HOW TO RE-THINK AND CREATE
A WINNING JAPAN STRATEGY
FOUR KEY STRATEGIC SUCCESS FACTORS IN JAPAN
BUSINESS SWEDEN, DECEMBER 2016
FOUR KEY STRATEGIC SUCCESS FACTORS IN JAPAN | BUSINESS SWEDEN | 1
HOW TO RE-THINK &
CREATE A WINNING
JAPAN STRATEGY
A re-evaluation of your strategy and organization in Japan could reveal new opportunities for growth
and impact the rationale for different modes of establishment or collaboration with Japanese
companies as the Japanese business landscape is undergoing change.
COMPANIES SHOULD RE-EVALUATE THEIR
JAPAN STRATEGY TO REACH THE FULL
POTENTIAL IN A CHANGING JAPANESE
BUSINESS LANDSCAPE
There are reasons for Swedish companies to rerd
evaluate their approach to Japan. The world’s 3
largest economy is still highly interesting with a
large consumer market and advanced
manufacturing industry. Still, we observe a
tendency among many Swedish companies to
fall into somewhat of a passive “status quo”
mentality in Japan. The Japanese market has
never been (and still isn’t) an easy market for
foreign companies to penetrate, but it can be
very rewarding as long as you dedicate enough
attention to its management. And there are signs
that the market is becoming more accessible.
There is a changing attitude towards
international business practices and increased
openness towards foreign collaboration
(including M&A) among Japanese companies.
2 | BUSINESS SWEDEN | FOUR KEY STRATEGIC SUCCESS FACTORS IN JAPAN
A re-evaluation of your strategy and organization
could reveal new opportunities for growth.
While general news reports on the Japanese
economy often are quite gloomy are Swedish
companies generally doing better than the
market on average. Swedish subsidiaries in
Japan have a predominantly positive view on the
Japanese business climate. A majority of
Swedish subsidiaries have seen positive sales,
increasing market shares and are generally
satisfied with the Japanese market development.
Even with many years of experience in Japan
there might be reasons to re-visit your strategy.
Japanese companies are indicating an increased
openness towards collaborating with foreign
companies, a more accepting attitude towards
M&A and international business practices.
Increasingly faced by international competition,
companies have heavily invested in acquisitions
of foreign know-how in order to remain at the
forefront of innovation.
Key take-away:
There are no one-size-fits-all solutions for
success on the Japanese market, but having the
right local organization in place and making
regular visits are key success factors. Reevaluating the rationale for establishing a whollyowned subsidiary, expanding sales through
inorganic growth or collaborating with Japanese
partners are potentially interesting options to
consider as the Japanese business landscape is
undergoing change. This paper aims to briefly
describe the changing landscape and offer some
strategic alternatives regarding modes of
establishment and partnerships during different
phases of market development in Japan.
JAPANESE COMPANIES ARE KEY
STAKEHOLDERS GLOBALLY & RELATIONS
TO HQ IN JAPAN IS CRUCIAL TO
COLLABORATION WORLDWIDE
Japanese companies are important stakeholders
in Asia and increasingly connected to
transnational production networks. Established
relations to the head office in Japan might prove
crucial to cooperation on other markets. Being
recognized as a trustworthy partner to a major
Japanese company also adds a strong track
record of collaboration and shows long term
commitment. This will strengthen inter-firm
relations with the Japanese company globally
and strengthen other relationships in Japan. One
might receive proposals from other companies
as a result of cooperation with one company.
Part of the explanation to why Japan increasingly
is becoming connected to transnational
production networks is that Japanese companies
have heavily invested in cross-border M&A.
Foreign Direct Investment (FDI) outflows
reached almost 130 billion dollar in 2015, with
outflows exceeding 100 billion for 5 consecutive
year. Japan was second only to the United
States in FDI outflows in 2015. This is a result of
many Japanese companies experiencing record
profits, partly due to favorable exchange rates.
Japan was also leading in signing bilateral and
international investment agreements in 2015.
Cross-border M&A statistics is part of FDI
balance-of-payments. It involves cross-border
transfer of funds when a company in one country
acquires the equity of a company in another
country. The following table shows the nominal
value and number of acquisitions by Japanese
companies abroad. Japanese acquisitions have
been at record levels in recent years even
though the nominal value varies year by year.
