# ![](media/image1.jpeg){width="0.7395833333333334in" height="0.78125in"} Doing Business in Japan: A Country Commercial Guide for U.S. Companies

# Chapter 3: Selling U.S. Products and Services

# INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2007. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

-   [Using an Agent or
    Distributor](#using-an-agent-or-distributor-return-to-top)

-   [Establishing an Office](#establishing-an-office-return-to-top)

-   [Franchising](#franchising-return-to-top)

-   [Direct Marketing](#direct-marketing-return-to-top)

-   [Joint Ventures/Licensing](#joint-ventureslicensing-return-to-top)

-   [Selling to the
    Government](#selling-to-the-government-return-to-top)

-   [Distribution and Sales
    Channels](#distribution-and-sales-channels-return-to-top)

-   [Selling
    Factors/Techniques](#selling-factorstechniques-return-to-top)

-   [Electronic Commerce](#electronic-commerce-return-to-top)

-   [Trade Promotion and
    Advertising](#trade-promotion-and-advertising-return-to-top)

-   [Pricing](#pricing-return-to-top)

-   [Sales Service/Customer
    Support](#sales-servicecustomer-support-return-to-top)

-   [Protecting Your Intellectual
    Property](#protecting-your-intellectual-property-return-to-top)

-   [Due Diligence](#due-diligence-return-to-top)

-   [Local Professional
    Services](#local-professional-services-return-to-top)

-   [Web Resources](#web-resources-return-to-top)

## Using an Agent or Distributor [**Return to top**](#ch3)

Establishing a direct presence in Japan is the best way to penetrate the
Japanese market, but this can be an extremely expensive strategy. The
use of agents/distributors is a more realistic marketing strategy for a
small or medium-sized U.S. firm, but this approach requires great care
in the selection of the representative.

Distributors in Japan usually cover a specific territory or industry.
Import agents are often appointed as sole agents for the entire country
(although there is no statutory requirement that this be done). In some
cases exclusivity may be necessary to ensure a strong commitment by the
Japanese agent towards expanding sales. But under no circumstances
should a U.S. company be pressured into handing over control of the
whole market if there is doubt as to the ability or willingness of the
Japanese company to develop the entire market. Regional exclusivity, a
limited term of representation, minimum sales, or qualitative indicators
of sales efforts are good strategies as a safeguard in exclusive agency
contracts.

While the Japanese Fair Trade Commission has guidelines applicable to
exclusive agency contracts, there are no statutory damages required upon
termination of an agency contract. Given the close-knit nature of
business circles and the traditional wariness towards foreign suppliers,
replacing a Japanese agent or distributor could cause reputation
problems if not handled in an extremely sensitive manner. The U.S.
company may be viewed as lacking adequate commitment to Japanese
business relationships. Japanese agents may request "parting
compensation" in the event the foreign exporter decides to dissolve a
business relationship. Since this is a common practice domestically,
U.S. companies should address this eventuality prior to executing a
contract.

A common mistake made by many U.S. firms is to try to use a list of
importers as a basis for "cold calls" on prospective agents. The
Japanese prefer to do business with someone only when they have been
properly introduced and have met face-to-face. To help dispel reluctance
on the Japanese side, an introduction by a \"go-between\" typically
serves to vouch for the reliability of both parties. Appropriate third
parties for such introductions include other Japanese firms, U.S.
companies that have successfully done business in Japan, banks, trade
associations, chambers of commerce, the U.S. Department of Commerce and
the U.S. Commercial Service in Japan. U.S. state representative offices
in Japan, JETRO, the American Chamber of Commerce in Japan (ACCJ), and
Japanese government ministries can also offer assistance.

U.S. companies should be selective in choosing a Japanese business
partner. Credit checks, a review of the Japanese company\'s industry
standing and existing relations with Japanese competitors, and
trust-building are all part of the process. Many problems can be avoided
by carrying out comprehensive and professional due diligence. The U.S.
Commercial Service can help U.S. companies find business partners in
Japan. Find out how by visiting
[www.buyusa.gov/japan/en/partner.html](http://www.buyusa.gov/japan/en/partner.html).

Part of the difficulty in choosing a Japanese agent is assuring that the
agent will devote sufficient attention to expanding the market share of
the U.S. product. A U.S. company should probably avoid a distributor
that targets only limited, high-price niches; is compromised by strong
ties to one particular industry group (*keiretsu*); fails to compete
directly with established Japanese products; or is not prepared to
pursue volume sales for the U.S. exporter. Also, companies should be
wary of distributors that co-handle competitors lines, or products that
are complimentary in nature and could present conflicts of interest for
the distributor.

To attract a Japanese business partner, a U.S. exporter must present an
image of dependability, innovation, superior quality, competitiveness,
and a commitment to building personal relationships. A U.S. company
should show that it is well regarded in its industry; that it has
researched the market; that it is prepared to respond to cultural
requirements (*e.g.,* by preparing high-quality marketing materials in
Japanese on the company and its products/services); and that it responds
promptly to all inquiries from Japan. Frequent communication by fax,
email or phone is crucial. Regular visits to Japan are a must, as are
offers to host new partners on reverse trips to U.S. headquarters to
view manufacturing and operations.

