Surprise! It's tough doing business in Japan. But if you're a lone entrepreneur with a product or service from overseas, the going is especially hard. It takes years to build relationships with your Japanese customers. Meanwhile, banks won't lend you money. Startup costs are horrendously high. Landlords demand exorbitant deposits and outrageous rents. Language and culture are round-the-clock challenges. And customs regulations, while a bureaucrat's sweet dream, are an importer's nightmare.
Where
can the very small entrepreneur find help? Americans can join the American
Chamber of Commerce in Japan or talk to the people in the U.S. embassy's
commercial section. But joining the ACCJ will set you back ¥100,000
a year, and many small entrepreneurs will tell you that the support programs
at the U.S. embassy/consulates are designed for companies somewhat larger
than yours.
The
Japanese government also provides help for the small entrepreneur, primarily
through the Japan External Trade Organization, or JETRO. With offices
throughout Japan and around the world, JETRO might be considered a logical
first stop for anyone wanting to do business in Japan. Six JETRO Business
Support Centers in key cities in Japan also provide temporary office facilities
and various consultations services for the newly arrived entrepreneur.
Alas, these facilities and services are only available for a maximum period
of two months, renewable once at JETRO discretion. Like the ACCJ programs
and U.S. commercial services, the JETRO services are designed for much
larger fish, mainly those overseas. The small entrepreneur already here
in Japan slips right through the support net.
And yet, there is a small but growing group of entrepreneurs who are finding success in one of the toughest markets in the world. How? For the most part, by doing things the Japanese way, patiently building trust and good will with Japanese customers, and being in the right place at the right time with the right product or service.
Ian
Shortreed, President of Mercury Software in Kyoto, found success in
good timing. He caught the Macintosh computer wave just as it took off,
and was a major player in the market before his Japanese competitors could
respond. "Japanese companies are terrible at predicting the future,
so there are plenty of opportunities for a foreign company to find and
exploit niches that no one here is yet aware of." He points to the
current internet/Java boom as one area that caught the big Japanese companies
totally by surprise. They are now scrambling to catch up but it may be
too late.
Thomas
Wilson found and successfully exploited two niches: graphic design
and fashion accessory imports. On the graphic design side, he produced
the book, A Business Guide to the Kansai for
the U.S. Consulate Osaka-Kobe. while on the accessory side, he operates
accessory boutiques in major department stores, and sells accessories
on a wholesale level to about 100 other stores throughout Japan. His company,
stylism, was incorporated as a YK for the sake of simplicity and
fewer capital requirements.
Tom credits much of the success of his fashion accessory business to his Japanese wife, who runs the Japanese side of the business. "The only way we have been able to survive in this field, which is dominated by a few large Japanese firms, is because our small size allows us to be more flexible and my American background allows us to see business opportunities that might not be seen by the traditional Japanese approach. A lot of credit also goes to timing...we entered the field 6 years ago, when the accessory boom was starting. We were able to solidify connections with important designers before they were all taken by competitors. It would probably be impossible to begin this business now with much hope of success."
Tom feels that the resources of the ACCJ and the U.S. commercial services
are more directed to the larger operator in Japan, and Japanese government
organizations such as JETRO have been more of a hinderance than a help.
For him, "...trial-and-error is often the fastest way to unbridled
success or abject failure."
The question of how to incorporate-yugen kaisha (YK) or kabushiki kaisha (KK)-wasn't important for many of these small entrepreneurs. A few didn't incorporate immediately, waiting until their businesses were established and making money. Others incorporated right away for legal or liability reasons, or because their customers expected to deal with a corporation, not an individual. When they did incorporate, most chose YK for its smaller capitalization requirement (3 million yen) and simpler paperwork. Others felt that the added cachet of a KK was important for their type of business despite the higher capitalization costs (10 million yen).
Paul
Brodek worked for a large Japanese bicycle company before setting
up the local Trek bicycle operation in 1991. For
him, the YK/KK choice was easy: he felt that his product and business
methods were very image dependent and that the extra status of a KK would
be important. Moreover, a KK could be had for just ¥400,000 in 1991.
