2022

Why Startups Are Failing to

Penetrate the Japanese Market
and What They Can Do
Differently
MAOR’S UNOFFICIAL GUIDE TO THE JAPANESE MARKET
MAOR SHWARTZ
Introduction
Startups from outside Japan are failing to penetrate its market. In this document, I will cover what, I
believe, are the main reasons why and, importantly, what startups can do differently in order to
increase their chances of success.

I will start by explaining Japan’s business culture, thought patterns, and innate restrictions and concerns
that foreign companies are generally not concerned with in other markets but which, in Japan, impact
greatly on any company wishing to sell their products or services. These points will accompany us
throughout the entire document as they are the main drivers behind many mistakes foreign entrants to
Japan make without realizing.

After setting this foundation, I will go through all the stages necessary for a startup entering the
Japanese market, from the initial decision to the growth stage. For each stage, I will try to cover the
most common problems and pitfalls I have encountered and offer ways to navigate through them.

It is worth mentioning that I do not intend this document to be the be-all-and-end-all on the topic; it is a
distillation of my own experience, analysis, and extensive discussions with veterans of this market. I am
sure I have missed certain things and there are undoubtedly exceptions to what I describe. Nonetheless,
after several years working in this area and considering what I have seen, I believe I have captured the
most important phenomena applicable to the widest array of people. So, it is my hope that this analysis
will be generally useful across the spectrum of foreign startups entering the Japanese market.

Before diving deep into the document, keep this in your mind: the basic premise for doing business in
Japan is patience.
Executive Summary
Most of the problems that companies, startups or otherwise, face when trying to penetrate the
Japanese market actually begin before the company tries to offer its services or products in Japan. Like
most things in life, laying a good foundation is the key to success in later stages.

Cultural Differences
In my experience, most companies outside Japan know that the Japanese market is different and that
there are fundamental cultural differences between Japan and the Western world, but only a small
percentage of companies understand the differences well enough to put them into words.

There are endless books and articles on the cultural differences between Japan and the West, but I
would like to focus on the ones I have personally encountered:

• Risk-aversiveness in Japan: The Japanese are known for highly prioritizing risk avoidance.
Regarding this, there are two main concepts that directly affect startups wishing to operate in
the Japanese market:
o Decision-making process (“Nemawashi”): Nemawashi is the process of sharing
information proactively about potential decisions in order to engage all the stakeholders
in the process and get their buy-in. The basic premise is that if someone has an idea, it is
best to run that idea by all individuals before seeking ‘audience approval.’ Giving people
a somewhat-informal ‘heads-up’ to get upfront approval reduces the risk of being shot
down when the decision is made formally.

The nemawashi system allows employees and managers, once all the stakeholders have
agreed to a change, to avoid individual responsibility to a certain extent and hedge
themselves in case of a downside to the decision.
o The role of corporations in Japan: Companies play a major role in the stability of
Japanese society; as a result, they cannot take big risks, as such actions could lead to
failures that may undercut their ability to fulfill their societal role or, worse, failures that
place burdens or larger downsides on society. Companies would rather avoid risky
ventures (such as working with startups) if the risk, as they see it, is greater than the
overall potential upside. ‘High risk, high return’ and ‘disruption’ as positive or necessary
components of ‘creative destruction’ are not welcome or credible ideas in the context of
Japanese corporations’ role in the society.
• Japan as a self-contained market: The Japanese believe – usually correctly, occasionally
incorrectly that Japan operates differently from the rest of the world. Either way, you will have
to contend with this belief. You will see it manifested in these areas:
o Japanese clients: When it comes to customer demands in Japan, the unreasonable is
considered reasonable. Often, well-established Japanese companies would prefer to
avoid certain ventures if the risk of unhappy clients (and the associated loss of face)
exceed the potential business opportunity. Companies are much more concerned with
the long term maintenance of client satisfaction than with the possibility of near-term
growth and profits.
o Japanese: When thinking about doing business in Japan, any company, especially a
startup (with its limited resources), needs to understand the upfront effort required to
 be able to communicate in Japanese (including the localization of the product plus
support and marketing materials, and more).
o The government as a market coordinator: The Japanese government plays an important
role in facilitating coordination between companies in new areas of business. The
government will coordinate the different scopes that each conglomerate will be
awarded in a specific project in the new area. This means that the companies can focus
their resources on developing the necessary capabilities for their respective scopes,
without wasting resources on areas they may not get due to competition or on the
competitive process itself. The idea is that the Japanese economy, as a whole, gains new
capabilities and new areas of business without jeopardizing the stability of the
companies involved, which ensures that those companies can continue to play their key
role in maintaining social stability.
o Supply chain: There are a few conglomerates that control the majority of the Japanese
economy. Those conglomerates are largely manufacturing companies (automotive and
heavy equipment manufacturers are among the best examples) and they work with a
complex supply chain that is woven deeply into the Japanese economy.

These conglomerates firmly control the supply chain. They could, but will not, compete
with their supply chain. By allowing the supply chain to work with them, the
conglomerates view those companies as part of their own organizations. That means
that they insist on knowing everything about their suppliers’ manufacturing processes
(the ‘special sauce’, if you like), quality control, limitations, support structures, and
more.

These cultural differences are the basis for many issues that startups encounter when trying to enter the
Japanese market; through the rest of this document, over the course of mapping the pitfalls in the
different phases of the market entry, I will refer back to them.

Before Entering the Japanese Market

Before making the decision to enter the Japanese market, startups need to set their expectations and
adjust their goals to the Japanese market, with a 1–5 years horizon:

• Phase 0 – Find a partner/open a local office: Before entering the Japanese market
• Phase 1 – Market education phase: Years 1–2
• Phase 2 – PoCs, sales partnerships and a few paying customers (e.g., 1–3 clients): Years 2–3
• Phase 3 – Growth/scale: Years 3–5

From my experience, I would only recommend that mature startups with the following experience
consider entering the Japanese market:

• Operation in more than one market: By operating in two different markets, for example the US
and the EU, the startup will have been forced to work in different environments with different
types of clients and to adapt to dealing with their cultural differences, sales cycle, local support
requirements, language, etc.
• Enterprise clients: By dealing with well-established companies (e.g., Fortune 500 companies or
the like) your organization will have developed a better understanding of client constraints, risk
 appetite, decision-making processes, ways of utilizing your system (e.g., theory vs real life) and
more.
• Partners: By dealing with partners in other markets, your organization will have learned what it
can and cannot do under which terms and conditions, what to expect from the partner side,
and more.
• Funding: My recommendation is that if your startup has not raised at least Series B, do not
think about the Japanese market right now. Your organization will not have the resources
necessary to penetrate the market.
• Marketing (PR): Positive PR is something you will have learned to leverage to great effect to
educate the market and gain credibility – and these absolutely are key components for
successfully entering Japan.

One common pitfall that startups experience is false expectations after receiving money from the
investment arm of a major Japanese corporation. Startups that manage to secure funds from Japanese
companies usually assume that the investment arm of that company will give it easy access to the
Japanese market as strategic partner in Japan, or that it will help the startup with access to different
resources that the core company offers, such as advanced manufacturing capabilities, data, a proof of
concept (PoC) platform for the technology the startup offers, etc.

Unfortunately, in most cases, it is not going to end as the startup’s management had hoped. The
Japanese conglomerates operate in silos with few resources are shared between different business
units. The conglomerates have created the investment arm as separate entities outside of their core
corporate structures by design so they can move as quickly as the venture investment space requires;
but, as a result, they are not integrated into the rest of the company and do not have easy access to its
resources.

Upfront Investment
Startups should also take into consideration the upfront investment (in terms of capital, human
resources, management focus and more) that the startup needs to make in order to operate in the
Japanese market.

The upfront investments typically include the following:

• Procedures and processes:

o Marketing and sale materials: Once operating with a partner, all marketing and sales
materials should be shared ahead of time (generally about two weeks before the startup
plans to publish the materials) to allow the partner to translate, ask questions and be
able to push the material through its own channels.
o New version release: Software companies usually release new versions of their
products/services frequently and at a high pace. The supporting process that should
accompany each new version release should include:
▪ Communicating the upcoming changes to the partner at the beginning of the
beta.
▪ Communicating what will be included in the final version of the upcoming new
release about a week-and-a-half before the release itself.
▪ Setting up a meeting to go over the changes before the release (e.g., training).
 • Localization and support: One of the biggest parameters Japanese clients focus on is whether
the product or service is properly localized to the Japanese market (including, but not limited to,
language) and also that the support (at least Tier 1 and 2) is in Japanese. You must have those
two pieces fully in place before launching the service or product in Japan.
• Competitor analysis: In Japan this a tool that potential clients demand to see. Japanese clients,
while they are in the scouting phase, will take your competitor analysis and ask your company,
and other suppliers under consideration, questions based upon it.

After you have prepared your organization and created these processes internally, your organization
should analyze how your organization’s industry operates in in Japan. There are a couple of aspects of
this that will help you sidestep time-killing pitfalls, and potential partners are more likely to take you
seriously if you show some solid knowledge of the market.

Pitfalls When Finding a Partner

Now that you have some knowledge of how your industry works in Japan, it is time to approach
different companies and explore the potential of collaboration. In this process, there are some pitfalls
that you need to be aware of:

• “We thought that the meeting went well”: Sometimes the startup will have a meeting and will
come out of it with a great feeling that the potential partner loved the startup, but, after the
meeting, the potential partner stops answering the startup’s emails and seems to be ghosting.
• One part of a diverse portfolio: The objective of the Japanese company is to be viewed as
innovative and offer a wide range of services and products in different domains – but, in reality,
they do not do anything actively to sell those vendors’ offerings in Japan.
• Nonexclusive is exclusive: In Japan, when you partner with a Japanese company, it is often, de
facto, an exclusive agreement forced by culture and market participants, even in if it is
supposedly a nonexclusive structure.
• Old company, new business: Japanese companies operate in specific industries under the
umbrella of the company headquarters and a brand built over the years but are forced due to
changes in the market to explore new business opportunities and to offer new
services/products. This combination leads to a situation where companies have a strong brand
name in specific industries and are trying to leverage it to open a new business (subsidiary) in a
new area. There are two main issues in this situation:
o The new subsidiary does not have the necessary experience in the new industry they are
trying to operate in.
o Siloed structure: The new subsidiary is siloed and there will be no incentive for the
employees in other subsidiaries to help introduce clients to the new sales team in the
new domain.
• Miscommunicated or misunderstood methods: The partner tries to achieve the key
performance indicators but does so in different ways than what the two companies agreed upon
(or thought they agreed upon).
• Packaging your product with other services: As the partner usually represent different vendors,
it is quite common for the partner to offer a combination of services as part of single package in
the Japanese market.
 • Localization and support: Disagreement on which entity is responsible to allocate the Full Time
Equivalent (FTE’s) for the Tier 2/3 support team. In addition, the partner may expect the startup
to support the client with things only indirectly related to the startup’s services or products
without charging additional consultant fees.

Sale Partner’s Network

After the startup manages to navigate the common early pitfalls and partners with a Japanese company,
it needs to be aware of the Japanese partnership network. In short, Japanese companies, especially
companies that offer a wide range of services and products in different industries (e.g., conglomerates),
have complex partnership networks with other Japanese companies.