Another important factor that merits consideration in the Japanese
market is sales commissions paid to agents and distributors. Under an
agency contract, the agent normally sells the product to the customer
"back-to-back," at the same price as that paid to the supplier. The
supplier then pays a sales commission to the agent at the percentage
provided for in the agency contract or agreement. Under a
distributorship contract, the supplier sells the product to the
distributor, who is then free to add to the purchase price whatever
markup it chooses in determining the sales price to the customer.
Commission rates vary according to the product and contract terms.
Generally speaking, sales commissions range from 10 to 20 percent for
"spot" (one-time or irregular) transactions, and from 5 to 10 percent
for regular, ongoing business transactions. In the case of bulk
materials (*e.g.,* iron ore or coal), however, commission rates are much
lower, in the neighborhood of 1 to 3 percent. In the case of medical,
laboratory, and scientific analytical instruments, commission rates
typically are much higher, in the neighborhood of 20 percent or even
higher.

[]{.mark}

Occasionally, an American exporter deems it necessary, for various
reasons, to terminate an existing distributor relationship with an
importer in Japan. In such cases, we believe it is essential that the
American company not needlessly alienate its existing partner and
confuse its current end-users by seeking a new agent or distributor.
Japan\'s business world is small and relatively concentrated, both
politically and economically. Business relationships are formed,
conducted, nurtured, and ended with an unusual degree of attention to
appearances and decorum. Extreme caution and diplomacy are therefore
warranted if an overseas company wishes to sever its relationship with
its existing Japanese agent or distributor.

[]{.mark}

Once an agent/distributor agreement is signed and the American company's
products gain a foothold in the Japanese market, the American company
may want to consider establishing a representative office in Japan (see
below) to support the distributor\'s sales and marketing efforts and to
facilitate communications with U.S. company headquarters. A technical
engineer is often best suited for this role because such a person
understands product capabilities and end-user requirements. This is, of
course, more of a long-term consideration, but one that American
companies may wish to consider in putting together their strategic mid-
to long-term plan for Japan.

## Establishing an Office [**Return to top**](#ch3)

Although still costly, establishing a presence and an office in Japan
has become less expensive given recent decreases in the costs of labor,
office rent, and other expenses.

A U.S. company that wishes to collect information or improve
communication with business contacts in Japan may wish to establish a
**representative office.** Such an office can obtain market data and
other information and provide necessary promotional and service support.
A representative office is not subject to Japanese taxes and
establishing an office does not require special approval. However, a
representative office must not involve itself in commercial transactions
or generate income, and therefore cannot directly handle commercial
orders. The liaison office may provide guidance and support to an agent
and manage all marketing activities except for the actual sale.

A **branch office** of a U.S. company can engage in trading,
manufacturing, retailing, services, or other business. A branch office
may take and fill orders and carry out a full marketing program,
including advertising, recruiting a sales force, and performing
promotional activities. A branch office is liable for payment of
Japanese taxes. The branch office must appoint a resident representative
in Japan and must register with the Legal Affairs Bureau of the Ministry
of Justice. Furthermore, the establishment of a branch office is
considered a direct investment under the Foreign Exchange and Foreign
Trade Control Law and requires reporting to the Ministry of Finance
through the Bank of Japan within 15 days after the establishment of the
office. Prior notification is required when the investment involves
types of industries that could endanger Japan's national security, or
disrupt the country's law and order, and which might adversely and
seriously affect the smooth performance of the Japanese economy.
Industry sectors that may be affected include aircraft manufacturing,
arms, nuclear energy and related industries, narcotics and vaccine
manufacturing, agriculture, forestry, fisheries, oil, and leather
product manufacturing.

An alternative to a branch office is a **wholly owned corporation.**
Prior notification is required when the investment involves the industry
sectors listed in the previous paragraph. Setting up a wholly-owned
corporation will involve more time and expense, but it can offer an
effective means to guarantee better protection for proprietary
information, obtain credit, and penetrate markets which have subtle but
substantial barriers to imports.

A fourth approach is to pool resources of several firms having
complementary product lines. Such a group might establish a marketing
association, consortium, or jointly owned export management company, and
set up a sales and service branch or subsidiary office in Japan. The
financial strain affecting many Japanese companies has provided U.S.
companies with excellent opportunities to establish or acquire
businesses in Japan.

U.S. companies should also carefully examine the Japanese Ministry of
Economy, Trade & Industry's (METI) programs for promoting foreign
investment into Japan. Programs include loans available through the
Japan Bank for International Cooperation and the Development Bank of
Japan. Entry-level business-support programs are provided by the Japan
External Trade Organization (JETRO) as well as by some municipal and
prefectural governments. Current information on investing in Japan,
establishing an office, and other JETRO programs for foreign businesses
can be found on JETRO's website at
[www.jetro.go.jp/en/invest/setting_up/](http://www.jetro.go.jp/en/invest/setting_up/).

## Franchising [**Return to top**](#ch3)

The latest industry statistics, which are from 2005, show the total
number of franchise brands at 1,146 (up 5.3% or 58 brands from the year
earlier) with the number of outlets exceeding 234,000. The aggregate
size of the franchise market in 2005 was 19,389 billion yen (\$176.1
billion), as compared to 18,722.3 billion yen (\$173.1 billion) in 2004.
Approximately 38.4 percent of total sales at franchise outlets are from
convenience stores (CVs), and about 20.9 percent from food service
chains.

American franchising has heavily influenced the development of Japan's
franchise industry since the early 1970s. Although Japanese consumers
are generally receptive to American franchise concepts, products and
services must be adjusted to the local flavor to ensure success in
Japan. U.S. franchisers are more often successful when they seek either
a master franchisee or joint venture partner to develop the market in
Japan.

Identifying the right business partner in Japan requires time and
effort, and it can be difficult to find companies that are willing to
invest in master franchise rights in the case of business concepts where
they do not believe there is a market or growth potential in Japan.
Therefore, prudent market research and long-term commitment are required
for foreign companies to launch franchise businesses in Japan.

