Posted: February 1, 2012 |  AUTHOR: KEN FOX | CONTACT ME


Japan has clearly had economic, political and financial challenges, along with the 2011 catastrophic tsunami, earthquake and the partial meltdown of the Fukushima Daiichi Nuclear Power Station. The country has had six prime ministers in the last five years and an increasing debt. Regardless, Japan is an important U.S. trading partner and that relationship influences economic conditions in other countries. Japan is a major foreign source of financing for the U.S. national debt and is expected to remain so in the near future. Japan also represents a sizeable U.S. foreign direct investor.

Japan has taken a significant hit from the national disasters last year, but seems resilient in government and industry efforts to return to earlier times. Japan has had financial problems since its market crash in 1989. Based on GDP and IMF 2010 data, Japan was the world’s second largest economy from 1968 until 2010, when the People’s Republic of China surged ahead. The Tokyo Stock Exchange crashed again between 1990-1992. Japan’s new Prime Minister since July 2011, Yoshihiko Noda, is on a path to strengthen Japan’s international trade. One effort is his guidance in joining the Trans-Pacific Partnership Strategic Economic Partnership Agreement (TPP) talks. Ideally, participating in this trade initiative can help facilitate Japan’s global competiveness and trade with other growing Asian countries. What is known as the Asia-10: China, Taiwan, South Korea, Hong Kong, Singapore, Malaysia, Indonesia, Thailand, Philippines and India represent incremental growth potential for Japanese trade.

Another initiative of Prime Minister Noda is to reform Japan’s strong agricultural industry, which has maintained and reinforced high trade barriers (tariffs) for Japanese imports. According to Forbes magazine:

“Numerous independent think tanks in Japan have produced studies demonstrating that Japanese agriculture is vastly less productive and efficient that it can and should be, largely as a result of protectionist government policies and restrictions.”

While Japan has to rethink its nuclear and energy policies, the government is trying to diversify its economy, fix weaknesses in business infrastructure and better capitalize on technological developments. Their current goals also include the need to create a more “open Japan,” welcoming trade agreements, and improving Japan’s relationships with the emerging Asian markets mentioned above. The government also wants to initiate more innovation and business entrepreneurship.

The increasing value of the Japanese yen has made exporting to Japan more expensive, but offers incentives for Japanese companies to invest or acquire companies outside.

Doing business with Japan has been a mixed bag, where relationships are highly valued and keiretsus* often represent barriers to entry. Cultural and language differences have caused delays and mishaps, but the sophisticated and high income earning Japanese market has been rewarding for those global companies with patience, perseverance and flexibility. Some success stories include:
1. AFLAC is a $15.4 billion a year insurance company based in Columbus, Georgia, USA. The company does 70% of its global business in Japan, its dominant market. One of the founders’s recognized the need for supplemental health insurance in Japan. After four years of waiting for regulatory clearance, it started business in Japan during the mid 1970s. It sells cancer life insurance, accident, nursing care, and other specialty plans. 91% of the companies on the Tokyo Stock Exchange offer AFLAC products to their employees through payroll deductions.
2. Harley-Davidson (USA). There are currently 137 Harley dealerships in Japan. The brand is highly respected and their following, rallies (meets) and clubs are very consistent with Japanese culture of community and belonging. Since 2000, Harley-Davidson has been the market leader for 751 cc (larger) bikes. An annual Blue Sky Heaven event in Japan is expected to attract 200,000 participants for demonstrations, test drives and other activities to reinforce the brand experience and attract new customers.
3. L.L. Bean (USA) has twenty stores in Japan versus three in the U.S. It opened its first Tokyo store in 1992. L.L. Bean had to adapt and change the way it accepted credit card payments from Japanese customers. It now allows customers from Japan to pay for purchases after receiving merchandise ordered, instead as is typical in the U.S., of charging a purchase to a credit card when first ordering.

Doing business in Japan can have its challenges. My first business trip to Japan necessitated purchasing small gifts in the U.S. for my counterparts in Japan. I was advised before leaving the U.S. to have the gifts wrapped in Japan at the concierge desk in my Japanese hotel, because they wrap them in a traditional Japanese way. It reminded me of the Japanese paper folding art of origami.

Shiseido, Japan’s largest cosmetic company and fifth largest in the world, acquired U.S. based Bare Essentials, Inc. for $1.7 billion in 2010. The two companies are jointly developing a new product line called bareMinerals Skincare, targeted more to Asian than the U.S. According to the Wall Street Journal (December 29, 2011), the companies had problems with cultural differences, communication and conflicting business visions. The post acquisition strategy and synergy was unclear and people were starting to think it was a failure. Norio Tadakawa, general manager in charge of Shiseido’s international division was ordered to fly to San Francisco to repair the relationship. He was determined to meet the March 2012 new product launch. He has since returned to San Francisco monthly to maintain a positive relationship, build better communications and clarify expectations between the two companies.

I’d like to think Japan will be more open for foreign business, exports and trade agreements in the next year or so. This represents a change from an often perceived insular business environment.

Other sources:
1. Thee Return of Japan, Inc., Knowledge @Wharton
2. Japan Manages Recovery While Addressing Challenges of the Future, November 2011, Focus Newsletter,
3. U.S.-Japan Economic Relations: Significance, Prospects and Policy Options, November 19, 2011, International Trade Reports

*A keiretsu is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. Keiretsu companies also supply one another, making the alliances vertically integrated as well.

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