Entering the Japanese Market: Stacking the Deck and Setting Expectations
Last updated: April 09, 2024 Read in fullscreen view
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Japan, believe it or not, is an amazing market for software companies. It’s the 3rd largest economy and 2nd largest IT market in the world; it’s also the largest SaaS / Cloud market in Asia. Despite whatever you may have heard about Japan’s closed Japanese business culture, it’s warming up quickly to non-Japanese companies for a variety of reasons. In other words, there’s never been a better time to be a software startup trying to move into Japan.
We’ve written a lot about misconceptions surrounding Japanese business culture, from overblowing the importance of business cards, to the notion that a foreign company will be successful only if they go through a distributor already embedded in Japanese businesses. And just like any other culturally-enmeshed aspects of business in Japan, sales is also often mistaken for having an impenetrable cultural moat foreigners just won’t be able to break through.
While there are culture-specific nuances to selling and gaining traction in any culture, I believe these are just nuances, and sometimes obstacles, but never mysterious nor impossible to bridge. However, you do need to be aware of them, and actively work with how things work in Japan if you’re to succeed in expanding your operations to Japan.
Setting Expectations with HQ
If you’re reading this, I’m going to assume that you’re not going to be the person selling directly to Japanese corporations. You’ll most likely be hiring a team in Japan (or a handful of Japanese professionals where you are) down the line to handle day-to-day Japan operations.
So, no matter how much we talk about how to enter, and sell in, Japan, a lot of the tactics are moot if you personally won’t be able to execute on them.
What I’ve found is that many representative directors in Japan managing the office, and Japan teams in general tend to have a hard time convincing management back at HQ of the differences between the Japanese market and that in the US, especially for executives expanding operations to Japan for the first time.
Instead of talking about specific sales tactics, what I’d like to focus on here is the expectations you should have, and how to make sure you can reconcile what you expect from your US team v. your Japan team.
What Types of Companies Lend Itself Well to Japan Market Expansion?
While Japan is a great market for software companies, there are a few factors that can make it easier or harder to enter Japan. As you start thinking about moving to Japan, being able to take a pulse of the Japanese market without diving straight in is invaluable. But how do you do that? If your company has these following traits, you might be able to test the waters with a few early-stage customers in Japan.
Developer-Centric vs. Business User-Centric Software
I’m defining “developer-centric software” as those sold to IT and developers, and used primarily for building (or helping build) something technical. These include, but are not limited to DevOps tools (CI/CD, testing tools, etc.), developer tools (SDKs, identity management tools, etc.), business intelligence tools, databases, etc.
Business user-centric software, on the other hand, are those sold to non-technical users, for non-technical functions. This could be HR and payroll solutions, expense management tools, digital advertisement solutions, and content management tools.
Between these two, developer-centric tools may be easier to sell into Japan, at least initially, compared to business user-centric tools because developers are much more used to dealing with software with incomplete support. A lack of product localization, a small Japanese community, and very little Japanese documentation are par for the course when using non-Japanese software. Japanese developers have gone through this cycle time and time again as new tools and methods crop up outside of Japan, and they are relatively independent and unbiased in their evaluation of tools. These factors make it easy to measure Japan expansion viability through initial organic adoption without much upfront work (think GitHub and their organic growth in registered users in Japan), though organizations will have to have a Japan support strategy in the long-run (again, think of GitHub as they start selling enterprise licenses).
Individual licenses v. enterprise licenses
Simply put, it’s much easier to convince one person to sign up for a freemium service or purchase one software license compared to going through a POC cycle and having to convince a room full of decision makers. Of course, companies will still have to eventually figure out how to sell into larger accounts more efficiently, but getting 100 users who signed themselves up is much more cost effective than having to hire a sales team first.
Self-service v. professional services
This is no different than in the US, but software that is completely self-service, from signing up to implementing and operating the tool, can garner a significantly higher number of users (revenue notwithstanding) than those requiring professional services support.
Exceptions
These three factors are just a few ways to start asking about an organization’s Japan expansion viability. But by no means does this mean that a business user-centric tool on an enterprise sales cycle with heavy professional services for onboarding cannot expand into Japan. In fact, Salesforce and Oracle are two great examples of companies that have been extremely successful in Japan that exhibit exactly the traits that may have made initial expansion difficult.
For better or worse, understanding these factors can be a way to tally up the market opportunity and start with incremental steps to increasing market share in Japan, rather than jumping straight into opening up an office.