## Direct Marketing [**Return to top**](#ch3)

Direct marketing, which includes mail order, telemarketing, direct
response television, and Internet sales, is still modest by U.S.
standards, but increasing, particularly in the case of Internet sales.
Internet sales and mail order are attractive methods for suppliers
attempting to reach the Japanese consumers, while bypassing traditional
distribution channels. Recently, shopping through mobile phones has been
rapidly increasing.

Shopping from foreign catalogs, whether hard copy or on the web
(generally referred to as "personal importing"), surged in the mid-1990s
as a combination of novelty, a very strong yen, and an appreciation of
foreign consumer goods grew. Although providing adequate customer
service and handling product returns challenged those firms that did not
have in-country representation, many U.S. companies enjoyed an enormous
expansion of orders from Japan. Since 1996, however, the strengthening
of the dollar and the passing of the "fad" component of the boom has
caused the market to cool considerably. The recovery of Japanese economy
since 2004 has not been reflected in wages and salaries, and consumers'
propensity to spend has not much improved. Nevertheless, opportunities
still exist for companies that can offer Japanese consumers quality
products with unique attributes.

U.S. companies must overcome a number of challenges such as language,
international shipping costs, tariffs, and other issues that pertain
when marketing directly to a Japanese consumer (*e.g.,* sizes in the
metric system). U.S. companies aiming to enter this market should be
prepared to make an investment in service and what is generally referred
to as direct marketing infrastructure. A representative in Japan can act
as a liaison with the U.S. supplier to handle receipt of claims, customs
clearance, and provide assistance in the preparation of
Japanese-language materials. A local representative can also manage
warehousing, and returns. In the case of "personal imports", to which
regulatory systems like import permits generally do not apply, goods
must be shipped directly to the consumer from the United States. Also,
promotion by local representatives of certain items (cosmetics,
supplements, *etc.*) for personal import will be restricted.

## Joint Ventures/Licensing [**Return to top**](#ch3)

U.S. companies with limited resources or a short investment horizon may
wish to consider product licensing as a way to enter Japan. The direct
costs of finding an appropriate licensee are small compared to other
forms of market entry. Once an agreement is reached, licensing fees and
royalties are low-cost, low-maintenance income for the U.S. company.

However, U.S. companies should note that licensing represents a minimal
form of participation in the Japanese market. Whether a company should
license its technology depends upon several factors.

First, a U.S. company should consider its long-term plans for the
Japanese and other Asian markets. Licensing necessarily means a loss of
control over market strategy, and perhaps "opportunity costs."

Second, U.S. licensors should understand the strength of their company's
patent protection in Japan. Japan uses a "first to file" patent system,
and this has ominous implications should a licensee explore becoming a
competitor. And this does happen.

Finally, the degree to which U.S. firms must disclose trade secrets or
proprietary information is a key consideration.

A Japanese licensee's interest or enthusiasm for a U.S. technology is a
direct reflection of the licensee's assessment of the product's
competitiveness and sales expectations in a technologically
sophisticated market. Thus, a U.S. company's long-term interest might
lie in another form of market entry, even if it carries higher costs and
longer payback periods.

A licensor also sacrifices potential returns from manufacturing and
marketing efficiencies. While Japan is a high-cost country for
marketing, it is also a large market over which to spread the costs of
marketing, even for relatively specialized technology. So, even after
adapting a product for the Japanese market, U.S. manufacturers may
realize better profit margins and market penetration by selling their
own product, as opposed to through a licensee.

Harder to quantify are the costs of managing or in some instances
"policing" the licensing agreement. In the worst cases, a licensee will
improve upon or modify the U.S. product or technology, patent it as its
own, and become a competitor in Japan, the United States, or other
countries.

It is also possible that the Japanese licensee could falsify sales
reports in order to lower its royalties to the U.S. company. The final
drawback of licensing is that it provides the U.S. company with very
little information or practical experience in the market. The Japanese
market is highly demanding and, ultimately, it's important for a U.S.
exporter to have direct experience in order to expand its presence.
Japan is also a very good, though demanding, training ground. U.S. firms
can apply the lessons learned here to other markets, as well as improve
their product or technology through direct contact with the market.

The pitfalls mentioned above account for the declining popularity of
licensing in some industries. However, it may still be the best choice
for products with short life cycles and where short-term income
generation is desirable. Licensing also makes business sense in industry
sectors where market entry costs are prohibitive or where there are
political sensitivities (such as defense-related equipment).

The key to a successful licensing agreement is a Japanese partner whose
goals match those of the U.S. company. A strong licensee will have
something to bring to the partnership as well. For example, the ideal
license agreement might provide for an exchange of technology and
know-how to strengthen both partners. It is essential that the U.S.
licensor maintain close and frequent contact with the licensee, which
should include regular visits to Japan. A local representative, other
than the licensee, can provide additional perspective on the market and
can help represent the licensor to the licensee. Royalties paid by the
Japanese licensee to the U.S. licensor are subject to a 20 percent
withholding tax, which may be reduced to 10 percent if the necessary
documentation is filed under the provisions of U.S.-Japan tax treaties.

According to Japan's Foreign Exchange and Foreign Trade Control Law, a
foreign company granting a license to an independent Japanese
corporation, either a wholly-owned subsidiary or a joint venture
corporation that involves manufacturing in Japan, must notify the
Ministry of Finance through the Bank of Japan in cases involving the
transfer of specially regulated and/or designated technologies.