Paul feels that Trek has derived little benefit from the various small
business programs. "Most of these programs are basically designed
to introduce American companies to Japanese distributors. They are aimed
at companies that don't have full-time offices here in Japan or will be
trusting their business to Japanese partners. On the other hand, Trek
bicycles are sold directly and almost exclusively to retail outlets. The
owners of these outlets don't go to ACCJ functions or U.S. sponsored trade
shows. They go to bike shows." Still, Paul has recently participated
in a few of the activities of the "Made in the USA" program,
mainly to reach consumers that don't go to bike shows.
One of the most common complaints among small entrepreneurs is the lack of access to capital-banks generally won't lend money to foreigners or their companies without collateral, yet most small entrepreneurs have very few qualifying assets, such as product or property. Sometimes it takes a Japanese national-often a spouse-to become a guarantor for what essentially becomes a personal loan. For many small companies, sales become the key to day-to-day survival, and growth comes slowly.
Russell
Willis, president of eigoMedia, an educational software company in
Tokyo, managed to borrow money for his YK company, but only because his
Japanese wife could act as guarantor. The company went through severe
financial difficulties, however, when he and his wife later divorced.
Recently, he found a Tokyo metropolitan government program, called Tokyo
Guarantee, that helps small businesses obtain bank loans. Russell still
had to go to a bank to get a loan, but Tokyo Guarantee was now his guarantor.
Russell is awaiting the bank's decision.
Byron Syler is not an entrepreneur but a member of a fast growing group: business-savvy, Japanese-speaking foreigners working in Japanese companies-in his case, one of Japan's leading city banks. He is in a position to confirm most of what the foreign business community says about Japanese banks, frankly admiting that the banks here generally avoid foreigners and foreign companies. The only way to get a loan is to have a Japanese guarantor.
Japanese banks often cite the language gap, though this excuse is becoming less applicable as more and more foreigners conduct business in fluent Japanese. They also cite the 'cultural' gap, meaning that foreigners don't ask the right questions or present clear business plans. Most banks still feel that foreigners are only in Japan for the short term and the quick profit. Sometimes the banks are right, but often they are dismissing genuine business opportunities.
A case in point: when the huge multinational, Procter and Gamble, first came to Japan, they tried to establish a banking relationship with a certain large Japanese bank. Unfortunately, this bank was not sure that P&G would be a success in Japan; P&G was new in market and the bank felt they were not in a position to develop a corporate banking relationship. More than a decade later, P&G is a success, and the Japanese bank is now trying to win back the business it had--and lost--years ago.
Byron is working from within the system to change some of these attitudes, but says that small entrepreneurs can actually do more for themselves by being patient and learning the Japanese ways of doing business. One powerful tool they have is numbers; if these small operators could come together and present themselves as a large and legitimate business group, Japanese banks would take them very seriously, indeed.
Chuck Grafft of the Foreign Buyer's Club will soon celebrate his
10th year of operation, though 2-1/2 years of that was spent setting things
up. He says that Japan is not an easy place for individuals -- Japanese
or foreigner -- to do entreprenerial business. "In Japan, there is
a different type of 'small business' category. You have mom & pop
shops, and then you have Mitsui." Most business support organizations
assume that a parent company is behind the startup. They don't know how
to deal with the individual: "You're Chuck? And you're with...Chuck?"
For this, and one other very important reason, Chuck recommends incorporation for anyone doing business in Japan. "For many small businesses, there is esentially no difference between a KK and a YK, but if a KK is important to your customers, then do it." The other very important reason? If you don't, the U.S. government considers all of the money earned by your pseudo company to be 'self-employed income', which means that you have a liability for self-employment tax, which does not have the $70,000 exemption.
Visas are another problem that Chuck says should be carefully considered. Many people start up businesses while still on teaching visas. The Japanese immigration authorities don't like that. But the truth is, many people have to do this in order to get the business going. Still, you should find out what visa status you need, and get it as quickly as possible.
| Chuck is a great believer in doing whatever is necessary to survive. He breaks down the entrepreneurial process into three phases. | |
| Phase A | Survive! Don't buy office furniture and hire an international business consultant. Instead, cultivating relationships with your customers. |
| Phase B | Start putting structure in place. That includes visas, YK or KK incorporation, and getting legal and accounting help. |
| Phase C | You have a real business. Now you need staying power. Start creating a system that can operate smoothly when you go on vacation. |
Were the business support services offered by the U.S. consulate, the ACCJ and JETRO at all useful to Chuck? "Not really! Everyone was very nice, but they are not equipped to help the single-person startup." Like so many of the others interviewed for this article, he feels that these services are geared to the needs of larger companies.
