25 March 2014
A Lunchtime Snapshot

Doing business in Japan

Doing business in Japan is notoriously difficult. But then again, companies like Ikea and Starbucks succeed famously.

What is the truth of the matter?

Doing business in Japan is notoriously difficult for foreigners, and even sometimes for locals. But then again, companies like Ikea and Starbucks succeed famously.

What is the truth of the matter?

First all, business men and women need to realize that all foreign countries are different from their own, and therefore present at least some difficulties for doing business.

All countries are different

Venturing into foreign markets is always a challenge, because many things can be different. Indeed, success in exporting to and investing in foreign markets is the litmus test of how good a company is.

To succeed, you need to do lots of home-work through studying, visiting and maybe hiring local advisers/consultants. Some of the things that you need to know are the country's laws and policies with respect to business formation and operation, finance and investment, taxation, accounting and reporting, labor relations and migration, exports and imports, and intellectual and industrial property.

However, while all foreign countries are different from each other, some countries can share similarities. Anglo-Saxon culture pervades business practices in English-speaking countries. Colonial heritages have also left common cultural traces. The European Union, the OECD and some free trade agreements have also led to some homogenization of business cultures and practices among the participating groups of countries.

But to a large extent, Japan has defied these forces of globalization and regionalization. Japan is not only different, it is very, very different.

Why is Japan so different?

Why is Japan so different?

While all countries are unique and different, Japan is very unique and very different, for some good reasons.

For much of the 17th to 19th century period, the Western world was undergoing dramatic changes -- modernization, industrialization, and urbanization. It was also colonizing most of Asia, Africa and Latin America.

In Japan, this was the period of the Tokugawa Shogunate (1600-1868), during which time Japan was substantially closed off from the rest of the world. Japan was rare, along with Thailand, in terms of escaping colonization. Indeed, it was even more rare, as it then became a colonial power itself.

And even though Japan opened up to the rest of the world under the subsequent Meiji Restoration, it still remains relatively isolated. Trade represents only a small share of the economy. Foreign investment is minuscule. Migrants make up less than 2% of the population, and are mainly marginalized groups. Japan receives only small numbers of tourists and international students. When Japanese travel, they usually do so in Japanese groups. And the Japanese have poor English-language capabilities.

In short, Japan remains a very ancient civilization, which has evolved in an island culture, and produced a modern day society with unique social and business values, traditions and customs.

And one of these is Japan's very strong bureaucratic tradition.

Japan's bureaucratic tradition

Japan, more than most other countries, even in Asia, has a very deep bureaucratic tradition. And anyone wishing to do business in Japan will have to face this.

For example, starting a business can be a nightmare! Japan may still have the world's third biggest economy, but according to the World Bank it ranks 114th in the world (out of 185 countries) in terms of how easy it is to start a business. And things aren't getting any better, as it slipped down the list 5 places in 2013.

Paying taxes is also not easy. Japan is ranked 127th, again slipping down the list. Other challenges include dealing with construction permits (72nd), and registering property (64th).

But once you have made it through these hoops, getting electricity, obtaining credit, trading across borders, and resolving insolvency are much easier.

Experience shows that immense patience, and a willingness to learn Japanese ways of doing business, are among the greatest assets for doing business in Japan.

You might make it through Japan's bureaucratic and regulatory hurdles, using great patience, as Ikea did. But then you need to cope with Japan's unique social and business customs.

Japan's unique social and business customs

Much has been written and said of Japan's unique social and business customs. And while it is very easy to make generalization and fall into stereotyping, there remains a lot of truth in the described uniqueness of Japan's social and business customs.

Here are some of the key elements of Japanese business culture, etiquette, negotiation and meeting protocol:

Group Orientation -- this means team-work, group cohesiveness, individual identity being defined by the social group, and in business, compromise and self-discipline. There is much less scope for the individualism of many Anglo Saxon cultures.

Hierarchy -- an individual's position within a group and in society is determined by age, employment, company, family background, etc. Due respect must be afforded to those of higher status. In this way, Japan is less meritocratic than Western countries. People like Bill Gates or Steve Jobs would not be considered heroes, as they are in America. And Barack Obama, coming from an ethnic minority, would never become head of government.

Respect -- to preserve social harmony and clarity of the hierarchical structure, respect is conveyed through language, behavior, etiquette, and body language. Social relations are generally very subtle and often incomprehensible to the uninitiated.

Meeting and greeting -- is conducted with a heightened sense of formality, including the bow, use of proper titles, exchanging of business cards with a degree of ceremony, and an overall sense of professionalism. Back-slapping and bear-hugging are extremely rare.

Building relationships -- based on sincerity, compatibility and trustworthiness. Relationships drive Japanese business. You must perform as many favors as possible, because they will be repaid. In Japan, however, you are much less likely to be stabbed in the back, than in the West.