Additionally, the export of any form of technical data from the United
States is subject to U.S. export control laws. In this case, a thorough
review of the U.S. Department of Commerce's Export Administration
Regulations (EAR) should precede the signing of any licensing agreement.
To learn more about the EAR, please visit the following web sites:

Bureau of Industry and Security
[www.bis.doc.gov/PoliciesAndRegulations/index.htm#ear](http://www.bis.doc.gov/PoliciesAndRegulations/index.htm#ear)

Government Printing Office
[www.access.gpo.gov/bis/index.html](http://www.access.gpo.gov/bis/index.html).

Joint ventures remain a popular form of selling to Japan. Advantages
include access to local market information and conditions, a stronger
market presence, technology development, and gaining immediate access to
a distribution system and customers. Most joint ventures take the form
of a separate or third company established between a U.S. and Japanese
company, with a range of agreements covering shared functions,
personnel, management, and ownership. In most cases, the Japanese
partner has control over marketing and distribution functions. U.S.
companies should be prepared to share ownership, control, and of course
profits, with their Japanese joint-venture partner, and therefore issues
of communication, trust, and common business interest are crucial.

Joint-venture partnerships that involve technology transfers or license
agreements with Japanese partners have the same pitfalls as license
agreements. The value of the joint venture may diminish as either party
becomes less dependent on the other's marketing prowess, customer base,
or technological innovations. U.S. companies should also understand that
many large trading companies have a large "ready-made" pool of existing
customer relationships. This produces a rapid increase in initial sales,
but once its share of the market is tapped, the Japanese partner often
has little interest in prospecting for new customers, unless the product
has extraordinary technological or price advantages. U.S. firms should
take the same precautions about divulging proprietary know-how in a
joint venture as with license agreements.

A joint venture in Japan can be an unincorporated, contractual joint
venture, or an entity created by the acquisition of the stock of an
existing corporation. More typically, a joint venture is the
incorporation either in the United States (but more commonly in Japan),
of a new company in which the Japanese and U.S. corporation mutually
decide upon management control and the roles and responsibilities of
each party. The Ministry of Finance (through the Bank of Japan) must be
notified of the establishment of any joint venture. In addition, if the
joint venture is intended to last more than one year, the joint venture
agreement must be submitted to the Japanese Fair Trade Commission for
review within thirty days of its execution.

## Selling to the Government [**Return to top**](#ch3)

On January 1, 1996, Japan implemented the WTO Agreement on Government
Procurement in an effort to expand opportunities for foreign firms and
increase international competition in government procurement in Japan.
The agreement extended coverage to include the procurement of services
as well as procurement throughout Japan by what are referred to as
\"sub-central government entities.\" These entities include all of the
prefectural (regional) governments in Japan, major cities and designated
municipalities, and a host of other quasi-governmental agencies,
corporations, companies and authorities.

Government procurement contracts covered by the agreement must have a
value not less than the thresholds (denominated in special drawing
rights or "SDRs") specified by the agreement, and include the
procurement of products and services by purchase, lease, or rental by
the agencies and organizations subject to the agreement. Under the
agreement, the specified threshold for procurement by central government
entities is 130,000 SDRs (except for construction and architectural,
engineering and other technical services). As a voluntary measure, Japan
issued SDR thresholds beyond those specified in the agreement, *e.g.,*
100,000 SDRs for procurement by central government entities (again,
except for construction and architectural, engineering and other
technical services). For sub-central government entities, with the same
exceptions as above, Japan\'s threshold is 200,000 SDRs.

There are three types of government tendering procedures in Japan
covered by the new agreement: (1) open tendering, (2) selective
tendering, and (3) limited or single tendering. Under an **open
tender,** the procuring entity publishes an invitation for qualified
suppliers to participate in the tendering process. Contracts are awarded
to the bidder that offers the greatest advantage in terms of price.
**Selective tendering** is done in a case when open tendering is not
necessary because there is only a small number of suppliers that could
participate (due to the nature of the contract), or when open tendering
is otherwise regarded as inappropriate. In this case, the procuring
entity designates those companies it considers capable from a list of
qualified suppliers and invites them to bid. Again, the contract is
awarded to the bidder with the best price advantage. **Limited or single
tenders** are used in a variety of cases for purposes of awarding
contracts without resorting to open competition. Such cases might
include instances where products could not be obtained through open or
selective procurement procedures, where there has been an absence of
bids in response to a public notice, where it has been determined there
is a need for protection of exclusive rights such as patents, or where
the procurement is of extreme urgency.

Open tender and selective tender invitations are published in Japan's
official (central) government procurement gazette or *Kanpō* ---
[kanpou.npb.go.jp](http://kanpou.npb.go.jp/) --- or in an equivalent
regional-level or local publication. The procuring entity publishes the
invitation to tender at least 50 days (40 days is required by the
agreement) in advance of the closing date for receipt of bids. In order
to increase access opportunities for foreign suppliers, as a voluntary
measure, many procuring entities publish notices on the use of limited
(closed) tenders at least twenty days in advance of the awarding of a
contract. When the tender is announced on open bids, the type and
quantity of products, time limits set for submission of bids, and names
and contact data of the procuring entity are published within the
announcement in English. Notices on selective tendering also contain the
requirements to be designated to participate in the tender. It is
important to read the tender notice carefully (the English-language text
is mixed in with the Japanese language text), and most companies find it
useful to directly contact the procuring entity with any specific
questions before a tender is submitted. Japan\'s Ministry of Foreign
Affairs hosts a Government Procurement Seminar every April where central
government procuring entities explain their procurement plans for the
fiscal year. Individual ministries sometimes follow this with their own
seminars as well. Notice of these meetings can also be found in the
*Kanpō* gazette. U.S. suppliers can also find information about Japanese
government procurement on the Japan External Trade Organization (JETRO)
web site at
[www.jetro.go.jp/en/matching/procurement](http://www.jetro.go.jp/en/matching/procurement),
or on the Ministry of Foreign Affairs web site
([www.mofa.go.jp/policy/economy/procurement/q-a.pdf](http://www.mofa.go.jp/policy/economy/procurement/q-a.pdf)),
which has a detailed list of contact points for entities covered by the
agreement as well as a list of related websites.

