial obligations were much lessened. However, Chapter 11 is a death knell in Japan and unfortunately joint venture plan was canceled and the U.S. company went out of business several months after the filing.

We have seen many U.S. start-up technology companies that ended up with the similar story like this. Tremendous amount of time and money have been wasted both in the U.S. and Japan, and poor employees have suffered a lot.

Japan is a technology country and many Japanese companies are interested in both the new innovative technologies and products that are invented by the U.S. companies. It would be a good idea for U.S. start-up companies to consider the following suggestions.

• Include Japan as part of your global marketing strategy from the beginning.

- Show your final prototype of your product to the right Japanese?companies for comment. Do not be afraid of your new technology?product being copied.

- Start preliminary dialogs with potential Japanese companies regarding

Investment at an early stage (the sooner, the better)

- If you start selling your product through your distributors, make sure?to visit your retail customers within three months after you ship the order to your customers to see how much sell-through has been?achieved.

We are looking forward to your comment.

Peter H. Sakurai
Editor-in-chief
JapanBusinessConsultancy.com