Moving In, and Moving Up
Once you’ve decided Japan possesses the qualities of an attractive overseas market, you will most likely kick off a project to incorporate in Japan, and find a representative director (also commonly known as country managers).
The good news is that these people know Japanese business like the back of their hands. The bad news is that it’s going to be difficult for you, a non-Japanese person, to fully appreciate what the team in Tokyo are working through because you don’t have experience in Japan. This means that you might set unreasonable standards without adequate HQ support, or conversely, not know exactly when to push back on your Japan team’s input.
In order to close the gap between your expectations and the unknown (to you) reality, we’re going to lay out what to expect during the sales process, along with a few dos and don’ts.
1. Qualify, always
This seems obvious, but your team in Japan may be reluctant to ask qualifying questions upfront, thinking that it’d be impolite to start asking questions about their business and pain points over email before meeting the prospect. Many of them will want to go onsite, exchange business cards, and go through a company overview deck before asking questions.
- Do push hard on your team to qualify, even if it’s a few high-level questions. Given most meetings take place in-person, going to a meeting without any upfront information means wasting almost 2 hours of each attendee’s time. Come up with a few qualification questions, and make them into a template they can easily paste into their email while scheduling the meeting.
- Don’t just agree to the pushback that asking these questions are impolite. You won’t lose any prospects just because you asked a few questions, and the worst they can respond with is a “let’s chat about it in person.” In fact, asking pointed questions upfront can signal a level of expertise to the prospect, and can lead to them trusting you more than just walking into a room to run through a dry presentation.
2. Always Assume In-Person Meetings for Introductions
American executives generally don’t realize how ingrained on-site introduction meetings are in Japan. Especially in Tokyo, where you can get anywhere within 30 mins via the well-oiled machine that is the Tokyo subway system, the expectation is that your team will visit each and every prospect for meetings.
- Do accept this as a fact and a cost of doing business in Japan. Yes, meetings will take twice as much time considering the amount of time it takes to get to the prospects’ offices, but you’re not going to go far if you try to overturn this long-standing piece of business culture.
- Do make sure your sales teams are qualifying these prospects before jumping head-first into an intro meeting (refer to the point above).
- Do try to find other meetings that could be done online, like POC check-in meetings, and second, or third meetings without executives involved. Your sales team can always say that they’re going to be traveling around that time, and can only chat over video conference. Of course, this isn’t going to work for negotiations and other important presentations.
3. Clarify POC Objectives or Get Into a 2-Year POC Time Sucker
As your sales team walks prospects through their products and services, the topic of running a free POC will inevitably come up. The only problem is that they’ll speak to a larger number of people than you’re used to back in the US, and none of them have decision-making authority. The Japanese sales person, thinking running a trial is the right way to get the attention of higher-ups, agrees to a free trial, but isn’t able to get information on their budget cycle, and who will be signing the dotted line (and it’ll most likely require multiple people approving the project). A few months of hands-on support from your organization, and the prospect comes back with new requirements, a request for a second round of evaluations, and a longer than expected timeline.
POC: A proof of concept is typically used to test the core features, usability, and overall viability of a product idea at different times during the development lifecycle. It's a way of verifying a product can work as intended and has the potential to address a specific need.
- Do make sure there’s a clear POC objective and a path to final approval. Japanese organizations are group consensus-oriented, which makes finding the one decision maker almost impossible (in fact, there are usually many people who have to sign off). Going into a trial with out either of these will guarantee a long-term cycle of multiple trials as new decision makers and goals crop up, along with egregious scope creep.
- Do make sure you know their fiscal calendar with budget cycles. Because Japanese organizations go through a round of reorganizations every year, the trial you’re currently working on may mean close to nothing once your champion leaves their post and is replaced by somebody completely unfamiliar with the project, along with new corporate goals that can easily shift the importance of your POC. Also, there’s very little point in running a trial right away if they have to wait 3 quarters to even submit new budget / project requests to consider purchasing your software (happens all too often).
4. Negotiation
Aside from asking for discounts, I’ve experienced very few instances of Japanese prospects negotiate hard on contracts. From what I know (and that’s just a drop in the bucket compared to all sales cycles in Japan), Japanese prospects are pretty straight forward and honest about their needs and requests. A lot of who I worked with collaborated on coming up with a fair price and licensing structure without playing hard-to-get or any of the games we’re used to seeing back in the US. That’s not to say you won’t get some prospects who aren’t as forthcoming, but on the hole, Japan is a very easy place to come to an agreement on pricing.
Frequently Asked Questions
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