Potential suppliers must first be qualified by the procuring agency and
registered on the tendering agency's permanent list of qualified
suppliers. Each procuring entity in Japan specifies the qualifications
required of any potential supplier participating in open or selective
tenders. Procuring entities are allowed to review a company\'s capacity
to implement a contract, including the scale of business and past
business performance. In most cases, Japanese subsidiaries, agents, or
distributors of a U.S. company can register on behalf of the firm.
Documents required for qualification are set out in the public notice,
but typically include: an application form, registration certificate,
company history, financial statements, and tax payment certificate. The
qualification is usually valid for one to two years.

Sealed bids must be submitted to the designated place by the closing
date and time specified in the tender notice. Although a 5 percent
guarantee fee is stipulated, payment of the fee is usually waived since
those participating are normally pre-qualified. If there are tenders
made by unqualified suppliers or in violation of the tender
requirements, the procuring entity will rule them invalid and notify the
unsuccessful bidder. The contract is normally awarded to the lowest
qualified bid and bidders are informed of the result in writing by the
procuring entity. Pursuant to the 1996 agreement, Japan has established
a mechanism to process complaints about procurements by entities other
than sub-central government entities. Complaints by qualified bidders
may be filed with the Secretariat of the Board in the Office for
Government Procurement Challenge System (CHANS), Coordination Bureau,
Cabinet Office. For additional information, please visit
[www5.cao.go.jp/access/english/chansmaine.html](http://www5.cao.go.jp/access/english/chans_main_e.html).

## Distribution and Sales Channels [**Return to top**](#ch3)

Traditionally, imported consumer goods have been found at larger outlets
such as department stores and discount houses. But there has been
dramatic growth in specialty retailers, notably foreign names that
import foreign goods.

This direct importing --- bypassing trading houses and as many other
intermediaries as possible --- has become increasingly popular as
companies become leaner and more cost conscious.

As larger retail outlets have spread in Japan, the regulation of "large
stores" (those with more than 500 square meters of sales space) is now
part of the bureaucratic landscape. In 2000, the Large-Scale Retail
Store Location Law went into effect. The law gives local authorities the
power to regulate new large stores on the basis of environmental
considerations. The Japanese Ministry of Economy, Trade and Industry has
clarified its intent to assure that stiffer environmental standards be
used and that the new law will be applied with reasonable uniformity to
all localities. The law applies to new store openings and to significant
changes in the business operations of existing stores (such as an
expansion of floor space or an extension of business hours). Many
municipalities are taking advantage of the law to draft ordinances that
mandate parking space provisions and operating restrictions that are
stricter than national norms or those recommended by METI.

Japanese deflation has made consumers appreciate low prices. Large
foreign distributors and retailers who have survived fierce competition
in their home and other markets have entered Japanese. For example, Toys
\'R\' Us, which entered the market in 1991, now operates 140 stores in
Japan. Wal-Mart, which is in the process of buying out a Japanese chain
store, Seiyu, has several hundred stores in Japan. In 2002, Germany's
Metro opened its first store in partnership with Marubeni and the United
Kingdom\'s Tesco entered Japan by acquiring a medium-size supermarket
chain.

However, Japanese consumers do not always accept foreign retailing
practices and it's important for U.S. firms to consider partnering with
a Japanese firm. The experience of France's Carrefour, one of the
world's largest retailers, offers a valuable lesson. In early 2005,
after a presence of a just over four years, Carrefour sold all eight of
its Japanese stores to a domestic company. At the time of the
divestiture, Carrefour announced that its strategy had not been
effective in Japan\'s environment and that it should have entered the
market in partnership with a Japanese firm. This result came about
despite Carrefour's attempt to style its newest stores according to
traditional Japanese tastes and expectations.

## Selling Factors/Techniques [**Return to top**](#ch3)

To be successful in Japan, U.S. exporters must pursue sustained personal
contact with their customers. A visiting U.S. company representative
should accompany the firm's Japanese agent or distributor on visits to
existing or potential customers. Such joint sales calls demonstrate a
commitment to clients and are an excellent way to obtain market
feedback.

A common mistake of U.S. companies in this market is failing to provide
ample support for Japanese business partners after enjoying initial
success. Needless to say, this quickly sours the honeymoon period. It's
important to prevent a distributor from implementing a conservative,
low-volume, high-markup marketing strategy that protects its own
interests but fails to develop the full sales potential of the U.S.
product. To avoid this: stay engaged!

To increase their chances for success, U.S. exporters also should learn
how to negotiate and maintain relationships with Japanese. Japanese
language skills and familiarity with the nation's culture and etiquette
can be invaluable. Be prepared to attend after-hours social events:
these informal gatherings go a long way towards establishing mutual
trust and understanding between new partners. It has been said that most
business deals in Japan are made "after five."

