Japan has been an attractive destination for foreign business, and progressive businesses are aware that they need a presence there. Some of the walls that have protected Japan against foreign entry have been crumbling away, thus making Japan more accessible to foreign business. By 1998, only about 7 percent of Japan’s GDP was related to imports, one of the few countries with a figure in single digits and the lowest figure amongst industrialized nations. With such a high GDP and a deregulating economy, this presents a huge potential, for American businesses.
The options for American firms wishing to enter the Japanese market are as follows: 100 percent ownershipEstablish a new plant of office (wholly owned subsidiary). 100 percent buyout of a Japanese firm (takeover). Partial ownershipEstablish a joint venture (subsidiary) with a Japanese firm. Purchase a controlling stockholding in a Japanese firm. Purchase a minority stockholding in a Japanese firm. No ownershipEstablish a supply relationship with a Japanese firm (exporter).
Enter into a licensing arrangement. The dominant form of ownership amongst American business operations located in Japan is 100 percent ownership. However, as a measure of testing the waters, many American businesses opt for a joint venture as a vehicle to entry. If this strategy proves to be successful, then there is a strong tendency for firms to strengthen control over business in Japan. When this decision is made, most firms change their business form, moving toward 100 percent ownership.
Following WWII, Japan’s trade and investment laws and foreign exchange laws set limits on the establishment of foreign firms in Japan. This included the prohibition of 100 percent foreign company ownership. Through the 1990’s, a combination of foreign pressures and a troubled economy resulted in the Japanese government allowing freer access in a number of areas. This has made it easier to for American businesses to enter the market without needing to rely on a Japanese firm to facilitate business.
While restrictions on setting up wholly owned operations in Japan have greatly diminished, a Joint Venture provides help in unknown territories, and means that firms can bypass many of the regulations that remain in Japan. Companies including Time Warner and Starbucks Coffee have entered Japan based on a 50-50 Joint Venture. Office Depot and Office Max both entered Japan by way of Joint Venture, with electronics chain Deodeo Corp. and discount chain Jusco, respectively.
Retail outlets had been the standard Japanese two or three person operations, which had been protected from competition by Japan’s Large Scale Retail Store Law. These small shops had been tied to a rigid manufacturer-driven pricing system, which had contributed to high product prices. This environment had led to an increasing shift in patronage to larger discount stores that offered a wide range of products at lower prices. Office Depot and Office Max provided a combination of benefits by offering a comprehensive range of products at low prices.
Both high labor costs and the difficulty of hiring people have been cited as major problems operating in Japan. As more foreign firms have come into Japan, demand for suitable staff has remained greater than the supply. However, the biggest problems firms experience in gaining entry into the market includes a body of both official and unofficial rules and regulations. The extent and nature of these depend to some degree on the industry. The key to overcoming these barriers is to become an insider. As part of this process, identify the industry association group related to the business and become an active member.