The goal of the partnership network is to allow companies to share profit in return for mutual access to
one another’s clients. As a result, the startup needs to be aware of the pricing and revenue sharing
between the startup, the Japanese partner, and the partner’s sales channel.

The Sales Cycle

General Tips
• Do not be creative with the offering: It is not uncommon for startups to offer a basic product or
service and up-sell on upcoming features and capabilities. But most Japanese companies do not
like the idea of dissecting the product into additional services for additional fees within the
offering. It is important to set pre-defined service packages which vary in price based on client
company size, assets, users, etc.
• Use of client logo or use-case: The rule of thumb is that a startup can ask for a testimonial
quote or use of client logo for PR after at least one year of having it as client using the product
or service.

Market Education
• Real value proposition: The client needs to understand the current value proposition of the
product or service, which translates to:
o What are the current capabilities of the product or service?
o How do other companies utilize your service in practice? Consider how a client of your
company used, deployed and adapted to the product, including necessary processes and
procedures.
o Real-world use-cases of the product or service (e.g., case studies from other clients).
• Methodologies: Deep-dive into the technical details of how the service or product works – no
nonsense
• Limitations: Communicating the limitations of the product or service is almost important as
explaining the value proposition. Communicating them up front will save a lot of frustration
later on when the client finds the limits later on, as they inevitably will, and brings them up in
meetings.

Proof of Concept (PoC)

• Repeated education and onboarding the team members: It is common in Japan that the
contact you were dealing with and who managed to get the approval for the PoC is different
from the team that will execute the PoC and actually will use the product or service. Therefore,
 you need to assume that the new team knows nothing (honestly, nothing) about your product
or service.
• Define goals and plan the PoC:
o Defining the goals of the PoC: Defining the goals is an important process where the
startup sets expectations and, together with the client, defines what will be a
considered a successful PoC.
o Dry- and check-list-like tests: Test Case Specification (SAT), User Manual (please make
sure the user manual is up-to-date), etc.
o Overall value of the PoC: My recommendation is that you should set reasonable
expectations for the PoC based on past PoCs, and not overpromise or oversell the
capabilities.
• Requirements from the startup: It is important to walk through every aspect of the PoC and
explain in detail what your side requires to launch it successfully. That means that if you need an
internet connection without a web proxy, admin rights on the local machine, or anything else
(and I mean anything! Remember the team executing your PoC knows nothing about it), you
should explicitly spell it out up front and be prepared to explain why you need it.
• Resource demands on partner/client: From the partner/client company’s point of view, the
preparations and dedication of employees to learn the ins-and-outs of the product or service
over the course of the PoC is a real demand on resources, and the startup should do whatever it
can to help the partner/client reduce the resources needed from its side.
Table of Contents
Introduction .................................................................................................................................................. 1
Executive Summary ....................................................................................................................................... 2
Cultural Differences .................................................................................................................................. 2
Before Entering the Japanese Market ...................................................................................................... 3
Upfront Investment .................................................................................................................................. 4
Pitfalls When Finding a Partner ................................................................................................................ 5
Sale Partner’s Network ............................................................................................................................. 6
The Sales Cycle .......................................................................................................................................... 6
General Tips .......................................................................................................................................... 6
Market Education.................................................................................................................................. 6
Proof of Concept (PoC) ......................................................................................................................... 6
Japan ........................................................................................................................................................... 11
The Uniqueness of Japan ........................................................................................................................ 11
The Japanese Client ................................................................................................................................ 11
Risk Aversion ........................................................................................................................................... 12
Employment as a Welfare System ...................................................................................................... 13
Regulation As a Market Enabler.............................................................................................................. 15
The Government as a Market Coordinator ............................................................................................. 15
The Obstacle of Language ....................................................................................................................... 15
The Supply Chain ..................................................................................................................................... 16
Manufacturing .................................................................................................................................... 16
Software .............................................................................................................................................. 16
Cyber Security ..................................................................................................................................... 17
Before Entering the Japanese Market ........................................................................................................ 18
Startups ................................................................................................................................................... 18
When to Enter the Japanese Market: ................................................................................................. 18
Setting Expectations: Adjusting the Vision/Goals to the Japanese Market (1–5 Years Horizon): ...... 20
Prerequisites/Upfront Investment...................................................................................................... 20
Market Entry: Partner vs Local Office ................................................................................................. 24
Analyzing the Industry and Market ............................................................................................................. 26
Finding a Partner ......................................................................................................................................... 28
General Expectations .............................................................................................................................. 28
 The Startup’s Desired Traits ................................................................................................................ 28
The Japanese Partner’s Desired Traits ................................................................................................ 28
The Processes of Finding Partner ............................................................................................................ 29
Dedicated Employee From Within the Organization .......................................................................... 29
Market Entry Companies .................................................................................................................... 29
Hire a Local Agent, Representative or Country Head ......................................................................... 30
Common Pitfalls ...................................................................................................................................... 31
“We Thought That the Meeting Went Well” ...................................................................................... 31
One Name In a Diverse Portfolio ........................................................................................................ 32
Nonexclusive Is Exclusive .................................................................................................................... 32
Old Company, New Business .............................................................................................................. 32
Miscommunicated or Misunderstood Methods ................................................................................. 33
Packaging Your Product With Other Services ..................................................................................... 33
Sharing The Blueprint.......................................................................................................................... 33
Localization and Support .................................................................................................................... 33
How to Navigate Around Such Pitfalls? .............................................................................................. 34
Additional Notes ..................................................................................................................................... 35
Consider All Tiers of Companies ......................................................................................................... 35
The Importance of Champions............................................................................................................ 36
Continuous Training ............................................................................................................................ 36
Arbitration Place/Governing Law........................................................................................................ 37
Why That Company? ........................................................................................................................... 37
The Sales Process ........................................................................................................................................ 38
Sale Channels .......................................................................................................................................... 38
General Sales Tips ................................................................................................................................... 39
Do Not Be Creative With the Offering ................................................................................................ 39
Exactions and Incentives ..................................................................................................................... 39
The Importance of Reports ................................................................................................................. 39
Show Off Your Other Clients ............................................................................................................... 40
Campaigns ........................................................................................................................................... 40
Market Education.................................................................................................................................... 40
In-Depth Explanation About the Product or Service........................................................................... 41
Proof of Concept ..................................................................................................................................... 43
 Value Before the PoC .......................................................................................................................... 43
The PoC Phase ..................................................................................................................................... 43
How Do Startups Reduce Their Risk? .......................................................................................................... 45
End Notes .................................................................................................................................................... 45
Acknowledgments....................................................................................................................................... 46
Japan
In this chapter I will discuss Japan’s business culture, thought patterns, restrictions, and concerns. This
will be the foundation for the next chapters, as they are the foundation of most of the pitfalls that so
many companies have experienced.

It does not matter what size your organization is (e.g startup, mid-size, or enterprise), you will encounter
these key points over the course of doing business in Japan. There is more to the complete framework,
but I have seen these ones up close. The following points will have consequences on your organization
from many perspectives, such as operations, capital, growth, and more.

The Uniqueness of Japan

The Japanese believe that Japan operates differently from the rest of the world1. In the 1980s, when
companies and organizations asked Japan to open its markets, the usual response was, “We in Japan are
different from you foreigners. Snow in Japan is different from snow abroad, so we must change ski
standards to the detriment of American and European ski manufacturers. Soil in Osaka Bay is different
from soil in other countries, so foreign construction companies cannot possibly do the work at Kansai
Airport. Japanese intestines are longer than Westerners’ intestines, so we cannot import more beef…”
and so on.

Such examples illustrate that the Japanese view themselves as somewhat different compared to their
foreign counterparts. This state of mind affects the way business is done in Japan: for example, when
companies try to enter the Japanese market, their use-cases and data is from other markets (usually
from the US or the EU) and so does not interest the Japanese audience.

The Japanese Client

Another one of Japan’s characteristics is that the client is the most important thing for the business.
There is a Japanese saying, “The customer is a god” (お客様は神様です)2, meaning that companies will
do whatever they can to make sure that the client is happy with the service/product he buys, both on
the retail industry and the B2B.

Although there is the similar Western saying, “The customer is always right”, it is not on the same level
of the Japanese culture. When it comes to customer demands in Japan, the unreasonable is reasonable3.
Sometimes, well-established Japanese companies will prefer to avoid certain ventures if the risk (see
Risk-Averse Japan below) of unhappy clients (i.e. losing face) exceeds the potential business
opportunity. In Japan, even if you cannot meet what appear to be unreasonable demands, it is
important for the customer to know that you have made a great effort to do so.

1
https://www.japantimes.co.jp/opinion/2001/02/09/commentary/which-global-standard/
https://www.nytimes.com/1988/03/06/weekinreview/the-world-japanese-are-special-types-they-explain.html
2
https://www.forbes.com/sites/blakemorgan/2018/09/24/a-global-view-of-the-customer-is-always-
right/?sh=2e5ac547236f
3
https://www.jetro.go.jp/costarica/mercadeo/communicationwith.pdf
Risk Aversion
One of the characteristics of Japan is a propensity to avoid risk4. There is a Japanese saying “Knock on a
stone bridge before crossing it” (石橋を叩いて渡る) that indicates the inclination to or requirement of
taking precautions even though something may seem completely safe.

These precautions are cross-industry and, from my understanding, from the Japanese perspective it is ok
to be the second in line and let technology, for example, mature before adopting it – both at the
individual and business level.

One of the best examples of the way Japanese organizations analyze and avoid risk is the Kaizen system
(改善)5 – the art of small and slow changes. There are many blogs, articles and books written about this
method; however, for those encountering this system for the first time, in short it is a process of modest
and continuous improvements to amount to a bigger change over time.

Kaizen is a seven steps system:

1. Identify a situation that can be improved

2. Analyze the current situation
3. Brainstorm possible solutions
4. Plan how to implement a solution
5. Execute the plan
6. Assess the results
7. Repeat

Within the Kaizen methodology, there is lesser-known concept named nemawashi (根回し)6.
Nemawashi was a word used by farmers when they had to plant a tree (its kanji show this, being 根-
>root and 回->round). The literal meaning is “to go around the roots” or dig around the roots of the
existing tree to plant a new one.

In modern times, nemawashi can be translated to mean laying the groundwork or foundation. It is the
first step in the decision-making process, the sharing of information about the decisions that will be
made in order to involve all employees in the process. During nemawashi, the company is seeking the
employees’ opinions about the decision.

In most of the Western world, the decision-making process is relatively straightforward: you present
something you would like to change in the organization, some of your colleges will support and offer
some changes, some will give pushback to the idea, and eventually the manager will make a decision. If
the decision went well, the manager and the instigating employee will be praised. If it went badly, the
manager and the instigating employee will be held responsible.

4
https://www.reuters.com/article/idINIndia-47801520100419
https://www.npr.org/sections/alltechconsidered/2015/05/07/404376767/a-startup-scene-thats-not-so-hot-
japans-entrepreneur-shortage
5
https://thetruejapan.com/what-is-kaizen-in-japanese-and-how-is-it-useful/
6
https://en.wikipedia.org/wiki/Nemawashi
https://justinagile.com/nemawashi/
Whereas, in the nemawashi step of the Kaizen system, the basic premise is that someone with an idea
runs it past the relevant individuals first, instead of seeking ‘audience approval’ in a meeting without
anyone present knowing about it first. Giving people the ‘heads-up’ in informal chats and smaller
meetings with certain decision makers will allow you to refine your plan if necessary, with advice from
all stakeholders, and almost guarantee receiving the main approval from said stakeholder in the final
meeting.