Initial contact between Japanese firms is usually formal and made at the
executive level, with more detailed negotiations often delegated to the
working level. Typically, the first meeting is to become acquainted, to
establish the interest of the calling party, and to allow both sides an
opportunity to size each other up. Don't expect too much from a first
meeting --- sometimes the actual business subject may be overtaken by
more mundane topics. A series of meetings with a large number of
Japanese company representatives is common, as part of the "sizing up"
process. Business negotiations may proceed slowly, as the Japanese side
might prefer to avoid an agreement rather than being criticized later
for making a mistake.

While many Japanese business executives speak some English, a skilled
and well-briefed interpreter is essential to prevent communication
problems. A good interpreter is worth the extra money and firms who
choose to skimp on or forego this expense significantly reduce their
odds of success. Though there are some U.S. firms that do business in
Japan without a signed contract, written contracts between U.S. and
Japanese firms is an accepted practice. Contracts satisfy tax, customs,
and other legal requirements. Japanese companies prefer shorter and more
general contracts as opposed to lengthy, detailed documents spelling out
every right and obligation in detail. Again, personal contact and
relationships are important and a contract should be viewed as just one
element of a broader effort to create a mutual understanding of
obligations and expectations.

## Electronic Commerce [**Return to top**](#ch3)

According to the statistics published in March 2006 by the Ministry of
Economy, Trade and Industry (METI), the market size of
business-to-business (B2B) electronic commerce in Japan in 2005 was
140.4 trillion yen (\$1.3 billion). The industry sectors that are the
biggest users of B2B electronic commerce are wholesalers (41.7 trillion
yen or \$379 billion), followed by electronic/IT (21.9 trillion yen or
\$200 billion), and transportation-related parts and equipment (21.7
trillion yen or \$197.5 billion). The same report noted that the market
size of the business-to-consumer (B2C) electronic commerce market in
2005 at 3.5 trillion yen (or \$31.4 billion), and identified the biggest
users of B2C electronic commerce as IT/telecommunication (858 billion
yen or \$7.8 billion), general retail (832 billion yen or \$7.6
billion), electric appliances (380 billion yen or \$3.5 billion), and
travel and accommodations (360 billion yen or \$3.3 billion).

People in Japan, especially young consumers, are counting more and more
on state-of-the-art cell phones to access the Internet, check
information, buy tickets and goods, listen to music, play games, and
even watch TV. In the B2C market, shopping-related mobile e-commerce
accounted for 407 billion yen (\$3.7 billion) in 2005 for
shopping-related sectors (not including contents such as music and
games, advertisements, solutions, *etc.*), according to Ministry of
Internal Affairs and Communication's report. This indicates a 57%
increase from the previous year and represents 12% of the total BtoC
e-commerce market. Mobile e-commerce is expected to continue to grow
rapidly as the use of QR codes and flat-fee systems get more popular,
and the easy payment/collection methods that mobile phones provide will
further contribute to the growth. U.S. companies that wish to expand
their Internet sales transactions into the mobile market should select
the products and construct new web pages that fit nicely on the small
screen of cell phones as one part of their B2C e-commerce strategy.

In 2004, METI, the Next Generation Electronic Commerce Promotion Council
of Japan, and NTT Data Institute of Management, Inc. jointly published
"Survey on the Current Status and market Size of Electronic Commerce for
2004" in English at:

[www.meti.go.jp/policy/itpolicy/statistics/ECEnglish2004.pdf](http://www.meti.go.jp/policy/it_policy/statistics/EC_English2004.pdf).

Though no updated version of the full survey is currently available, a
summary of METI's survey report for 2005 was posted on METI's home page
on June 26, 2006, at:

<http://www.meti.go.jp/english/newtopics/Backissueindex.html>.

## Trade Promotion and Advertising [**Return to top**](#ch3)

Because many U.S. products fit a cultural or industrial environment that
may not exist in Japan, educating the Japanese consumer about a
product\'s purpose, use, features, and quality might be necessary.
However, not all companies can afford to place advertisements in
Japan\'s major national daily newspapers or commercials on Japanese
television. Regional and local newspapers and television stations and
daily sports newspapers are less expensive and might make sense for a
product with strong potential in a specific region. A more affordable
option for small- to medium-size or new-to-market U.S. companies might
be advertising in some of Japan\'s 2,250 weekly or monthly magazines.
These publications often represent a cost-effective means to reach a
specific target consumer --- whether gourmet or gardener, cyclist or
camper. For industrial and commercial products, Japan\'s many industrial
daily, weekly or monthly newspapers and trade journals might offer the
best advertising option. Japan has relatively few radio stations (Tokyo
has just four AM and six FM stations), but radio advertising is worth
investigating.

Most of Japan\'s broadcast and print media do not deal directly with
advertisers but go through Japan\'s top five advertising agencies:
Dentsu, Hakuhodo, Asatsu, Tokyu Agency International, and NTT
Advertising. Generally, mood or image advertising achieves the best
results. Hard sell, comparative, or combative advertising used to be
considered bad taste and counterproductive, but comparative advertising
is becoming more mainstream in an increasingly competitive and tight
economy.

Japan's railways, as the primary transportation option for commuters in
major cities, carry more than 21 billion passengers every year. So,
transit advertising should not be overlooked. Transit advertisements can
be found inside commuter rail cars, buses, and in stations.
Advertisements inside trains and buses include hanging flyers, framed
posters, stickers, and flat-panel video. As with other media and
outlets, the major advertising agencies control space. Another common
means of introducing, promoting, and selling consumer goods is to
participate in large events such as regional import bazaars or U.S.
product festivals at shopping centers. Such public events can be a
cost-effective means to deliver a product message to a large audience
and allow new-to-product consumers to sample and purchase. Industry
specific trade shows might include some exhibition days that are open to
the public, thus providing another means of reaching a large consumer
audience.