Chuck thinks that Japan could benefit from a new American idea: the business incubator, in which a person with an idea but limited resources can have access for up to 1 year to business facilities and 'street-smart' business experts who have their own small businesses. Chuck feels that JETRO could provide these business incubator services but they would need at least a few people with experience in setting up and running a small business.
Sandy Paolini is well known in the Kansai for her American resort style hotel beside Lake Biwa., but not many people know that she is also a housing contractor. She has built 30 houses to date, from traditional 2x4 framed houses to log cabins.Sandy is absolutely convinced that the Japanese government conspires against small businesses by making it so very expensive to do business here. She cites startup costs, equipment and operating costs, and a variety of visible and invisible import barriers.
For example, customs prefers that all the materials for a single house be brought into the country in a single shipment in order to qualify for the flat tax rate. If the materials arrive separately then each piece must be itemized and categorized-down to the species of lumber. Each item is then taxed at a different rate. This often results in a much higher overall tax, but the more significant problem is the tremendous amount of added paperwork.
Bringing in everything in one shipment has its own problems: not only does it slow down the import process, Sandy must then find a place to store materials that won't be needed until the house is nearly completed. To Sandy, there is no logical reason for these rules. They only make doing business that much more difficult and expensive.
And no, she didn't get much help from the U.S. and Japanese government services for small businesses, citing the small size of her operation. Like many others, she learned her business by doing it. "There's no substitute for experience," she says.
Dennis Grass came to Japan in 1981 as an exchange student and again in 1984 while in the MBA program at the University of Michigan. By the time he returned in 1991 with the Apple Seed program, he had a plan and a commitment to 15 years in Japan. "One key to doing business in Japan is patience. Japanese business relationships are like American small-town relationships. They need time to grow."
Dennis recently founded World Wide Computer KK, offering training, consulting and sales in Osaka. "I think differently from the Japanese people. And I have long and extensive experience with the Macintosh computer. I also understand the Japanese way of doing business, and this gives me a unique advantage over my competitors. But there is no single factor that is most important for doing business in Japan. Like a jigsaw puzzle, all the pieces are needed to complete the picture."
Dennis also feels that, historically, the services and resources of the ACCJ, the American Consulate, etc., have been designed with the larger company in mind, and that most of those services and resources are in Tokyo.
Julian Holmes set up Asterix KK, a translation and desktop publishing company in Osaka, just before the Japanese government began raising capitalization requirements. "The capitalization requirement was increased to eliminate the 'ghost' companies that were set up to launder money for their larger parent companies. Unfortunately, a side effect of the law was to make the price of doing business too high for the small entrepreneur." But as in Japanese culture, Japanese business does not look favorably upon individual effort, so little concern was expressed for the plight of the small entrepreneur.Julian's advice to the small entrepreneur? Do business the Japanese way. Build relationships with your customers. Go out drinking with them, if that's what it takes. Do the macro stuff yourself and let your Japanese staff handle the details.
Last year, Julian's business was down and he considered shutting up shop. Instead, he took the risk of hiring another office person to give him more time to practice that ancient business rite--networking. Among other efforts, he joined the Osaka Junior Chamber of Commerce, a group of about 1,200 under-40 business people from all sizes of Japanese companies. At ¥100,000 to join and ¥150,000 annually, it was a heavy expense for his small company, but it gave Julian access to precisely the type of customer and stumulus he was looking for. And being the only foreigner in the group, he gets considerable attention. As a result, work is booming and the future looks rosy.
Sean
Lewis founded WEST Co., Ltd., two years ago to import aloe vera juice,
cosmetics, personal care products and household goods. Like Julian Holmes,
he, too, considered closing up shop last December. His accountant, however,
asked him, "Are you willing to live or die with your product? If you
are, then stay with it." He did, and today is beginning to enjoy his
first positive results.Sean says that being a foreigner sometimes has its advantages. Whereas a Japanese salesman will get stopped at the receptionist's desk, the foreigner can often play what Sean calls the "gaijin trump card"-the "how do I deal with this foreigner?" attitude-to penetrate deeper into the company and reach the actual decision makers.
