How to do business in Tokyo

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Tokyo city landscape

Capital of the world’s third-largest economy and host of the next Olympics, Tokyo is arguably more open for business than at any time since Japan’s ‘economic miracle’ heyday ended in the 1990s. Our experts advise on ensuring that your goods and services won’t get lost in translation here

In the past, “big in Japan” was the wry term applied to western creations that were a flop at home but which – like the fading Hollywood star played by Bill Murray in Lost In Translation – found an unexpected consolatory niche in the Far East. Today, it does actually mean that you’re massive, with your corporate logo flashing up on the giant neon screens in Tokyo’s Hachiko Square and the chance to reach a high-spending population of 127 million.

With 250 shops in Japan accounting for 80 per cent of his business, fashion designer Sir Paul Smith undoubtedly takes this market seriously, for instance. Ditto Aston Martin, which expects to export more than £400m worth of cars here over the next five years.

The sheer scale of the world’s third-largest economy, to which the UK sends £10.5bn in goods and services each year, can be hard to comprehend. To put it in perspective, some of Japan’s 47 prefectures are more productive than the whole of Russia, says Steve Crane, founder of Business Link Japan, which helps British firms enter this vast market. Tokyo’s GDP alone topped £1.6trn in 2014, according to research by the Brookings Institution.

Furthermore, unlike multilingual China, Japan provides “one big market with one language and one set of business protocols”, Crane stresses.

It’s also a market in which British know-how is in demand. Japan will host the Rugby World Cup next year, followed by the Olympics and Paralympics in 2020. Given that the UK has successfully staged all three events in recent years, Japan is seeking its expertise in areas ranging from security to sustainability.

Yet, with Brexit fast approaching, the next few years may prove an anxious time for many British firms that are trading in Japan or planning to start doing so. In July the EU and Japan signed the world’s largest bilateral trade agreement, covering nearly 600 million people. The UK was one of the treaty’s most ardent champions when the negotiations started in Tokyo in 2013. Theresa May and her Japanese counterpart, Shinzo Abe, may have made a formal commitment to a copycat economic partnership agreement, but until then, Crane says, Japanese-British trade might “hit the pause button while everybody waits to see what happens next”.

Nevertheless, the upcoming sporting events are expected to give a much-needed boost to a nation that has spent a quarter of a century yearning to recapture the glories of its manufacturing-led postwar “economic miracle”. For instance, Japan’s tech troika of Panasonic, Sharp and Sony, which once bestrode the electronics world like colossi, have all lost huge chunks of their market share to rivals operating in East Asia’s tiger economies, particularly South Korean duo Samsung and LG.

In 2010 Japan was overtaken by China as the world’s second-largest economy, but “Abenomics” – the stimulus package that Abe’s government has been implementing since the second of his four general election wins in 2012 – is having a positive effect. Among many far-reaching reforms, the removal of red tape for foreign investors should hearten British firms.

Pedestrians in Tokyo

SOPHISTICATED TASTES

Another encouraging sign is that the Japanese still have a strong appetite for western products, especially luxury brands, says David Bickle, president of the British Chamber of Commerce in Japan.

“Consumers here are very discerning. They appreciate quality and products that are slightly unusual,” he observes. “This is a real advantage for British companies with long histories or niche offerings.”

Ettinger, for instance, has flourished in Japan since being awarded a royal warrant for its high-end leather goods in 1996. The firm opened its first store in Tokyo’s fashionable Ginza district in 2010, earning such an avid following that its warehouse in south-west London is visited by aficionados on a pilgrimage from Japan.

Its chairman and CEO, Robert Ettinger, recalls a conversation he had with a young member of staff at a hotel he’d been staying at in Tokyo: “After putting my bags into the car, he pulled out his Ettinger wallet and said: ‘Mr Ettinger, I am your greatest fan.’ That says it all about Japan.”

Such dedicated fandom is far from unusual in Tokyo. On Sunday afternoons members of a bewildering range of youth subcultures hit the streets of Harajuku district. Many of them proudly display their own takes on British fashion, whether it’s mohawked punks clad in the plaid of Vivienne Westwood, swaggering Liam Gallagher clones (his flagship Pretty Green store is nearby) or cosplay fans modelling the styles of Edwardian London.

At the heart of all this is an appreciation of detail and craftsmanship. Tamworth firm Rock Jaw Audio started exporting to Japan in 2014, its earphones finding favour with hi-fi connoisseurs. Its founder, Joe Watts, estimates that this market accounts for more than a third of its sales. “They love quality, so they aren’t scared to spend money on it,” he says.

Customising your product to suit Japanese tastes can prove especially profitable. Since developing the miniaturised DC12 vacuum cleaner specifically for Japan’s smaller homes in 2005, for instance, Dyson has taken a 12 per cent share of a fiercely competitive market. And Swiss food giant Nestlé has made KitKat Japan’s number-one chocolate bar, shifting four million units daily by offering it in hundreds of flavours to excite local palates, including purple sweet potato, cherry blossom and even “European cheese”.

By catering to the strong demand for kawaii (cute) products, British homeware chain Cath Kidston has enjoyed great success with its “modern vintage” designs in Japan, where it has opened 33 shops. “We’ve launched shapes and prints that suit local tastes,” says Dan Poppleton, the firm’s international director. “Our bento lunchbox has been especially successful.”