Advertising and promotions should be part of a coordinated strategy,
usually in cooperation with an advertising agency and/or a PR firm. A
slick advertising campaign in the hottest magazine can go bust if it's
not coordinated with a distribution program that makes the product
available to consumers.

Advertising agencies and PR firms can also assist U.S. firms with free
or low cost publicity.

It is key for any U.S. exporter to get plugged into Japan's trade event
circuit: not only in Tokyo and Osaka, but also in the huge regional
economies and industrial centers where 65 percent of more than 1,000
international conferences, seminars, and trade shows take place.
Regulatory officials and decision-makers throughout Asia are showing up
at these events in increasing numbers, so a U.S. firm's message has the
potential to stretch into other Asian countries.

U.S. firms should also consider U.S. Department of Commerce-sponsored
trade shows and trade missions, as well as events that U.S. states and
industrial organizations sponsor. In some cases, U.S. government
facilities such as rooms at the U.S. Consulates in Osaka, Nagoya,
Fukuoka, and Sapporo can be used for trade promotions, seminars,
meetings, and receptions. Interested companies should inquire directly
with the consulates regarding the prospects and costs for a single
company promotion.

## Pricing [**Return to top**](#ch3)

Tough economic times have made price an increasingly important
consideration for Japanese consumers. Traditionally, many people made
their buying decisions based on a product\'s attributes, quality, and
brand name and they were willing to pay more for superior quality.
However, Japanese consumers are now more price conscious and notions
such as bargains and value have become mainstream. If an imported
product can be purchased more cheaply than a domestic product, consumers
will be interested. This has proven to many Japanese that U.S. products
can be affordable and of a quality that's similar or even superior to
Japanese goods.

This recent ability to compete on price has opened doors for U.S.
products. However, landed cost is only one part of a total pricing
scheme and should not be the only consideration for U.S. firms
interested in exporting to Japan. Distribution mark-ups often cause
imports to price at levels far higher than comparable domestic products.
For instance, shipping costs between the port of Osaka and Tokyo have
been shown to be three times higher than shipping costs from the U.S.
West Coast to Osaka. A good example is imported U.S. apparel products,
where street prices often are three to four times FOB.

Japanese manufacturers traditionally set prices at each level of the
distribution chain and enforce compliance using complicated rebate
systems. This price maintenance has come under pressure from consumers
who are demanding lower prices and from manufacturers who themselves
find the rebate system burdensome. As distribution practices have
undergone reform, costs have been coming down and distributors have
gained additional flexibility in selecting and purchasing items.

The pricing structure of imported goods varies according to the types of
distribution channels and services importers or wholesalers provide
(*e.g.,* inventory, advertisement costs, packaging costs, financing,
acceptance of unsold/returned goods, etc). It is a multi-layered system
with established lines of product flow. In recent years, more and more
middlemen have either been eliminated or forced to cut prices.

As Japanese consumers have become more price-sensitive, markups along
the various distribution stages have tended to become smaller. There are
now some retailers who import products directly in order to offer lower
retail prices. But U.S. suppliers should understand that retailers
usually import smaller quantities. And other importers and wholesalers
usually are uninterested in representing products that retailers import
directly.

Finally, U.S. exporters should also consider yen fluctuations in their
product pricing and sales strategies.

## Sales Service/Customer Support [**Return to top**](#ch3)

Excellent product service and customer support throughout the sales
cycle are highly important in Japan. This includes establishing a close
working relationship with and long-term commitment to a U.S. exporter's
potential Japanese partners. Every effort should be made to answer
technical questions in detail, to ensure delivery dates are met, and
that other issues regarding shipments are absolutely clear. Problems
most often arise from misunderstandings, lack of communication, language
difficulties, and differing business practices.

The arrival times and condition of shipments are critical. Shipments
should arrive on time, they should be well packed, and they must not be
damaged upon arrival. Customs documentation should be complete and
accurate; if it is not, the entry of the merchandise could be delayed
or, in certain cases, the merchandise might be returned to the sender.
Japanese buyers are highly concerned with the quality of packing and
have used poor packaging as an explanation for market entry problems.
Missed deadlines and goods damaged through poor shipping practices will
lead to lost business. Many U.S. companies that have succeeded in Japan
have established a local presence to handle sales and to provide
customer support and service. In some cases, local agents or
distributors can provide this support.

## Protecting Your Intellectual Property [**Return to top**](#ch3)

*See* below, under Chapter 6, [[]{#ch6 .anchor}Investment
Climate](#ch6).

## Due Diligence [**Return to top**](#ch3)

A U.S. company resident in Japan is not legally required to use a
Japanese attorney for filings, registrations, contracts or other legal
documents, which can be prepared by in-house staff, but retaining a
competent Japanese attorney *(bengoshi),* patent practitioner
*(benrishi),* or other legal professional is a practical necessity. A
U.S. company not resident in Japan should also retain competent Japanese
counsel. Patents and trademarks must be filed through a Japanese agent,
which should be a licensed attorney or patent practitioner.

In recent years, Japanese industry has been shaken by a record number of
bankruptcies. Japanese commerce has also witnessed an unprecedented
number of mergers and acquisitions. This rapid pace of industrial
restructuring has created an increased level of risk for American
companies selling into Japan.

