Article: Strategic Alliances and Partnerships in Japan

It is becoming a more popular market entry strategy given the worldwide branding of various products over the internet. It is not recommended for foreign companies which do not have strong brand recognition in their own country. Large foreign franchise chains are often seen as attractive thanks to their brand recognition and proven profit potential.

Major Advantages include:

• Rapid replication strategy with the benefit of having highly motivated managers at each outlet
• Same advantages as local businesses: import regulations or tariffs do not apply.

Disadvantages include:

• Since the business format and operating models are fixed, it is less adaptable to local trends or tastes. However, fast food companies like McDonald’s manage to tailor service and individual menu choices to local tastes.
• Need to protect the key brand features of the products, taking into account trademark and copyright laws in Japan, as you are potentially creating your own competition by teaching the franchisee how to operate your business in their market.
• Franchises often require a fair amount of (difficult and costly) hands-on management

4)    M & A (Mergers & Acquisitions):

Mergers with Japanese companies and acquiring Japanese companies is a quick way to launch business in Japan rather than incorporating business from scratch. Even if the New Company Law of Japan (enforced in May 2006) has made the incorporating procedures easier than before, there are still benefits to considering mergers and acquisitions of Japanese companies, even for small and middle scale businesses.

Major Advantages include:

• No need to obtain permissions or licenses required by the business from government
• Acquisition of new business resources such as intellectual properties, business model, existing economies of scale, know-how, facilities, human resources, market & customers, established brand names, corporate image ….
• Fast way to gain market share in popular business categories like IT, software, recruitment agencies, restaurants, chain-shops, franchise chain …

Disadvantages include:

• Careful evaluation process of the company to be acquired is essential
• Complexity of integrating differing (corporate) cultures. One challenge of M&A’s is Human Resource and Change Management, as there are different kinds of potential issues.

Acquisition is preferable when speed of entry or barriers to entry are important factors. The post-2008 crisis has opened up new opportunities for foreign companies to invest in Japan: more and more Japanese SMEs are for sale. In contrast to hostile takeovers, Japanese welcome friendly ones, as well as takeovers of independent SMEs as group subsidiaries.

5)    Joint-Ventures (JVs):

This is the most sophisticated type of Partnership: here a third independent company is created and owned, but not necessarily managed, by the partners. Different equity participation ratios are possible, ranging from a minority stake, equal stake or a controlling stake. 

An example of this is the JV between Sony and Ericsson in the Mobile Phone Industry. Both companies brought an expertise to the Partnership: Sony’s marketing and Ericsson’s technical know-how.

Major Advantages include:

• Market access: access to the local partner’s distribution system, marketing and other specialised advice based on local knowledge.
• Risk sharing, cost sharing & economies of scale in capital and research intensive industries.
• Joint Ventures are viewed as a practical vehicle for knowledge transfer, such as technology transfer, from multinational expertise to local companies.
• Joint-Ventures can be a first step towards a complete acquisition.

Disadvantages include:

• It can take many years for Japanese companies to assess potential partners before committing. For example, large Japanese manufacturers with well-established reputations would require a considerable length of time and amount of efforts before engaging in this type of business relationship.
• As it is a two-way relationship, the Japanese partner would expect their advice to be taken seriously and to have a significant level of control in the venture, as well as the foreign company to be committed in the long-term.

Recommendations for Partnerships in Japan

1)    For Large Firms, selling together with local partners in a Joint-Venture can leverage locally the needed customer contacts and technical resources. For technical products, target partners would be Japanese integrators, often subsidiaries of large manufacturers or groups.

2)    Don’t rely too much on second chances (rebuilding or starting over). Try to get it right from the start by carefully planning. Be consistent in your actions and directions. Don’t rush into a Partnership agreement, only to find out later that the agreement is difficult to end when circumstances change.

3)    When setting up business in Japan, especially in the case of Joint-Ventures, Investments, Acquisitions involving entity issues, seek appropriate legal/professional counsel. Hiring an experienced third party provider simplifies the entire process, improving the communication with the Legal Affairs Office and the Japanese banks.

4)    When going for an M&A, beware of Human Resources and Change Management issues. Initial resistance to change from outside disappears when Japanese are convinced of the need for this change. Therefore, prove and convince at each level of the organisation. After that, execution can be very quick.

5)    When going for a Joint-Venture, keep the Japanese cultural touch of the operation: what counts most is to be local, that is, to be a Japanese company in Japan. 

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Source: “Japan Entry Strategy”, Philippe Huysveld, EU-JAPAN CENTRE for Industrial Cooperation, November 2013 (https://www.eubusinessinjapan.eu/library/publication/report-japan-entry-strategy)