Entrepreneur April 2017

Make it in Japan

Five challenges for non-Japanese entrepreneurs

Language barrier
Not being Japanese does not preclude you from operating as an entrepreneur in Japan. However, you will find yourself frequently having to communicate with Japanese clients and contractors, and occasionally with government officials. Thus, the ability to write and speak Japanese well is a major advantage.

Using a Japanese employee to interpret or translate is an option, but doing so can be a waste of that individual’s time and energy. An alternative might be to use the services of a specialist translation company.

Business culture
The Japanese business world demands high professional standards: punctuality, rapid response to e-mails and phone calls, and smart attire at meetings.

Service industry clients typically pay their bills at the end of the month, either one or two months after work has been completed. Hence, payment may lag up to 90 days behind delivery of a service.

Japanese clients mostly require that three standard documents be submitted: an estimate, a delivery invoice and a bill. For payment to be made, these documents must bear the imprint of your firm’s square hanko, or seal—even when the product provided is a service or other intangible good. Should any of the three documents not be submitted by the agreed deadline, payment is likely to be delayed a further month.

Payment for high-value manufacturing-industry transactions is sometimes made using a tegata, or promissory note, which is only redeemable for its full value several months after issue. However, a third party may take the note off one’s hands sooner for a discounted cash payment, typically 80% of face value.

In short, many Japanese clients expect several weeks’ interest-free credit to be extended to them, which is far from ideal for small startup businesses struggling with cash flow.

Lengthy bureaucratic processes are common in Japan and government officials often give conflicting explanations. For example, when we tried to expand the scope of our whiskey importing business to include all spirits, we were told by a tax official that we needed separate letters of intent from Japanese buyers and distributors in each individual spirit category. The next official with whom we spoke—who was from the same government agency—told us that this was not the case, and we were then quickly issued with the licence which we sought.

Older Japanese employees are sometimes unrealistically optimistic about wage levels, their expectations being based on their age and the length of their working career—not on their skills.

Younger, digital-native Japanese employees may possess a more relevant skill set, and might be more flexible in terms of compensation, but sometimes lack the sense of responsibility and work ethic of their older counterparts.

Hiring non-Japanese, meanwhile, requires administrative effort that may include visa sponsorship. Yet, they may not remain in Japan long enough to have a positive, long-term impact on the success of your firm.

Establishing trust
Relationships are key in the Japanese business world. Japanese firms value long-term business relationships, since familiarity and trust tend to foster confidence regarding the quality of service that can be expected. When the other party is not Japanese, the level of trust may depend on the length of time that the individual has been in Japan or that the firm has been operating here.

Meanwhile, Japanese clients will expect you to trust them, in that established billing and payment practices require that you offer them up to three months’ interest-free credit.

Many Japanese also assume that non-Japanese will eventually return to their home countries, and this assumption may lead them to question the long-term sustainability of business relationships with foreign-owned firms. At the same time, the conservative nature of many older Japanese firms may make them less inclined to pick a non-Japanese vendor if a home-grown supplier is available.

Thus, foreign-owned firms inevitably start out as outsiders, in an environment where the advantage rests decidedly with the insiders: Japanese firms. Hence, startups owned by non-Japanese must work hard to build and maintain trust with their Japanese clients. This is a process that takes years.

Non-Japanese entrepreneurs certainly face many challenges to doing business here, in addition to the strains and pressures that come with running one’s own business. However, there are also many positive features, including the nation’s well-developed infrastructure, its economic and political stability, and the order and integrity of its society. Overall, business opportunities for non-Japanese entrepreneurs and their chances of success in Japan would seem to be at least as good as in other countries.