The U.S. Embassy in Tokyo continues to see trade dispute cases of all
kinds. It has become more common for small- and medium-sized Japanese
trading companies to run into payment problems. Importers, wholesalers
and distributors without real estate assets may find it more difficult
to obtain trade financing in the present environment. Banks in Japan
have become less inclined to provide credit to small- and medium-sized
enterprises of all types. Larger companies with excessive debt may also
experience problems obtaining financing.

As a result, American companies are well advised to perform due
diligence procedures and check the *bona fides* of their Japanese agents
and/or customers. To address this need, the U.S. Commercial Service in
Japan provides the International Company Profile service. For more
information about this service, please visit:

[www.export.gov/salesandmarketing/ICP.asp](http://www.export.gov/salesandmarketing/ICP.asp).

## Local Professional Services [**Return to top**](#ch3)

CS Japan's website features lists of business service providers in
different fields who may be of assistance to U.S. exporters in Japan.
Although these lists are not comprehensive, and inclusion does not
constitute an endorsement or recommendation by the U.S. Commercial
Service or by the U.S. Government, they are a useful starting point for
firms that need professional services in Japan. Please click on the
following links and you will be taken straight to the list of business
service providers that are of interest to you:

-   [Accounting, Auditing, and Tax
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=84110000)

-   [Advertising](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=82100000)

-   [Business Administration
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80160000)

-   [Business
    Consulting](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80100000)

-   [Computer and Internet
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=81110000)

-   [Distributors, Sales Agents, and
    Importers](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80141700)

-   [Education and Training
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=86000000)

-   [Engineering
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=81100000)

-   [Entertainment
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=90150000)

-   [Hotels and Meeting
    Facilities](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=90110000)

-   [Human
    Resources](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80110000)

-   [Insurance
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=84130000)

-   [Legal
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80120000)

-   [Market
    Research](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80141500)

-   [Marketing, Public Relations, and
    Sales](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80141600)

-   [Patent and Trademark Law
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80121604)

-   [Real Estate
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80130000)

-   [Relocation
    services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80111506)

-   [Restaurants and
    Catering](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=90100000)

-   [Security and Personal
    Safety](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=92120000)

-   [Telecommunications](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=83110000)

-   [Trade Show and Exhibition
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=80141900)

-   [Translation and
    Interpretation](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=82110000)

-   [Transportation, Freight Forwarder and Storage
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=78000000)

-   [Travel
    Facilitation](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=90120000)

-   [Other Business
    Services](http://www.buyusa.gov/japan/en/bsp.html?bsp_cat=99999999)

or visit our web site at
[www.buyusa.gov/japan/en/bsp.html](http://www.buyusa.gov/japan/en/bsp.html).

## Web Resources [**Return to top**](#ch3)

Information on investing in Japan, establishing an office, and other
programs for foreign businesses:

Japanese External Trade Organization (JETRO)

[www.jetro.go.jp/en/invest/settingup/](http://www.jetro.go.jp/en/invest/setting_up/)

Information on doing business in Japan:

> American Chamber of Commerce in Japan (ACCJ)
>
> [/www.accj.or.jp/accj.or.jp/content/01_home](http://www.accj.or.jp/accj.or.jp/content/01_home)
>
> Venture Japan: Doing Business in Japan
>
> How to Succeed in the Japanese Market
>
> [www.venturejapan.com/index.htm](http://www.venturejapan.com/index.htm)

Information on business service providers in Japan:

U.S. Commercial Service, American Embassy, Tokyo

[www.buyusa.gov/japan/en/bsp.html](http://www.buyusa.gov/japan/en/bsp.html)

Foreign Agricultural Service, American Embassy, Tokyo

[www.usdajapan.org/](http://www.usdajapan.org/)

U.S. Embassy, American Citizen Services

[tokyo.usembassy.gov/e/tacs-main.html](http://tokyo.usembassy.gov/e/tacs-main.html)

Information on Japanese government procurement:

[www.jetro.go.jp/en/matching/procurement](http://www.jetro.go.jp/en/matching/procurement)

Office for Government Procurement Challenge System (CHANS)

Coordination Bureau

Cabinet Office

[www5.cao.go.jp/access/english/chansmaine.html](http://www5.cao.go.jp/access/english/chans_main_e.html)

E-commerce marketplaces:

Marketplace name: TWX21 (Hitachi)

Products: MRO (Maintenance, Repair, Operations), *etc.*

[www.twx-21.hitachi.ne.jp/eindex.htm](http://www.twx-21.hitachi.ne.jp/e_index.htm)

Marketplace name: SC Grainger (Japanese only)

Products: MRO (Maintenance, Repair, Operations)

[www.monotaro.com/](http://www.monotaro.com/)

Marketplace name: Alpha Purchase (Japanese only)

Products: MRO (Maintenance, Repair, Operations), *etc.*

[www.alphapurchase.co.jp/homepage/index.html](http://www.alphapurchase.co.jp/homepage/index.html)

[Return to table of
contents](#doing-business-in-japan-a-country-commercial-guide-for-u.s.-companies)

U.S. exporters seeking general export information/assistance or
country-specific commercial information should consult with their
nearest **Export Assistance Center** or the **U.S. Department of
Commerce\'s Trade Information Center** at **(800) USA-TRADE**, or go to
the following website: [http://www.export.gov]().

To the best of our knowledge, the information contained in this report
is accurate as of the date published. However, **The Department of
Commerce** does not take responsibility for actions readers may take
based on the information contained herein. Readers should always conduct
their own due diligence before entering into business ventures or other
commercial arrangements. **The Department of Commerce** can assist
companies in these endeavors.