A Product-Focused Market Entry Does Not Have to Compromise on Quality

In previous articles, we touched on the opportunity to disrupt the public cloud market in Japan and why now is a good time to enter the market.

The broader economic and business environment in Japan might be appealing to a new market entrant.

However, the devil is often in the details—successfully executing the planning and implementation of market entry, not just the initial phase but also building a pathway for growth and sustainability over the long term, is no simple task.

A brief look at business structures in Japan

One of the initial considerations is how to enter the market in terms of business structure. There are a number of approaches, but generally these can be categorized into three or four groups.

Businesses can enter a market by setting up an independent entity or as a joint-venture (JV) with a partner (usually a local one).

In Japan, these are typically incorporated as “Kabuki Kaisha” (KK) or “Goudou Kaisha” (GK). A KK structure is similar to that of a US joint-stock company (i.e., C Corp), while a GK is akin to a limited liability company (i.e., LLC).

An obvious benefit is having a physical presence in the market, which affords more control and visibility over time. A drawback is that the costs will be higher in terms of resources, risks, and time.

A joint venture (JV) can be seen as a way to meet in the middle. That is, speed up the early phases by working with a partner that is either already on the market or fills a capability or function that may be missing. This also leaves the opportunity to buy out the partner in the future.

Having said that, finding the right partner can be a challenge, as trust is critical for success. Another risk here is having more chefs in the kitchen, especially where corporate cultures may be different, which can slow decision-making down dramatically.

This approach is typically adopted by larger businesses with more resources at their disposal or businesses with a foothold in the market that have already seen some success.

Popular amongst small-to-medium businesses is working with a local distributor.

The appeal here is to take advantage of existing relationships and networks that a distributor will have to get a head start on lead generation and sales to validate the product-market fit.

While this is a big draw, especially as the local partner is expected to drive channel sales autonomously, in reality, foreign businesses can expect to be more hands-on in terms of technical and product support, at least in the interim, and likely for longer than expected.

It should be noted that new market entrants will always be one step removed from their clients in Japan. Local distributors tend to manage the relationship directly, which gives them more control and leverage. This dynamic also risks creating conflicting incentives over time, particularly if the distributor represents other products as well.

And while the costs are lower than those of setting up a company, the cost of having a local representative, even if outsourced, is still significant as you are paying for their time in addition to commission fees.

Increasingly, newer businesses—especially digital-native—are gravitating towards leaner and more agile ways to enter a market.

This is especially popular among startups, where websites, emails, apps—any digital touchpoints—are localized in a high-quality manner in terms of design and translation. More attention is paid in terms of UI/UX and messaging to resonate with the local audience.

While in-person relationships will always be prized in B2B, and Japan is no exception, a newer generation of Japanese company managers are increasingly comfortable with a digital-first arrangement. Ultimately, if a commitment can be ascertained, the face-to-face gap can easily be bridged via more flexible and targeted means in the short term (i.e., regular business trip visits).

This approach can build confidence and momentum, leading to a more holistic market entry as familiarity and comfort with the Japanese market increase over time. This is akin to “crawling, walking, and running,” balancing a progressive scale up in terms of being agile, where possible, to keep costs low and familiarity with the product and market high.

Expect the broader Japanese business environment to continue to improve

On a closing note, Japan has a reputation for having a lot of “red tape” in terms of administrative processes, but there has been ongoing reform (including government-endorsed digitization efforts) that has picked up pace to address this.

Additionally, as the economy is very developed and stable, businesses can expect legal and intellectual property rights to be respected, effectively zero corruption, and clear pathways to repatriate profits as Japan has tax treaties with most developed nations.

We hope this has provided something to think about. Litmus comprises an experienced group of professionals who have worked across many of the facets discussed above for businesses in Japan and abroad.

Get in touch with us today to learn more about the opportunities for a Japan market entry and how we can help. Litmus specializes in providing marketing, consulting, and localization services tailored for the Japanese market.