Marketing in Japan

¶ … Japanese market entry strategies for multi-national companies (MNCs). Japan is one of the world's largest economies, but is also considered by many to be No. 1 in entry difficulty. Also, the stakes are significant. According to statistics from the Japan Ministry of Finance, the total amount of foreign direct investment in Japan in fiscal year 2000 was U.S. $28.2 billion, which represented an increase of 1.3 times over the preceding year (Sostrom, 2001).

Given this scenario, MNCs looking to expand their presence in the Japanese market need to develop business strategies that overcome impediments to entry by foreign firms. Having decided to target a particular country like Japan, firms must decide the best mode of entry. MNCs must make decisions about the manner in which to begin or expand international operations based on the advantages and disadvantages associated with each entry method. Typically they choose between export, contractual and investment entry modes (MBA Knowledge Base, 2012).

Research has shown that the best entry mode into Japan is the use of equity investment, employing FDI. Expert observers argued that MNCs can best improve their foothold in the Japanese market primarily through direct investment as opposed to exporting or distributorship arrangements. They discussed this conclusion in market research sponsored by the American Marketing Association (AMA) and the Japan Marketing Association (Czinkota and Kotabe, 1999).

Historically, penetration of Japanese markets was impeded by the Japanese business practice known as keirutsu, a term describing a series of interlocking relationships among Japanese manufacturers and suppliers who regularly do business with other on a routine and familiar basis. However, this circumstance had begun to change in the 1990s, largely due to Japan's battle with recession. Until that time, many traditional barriers to entry existed, including high real estate prices, labor costs, and freight costs, as well as the requirement to offer channel members high levels of service in addition to significant amounts of financing (Czinkota and Kotabe, 1999).

When Japan's asset price bubble burst, many Japanese keiretsu firms experienced serious asset deflation which affected their hold on member companies' shares in their formerly tight-knit cross-shareholding relationship. The downturn in Japan's economy resulted in the country's distribution systems becoming more accessible to globalization. This change was responsible for major changes in the business environment for MNCs seeking opportunities in the Japanese market (Czinkota and Kotabe, 1999).

Industry experts ranked business strategy changes as the most important effort to facilitate entry into Japan's markets. In addition to FDI in forming joint ventures and strategic alliances with Japanese firms, analysts saw the use of "seasoned business practices as the key elements to market penetration" (p. 40). AMA-Japan Marketing Association survey respondents identified the following such practices: MNC's willingness and ability to conduct thorough market research, adapting products as needed, becoming more service-oriented, entering into collaborative joint ventures, having a long-term orientation as well as responsiveness to market changes. Survey respondents also recommended a formal export complaint resolution system (Czinkota & Kotabe, 1999).