Sean also advises patience and loyalty. "Once a customer gives you their business, they will remain with you for a long time. But to keep that business coming, you have to keep your promises and provide value"
Are there any parallels between the problems he has to those of the large multinationals? No. He says they have problems because they try to do business the American way. As far as he is concerned, his company and methods are Japanese. In fact, he thinks that many of his initial business problems stemmed from having an American mindset. Only when he began understanding and applying Japanese methods did his operation turn around.
Dan Schneider, president of Zen International Business Promotions, Inc., has also learned the value of trust. For him, the biggest problem wasn't finding Japanese customers for his jewelry and household accessories-he had them-but convincing the American suppliers to ship him the product on time and getting them to answer faxes and telephone calls. Tired of making delivery promises he couldn't keep, he repositioned his company as a translation and electronic publishing firm and eventually found success offering his customers the thing he couldn't get from his American suppliers-unfailing reliability. He now understands why it takes so long to build a business relationship in Japan. And why gaining the trust of your customer should be a top priority for any company-small or large-wanting to do business in Japan.Conclusion...
Clearly, the small entrepreneur often feels that he or she is out there
alone. The folks at the ACCJ, JETRO and the U.S. Consulate may be friendly
and eager to help, but the perception, rightly or wrongly, is that you
have to be a large, established player to derived much benefit from those
services. The programs these agencies offer simply don't take the lone
entrepreneur where they want to go. And while many small entrepreneurs
do join the ACCJ, they usually do so only after having achieved some degree
of success on their own.
As Dennis Grass points out, however, attitudes towards the small entrepreneur
seem to be changing at these agencies. He cites new books put out by the
U.S. Embassy/Consulate and the ACCJ aimed at the concerns of the individual
entrepreneur. He also welcomes the arrival of Mr. Todd Thurwachter, Principal
Commercial Consul, at the Osaka-Kobe Consulate. Mr. Thurwachter is enthusiastic
about the potential of the small entrepreneur in Japan and has set up
a discussion group at the consulate to help these people find solutions
to their problems. His goal is to bring the Japanese business community
together with the American entrepreneurial spirit, then sit back and watch
them take off together.
Aside from the expected problems relating to language and culture, few small entrepreneurs see parallels between their own experiences and problems and those of the large internationals. The idea simply never occurs to them. Many consider their operations to be Japanese in style and methods. Only their product or service is Western.
A surprisingly large number of these entrepreneurs, say that, given what they now know, they wouldn't do it again. They cite the horrendous startup costs, the long incubation period (averaging 2 years among those interviewed for this article), and the complex paperwork for taxes, visas and customs.
Still, the majority are achieving success in one of the toughest markets in the world. And they are doing it the old fashioned way, with hard work and new ideas. As many of those interviewed pointed out, there are expanding business opportunities for foreigners as more Japanese companies come to grips with the bursting of the bubble economy and the recent recession. Japanese companies that once did business through long-term relationships are finding out that those relationships can be expensive. These companies are now looking for value and new ideas, and they are finding them in the products and services offered by this new breed of foreign entrepreneur who has learned to do business their way.
Solutions...
Small entrepreneurs are often told, "do your homework." The following organizations, books, and web links are good places to start.
| The American Chamber of Commerce in Japan (ACCJ) | ||
| ACCJ Kansai Chapter |
The Business Promotion Committee and the "Made in the U.S.A." program are just a few of the resources available to the small entrepreneur. |
Mr. Ron Siani 078-857-9745 |
|
The American Consulate United States and Foreign Commercial Service |
There is a new attitude towards the small entrepreneur at the U.S. Embassy, and at least part of the credit goes to former Ambassador Mondale's enthusiastic support for the 'Made in U.S.A.' initiative and other small-entrepreneur programs. |
Mr. Todd Thurwachter 06-315-5953 |
| The Japan External Trade Organization (JETRO) | Osaka: 06-203-3601 Kobe: 078-231-3081 Rokko Island: 078-857-7221 (Business Support Center) |
|
| Kansai International Professionals (KIP) | Targeted towards the foreigners who work for Japanese companies. Workshops on businessskills; guest speakers. |
Brent Winslow 0797-31-5264 |
| Foerign Executive Women (FEW) | A networking group for professional women in Japan. A number of the members are small entrepreneurs. Monthly meetings in the Kansai, often with guest speakers |
Martell Miki 0798-73-6716 |
| Osaka Chambers of Commerce and Industry | 06-944-6200 | |
| Osaka Junior Chambers Inc. | 06-942-516221 | |
| Kobe Chamber of Commerce and Industry | 078-303-5806 | |
| Kyoto Chamber of Commerce | 075-212-6400 | |
| Osaka Small Business Information Center |
Reality Check...