Communication -- based on maintaining harmony through very vague forms of expression in order to not cause offense. The Japanese are implicit communicators, who assume the listener is well informed. You must never force an interlocutor to lose face, or make fun of them.

Meetings and negotiations -- Meetings usually take place for only one of three reasons: to build rapport, exchange information or confirm previously made decisions. Decisions are rarely made in a meeting. They are arrived at through a lengthy consensus-building process involving much "nemawashi" or groundwork. The Japanese are very detail orientated, so expect lots of questions.

But to fully understand these social and business customs, you must dig more profoundly into the history and anthropology of Japan.

Japan's national style

If you do plan to dig more profoundly into the history and anthropology of Japan, there is no better place to start than Ken Pyle's excellent book "Japan Rising". He gives profound insights into what he calls "Japan's National Style".

(i) A preoccupation with power. This vestige of its long experience with feudalism translates into an almost warrior-like exercise of power in its own society, and a manic desire to catch up and be allies with the reigning power of the time.

(ii) Lack of transcendent and universal ideals. There is no strong philosophical or religious orthodoxy like in China, the Islamic world or the West. The Japanese remain puzzled by the US's espousal of universal principles like international liberalism.

(iii) A pattern of adaptation and accommodation to changes in the structure of international system. As a small late developing country, Japan usually moves with the trend of the times, rather than seeking to make trends. In its pre-modern history, Japan basically did not participate in international society.

(iv) A quest for national autonomy and regional hegemony. Before the opening up 150 years ago, Japan was fully independent. Ironically, modernization and industrialization increased Japan's dependence on the outside world for raw materials. And with its lack of natural resources, it is one of the world's most dependent nations, such that economic security is always a preoccupation. But its attempts to achieve regional hegemony to ensure resource supplies were pursued with such aggression that it provoked a backlash from its neighbors which persists to this very day.

(v) A pattern of emulation of the best practices of other countries. Innovations only came when the Japanese had mastered the technologies of others.

(vi) An obsession with rank and honor, both for its own internal hierarchical society and for its position in the world. Its theories of "Japaneseness" always establish hierarchies with Japan of course at the top.

In short, Japan's national style is shaped very much by its geographical isolation, its perception of an outside hostile world and its long feudal experience. This is the basis of its political identity and also its sense of superiority over other Asians. It entered the modern world with a sense of self-reliance, independence and its own uniqueness And while the last 60 years have witnessed an economic miracle, society and politics have evolved much less so. The Japanese remain insular, ethnocentric and tribal. They still do not know how to treat as equals their dynamic neighboring countries who were very recently poor backward countries.

Michael Zielenziger in his book "Shutting Out the Sun" also has some reflections of great relevance. In his analysis of contemporary society, he notes that "The group harmony this homogeneous people struggled so obsessively to achieve -- through the pressure to conform, the resistance to criticism, the repression of dissenters, and a desperate, almost pathological need to keep "outsiders" at bay -- carried a dark and destructive seed. ... Until this moment, Japan has been able to appropriate the trappings of the modern world without creating for itself a critical consciousness, a truly democratic sensibility, or a vision of how a 'unique' people might interact easily and equally with the rest of the world."

Coming back to Pyle's book, there is an interesting quote of Henry Kissinger speaking with then Chinese Prime Minister Zhou Enlai: "If I can contrast China with Japan as a society, China by tradition has a universal outlook but Japan has had a tribal outlook".

In his book "Lost Japan" Alex Kerr posits that the regimentation and of repression of individualism in Japan began with the Kamakura Shogunate at the end of the 12th century. "As Japan is an island country, rules could be imposed with a thoroughness impossible in a large continental nation like China."

If you manage to master all these cultural roots of Japanese business customs and practices, you are then faced with the reality that Japanese consumers, who will hopefully buy your product, are very demanding.

Japan's demanding consumers

As is well-known, Japanese consumers are very demanding, picky and detail-oriented. They also have a taste for luxury and quality products.

And like all markets, they have their own taste peculiarities. Most Westerners would find them conservative and conformist. But then at other times, the Japanese can be amazingly quirky!

Again, this underlines the need to do your homework, work with great patience and perserverance, and perhaps be willing to redesign or redevelop your products.

Is it all worth it?

Doing business in Japan is indeed very much worth the hassle, for several reasons:

-- Japan remains a very important and prosperous market, despite the impact of the two lost decades. In particular, the Japanese have a strong taste for premium, high-end Western brands and products.

-- Once you have won them over, Japanese business partners will be very loyal, reliable and trustworthy. They will also likely become very good friends.

-- The journey into the mysteries of the Japanese economy and society will be immensely enriching.

So, now it's over to you. It's time to do some business.


John West
Executive Director
Asian Century Institute
Tags: japan, doing business, business culture, Japan's uniqueness

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