Today, nemawashi is a critical aspect of decision-making in Japan. In my own experience, it is very hard
to make a decision without all, or at least most, of the stakeholders’ agreement on the suggested
change. It does mean that, in some cases, it will take months to agree on things that in the Western
world would be a snap, such as changing a certain web-page on the company website.

I believe that one of the reasons that nemawashi is such an important part of the decision-making
process can be illustrated by the Japanese saying “The nail that sticks out gets hammered down.”
(出る釘は打たれる). It is possible to translate this particular saying in multiple ways; from my
perspective, this saying can be applied to the fact that, in corporate Japan, managers and employees are
reluctant to make bold decision alone. The nemawashi system allows the employees and managers,
once all the stakeholders agreed to the change, to avoid to a certain extent individual responsibility and
hedge their bets in case of a downside to the action/change.

Employment as a Welfare System

Another aspect, and perhaps cause, of risk aversion in Japan is the business social responsibility. In
Japan, businesses have an important role in supporting the social welfare system. This has different
aspects for it, for example:

• Company housing (社宅, Shataku)7: Many Japanese companies maintain their own apartment
buildings where young employees live when they first start working. Company housing in Japan
is supported by the government, which deducts tax both from the employee and the company.
• Periodic recruiting of new graduates (新卒一括採用, Shinsotsu-ikkatsu-saiyō)8: Companies
regularly hire new graduates in batches and assign them to different positions inside the
company. The company usually assign roles to the graduates based on the company’s needs and
not by the major they learned in university. For example, someone with a major in art can be
assigned to be in the sales department. The company then trains the new employees to the role
and mold them into the company culture.
• Permanent employment structure (終身雇用, Shūshin koyō)9: Permanent employment is
beneficial to the employer as it is easier to attract talents and secure employee loyalty with a
permanent position. In addition, there are various benefits of being a permanent employee,
such as having a secured salary, opportunities for promotion, insurance coverage (e.g., social
and employment), transportation allowances, bonuses, maternity and paternity leave etc.

7
https://en.wikipedia.org/wiki/Housing_in_Japan
8
https://en.wikipedia.org/wiki/Simultaneous_recruiting_of_new_graduates
9
https://en.wikipedia.org/wiki/Sh%C5%ABshin_koy%C5%8D
 o Unemployment rate in Japan10: In the following chart, we can see that even in the
COVID-19 era (2020 onwards), the unemployment rate in Japan is relatively low;
companies try to cut budgets first to avoid terminating jobs.

o Terminating an employee11: Japanese labor law is very protective of employees’ rights.

Employers must have a pre-defined list of reasons for when they can dismiss a
permanent employee, which will have been listed in the employment contract and/or
the work rules. They cannot legally dismiss a permanent employee if it does not fall
under one of those reasons.

Furthermore, in general, the company must prove four things before it can fire an
employee:
▪ The company must show that the firing is a result of unavoidable economic
necessity.
▪ The company has tried to reassign employees to different positions to avoid the
need to fire them.
▪ The employee/s to be fired must be selected reasonably and the firing/s carried
out fairly.
▪ The process must be reasonable; the company is expected to consult with
workers and labor unions beforehand.

This is relevant to Japan’s risk-averse business culture.

Companies have a major role in the stability of the society in Japan, therefore companies cannot take
big risks that will put themselves in the position to fail and therefore to put liability on the society.

10
https://tradingeconomics.com/japan/unemployment-rate
11
https://oharalaw-japan.com/2016/02/23/is-it-difficult-to-fire-people-in-japan/
Companies will rather save capital in order to be able to operate in different financial environments,
rather than misuse the capital and get a backlash from the government and the people.

Regulation As a Market Enabler

In general, when a new disruptive industry emerges, it takes time for the regulator to catch up with it.
Cyber security is relatively new industry, making it a good example to look at the way the regulator
needs to be educated about the matter to create effective processes, frameworks, and regulations over
time.

The biggest regulatory organization in charge of cyber security in Japan is the Ministry of Economy,
Trade and Industry (METI). It can force organizations to deploy cyber security measures and processes,
and through that can open new markets for the cyber security industry.

However, currently there are not many enforced regulations in the cyber security domain and
companies are more “volunteering” to deploy cyber security products and services in order to protect
their organizations.

This might be due to the Japan’s aforementioned risk-averse approach and/or the regulator wanting to
be familiar or educated about the new industry before deciding the right course of action.

The Government as a Market Coordinator

The Japanese government has an important role in facilitating the coordination between companies in
new ventures – it coordinates which parts of a project each conglomerate will do or bid for.
Consequently, the companies do not try to compete or expand their role in the project; therefore, this
maintains a stable overall economy.

An example of this coordination available to the public can be found in “Japanese Government
Supporting Tools for Energy Infrastructure in the Indo-Pacific”12. There the METI, in cooperation with
other ministries and government agencies, provided support tools, such as financial assistance for
individual projects, capacity building, and commercial engagement, to boost private sector business
activities in the Indo-Pacific region. It also provided opportunities for matching with private companies
in Indo-Pacific and some other countries. By exchanging opinions and providing information on the
needs and policies of partner countries, METI promoted commercial engagement in this sector.

The Obstacle of Language

As the third largest economy in the world, you would assume that most people in Japan speak English
and that it is possible to do business in Japan using English. Unfortunately, this is not the case.

When thinking about doing business in Japan, any company, and especially startups with limited
resources, must understand the upfront effort and investment required from the organization to be able
to communicate in Japanese. This will include, for example, the localization of the product, technical
support, marketing materials, and more.

12
https://www.enecho.meti.go.jp/category/others/jucep/data/toolkit.pdf
https://www.meti.go.jp/english/policy/external_economy/trade/foip/support.html
This is the first barrier that must be considered at the strategic level by companies and startups before
doing any other steps toward getting into the Japanese market. You must be able and willing to pay for
accurate translation or otherwise be rebuffed by the Japanese market.

The Supply Chain

This section sets out my theoretical understanding based on my experience.

Manufacturing
The Japanese market has a few conglomerates that control the majority of the Japanese economy.
These conglomerates are manufacturing companies (automotive and heavy equipment manufacturers
for example) and they work with a complex supply chain woven deeply in the Japanese economy.

In Japan, these conglomerates firmly control their supply chain. They could, but will not, compete with
it. Therefore, they view the supply chain (containing hundred, if not thousands, of companies) as part of
their own organizations. That means that the conglomerates know everything about the companies’
manufacturing process (e.g., the ‘special sauce’), quality control, limitations, support, and beyond. In
addition, because the conglomerate knows all this, they also know exactly what the supplier can provide
at what intervals.

Once you are a supplier to one of the conglomerates, it is a job for life. That is how the Japanese
industry has worked for decades.

From an outside perspective, this supply chain is so complex and reliant on everyone playing their part
that one could believe there is a single 90-year-old Japanese person who is the only person trusted to
manufacture a specific part for Toyota, and that once they die the company will be in deep trouble
because no one else knows how to use the equipment to make that part.

In short:

• It takes a lot to be a supplier for a Japanese company.

• The conglomerates know everything about the companies they work with.
• Once you are in, it is for the long term.

This mindset has worked for decades, but the world has changed. Today is much more dynamic. It is an
era of software and digital services that change rapidly along with consumer demands and desires. And
the Japanese market had a lot of issues to keep up with the change.

Software
Today, all organizations use software as part of their day-to-day operations. Due to Japan’s culture,
deploying and adopting software-based services and products internally is not a quick process. Even
today, when foreigners relocate to Japan, they may notice that Japan is somewhat behind regarding
consumer software and technology in certain areas.

In my understanding, software-based vendors have a hard time selling their products and services in
Japan because they rely on the same methodologies as they use in the rest of the world. These do not
work in Japan.

Later, I will more deeply cover the issues I have identified; for now, I will highlight two of them:
 • Selling a vision: In the Western world, it is quite a common practice to oversell a service or
product. We tend to show, for example, specific use-cases that show the software at its best,
and let the client think that it will be applicable to them. Or we present features as just around
the corner, which will be developed in 6 months’ time. We tend to sell a vision as we truly
believe that our product or service can give immediate value now but the future value will be
greater.

The Japanese clients, on the other hand, are more down-to-earth and value the current state of
the product or service more than future potential. The typical Japanese client wants to know
exactly what they are buying now, and not future features that may not happen.
• Rapid speed of changes: The rapid speed of changes in the software world is something that
Japanese companies are typically less familiar with, especially with their attitude toward risk and
the processes they prefer to work by (e.g., nemawashi).

As mentioned before, from a Japanese business client’s perspective, they are used to knowing
everything about their supplier. When a software-based vendor, for example, wants to add a
new functionality to their product, this way of thinking expects the supplier would consult with
the client about it, explain everything ahead of time, and only move forward to the
development stage with the client’s assent. Once the development is done, the Japanese client
then expects that the vendor will explain everything about the new version and will help the
Japanese client to best understand how to take advantage of the new functionality.

As you can see, making an update with no consultation and offering no additional training
regarding new functionality, is off-putting and undesirable for a Japanese business client.

Cyber Security
Cyber security companies have an even harder time selling to the Japanese market.

Software-based companies control their processes, and communicate the roadmap ahead of time, to
say that today the product looks like X but in 3 months’ time, according to the R&D pipeline, the
software will look like Y. If you communicate this well enough, Japanese clients will understand and
prepare accordingly. Further, in the case of missing a deadline, Japanese clients are known to be patient
and understanding if the lines of communication are strong.

But in the cyber security industry, unfortunately, you are not operating in a vacuum. The industry is, in
the best case, chaotic. Any given cyber security company is on the hunt to fight emerging threats, new
malwares, new botnets, APT’s (advanced persistent threats), etc. Things that worked in the past will not
always will work in the future and the cyber security service or product will look very different in a short
period of time. Their development timeline cannot be easily predicted or laid out as it is, by necessity,
reactive to emerging threats.

This can be difficult for Japanese clients, as they expect to be kept informed about any and all potential
changes well before they occur, but this is not possible when a new exploit has been discovered in a
core feature that must be fixed as soon as possible.
Before Entering the Japanese Market
Startups
Before entering the Japanese market, a company must make a series of strategic decisions and
understand what they are signing up for. In this section I will cover some points that are unintuitive to
foreign companies wanting to enter the Japanese market:

• When to enter the Japanese market

• Setting expectations and adjusting the vision/goals to the Japanese market (1–5 years horizon)
• Prerequisites/upfront investment
• Market entry: Partner vs local office

When to Enter the Japanese Market:

As mentioned before, Japan is the third largest market in the world. It is a key member of the
international trade system with a market that respects the rule of law and provides strong protections
for intellectual and real property rights.

Although the Japanese market is big, it may not be the best short-term growth decision to enter it.
There are three points you need to consider regarding when it is the right time to enter the Japanese
market.

Maturity Level of Your Organization

While there are different frameworks to define what maturity level your organization is at, from my
experience, before thinking of operate in the Japanese market your organization needs to have at least
the following:

• Operation in more than one market: Most startups will aim for the US as their main market. For
many startups, this experiment with market entry to one market will shape the organization to
support the demands of that particular market. By opening in another market, for example the
EU, the startup will be forced to operate in a different environment and with different types of
clients that it is not used to (e.g., cultural differences, sale cycles, preparing tech support in
various local languages).