Japanese companies used to mainly invest in
high growth emerging economies. However, in
the first half of 2016 was more than 90 percent of
the value of acquired companies located in
developed economies. North America accounted
for 35%, Europe 25% and Asia 24%. Already in
2015 were two thirds of acquisitions in developed
countries, implying that Japanese companies
increasingly seek acquisitions to obtain knowhow of foreign companies, access to supplier/
customer networks, international experience etc.
Figure 1 - Nominal value & number of cross-border M&A deals with a Japanese company as buyer
461
460
60
463
450
412
398
500
Billion USD
400
341
50
350
297
300
40
250
62
30
58
46
20
38
31
10
50
200
150
100
18
Number of cross-border
M&A deals
70
50
0
0
M&A value
Number of deals
Source: UNCTAD World Investment Report 2016
FOUR KEY STRATEGIC SUCCESS FACTORS IN JAPAN | BUSINESS SWEDEN | 3
JAPANESE COMPANIES INDICATE
INCREASED INTEREST IN COLLABORATION
WITH FOREIGN COMPANIES
of the highest shares of private sector
contribution out of all OECD countries. Japanese
companies rank among the world's largest
corporate R&D investors while participation of
small enterprises in national research and
innovation policies is limited.
Japan is one of the leading countries in terms of
innovation and at the same time struggle to
remain at the forefront of innovation, indicated by
the increased openness towards foreign
collaboration and introduction of international
business practices. This might seem like a
contradiction but one might attempt to explain
this trend by looking at differences in national
innovation systems. Japan's national innovation
system relies less on public research and
international collaboration, but is rather
dominated by open innovation within Japanese
corporate groups. Private sector accounted for
77% of Japanese gross domestic expenditure on
research and development (GERD) in 2014, one
While leading in triadic patent family output
globally (patents recognized by Japan, the
European Union and the United States), Japan is
increasingly challenged by rivals from mainly
China and South Korea. One observation is that
Japanese companies seem very skilled at
making slight (albeit advanced) product
improvements within existing technologies but
less capable of delivering groundbreaking
developments in new technological areas,
typically discovered in basic research.
Figure 2 - R&D expenditure (% of GDP), basic research (% of R&D) & patent grants of selected countries
5
Japan
R&D expenditure
(% of GDP in 2014)
227 142
Korea
129 786
4
China
233 228
3
2
1
Size of bubble equals number of patent grants in 2014
By office (not triadic patents)
USA
300 678
0
0
5
10
15
20
Basic research (vs. applied) (% share of total R&D expenditure in 2013)
25
Source: World Bank 2016, World Intellectual Property Organization 2016, OECD Science, Technology and Industry Scoreboard 2015.
THERE IS INCREASED RATIONALE FOR
INORGANIC GROWTH IN JAPAN
Another trend that can be seen is that Japanese
companies are increasingly willing to divest noncore businesses to foreign investors in a push to
remain internationally competitive. High profile
acquisitions such as Foxconn’s acquisition of
Sharp and divestments of non-core businesses
at Sony, Panasonic and Toshiba have set a new
norm. In the smaller perspective, many small and
medium-sized companies in Japan are lacking
natural successors. With Japanese businesses
traditionally being inherited through bloodlines,
the fact that about two-thirds of Japanese
companies do not have a successor lined up is
quite astonishing. Traditional attitudes towards
selling your life’s work as something shameful
4 | BUSINESS SWEDEN | FOUR KEY STRATEGIC SUCCESS FACTORS IN JAPAN
are gradually changing. Cultural fit and mutual
understanding of buyer and seller are just as
important as financial strength, which could
prove valuable for potential acquirers as there is
a good cultural fit between Japan and Sweden.
Inorganic growth is an increasingly viable option
in Japan. It used to be difficult to enter the
Japanese market through acquisitions as usually
only companies on the brink of bankruptcy were
acquirable, which is not necessarily true
anymore. The typical Japanese company
available to acquire or open to collaboration is
changing not only to include companies with
financial difficulties. Of course, if the acquisition
target had everything going in its favor it most
likely would not be up for sale. But Japanese
companies are increasingly looking to be
acquired, and increasingly not only loss-making
companies. Many companies, competitive in
certain areas, might lack expertise in new
technologies or have no international expertise.
These companies typically seek collaboration to
access new products, technologies and help to
develop international markets. Regardless it is
important to consider the rationale for any
Japanese company seeking collaboration.