But it’s worth noting that the roll-call of British failures in Japan is long. It includes Tesco (which spent eight years and more than £250m here), Boots and even Jeremy Hunt: one of the foreign secretary’s first ventures after leaving university was a short-lived venture exporting marmalade.

“There is no point in competing with Japanese firms that can do the same thing as you,” Crane warns. “Successful British firms offer things that differentiate them from the local competition.”

Catch Kidston store, Tokyo

A MATURING MARKET

Japan is home to the world’s fastest-ageing population. In a nation where adult nappies already outsell the infant variety, the proportion of over-65s is set to rise from 27 per cent to 38 per cent by 2065. This is a big problem for the government, which is embracing new tech to ease nursing shortages (systems to help elderly people get out of bed or predict when they need the toilet, for instance), but it presents opportunities for UK businesses. Medicines are in big demand – Scottish biotech firm TC BioPharm opened a Tokyo office in February – as are leisure services.

“Members of this grey generation have high life expectancies and also high disposable incomes to spend on hobbies,” Crane says. An entrepreneur stuck for inspiration need look no further than the Japanese firm offering virtual-reality “flights” for a clientele mostly comprising over-60s. They pay ¥6,600 (£45) to sit in aircraft seats and watch 360-degree footage of Paris or New York City on VR headsets without leaving the ground.

Japan’s plummeting birth rate and the fact that many local companies won’t even consider recruiting western-educated graduates hardly help matters. The nation’s working-age population is projected to drop to 7.9 million by 2030. To redress the situation, the government is starting a globalisation drive, creating a new visa designed to bring in 500,000 foreign workers. Again, British companies that can provide education, training and other HR services are poised to benefit.

Working with Japanese organisations can provide an invaluable insight into the nation’s societal trends, from the march of AI systems (last year Fukoku Mutual Life Insurance replaced 34 office workers with IBM’s Watson Explorer) to the fervent support of bitcoin (Japan recently became the first country to define cryptocurrencies as legal tender).

Anyone who has heard the buzzword kaizen bandied about in board meetings will know Japan has long been a workplace innovator. Kaizen, translating roughly as continuous incremental self-improvement, was behind Toyota’s remarkable rise, while also inspiring the business philosophy of Amazon’s Jeff Bezos. Japan can claim to have spawned just-in-time manufacturing and total quality management too, as well as the concept of “menstrual leave” – the right of period-pain sufferers to take time off. The supporting legislation was introduced back in 1947, yet the subject is still widely seen as a taboo in the West.

Shushin koyo (the job-for-life mentality) may prove frustrating for British firms seeking local talent, according to Crane. “There are lots of well-educated people in Tokyo, but they’re invariably in secure jobs. Encouraging them to join a western start-up will be a big challenge,” he warns.

It can also be a place where work-life balance is hard to find. Japan’s long-hours culture is punishing: a government white paper recently warned that 20 per cent of employees are at risk of karoshi (death from overwork). In June a 64-year-old civil servant in Kobe was fined for starting his lunch breaks three minutes early. His bosses were so ashamed that they called a televised news conference in which they offered their abject apologies.

Crane notes that Japan’s strict corporate protocols do have their benefits for incoming firms. Your chances of being ripped off by a local business partner, for instance, are minimal, he says.

By the time the 2020 Olympics start, the uncertainty triggered by the Brexit vote may be a distant memory. Yet, however the trading relationship between the UK and Japan pans out, if trendy Tokyoites carry on craving high-quality products, the opportunities for British exporters to be truly big in Japan will surely remain.

 

Japanese etiquette: our experts’ tips on local business customs

Stoop to conquer. “Japanese people know that foreigners aren’t familiar with bowing, so they’ll give you lots of leeway,” Crane says. “But it doesn’t do any harm to learn, as that will score you points.”

Carte blanche. “Bring hundreds of business cards,” Bickle says. “And ensure that you have a professional Japanese translation printed on their backs.”

Gained in translation. “It’s vital to have a translator,” Crane says. “It’s not only about communication; it’s also about having someone by your side who knows both cultures’ attitudes to business.”

Polite to a fault. “Japanese people don’t want to offend, so they rarely say ‘no’,” Ettinger says. “I’ve heard stories about British firms that simply don’t hear any more from Japanese clients because of this.”

Mask your ills. Sniffling is acceptable in Japan, but blowing your nose in public definitely isn’t. Surgical face masks are used widely in Tokyo to limit the spread of germs. If you’re taking a cold into a meeting, Crane says, “wearing a mask will be appreciated”.

 

For more local expert guides to setting up in business around the world, visit director.co.uk’s International section.

 

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About author

Christian Koch

Christian Koch

Alongside his work for Director, Christian has written features for the Evening Standard, The Guardian, Sunday Times Style, The Independent, Q, Cosmopolitan, Stylist, ShortList and Glamour in an eclectic career which has seen him interview everybody from Mariah Carey to Michael Douglas through to Richard Branson with newspaper assignments including reporting on the Japanese tsunami and living with an Italian cult.

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