By having experience with at least two different markets, your organization has already been
forced to handle resource allocation, management attention, product life cycle, localization of
various media, etc. Therefore, your organization will have some idea of what is necessary when
entering a new market and will be able to apply this to Japan’s unique situation.
• Enterprise clients: Enterprise clients will provide your organization many benefits that will
prepare you for the Japanese market. By dealing with well-established companies (e.g., Fortune
500 companies) your organization will have a better understanding for the clients’ constraints,
risk appetite, decision-making processes, system use in real life vs theory, and more. As a result,
your organization will be able to communicate this experience to potential clients and leverage
it for use-cases, client recommendations, support experience and more. These will give your
organization credibility in the Japanese market. In addition, it is important for Japanese clients
to see that the startup already has big name clients, as this will make the startup more attractive
because the client can try to leverage the startup’s relationships to expand the client’s reach.
 • Partners: Partners can be a strategic lever for your organization. From a sales partner to a MSSP
(Managed Security Service Provider), partners will help your organization grow. Having prior
experience with partners is highly recommended before entering the Japanese market. By
already dealing with partners in other markets, your organization will know, for example, what
they can and cannot do under various terms and conditions, what to expect from the partner’s
side, and more. This experience will allow an internal process to develop for onboarding and
supporting new partners more easily.
• Funding: Entering a new market is a resource intensive process. When thinking about entering
the Japanese market, your organization must allocate more resources than expected to be able
to operate in Japan. My recommendation is if your startup did not raise at least Series B, do not
think about the Japanese market at this time as your organization lack the resources to
penetrate the market.
• Marketing (PR): Positive PR is always a good thing for companies. You can leverage it to gain
credibility, which is extremely important in Japan. In some cases, relevant positive news pieces
will mean certain processes can be shortened, and they can generate interest from potential
partners and clients.

Japanese Investments
In the past few years, Japanese companies have started to invest millions of dollars in startups
worldwide. For example, in 2021, Japanese companies invested $3 billion USD in Israel13. Those
investments are a result of the long ongoing process of Japanese companies looking for new growth
opportunities for their own business. Usually, these companies develop a separated entity (e.g.,
corporate venture capital and innovation labs), which are responsible for scouting new technologies and
eventually investing in startups or bringing their services in Japan. A good example of this can be seen in
Israel, where Japanese conglomerates such as SOMPO Holdings, Marubeni, NTT and more opened
offices to invest.

Startups/companies that have managed to secure funds from Japanese companies assume that the
investment arm of the holding company will give it easy access to the Japanese market as strategic
partner in Japan, or that the company will have incentive to help the startup with access to different
resources from the core company, such as advance manufacturing capabilities, data, and PoC for the
startup’s technology.

Unfortunately, it rarely ends as the startups management hope it will. The Japanese conglomerates
operates in silos where there few resources are shared between different profit centers. The
conglomerates by design created the investment arm as a separate entity so they could move more
quickly in the fast-paced investment world than more traditional Japanese companies; but as a result,
they are not integrated into the rest of the company and do not have easy access to its resources. The
investment arm has little-to-no power to lead processes inside the core organization – money is a
resource they can easily use but anything else will face a strong pushback.

The key take-away is that you do not need to prioritize Japan as a market even if your investor is a
Japanese conglomerate.

13
https://www.nikkei.com/article/DGXZQOGR12CFC0S2A110C2000000/
Growth Strategy
Once your organization is ‘ready’ for the Japanese market, you need to develop a growth plan.
Operation in Japan will lead to new opportunities not just for selling your current products or services
but also for developing something new. You need to have a strategy for this otherwise it could
overwhelm your organization.

Setting Expectations: Adjusting the Vision/Goals to the Japanese Market (1–5 Years Horizon):
Many companies beginning to operate in a new market set near-term (up to 3 years) goals. Usually,
those goals contain some sort of KPI’s (for example, X paying clients, X number of PoCs, X sale partners)
in the first year and double that on the second year.

It is important to correct these expectations for Japan. Setting realistic goals will gives your organization
sufficient breathing room (e.g., resources and growth expectations) to succeed in the Japanese market.
Usually it will take a lot more time to achieve the same results in Japan as it would in other markets.

The following phases are the result of my experience in the Japanese market. They are particularly
relevant to startups and technology-oriented product or services. They may seem conservative, but it is
better that than fail. There are many reasons to why it takes longer to establish a wide range of paying
clients in Japan that I will cover later, but for now, the point I want to focus on is the calibration of
growth expectations in Japan over time:

• Phase 0 – Find a partner and open a local office: Before entering the Japanese market
• Phase 1 – Market education phase: Year 1–2
• Phase 2 – PoCs, gain sale partners and a few paying customers (e.g., 1-3 clients): Year 2–3
• Phase 3 – Growth/scale: Year 3–5

Prerequisites/Upfront Investment
Any company that would like to penetrate the Japanese market must account for the upfront
investment required just to become a legitimate participant in the market. I am discussing this now
because, regardless of whether you have found a partner yet or not, these points are the minimum any
company must be aware of and prepared to invest in before, or very soon after, entering the Japanese
market. These points have been developed from my experience of dealing with companies that tried to
enter the Japanese market:

• There are no shortcuts

• Procedures and process
• Localization and support
• Competitor analysis
• Wrap the product with a service
• Operations, regulation and licensing

There Are No Shortcuts

In recent years, there has been a boom in startup accelerators, government programs, incubators and
startup competitions seeking foreign startups to come to Japan. The aims for these initiatives are to
enable startups to operate in the Japanese market, find a partner and funding. Those initiatives often
include partnerships with well-known Japanese companies. On the surface, these sound like a good way
with minimal effort to enter the Japanese market.
Unfortunately, in most cases, this is not the case. You would get to have meetings with companies’
representatives, but these are mostly PR exercises by the big firms to have their logos/brands associated
with these initiatives – they want to be seen as partaking in modern, fast-paced, and changeable
markets, but do not want to take on the risk of fully committing to a startup. So, in reality, you would
still need to go through all the different phases I cover later in the document and may have lost further
time or money working through these initiatives.

Procedures and Processes

If your organization works with sale channels in other markets, I assume you already have internal
procedures and process to support their efforts. In my experience, there are few things specific to
Japanese partners that are worth mentioning.

The key point is communication. Often, companies have the tendency to move without updating their
channels a head of time. One of the traits that characterize startups is this ability to move fast and be
agile. Unfortunately, startups abuse this as an excuse to do things before making sure all their channels
are aligned.

I would like to offer a set of basic procedures and process that any company should take into
consideration before making deciding to operate in the Japan:

• Marketing and sale materials: Startups tend to generate new marketing content and publish it
as soon as possible – blogs, use-cases, sales decks, webinars, promoting/coverage PR,
conference participation, videos (YouTube), etc. Sometimes this is because the world is dynamic,
and issues need to be addressed quickly. But usually this publishing of marketing material is in a
reactionary manner without a clear year-long plan.

As the partners heavily rely on the vendor (i.e. the startup) to generate the same marketing
exposure in Japan as the rest of the world, the startup needs to create a process where all
marketing and sale materials are communicated ahead of time (e.g., 2 weeks before publication)
to allow the partner to translate it into Japanese, ask questions in order to be equipped to
answer potential clients, and to be able to push it through its own channels to the market.

Many startups do not give the partner the materials ahead of time. As a result, clients in Japan
might see the English version of the materials and approach the startup’s Japanese partner for
more information or with queries. The partner, having not been informed about the new
marketing, will be surprised, likely lose face in front of the client due to ignorance, and will be
stressed or frustrated that their supposed partner (i.e. the startup) did not update them ahead
of time.
• New version release: Software companies, usually, work with a fast pace of releasing new
versions of their products and services. There are many reasons to do that, such as bug fixing,
new features, new capability, and user interface updating.

There are supporting process that should come together with the new version release. These
should include:
 o Communicating the upcoming changes to the partner at the beginning of the beta
candidate, which mean the major potential features that will be added to the new
version release can be incorporated into their roadmap.
o Communicating what will be included in the final version of the upcoming release
around 1 1/2 weeks before the release itself.
o Setting a meeting to go over the changes before the release, to answer questions and
impart training.
o In case where there is necessary offline maintenance for the demo or production
environment, the startup should update its partner well ahead of time.

By doing these, the startup will not put the partner in a place where the clients get the update
email about new version at the same-time as the partner, which would leave the partner unable
to communicate about the changes and any offline time.
• R&D pipeline: Unlike a new version release, the R&D pipeline is more dynamic and update to the
vendor/partner should include the major features/capabilities the company is working on that
will affect the product and a rough time scale. By doing so, the partner will be able to
communicate Japanese clients’ requests to the startup and relay related accommodations back
to the clients. This kind of update should be around every 1 1/2 months.

By having these processes in place before entering the Japanese market, a startup can show any
potential Japanese partner consideration, as they have already taken care of many eventualities and
that they understand the risk of unhappy client (e.g., losing face) and Japan’s risk-averse mentality. This
in turn will give the startup company credibility and will likely shorten the process of gaining a
partnership with a Japanese company.

Localization and Support

One of the biggest parameters that Japanese clients put their focus on is whether the product or service
and the support (at least Tier 1 and 2) is available in Japanese. This has to take place before offering the
product or service to the Japanese market. This shifts a lot of burden onto the company trying to get
into the Japan as it requires them to plan the launch of the company product and services in Japan and
invest in appropriate translation.

Localization (Japanese Language)

Even if the industry in general is English-oriented (e.g., cyber security), the average Japanese employee
prefers to work in a Japanese-language environment. In my own experience, I have seen companies
choose to work with a local vendor with fewer features and, sometimes, less value but is in Japanese,
rather than work with a “foreign” company that offers their services only in English.

There are two main ways to localize your product:

• Outsourcing: Outsourcing the localization process of the product will usually be to a translation
service company. They will not specifically understand your company’s domain and therefore
will require attention from you to support the translators’ and ensure industry-specific phrases
are understood correctly to be translated accurately.
• Localization by the Japanese partner: I will cover this in more detail later. In short, one thing a
Japanese partner can help your organization with is the localization process. The partner will
 work in the same industry as you and have expertise in the matter, therefore will be able to
accurately translate terminology. In addition, this method will require less attention from the
organization to support the translators with different questions.

Support For the Japanese Client

Sometimes, the support offered is more important than the service or product itself. Having local
support available in Japanese can tilt the needle in your favor. Two of the different reasons that
Japanese-language support is such an important part of the service include:

• Wanting to avoid embarrassment: Previously, I covered the importance of clients for Japanese
businesses and how companies in Japan will do anything they can to not lose face. If they
partner with a startup that does not offer support in Japanese, they will be left lacking
information to pass onto their clients when asked questions, which is embarrassing. Therefore,
when establishing a support team for your product or service that will be offered in Japan,
ensure you offer Japanese-language support. This will give potential partners and clients the
signal that your organization is committed to the Japanese market, as you were willing to invest
upfront to train local staff before securing paying clients. This is one of the signals that Japanese
clients are looking for.
• The supply chain contains the experts: Japanese companies sees companies in their supply chain
as experts in their field. Therefore, they will want to turn to them for information in general
about their field. They will expect, for example, a cyber security startup to be able to answer all
their questions about the cyber security domain. If this information is not available in Japanese,
they might believe it is lacking and therefore that the startup is not the expert they are seeking.