THERE ARE REASONS TO RE-EVALUATE
YOUR OVERALL STRATEGY IN JAPAN
We encounter many Swedish companies that
have been in Japan for a long time with the same
set-up. There is a tendency to have a rather
passive “maintain status quo” strategy in Japan.
Typically companies neglect to re-engage with
the market after a product segment has reached
maturity. The Swedish HQ might be satisfied with
turnover in the Japanese market relatively to the
effort, which might slide companies’ positions
drifting as more attention is needed to be able to
move to the next step. There might have been no
expats present for years and knowledge in
Sweden might be limited about the operations in
Japan. Active involvement from the HQ in
Sweden could discover areas for improvement
and re-ignite the market development.
Figure 3 - Phases of Japanese market development – typical features of different modes of establishment
Sales
Problematic phase for
Swedish companies
Beginning
New chapter
New trajectory
Maturity
Change
Growth
1 year
Drift
1-5 years
5-10 years
10- years
Time
Source: Business Sweden
Business Sweden recently published a report
1
called “Dare your distributors” that encourages
Swedish companies to more actively manage
distributor relations implying that solutions lies as
much with the Swedish principals as with the
distributors. As distributors are significant sales
channel partners does distributor management
deserve more attention but also management of
all business partnerships. Swedish companies in
Japan specifically struggle to re-engage once a
market has reached maturity, visualized by the
“change” phase in the graph above. Active
partner management could enable the start of a
new chapter in Japan.
1
The main flaws of all partner relationships are
typically lack of clear-cut governance structures,
regular follow-ups and different expectations
regarding performance. Japanese companies
are typically excellent at maintaining existing
partner and client relations but significantly
worse at acquiring new contacts, which is
necessary to gain access to new networks and
customer segments. Distributors and partners
alike need continuous feedback to guarantee
desired outcome. Regular face-to-face
communication, involvement from HQ and a
good balance of control vs. autonomy are key
components of successful collaboration.
Dare your distributors
FOUR KEY STRATEGIC SUCCESS FACTORS IN JAPAN | BUSINESS SWEDEN | 5
Established knowledge often proclaims that
foreign companies have to enter Japan in some
sort of partnership with a Japanese company,
whether it might be a joint venture, strategic
alliance, or other forms of collaboration. Even
international companies with significant
experience of entering new markets through
Greenfield ventures might have found
themselves inclined to investigate forming local
partnerships or strategic alliances when entering
the Japanese market.
Figure 4 - Typical mode of establishment in Japan
High
Low
There are numerous examples of both
successful and unsuccessful partnerships in
Japan. There are examples of foreign companies
finally succeeding in Japan after entering a local
partnership after struggling for many years as a
wholly-owned subsidiary. There are also
examples of companies finally succeeding in
Japan after establishing a wholly-owned
subsidiary after a stagnant partnership and
sufficient resources have been invested.
Size of market potential
based on market potential, entry barriers (and phase)
SUBSIDIARY
(Growth/Maturity/Change)
JOINT VENTURE, M&A,
STRATEGIC ALLIANCE
(Maturity/Change)
DIRECT SALES
(typical first step)
AGENT, LICENSING,
DISTRIBUTOR
(Growth)
Entry barriers
Low
High
Source: Business Sweden
CONDUCT A STRATEGY RE-EVALUATION
Whether your company is considering a joint
venture, already has a distributor or other type of
partnership, self-assessment is critical.
 Are you working with the most suitable partner?
 Have you evaluated different forms of
As long as the size of the potential Japanese
market is large enough in comparison to ease of
entering the market, establishing a wholly-owned
subsidiary is likely to be the best long-term
option to maximize return on investment for a
large enough company with available resources.
However, if the potential market size is unclear,
entry barriers judged to be too significant or other
partner benefits exist, there could be reasons to
investigate some kind of partnership with a
Japanese company, whether licensing, agent,
distributor agreements or more elaborate
strategic alliances or joint ventures.
collaboration?
 Do you have a clear governance structure?
 Have you assigned enough resources (human &
financial)?