Ron Siani, Administrator for the Kansai branch of the American Chamber
of Commerce in Japan, is often disappointed by first-time callers. "They're
not asking the right questions. Most likely, they've seen the price of
M&M's at the candy store and remember what those things cost back
home. They think that they can turn a quick and easy profit importing
M&M's into Japan. They obviously haven't done their homework, and
there isn't much I can do for them." Before making commitments and
spending money, he suggests that you ask yourself at least the following
questions.
- Is my product already being sold in Japan?
- Is there something inherent about my product -- such as a banned food dye or a safety factor -- that will prevent it from being imported?
- Will my product require food or safety inspections? Who pays for the inspections?
- What do I know about the maker of the product? Can they deliver product to me on time? Can they handle returns?
- How am I going to market my product or service in Japan? Do I need a distributor?
- Do I have any business experience? What are the strengths and weaknesses of my business skills? What are my long-term goals?
- Do I have a written business plan? Am I familier with customs and shipping procedures? Have I worked out all the costs?
- How are my language skills? Can I do business in Japanese?
- What kind of contacts do I have in the Japanese business community?
- Do I have an accountant yet? Will I need a lawyer?
- Do I have the financial wherewithal to cover initial costs? If not, where am I going to get the money?
- Instead of handling the product directly, have I considered acting as an agent, bringing a buyer and a seller together in exchange for a commission?
Trust vs Reliability (Return to main story)
There is a subtle cultural difference at work in much of what these foreign business people say. When interviewed, Dan didn't use the word 'reliability.' In his mind, his problem with the American supplier wasn't reliability, but a failure to be trustworthy. In fact, he and everyone else interviewed for the story used the words 'trust' and 'loyalty' in this sense over and over again. No one ever used the word 'reliability.' Perhaps law-oriented westerners would not use the word 'trust' in Dan's context because it has emotional and legally unenforceable connotations, whereas 'reliability' can be measured and bound by contract. The Japanese, on the other hand, place far less emphasis on the written contract. To them business dealings are full of emotional resonances, so 'trust' becomes an extremely powerful business commitment with all the obligations of a written contract. To them, 'reliability' is more an indication of product quality.
This dependence on trust has even deeper cultural implications in the Kansai. It is said that business in the Kanto is done among strangers (how many people in Tokyo are actually from Tokyo?) and from the head, but in the Kansai, it is done among friends and from the heart. Kansai folk have business relations that go back centuries. It takes time to build business relationships in the Kansai because those relationships are founded not upon a contractual obligation, but upon an emotional commitment that is expected to last a lifetime. This is one reason why so many of the interviewees had such long, hard startup periods. And why so many of them talked about building trust, not ensuring reliability).
Now, it is quite possible that many of these people are simply echoing what their customers are saying. And if someone were to point out to them the semantic difference between trust and reliability, they would probably agree. But their initial response was to use the word 'trust' in its Japanese sense, and the resulting nuances of that usage speaks volumes about their success in the Kansai market. They are listening to their customers and -- language barriers or not -- understanding at the deepest levels what their customers are saying. If I were head of a major international corporation, I'd staff my local office with just these types of people. (Return to main story)
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This story first appeared in the November, 1996, issue of the Journal for the American Chamber of Commerce in Japan, published by Paradigm. Steve Porritt is a freelance writer based in the Kansai. He has lived in Japan for 23 years. e-mail: steve@kyomedia.com |
"very small" entrepreneur artwork from original by Charles Stubbs (StubbsArt@aol.com) for the ACCJ Journal story.
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