Having Japanese technical support integrated in the service suit is extremely important in Japan; it can
be the main reason why companies fail to grow in Japan. In the ‘Finding a Partner’ section, I will cover
the different ways to set this support in Japan, why the support is such an important part for partners
and clients, and what to expect the support team to be able to do.

Competitor Analysis
Competitor analysis is one tool potential clients use to value your organization. If you want to make a
strong argument that you are different and better than your competitors, competitor analysis is the tool
to do so.

The Japanese client, while in the scouting phase, will take your competitor analysis and ask your
company questions based on that plus the analyses of other potential companies. Yet startups usually
create only a very shallow competitor analysis chart with the bare minimum information about their
competitors.

My advice is to create an in-depth, meaningful competitor analysis in Japanese that can challenge the
competitor behind-the-scenes and will work to your advantage on winning the client attention.

Wrap the Product With a Service Package

In Japan, generally speaking, companies are interested in outsourcing their non-core operations to
trusted third parties. Therefore, when operating in the Japanese market, wrapping your product up with
a service package makes your offering more enticing. If you can guarantee you can service, repair and
upgrade the product as needed, you will likely be rated higher by potential partners than startups that
only offer the product. This is because the partner company will not have to spend time hiring and
training staff, who they will not be able to let go later (see the ‘Employment as a Welfare System’
above), to service the product, nor will there be delays before the product’s implementation due to this
training.

This service should be different from the regular support the startup would offer to their clients by
including not only deploying it and fixing issues (such as bugs and feature request) but operating and
integrating product on the client’s side.

Operations, Regulation and Licensing

In some cases, startups and companies needs to get a license in order to operate in the Japanese market
(I will touch on this more in the ‘Analyzing the Industry and Market’ section). Example of such industries
include the finance and cryptocurrency sector (i.e. fintech) and renewable energy. In some cases,
depending on the nature of the product, the potential end-clients of the startup would need a license
themselves to buy the product. Startups commonly assume that once they gain a partner it will help
them establish an entity in Japan and apply for the required license.

Unfortunately, it is very rare for potential partners to help the startup to understand the regulatory
framework they operate under (especially if the partner does not operate in the startup’s specific
domain), to aid establishing an entity or to gain the startup the required license. For the Japanese
companies’ point of view, it is the startup’s responsibility to do that before they enter the Japanese
market – this is a sign of being serious and committed. This shifts a lot of burden on the startup, which
needs to invest a lot of resources before they actually start to operate in the market.

Market Entry: Partner vs Local Office

The next strategic decision a company needs to make is between opening a local office, finding a
partner, or combining the two.

Regional/Local Office
In the Western world it is quite common for a company to open a local office in the market they wish to
operate in. By doing so they can operate under their own brand. This office will be responsible for
providing the entire suit of services on behalf of the organization (sales, marketing, support, pre/post
sale support, etc.).

A regional/local office will also be beholden to that country’s laws and regulations. When opening a
business in a foreign country, it is common to hire local staff to represent the company. They can guide
you around potential pitfalls and misunderstandings and help you ensure full compliance with the
country’s regulations (e.g., taxes, legal). Further, their energy will be directly completely toward that
local market, unlike staff working across multiple markets.

Partners (Channels)
There are quite a few advantages to work with a local partner:

• Brand name: Japan is the home to some of the oldest companies in the world. In 2019, over
33,000 Japanese businesses were over a century old, according to research firm Teikoku Data
Bank14. Japanese companies attach a great deal of importance to supplying high quality products

14
https://www.bbc.com/worklife/article/20200211-why-are-so-many-old-companies-in-japan
 and services, alongside transparency and emotional appeal for their customers15 to build a good
brand reputation. In general, Japanese people are less willing to buy products from unknown
brands and therefore will feel more comfortable with well-known Japanese companies over
vendors from abroad. A local partner will give your startup a familiar face that may make
Japanese people trust it more.
• Sale force and customers reach: As a partner, Japanese companies will leverage their existing
connections and sales force to promote your service to leading companies in Japan. In addition,
the Japanese partner will already have marketing efforts that can be coordinated with your
organization to maximize exposure and attract new clients.
• Experience working with other international vendors: Japanese companies that are open for
partnership with international vendors likely have the experience to navigate the different
pitfalls that arise when working with non-Japanese companies in that market. There are many
aspects of this, including the partner being key to the localization process.
• Market intelligence: A Japanese partner can help you shape the product to the Japanese market.
From pricing it in accordance with the local market to understanding what competitors are
doing and which clients are likely to be most interested in your solution.

However, many companies open a local office in Japan and find they cannot generate enough business
to sustain themselves or justify the resources over the necessary period of time (1–5 years; see the
‘Setting Expectations’ section above). While it is possible for companies to enter the Japanese market
with their own brand and entity, it will be resource intensive and difficult to penetrate the Japanese
market.

My recommendation is to find a partner, and only through them then open a local office. I will cover all
the necessary information in more detail in the ‘Finding a Partner’ section later. For now, the key point is
that your organization will almost certainly need a local partner if you want to do business in Japan.

15
https://www.jiu.ac.jp/files/user/education/books/pdf/832-04.pdf
Analyzing the Industry and Market
One key component to increase your Japanese market success rate is researching how your industry
works in Japan and develop solid knowledge of the market. Analyzing how others in your domain
operate will not only help you avoid time-wasting pitfalls but also make it more likely that potential
partners will take you seriously.

A good start for understanding the market is to answer these questions:

General Industry-Related Questions

• What are the current and future markets in your industry in Japan?
• Where can the industry-relevant information and data be found?
• What costs and fees are there?
• What are your organization’s financial targets for its expansion into Japan?
• What, if any, regulatory framework will your organization have to operate under?
o What licensing requirements apply to each stakeholder?
o Is it possible to offer the service in the Japanese market with the current regulatory,
legal, compliance, and technological situation?

Foreign Competitors
• Which vendors from your own industry already operate in Japan?
• What products and services do they offer?
• What marketing strategies and channels do they use to promote their products?
• Which business models do they use?
• Did they partner with a Japanese company?

Japanese Competitors and Companies

• Which Japanese companies offer services and products in the same industry?
• What are the typical gross margins in each segment?
• Which Japanese companies have opened innovation centers outside Japan (this is an indicator
for openness for new business ventures)?
• Who are the key stakeholders in the market?
• What are each of their roles?

Japanese Clients
• What are the market segments of interest for the service?
• What types of customers are in each segment?
• Considering the margins and segment size, is the segment worth pursuing?
• Which products or services that are most likely to be successful in Japan?
• How are procurement decisions made?

By answering these questions, you will better understand if there is the potential interest from the local
market in your product. For example, in 2022, there are many fintech companies worldwide who offer
services, including advance payment and credit lines, to small- and mid-sized businesses. Such
companies succeed in the US and the EU markets – but, fundamentally, in Japan there is no interest in
such services because of the way small- and mid-sized businesses are structured and operate there,
both from the financial and culture perspective. Further your organization will be equipped with some
understanding of the industry and will be able to start the process of approaching potential partners and
entering the Japanese market.

In addition, because Japan is such a unique business market and there is a language barrier, a whole
segment of market entry companies evolved in Japan. The market entry companies, some with expertise
in specific industries, offer a wide range of services for startups, from conducting the market analysis to
help finding a partner and managing the process.
Finding a Partner
Finding the right partner is an extremely important phase – it can lead to either a story of success or a
parable of failure. Up until now I have covered what a startup needs to do before making the decision to
enter the Japanese market and what it means from operational point of view in the first few years.

In this chapter, I will cover the processes of finding partner in Japan plus the common pitfalls and ways
to navigate them. This document lacks the space to offer a comprehensive explanation regarding how to
structure the partnership because there are so many variable dependents on your particular company.

General Expectations
Before covering the main pitfalls in finding and partnering with Japanese company, I would like to cover
what are the expectations of the startup and the Japanese company we would like to partner with so we
will have a foundation and an overview about where the problems usually start from16.

The Startup’s Desired Traits

Many companies, beginning operations in a new market, set near-term goals (up to three years).
Usually, those goals contain some sort of KPI’s (for example, X paying clients, X number of PoCs, and/or
X sale partners in the first year and double that on the second year).

The focus of many companies is to expand fast in the new market in the first couple of years by
prioritizing aggressive marketing and sales campaigns to capture a market share and block competitors.
Therefore, from the startup’s point of view, the ideal Japanese partner:

• Is as aggressive as the startup would be if they could operate in Japan alone.

• Will prioritize the startup’s product over less attractive ones they currently offer. The startup
believed the partner should see the same potential for the startup in the Japanese market as it
achieved in other markets.
• Will invest resources and leverage the holding company connections for marketing and sales.

The Japanese Partner’s Desired Traits

But these expectations are different from those discussed in ‘Setting Expectations’, and so your
organization will likely find the Japanese market behaves unexpectedly. Part of this are the expectations
of Japanese companies.

The potential partner usually has a different agenda and priorities in business from the startup:

• Long term commitment: Japanese companies are interested in long term business; this usually
translates to slow and steady expansion in the market and a low profit margin with high volume
over long period of time.
• Risk mitigation: When entering unknown territory, such as working with startups in a new
product or service, the Japanese company will be cautions with the potential pitfalls. These can
include losing face in front of clients, meaning they will value existing clients higher than they do
the startup, and the misuse of resources such as capital and staff hours. Therefore, they will go

16
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/japans-
globalization-imperative/ja-JP
 to great lengths to make sure they feel comfortable with the startup’s offering before making
any process.

The Processes of Finding Partner

After listing some companies that you could partner with, it is time to actually reach out and start to
explore if they are interested in collaboration. This phase may seem straightforward, but this process
can take while (e.g., a year) and include many face-to-face meetings, in-depth technical explanations,
due diligence, defining business terms, and more, simultaneously with multiple potential partners.

The first decision your organization must make is who will manage the process and the interactions with
the potential partners. This role can take a while, requiring the development of interpersonal
relationships that will ultimately be the channels through which the important communication takes
place. In addition, the person chosen for the role should be very familiar with the organization and its
technology and have the authority to take actions and decision on behalf of the organization. The
options for this role are illustrated in Fig. 1 below.

Hire local agent,

representative or
country head
Internal Expand local Convert the
preliminary office with partner to
market Japanese sales, support
Market entry a sales
study partner and
companies Hire local channel
and company marketing to
agent, and further
self- aid the expand the
representative
assessment Japanese local office
or country
Dedicated employee partner
head
within the
organization
Fig.1: The three options from the startup’s perspective to fill the role of go-between, and where
they fit in the flow of information, represented in green, red and orange.

Dedicated Employee From Within the Organization

This is a dedicated employee from within the organization who travels multiple times a year to Japan
and is responsible for communicating with potential Japanese partners. This is a short-term solution and
demands the least resources. However, there are couple of problems with this approach:

• Potential language barrier and cultural differences: In most cases, the role will be filed with an
employee from within the company, who likely does not know Japanese or Japan’s culture and
will therefore be prone to misunderstandings.
• Accessibility: This employee would need to stay for long periods in Japan to be available on the
partner company’s schedule.