 Do you provide adequate support and guidance
to your Japanese partner
Figure 5 - Overview of strategic alternatives in Japan (based on mode of establishment)
Subsidiary (K.K)
Distributor
Joint venture
M&A
Strategic alliance
Key strategic
issue
Control vs autonomy
of Japan operations
Partner performance
& enhancement
Overcoming market
(entry) barriers
Creating value
through inorganic
growth
Available synergies/
collaboration areas
Swedish
company
rationale
Incr. sales to new &
existing customers
Expand network
Sales representation
Limit risk/investment
Access to contacts
Becoming part of JP
business ecosystem
“Stamp of approval”
Enabling inorganic
growth (sales &
after-sales services)
Sales potential
Product line-up
New segments
Passive distributor
relation. Lack of
“due diligence”
Build long-term
relations & trust
Get to know partner
Regular visits
Sales potential
Knowledge sharing
Int’l experience
Division of tasks &
responsibilities
Cultural mismatch
Clear governance
structure, proper
“due diligence”, exit
option agreement
Financial rescue
Technical know-how
Int’l experience
No suitable targets
Cultural mismatch
Lack of trust
Long-term intent
Respectful M&A
behavior can lead to
other proposals
Japanese
company
rationale
Main reasons
for not reaching
full potential
Key success
factors
Inactive market dev’t
Lack of market
knowledge (SE HQ)
Active involvement
from HQ (regular
visits) to update
market knowledge
Source: Business Sweden
6 | BUSINESS SWEDEN | FOUR KEY STRATEGIC SUCCESS FACTORS IN JAPAN
Access to JP market
Tech. collaboration
JP partner company
relations worldwide
Obtain key technical
expertise & int’l
experience
Unclear synergies
& performance
indicators
Limit scope, proceed
slowly. Gradually
incr. depth/width
of cooperation
3. Active involvement from Swedish HQ
There are no one-size-fits-all solutions for
success in the Japanese market, but there are
four key success factors when re-evaluating
your strategy on the Japanese market:
1. Thorough partner evaluation
It is important to conduct a thorough partner
evaluation prior to entering any agreement to
examine what distribution channels, after-sales
network and technical expertise a potential
partner has. It is especially crucial in Japan to
distinguish between a partner’s customers and
contacts. Potential partners might have the right
customers but the wrong contacts. It is
necessary to confirm the level of contact a
potential partner has as separate divisions of the
same company might be completely unrelated.
Established relationships should be specified or
the partner might not be able to realize expected
results. As mentioned, Japanese companies are
excellent in maintaining existing relations but
less capable of establishing new contacts.
2. Clear governance structure
In any kind of distributor or partnership
agreement, it is important to have a clear
governance structure. Clearly specify
responsibilities and limitations of the partnership,
whether it might be product segment, region,
sales channel or time period. The agreement
should also specify performance indicators and
under what conditions the partnership expires.
Should the product in itself no longer be feasible
to sell in Japan you can always cancel the
product (and thereby the partnership expires) but
you cannot or should not change partner as a
general rule. There is no such thing as “moving
up the value chain” among partners. However,
getting a “stamp of approval” as being
recognized as a trustworthy partner to a wellknown Japanese company will open up for other
new business opportunities.
Regardless of type of establishment, it is
important for Swedish companies with active
involvement the Swedish HQ in order to own the
customer dialogue. Companies need to listen to
and understand the Japanese customer’s
requirements and not only listen to your partner’s
interpretation. The customer will only ask for
what they understand and know. This is not least
important when partnering with a large company.
It is quite easy to lose control over a Japanese
partnership and it can be very exhausting to try
to change the governance, organizational
structure and culture of Japanese companies.
4. Long term perspective and enough
resources provided
Most Japanese companies will only enter into
comprehensive partnerships with companies that
they know well and have been working with for a
long time. Partnership and business discussions
might progress slower than in other markets, but
it is worth all attention as the cost of a bad
partnership might ruin a company’s chances of
reaching its full potential in Japan by
complicating future partnerships. There is
typically a lot of consideration to soft values,
such as cultural fit. Japan can be very rewarding
if you have enough patience as Sweden has a
cultural advantage and positive image. It is
important to have a long-term perspective and
provide enough resources, including support to
existing partners.
By Carl Norsten & Cecilia Öberg Leiram.
The authors thankfully acknowledge input and
support provided by Business Sweden
colleagues as well as companies and other
industry professionals interviewed for this paper.
This paper is based on Business Sweden’s
market knowledge and the outcome of in-depth
interviews with 15 industry professionals with
experience of partnerships in Japan; country
managers of Swedish subsidiaries, industry
organization representatives and academia.
FOUR KEY STRATEGIC SUCCESS FACTORS IN JAPAN | BUSINESS SWEDEN | 7
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