Market Entry Companies

As mentioned earlier, there is a whole segment of market entry companies in Japan which offer a wide
range of services for startups, from conducting the market analysis to help finding a partner and
managing the process. Some of these companies offer a service where the market entry company will
represent the startup as a “local office” and also will represent the startup in meetings with the
potential partners, therefore being “the face” of the startup in Japan.

There are benefits for the startup in using these services:

• Lower upfront investment: No need to open a Japanese entity and hire local staff.
• Pre-existing relationships: The market entry company will have existing relationships with
Japanese companies.
• Bilingual and bicultural communication: The employees of the company are usually bilingual and
know how to communicate with companies both within and outside Japan.
• Ongoing consultancy: The market entry company should have prior experience that could help
the startup to navigate the process and bridge cultural differences in business practices.

There are also disadvantages:

• Multiple priorities: The market entry company will represent multiple companies simultaneously
– this means that any given startup’s interest is not the market entry’s top priority.
• Lack of technical or domain-specific knowledge: Market entry companies can be “experts” in the
same overall industry but startups usually offer innovative solution to existing problems. As a
result, the market entry company, when representing the startup, may communicate the
solution differently from the startup or perhaps incorrectly.

Hire a Local Agent, Representative or Country Head

Having a local representative is probably the best approach to manage the process and interactions with
the potential partners and to expand the startup’s operation in Japan. The representative will be trained
by the startup or already possess the requisite technical knowledge. They will be aligned with the
startup’s interest and can invest all their time into promoting the company in Japan. This sends the
signal to potential partners that the startup is serious and committed to entering the Japanese market.

Hiring a local representative can happen at the beginning of the market-entry process or later when the
startup has found a partner and paying clients. Even if everything is going according to the startup’s
plan, it will eventually need a local representative to grow the business.

I recommend that the local representative be a senior Japanese person with experience in the same
industry, as it is quite common for Japanese companies to prefer to deal with a Japanese person and not
just someone who speaks Japanese, to know they share a cultural understanding.

However, finding the right local representative is a complicated task. Most Japanese people do not use
LinkedIn, although it is common in other countries, as there is a language barrier given the website is
mostly in English. Further, many Japanese people try to avoid working for unknown startup (i.e. there is
cultural risk aversion). As a result, a whole segment of recruiting companies has evolved in Japan. These
HR companies, some with expertise in specific industries, offer to find and recruit country heads for
startups. This can be effective but they charge quite a lot for their service.

The common pitfalls I have encountered when searching for and hiring local representative include:
 • Working for multiple companies simultaneously: In some cases, because the potential
recruitment pool is limited, the potential local representative already simultaneously works with
multiple companies. As a result, the startup’s interests and representation is one of multiple
priorities for them. In some extreme cases, they may even work with the startup’s competitors.
• Country head as a business: This is rarer but nonetheless happens. Some people take advantage
of the fact that the Japanese market is hard to enter to offer their service as a country head but
only as a way for them to make money. In reality they are unwilling or unable to do much,
lacking the connections and skill set to represent the startup. When looking to hire a senior
Japanese person I recommend looking at their resume to see how many startups they have
worked with before and for how long. A rule of thumb that I follow is that if the potential local
representative has only worked with couple of startups and for less than two years, it is worth
trying to understand what happened and to talk with the company they represented.
• Setting expectations: The startup should target a senior Japanese person from the same industry
as them, who possesses the right skills and connections that can benefit the startup in Japan. A
common pitfall is finding an ideal person who hits all these checkboxes but who also expects to
be a manager of the process and to hire employees for a team that will perform the necessary
legwork and daily tasks. This usually translates to additional costs for the startup, which need to
be accounted for in the cost-benefit analysis for each potential representative.

Common Pitfalls
With this understanding of each companies differing agendas, priorities, and objectives, we can now
move into discussing common pitfalls. Many of these are drawn from my prior experience in the
Japanese market.

“We Thought That the Meeting Went Well”

In the process of meeting with potential partners, sometimes a startup comes out of a meeting with a
great feeling that the potential partner loved them and will agree to all or most of the startup’s terms.
And then after this meeting the potential partner stopped answering the startup’s emails, essentially
ghosting them.

The Japanese company, however, may simply have behaved politely in the meeting and actually have no
interest in pursuing a further relationship. Additionally, when the startup asks for some input on what
happened and why the potential partner has not returned their contact, they will likely get no answer.

Mary Reisel, an applied anthropologist in Japan with 30 years of experience, encountered this many
times and said of it:

“During the years, I participated in many meetings that were conducted in a pleasant and
welcoming atmosphere that seemed to be guaranteeing success and commitment to good
future business relationships. People are smiling, feel comfortable, and welcome the guests
with complete attendance and focus. Yet, after the meetings are over, one of the employees
suddenly would approach me quietly and mentioned indirectly, not to be too rough and
 insulting, that the boss was very unhappy, he did not like the potential client, and there was
not going to be any other meeting”.17

One Name In a Diverse Portfolio

Another common issue I saw when partnering with Japanese companies, including big household
names, is that their desire to be viewed as innovative with a wide range of products in different domains
was contrasted with the reality that they do not actively do anything to sell those vendors in Japan.

I have encountered more than a few startups that faced a situation where they managed to sign a
partnership with a respectful Japanese brand name that essentially left them “stuck” with a partner that
does not do much. As a result, the startup lost few years of potential growth in Japan and need to start
the process from the beginning with a different partner.

This behavior is likely due to Japan’s strong aversion to risk, leading the companies to not want to be the
one that pushes something which fails, while still understanding the benefits and necessity of a wide
offering for a modern consumer.

Nonexclusive Is Exclusive
When you partner with a Japanese company in Japan, even if you have a written nonexclusive structure,
it is de facto an exclusive agreement, by force of the culture and market participants. This means that
that once a company publishes that it has started to work with a startup, other companies will approach
the Japanese company to gain a reseller agreement with them rather exploring working with the startup
directly.

From the startup’s side, this means you need to be confident in your partner before you commit to
them, as it will be difficult to gain any additional ones.

Old Company, New Business

It is quite common for Japanese companies to operate in different industries under the company
headquarters. Additionally, in recent years more Japanese companies are exploring new business
opportunities and willing to get into new domains to offer new products.

This leads to a situation where companies have a strong brand name in general and they try to leverage
it to open a new subsidiary.

There are main issues with this are:

• The subsidiary will not have experience in the new industry, which will mean:
o The management and employees will likely make a lot of mistakes along the way.
o There are no defined procedures and processes.
o Because the holding company will rotate existing employees from other parts of the
business to the new subsidiary, the staff will be inexperienced in the new domain.
o There will be a lack of focus on the value proposition and service map.
• The subsidiary will be another silo in the holding company:

17
Mary Reisel (2018), From “Galapagos Syndrome” To Globalization: Japanese Businesses Between Tradition and
Virtual Reality, International Journal of Business Anthropology, 7 (2), pp. 1–22
 o The holding company will be unlikely to develop any incentives for the employees in
other subsidiaries to help or introduce clients to the new team. This is because the
success of each subsidiary is unaffected by the success or failure of the others.
o However, one shared resource that different departments will be willing to share is
the partnership network with other Japanese companies; I will cover this in more
detail later.

Miscommunicated or Misunderstood Methods

Lack of understanding of cultural differences in communication can lead to a very bad outcome. This
situation is not that rare. One pitfall we need to be aware of is that the partner might try to do things
that are not in line with startup’s strategy because the partner does not communicate their efforts and
what they really do in the market.

For example, let’s assume the partner and the startup agree on KPI’s and overall market strategy. After
beginning to work together, things seem smooth for the partner from the startup’s side but it is not
communicating much to the startup, perhaps because there are no codified communication processes.
In reality the partner is trying to achieve the KPI’s but through different methods than what the startup
thought they agreed upon that are not aligned with the startup’s other strategies, perhaps through a
marketing style differing from the startup or by selling to clients the startup did not plan to engage with.

This is why it is important to have regular communication practices that account for differences in
communication styles (see “We Thought That Meeting Went Well”) in order to get accurate and
pertinent information.

Packaging Your Product With Other Services

This is not necessarily a pitfall, but it can be if the startup does not expect or account for it.

Given the partner likely also represent different vendors, it is quite common for it to offer a combination
of services under the same package in the Japanese market. This can become a pitfall for the startup if it
does not realize the partner will try to negotiate the price assuming it will be for a combination package
and may balk if asked to pay more for further services.

Sharing The Blueprint

In the process of finding a partner, potential partners like to know all the details about the startup’s
product. Usually, this means explaining the ‘special sauce’ and how the startup utilize its technology. It is
important to explain emphatically but politely why the given technology is complicated so the startup is
the only one that can develop it. Naturally, this is sensitive information for the startup. Therefore, I
recommend signing a non-compete and non-disclosure agreements before any in-depth technical
explanations about the startup’s solution.

Localization and Support

One of the main objectives before launching in Japan for both the partner and the startup is localizing
the product and the support. Therefore, in the partnership process, it is important to clarify how the
localization process will go and what resources each party will invest in it. Otherwise, several pitfalls can
arise.
Disagreement Over the Responsibility For Hiring Staff
The first pitfall can be disagreement between the companies regarding which is responsible for
allocating the FTEs for the Tier 2/3 support team. Potential partners will likely lean toward the startup
being responsible for hiring local staff, while the startup may have assumed the Japanese partner would
handle that.

Partners will likely lean toward the startup hiring local staff for the support team for the following
reasons:

• The partner usually represents multiple vendors and lacks the resources to support all of them
with its own staff.
• Hiring talent in Japan, especially in the fields of AI, cyber security and cloud computing, can be
challenging and therefore take up a lot of resources the partner may be unwilling to assign to
something they perceive as a risk (i.e. partnering with a foreign startup).

To avoid this issue, the startup has some options. They can:

• Approach a relatively small Japanese company that offers similar services to the startup in the
same domain to partner with for the support part. The Japanese partner will not have
approached these small companies because they are too small to be worth engaging with for a
large holding company, given their process for onboarding a new supplier will be demanding
and long. It will be much easier for the startup to onboard the small company.
• Engage the help of a market entry company, which will work as a secondary for the startup to
hire local staff, so the startup would not need to create a Japanese entity to hire employees
directly.
• Directly hire local staff and train them to provide the support.

Expecting Startup’s Support Beyond Their Product

As explained above, Japanese companies believe “The customer is a god” (お客様は神様です)18. Their
number one priority is to have a happy client and they expect the startups they partner with to be the
same.

Therefore, when a client submits a support ticket, the partner will feel under pressure as it does not
want to lose face. This means it will put this pressure onto the startup to fix the issue that the client
raised. it will expect the startup to support the client with things within the same domain but not
directly related to startup’s product, and to do so without charging additional consultant fees.

This will be expected as part of the service, even if the support request needs resources to accomplish.
The startup must account for this when deciding if it has sufficient resources to enter the Japanese
market.

How to Navigate Around Such Pitfalls?

There are some actions you can take as a startup to avoid these pitfalls as best as possible. There are
some actions you can take in the process of finding a partner and further actions when managing the

18
https://www.forbes.com/sites/blakemorgan/2018/09/24/a-global-view-of-the-customer-is-always-
right/?sh=2e5ac547236f
relationship. Implementing these processes and procedures does not guarantee you are out of the
woods yet, but they will give your organization a better foundation to work with your Japanese partner:

• Talk with other companies that the partner represents in Japan to learn their experiences get
their feedback.
• Set explicit and regular communication process to make sure you understand how your partner
is behaving.
• Ask the partner to educate your organization on the best approach for the market – look to
them as the expert – and have them be accountable for the execution of their own strategy and
KPI’s. Your organization will be relying on your Japanese partner to develop the right go-to-
market strategy and manage the sales, marketing and market education in Japan.
• Create internally a specific Japanese relationship management role internally, with two main
functionalities and further responsibilities. This is described and then illustrated in Fig. 2:
o To simplify communication: If the partner has a single point of contact, its staff will
always know who to talk to and can build long term relationship with that person. This
reduces uncertainty for the partner and makes them more comfortable.
o To consolidate relationship knowledge: With a specific role dedicated to managing the
relationship with the Japanese partner, you know at least one person within your
organization will see all the business interactions with the partner.
o This role will have the following responsibilities and accountabilities:
▪ Coordinating of marketing and sale activities;
▪ Training the partner on the startup’s platform and answering any questions it
might have over time;
▪ Developing pricing, campaigns and service packaging;
▪ Managing support tickets and feature requests from the partner’s clients.

Marketing

Pre/post-sale Japan
Partner/
management
Country head
role
R&D

Sales
Fig. 2: The flow of information from the startup (green) through the Japanese relationship
manager (blue) onto the Japanese partner (orange).

Additional Notes
Consider All Tiers of Companies
Companies from outside Japan usually try to approach big household names, such as Itochu, Mitsubishi,
and Marubeni. They often do not realize that Japan is a bigger market than these well-known names,
with multiple tiers of companies, and that some lower tier companies may be a better fit. Partnering
with a Tier 3 that can give your startup personalized attention may be better for you than partnering
with a Tier 1 company that cannot pay as much individual attention.
There is no universal framework defining the tier levels of Japanese companies, but based on my
experience I define them as having the following characteristics:

• Tier 1: Japanese conglomerates with a strong presence in the international markets. These are
the most well-known household names, covering a wide range of companies in different
industries. They have a market cap of at least $50 billion USD (usually traded in the New York
stock exchange).
• Tier 2: These are the suppliers who, although still vital to the supply chain, are usually limited in
what they offer. They are usually smaller than Tier 1 companies, but they have technical
advantages as they are specialists in their domains. These companies have some presence in the
international markets, but usually focuses on limited domains.
• Tier 3: These are local companies with little-to-no presence in international markets. Usually
Tier 3 companies are mid-size and focus on one specific domain, such as an engineering
company in the renewable industry working a specific geographical area.

The Importance of Champions

Japanese culture is risk-averse, and this not only affects company-level behavior but that of the
individuals you meet in the partnering process as well. When meeting with potential partners to explore
the possibilities for collaboration, you will probably experience some sort of pushback to your new and
innovative way to address issues as the Japanese companies are trying to ascertain the risk associated
with them.

In such meetings, you would need to identify the one person present on the other side who sees the
potential in your product and understand Japan’s corporate culture, management, and decision-making
processes. They will be your champion – an intermediary between you and the potential partner. When
identifying this person, you need to do whatever you can to support them so they can support you to
close the deal with the partner.

This usually translates to creating the strategy together with your intermediary, providing them with
different kinds of materials on your startup. You could even agree to say that this person came up with
the idea for the partnership – this could make the startup seem less of a risk to the potential partner, as
one of their own has already seen sufficient potential in the startup.

By the Japanese standards, this person is taking a risk on themselves to promote your company. They
are doing so to hopefully position themselves better in their company. Many companies in Japan,
particular finance and insurance companies, rotate their employees through their various subsidiaries
every two or three years. This means that some employees try to make an impact in their role before
rotating, to hopefully gain a more prestigious position in the place they are moved to.

You need to keep in mind, once you have found this champion for your startup, that they are risking
themselves to improve your favor within their company to gain favor themselves. Therefore, make sure
you are also working to raise their standing in return, so they see how you can help them if they keep
helping you.

Continuous Training
Given that your Japanese partner company is almost certainly representing multiple vendors, their
employees will have a lot of products and services to learn about. Therefore, they will need regular
training on your product so that the correct information stays fresh in their mind. They should be able to
represent the product to clients as well as the startup could.

I have found that a good schedule is one week of training every six months.

Arbitration Place/Governing Law

Japanese companies prefer to set partnership agreements with the governing law, or place of
arbitration, to be Japanese. This is because they will feel safer doing their business under Japanese laws
than laws of other countries. However, this may leave the startup at a disadvantage.

Therefore, in case of a partnership, it is recommended to set the governing law or arbitration place to
another country natural to both parties, that is not the startup’s origin country or near it. Showing
fairness is the key to shortening the time to close your partnership agreement.

Why That Company?

One of the questions Japanese companies will ask, when approached as a potential partner, is “Why
us?”. The startup needs to show understanding of the potential partner and explain how their solution
can be woven into the company’s existing strategy and how the startup can expand the partner
company’s offering to the public.
The Sales Process
Sale Channels
Japanese companies, especially companies that offer a wide range of services and products in different
industries (i.e. conglomerates), have a complex partnership network with other Japanese companies.

The foundation of this partnership network is to allow companies to share profits in return for accessing
each other’s clients. Fig. 3 below illustrates an example.

Once the startup finds the right partner and the product has been launched in Japan, the partner will
allocate resources to expand its sale channels by partnering with other Japanese companies.

As the partner will have existing relationships with other Japanese companies in different industries, it
will offer the startup a partnership where they will share the revenue in return for the Japanese
company offering the startup’s products or services to their own clients.

In this process, the new sales channel will be responsible for managing the accounts of their own clients
and the partner will manage a larger network of sale channels.

As a result, the startup needs to account for this profit sharing, between the startup, the partner, and
sale channel, in the pricing of the product.

Client of Company Client of Company

#1 #2

Client of Company Client of Company

#1 #2
Company Company
#1 #2
Client of Company Client of Company
#1 #2

Client of Company Client of Company

#1 #2

Fig. 3: How the relationship between Company #1 and #2 works when Company #1 desire access to
Company #2’s clients.

1. Company #1 wishes to access a potential client (Fig. 3’s red dotted line).
2. Company #1 knows the potential client is working with Company #2 in something unrelated to
what Company #1 offers.
3. There is an existing partnership between Company #1 and Company #2, who are two big
Japanese companies.
4. Therefore, for Company #1 to access the desired client, it will offer to be a sales partner for
Company #2 so that Company #2 can offer its products alongside their own.
5. Thus Company #1 is selling to their desired client and Company #2 is gaining profit from it.
General Sales Tips
Here are three important tips for the Japanese sales process in general.

Do Not Be Creative With the Offering

Offering only the basic product to a potential client and then trying to up-sell them on additional or
upcoming features will not be appreciated by Japanese companies. While this may be common practice
for Western companies, particularly in domains such as cyber security where “upgrades” are often
offered for support or additional feeds, most Japanese companies strongly dislike having to dissect a
complicated offering. They will be turned off of the deal by having to pay more for customized services
or if they feel the seller is trying to overcomplicate the matter to trick them into paying more.

Therefore, it is important to set pre-defined service packages that vary in price based on company size,
assets, number of users, etc. Include the whole offering (i.e. new features, support, and all the feeds)
within each of these packages. This will allow your Japanese partner to market the right package to the
right customer (i.e. they will only offer enterprise-level packages to enterprise clients, thus not wasting
time trying to sell them to small businesses).

Your partner will approach a variety of associations (e.g., local banks, hospitals, a group of
manufacturers) to try to sell your product. They want to be able to show each association a simple-to-
understand offering tailored to its size and nature. Having to walk through hundreds of options with
each association, each of which alters the offering’s price, will be off-putting. You will be more likely to
make a sale with a simple, personalized offering.

Exactions and Incentives

In Japan, you cannot use the same tactics and incentive strategy as you would in Western countries.
Offering the potential client discounts, service extensions, or free use for a certain amount of time in
exchange for the company writing a quote on the product that the startup can use for PR, allowing itself
to be used as a use-case, or using the client’s logo in marketing is not common and not well received.

The rule of thumb is that the startup can ask for such things after at least one year of providing the
product to the client – that way, the client can genuinely give their endorsement to the product as they
have experience using it. Before this point, their endorsement would be seen as dishonest as they
cannot truthfully give their opinion on it.

The Importance of Reports

In Japan, reports (typically in PDF form) are a very important communication tool. They are usually the
method by which companies update management and related departments or partners. Startups that
usually operate outside of Japan tend to assume that their clients will use the product’s dashboard to
receive this information or integrate its system into one they already use to create dedicated automatic
reports.

Unfortunately, from my experience, while such automatic report features allow the export of data and
graphs, they lack the proper context that a full personalized report would contain. Remember that in
Japan different sections under an umbrella typically operate in silos and while one may have the
necessary context that does not mean it will be shared with another. If you have the resources, I
definitely recommend discussing with your partner, and any clients, their needs in such reports and then
giving them reports containing the required information in its proper context. Ideally, these reports
would also be professionally translated into Japanese. Where possible, automate parts of this process to
ease the strain of it, such as enabling the product’s dashboard to access sufficient information to give
data context.

Show Off Your Other Clients

Potential Japanese clients are interested in many clients the startup trying to sell to them already has
(particularly enterprise, mid-size and government organizations). The potential client sees this as an
indicator of the startup’s maturity level. Therefore, while you naturally cannot break any non-disclosure
agreements (NDAs), where possible include the names of your other clients in your sales pitch.

In addition, Japanese clients would like to know roughly the price that other companies pay for the
product in other markets. For example, the US pricing for enterprise and mid-size companies is often
used as a benchmark. This is a further reason why offering simple packages is important – it allows
potential clients to easily compare what other companies gained at the same price point. I recommend
including this information in the introductory pack, so the potential clients have a clear understanding
from the get-go.

Campaigns
In order to promote your product in Japan, the partner will want to run campaigns to attract potential
clients. This is a good way to find new customers.

Usually, the budget is the biggest factor in campaign promotion. It is common in Japan for campaigns to
happen around the end of the financial year (March) once the company knows how much spare budget
it has for PoCs, assessments, and one-time reports. However, you should also make a map of Japanese
events throughout the year and offer custom campaigns to your partner based on these events. Your
campaign’s timing is as important as its content.

Market Education
Market education will set the foundation for future growth and is the most time and resource
consuming process in the Japanese market. Startups by design offer new and innovative ways to tackle
problem. Therefore, when they enter a new market, they need to educate their potential prospects
about the benefits of their novel approach. In Japan, this process takes more time than typical in other
markets. Common reasons for this include:

• Commitment to the process (e.g., supply chain): As mentioned earlier, Japanese companies have
a thorough process when adding companies to their supply chain. One phase of this process is
testing the commitment of the company who would like to be part of the Japanese supply chain.
They want the company to have the attitude of “We here to stay; we are here for the long
term”, so they will challenge the company with multiple meetings and repeated questions.
• Lack of technical knowledge: In some cases, startups offer a new deep-tech solution with
technology that is not widely used. Therefore, the employees in the target company lack the
technical knowledge to understand, assess and ask relevant question about the product. From
meeting to meeting, the employees in charge of validating the product will try to educate
themselves about your technology so they can ask the right questions to see what the current
value of your company is, beyond any visions or upcoming features.

In addition, I have noticed that there may be a lack of familiarity with the domain as a whole.
 This is particularly true for the cyber security domain. The cyber security eco-system contains a
lot of different products – there is not “one product to rule them all”. Therefore, it is important
to frame your product within the bigger picture of the industry. At least you need to explain the
differences between your product and a known benchmark product category, such as EDR
(Endpoint Detection and Response), antiviruses and SEIM (Security Event and Incident
Management). By doing so, you will educate the client about the industry and then focus on
why your solution is the best in this particular category. In other words, do not assume the client
knows something, even if for you it is obvious.
• Delay to next financial year: In Japan, the fiscal year (represented by the calendar year that it
began followed by ‘nendo’, i.e. 2022-nendo – 2022-年度) starts on April 1 and ends on March
31. In some cases, the company interested in your product will need to delay the process as they
lack the budget this financial year to allocate to it. The real indicator that they are interested is if
around January the potential client set meetings to better understand the product and the
startup’s maturity level – using this information, they will talk internally and allocate the budget
for it in the next year.
• Competitor analysis: Another aspect of this thorough process is the competitor analysis phase.
This is where companies, after they understand the solution that your organization is offering,
do market research to see if other companies offer similar products and what the benefits of
each one are. This process includes multiple meetings about the details of the solution/service
to find the right path for the client.

In addition to meetings with the potential clients, the organization will need to operate with a pre-
defined marketing strategy that fits with the market education process. This will include, among other
things:

• Dedicated webinars, in Japanese, on the Japanese market

• Blogs with use-cases in Japanese
• Attending conferences in Japan

Further, and I cannot stress this enough, in the education phase do not over promise or oversell your
product or service. I will now explain the situation in more details.

In-Depth Explanation About the Product or Service

As you probably understand by now, Japanese clients would like to understand your product or service
in detail. After a few meetings where you explained the overview of the product and gave some
potential use-cases, the client might hopefully be interested in learning more about your offering. This is
usually after signing a mutual NDA.

This means that the client is after knowing everything about the product or service before making the
decision to move forward in the sale process. In this phase, the client will ask a seemingly endless list
questions about the product.

In order to be prepared and have concrete answers upfront, you must understand that the client Is not
trying to compete with you. The client will not take the sensitive information you share with them and
provide it to your competitors or the vendor you are trying to replace as a supply chain.
The client needs to understand in detail how the product or service works, because of risks factors on
the client side, the supply chain culture, and to make sure your organization is here for the long run and
understand their role in the client’s company.

Here is just some of the information a Japanese client company will want to know:

• Current value proposition: As mentioned before, in the Western world, it is quite a common
practice to oversell a service or product. We tend to, for example, show specific use-cases and
let the client think that those can be applicable elsewhere or present features as just around the
corner that will be developed in 6 months’ time.

From the Japanese point of view, they need to understand the current value proposition of the
product or service, not its future potential. This translates to:
o What are the current capabilities of the product or service (current features, out of the
box integration, export capabilities, email alerts, etc.)?
o Real-world use-cases the product can support (here, use examples of your other clients)
o How other companies utilize your service, more in the sense of how your client
embedded the product in their technology stack than just how they use it. Explain what
kind of processes and procedures they created internally for it and what the end value
of the product is to them.
• Methodologies: Japanese clients expect to know the ‘special sauce’ of all members of their
supply chain – i.e. which methodologies they use and how they use them to provide added
value to their clients. This part can be difficult to explain. For example, if your company is in
cyber security, you will need to deep-dive into the technical details of the data collection and
analysis your company performs and how they will protect the organization based on it. These
dissections should not be led by sale person; instead, someone from a highly trained technical
role (such as from R&D) with understanding of the product’s backend and how the company
implements the technologies it uses.
Limitations: Communicating the limitations of the product is almost important as explaining the
value of the proposition. Sharing the limitations up front will save a lot of frustration later on –
the client will always discover the limitations even if they are hidden and may feel misled if the
company has not been honest about them. Additionally, communicating the limitations of the
product will help the client understand the current value proposition and what the product
cannot do.

This section of questioning also gives the opportunity to explain the limitations of the industry
the company operates in. For example, the cyber security domain is extremely dynamic and
methodologies that are used by the company today can become obsolete in a short period of
time as the threats evolve. From this angle, you are less explaining your limitations and more
the risk factors of your industry that can affect the product value proposition.
• Use-cases: After signing a mutual NDA, the client will expect to learn real-world use-cases, such
as what previous clients have used your product for and their processes and procedures for
adopting, deploying and using it. By showing real-world examples, the typical Japanese client
will deduct the meaning on the future deployment process, how their own organization can
 utilize the product and what it will require from the organization regarding resources, human
capital, processes, etc.

Proof of Concept
Value Before the PoC
This phase is company-specific, but it can beneficial if your organization can show value to the client
before deploying phase. This is because Japanese companies perceive PoCs as resource-demanding and
so the approval process to launch a PoC is complicated (i.e. the nemawashi process in business; see the
‘Japanese Client’ section above).

Hopefully, you will be interacting with a consistent person within the potential client or partner, ideally
through your Japanese relationship manager (see the How to Navigate Around Such Pitfalls? section
above). If you can show this person or team value without a PoC, they can show this value to their
management and it will increase your chance of moving forward in the sale process. Different ways of
showing value before conducting a PoC include free assessment, consulting, assessment report, and
sandbox environment.

The PoC Phase

Once the potential client has all the answers for their questions (i.e. after the education phase), your
organization has ideally managed to show value already, the employees you are in contact with have
managed to convince management that a PoC is the right next step, and the management are onboard
and willing to allocate the resources – then you can finally start designing the PoC.

In this phase, the client will seek to validate any claim you made in the education phase.

Re-Education and Onboarding New Team Members

Despite having already educated a potentially large amount of people during the previous phase, you
will need to educate a new batch of people or re-educate some of those from before if some time has
passed due to the careful nature of nemawashi. It is common in Japan that the contact you were dealing
with to get the approval for the PoC is different from the team who will execute the PoC and actually
use your product.

You must assume that this new team knows absolutely nothing about your product or service. They will
be invited to a launch meeting for a product they are entirely unfamiliar with. Therefore, it is extremely
important to onboard the new team and go through the “education phase” from the before with them
so they are aligned with your goals and can help you to execute the PoC process as smoothly as possible

Define Goals and Plan the PoC

From the client’s perspective, getting to the PoC phase is not an easy task because of various factors,
including:

• Defining the PoC’s goals: This is an important step where the startup sets expectations and,
together with the client, define what will be a considered as a successful PoC. There are multiple
aspects to give to the company including:
o Dry tests and checklists: Test Case Specification, Site Acceptance Test (SAT), up-to-date
Japanese-language user manual
 o Overall value of the PoC: My recommendation that you should set reasonable
expectations based on past PoCs; do not overpromise or oversell its capabilities. If you
do not get the results you promised, there will be meetings where you must explain
why, by the Japanese point of view, you have failed. This can damage your relationship
with the company and potentially your overall reputation.
• Requirements from the startup: It is important to walk through every aspect of the PoC to
explain in detail what you require to launch the PoC successfully. You need to be clear and
precise about everything that you need. The level of detail you should go to means specifying if
you need an internet connection without a web proxy, admin rights on the local machine,
installation of a specific Python library, access to a certain application, or a connection to a
specific database. Each request must be made upfront and the reason for it made clear.
Anything you ask for after this stage will seem like an oversight indicating that you either do not
understand the requirements for your own product or were dishonest in what you required.

After defining the requirements, it is important to be aligned with the client regarding how the
deployment will look and who is responsible for which part. Then, after the meetings where you
explain the PoC requirements, goals and deployment, the management will need to approve
them.

Once these parameters have approved by the management, it is impossible to make changes in
real-time. If you find you need critical access to something you did not specify, the PoC process
will stop and your company need to explain in multiple meetings why you did not request it up
front, why do you need access to that system, what is the risk associated with it etc.
• Resource intensive: The company will dedicate a couple of employees to learn the product
inside-out over the PoC. This is quite a significant number of resources devoted to the PoC from
the company perspective. Therefore, it is a good indicator for the interest in the product or
company if the management have approved the PoC.

Training On the System

After defining the requirements, assigned roles, goals and responsibilities, you can move to training. The
startup should provide training to the team who will execute the PoC before its deployment in the client
network. The startup should invest in this training as if the client bought the product and it is part of
their onboarding process, offering in-depth training covering all uses of the product.

I recommend giving this team an official certification once they become trained in your product. This will
benefit the individuals because this can be posted on placed such as LinkedIn and so they will be more
committed to the training due to its benefit to them.

Support During the PoC

After the PoC is started, it is important to communicate with the client during the different stages to
ensure they know it is a priority for the startup. At the least there should be a mid-term and an end-of-
PoC-phase meeting.

Additionally, you should write a report on the PoC. This deliverable will usually summarize the value to
the client. The PoC team will use it to present the results to the management. Make sure your report
equips your counterparty with in-depth explanations about the PoC’s stages, results and benefits.
Further, this level of communication will build credibility by indicating the support level the company
can expect if they become a paying client.

How Do Startups Reduce Their Risk?

I suspect more than a few of you at this point are nervous about the risk to your startup if it tries to
enter the Japanese’ market. Startup can do all the right things, invest all the necessary resources and
play by the rules, but still fail due to reasons beyond their control. The risk to the startup is high when
trying to enter the Japanese market, although the rewards can be worth it.

I have considered what a startup can do to change this equation and reduce their risk:

• Wait to be approached: Do not enter the Japanese market. This may seem like ironic advice,
given the rest of the content of this guide, but it drastically reduces the risk for the startup.
Instead, wait for a Japanese company to approach you. To clarify, you need to be approached by
someone from a non-investment company. Once you have been approached, your startup can
leverage the opportunity with your own terms and conditions to reduce the risk of the venture,
as the company approaching your startup will have most of the work for you such as
understanding the need for the product, having a willingness to invest in localization and
developing the technical capabilities to support their clients. However, most startups will have
to make the first move themselves, which is where my other two tips apply.
• Target international Japanese companies first: I am assuming your startup already operates in
the US and at least one other market. Hence, I recommend targeting Japanese subsidiaries in
these main markets that you already have a presence in before beginning entry into the
Japanese market. By doing so, you will develop some experience with Japanese companies,
which will help you later, without risking as many resources as a full Japanese market entry.
• Leverage the supply chain: As a company operating in the Japanese market, you will use
products and services of other Japanese companies. For example, a cloud solution startup could
sign a contract with the Nippon Telegraph and Telephone Corporation (NTT) to store their
product or services in an NTT data center. The startup can then leverage the fact they pay NTT
to store their solution and ask NTT to promote their services and/or find a way to collaborate.

End Notes
I hope you found this document useful. It is a distillation of my own experience, analysis, and extensive
discussions with veterans of this market. There are undoubtedly exceptions to what I describe, and I am
sure I have missed certain things – I would be more than happy to hear your experiences in the Japanese
market to expand this unofficial guide.
Acknowledgments
• Dan Shulman from Shulman Advisory
• Yoav Ramot from Million Steps
• Isamu Koyama from Japan Innovation Park General Incorporated Association
• Thomas Glucksmann
• Ofer Reish from Amazon Japan