Japan

Country Manager Hideo Hirahara The York Group, Japan Shoukou-Chukin Daiichi-seimei Bldg 1-10-12, Ueno Taito-ku, Tokyo 110-0005 Japan Tel: +81.3.3832.2836 Fax: +81.3.3835.9286 E-mail:

Mr. Hirahara has been in the IT Industry for more than 30 years. His extensive experience includes General and Strategic Management; Technology Sales and Distribution; Consulting and Systems Development. Mr. Hirahara served as the Senior Managing Director for EDS during their establishment in Japan, and has founded several companies in the IT and telecom sectors. He has an in-depth understanding of the Japanese IT market.

Takunari Yoshizawa Tel: +81.3.3832.2836 Fax: +81.3.3832.9286 E-Mail: takuy@theyorkgroup.com

Mr. Yoshizawa has been in the IT industry for 20 years as a developer and systems architect. His experience includes database marketing, Internet booking engine, CAI software, and localization of many kinds of software. Mr. Yoshizawa brings a market-driven approach to understanding the potential for technology.

Regional Spending on Information and Communications Technology
(Data provided by WITSA - www.witsa.org/digitalplanet )

Technology Sectors	Spending ($millions)
Hardware	50,360
Software	15,438
Services	70,804
Communications	212,497
TOTAL ICT Spend	349,099
Vertical Markets
Agriculture	838
Manufacturing	52,464
Utilities	5,666
Construction	6,623
Wholesale & Retail	32,087
Transportation & Communication	21,770
Finance & Bus. Services	53,036
Other Services	30,277
Government	55,434
Consumer	90,815
Software Piracy	29%

Doing Business in Japan

Establishing a direct presence in Japan is often the best way to penetrate the Japanese market, but can be a prohibitively expensive strategy to launch. The use of
agents or distributors is a more realistic marketing strategy for a small or medium-sized U.S. firm, but this approach requires great care in the selection of the representative. Distributors in Japan usually cover a specific territory or industry. Import agents are often appointed as sole agents for the entire country (although there is no statutory requirement that this be done). In some cases exclusivity may be necessary to ensure a strong commitment by the Japanese agent towards expanding sales. But under no circumstances should a U.S. company be pressured into handing over control of the whole market if there is doubt as to the ability or willingness of the Japanese company to develop the entire market. Regional exclusivity, a limited term of representation, minimum sales, or qualitative indicators of sales efforts are good strategies as a safeguard in exclusive agency contracts.

While the Japanese Fair Trade Commission has guidelines applicable to exclusive
agency contracts, there are no statutory damages required upon termination of an
agency contract. Given the close-knit nature of business circles and the traditional
wariness towards foreign suppliers, replacing a Japanese agent or distributor could
cause reputation problems if not handled in an extremely sensitive manner. The U.S.
company may be viewed as lacking adequate commitment to Japanese business
relationships. Japanese agents may request “parting compensation” in the event the
foreign exporter decides to dissolve a business relationship. It’s a common practice
domestically, so U.S. companies should address the eventuality with a potential
agent/distributor prior to executing a contract.

A common mistake made by many U.S. firms is to try to use a list of importers as a basis for “cold calls” on prospective agents. The Japanese prefer to do business with
someone only when they have been properly introduced and have met face-to-face. To help dispel reluctance on the Japanese side, an introduction by a "go-between" typically serves to vouch for the reliability of both parties. Appropriate third parties for such introductions include other Japanese firms, U.S. companies that have successfully done business in Japan, banks, trade associations, chambers of commerce, the U.S. Department of Commerce and the U.S. Commercial Service in Japan. U.S. state representative offices in Japan, JETRO, or even Japanese government ministries can also offer assistance.

U.S. companies should be selective in choosing a Japanese business partner. Credit
checks, a review of the Japanese company's industry standing and existing relations
with Japanese competitors, and trust-building are all part of the process. A company
should conduct the same due diligence that it would do if it were partnering with another U.S. firm.

Part of the difficulty in choosing a Japanese agent is assuring that the agent will devote sufficient attention to expanding the market share of the U.S. product. A U.S. company should probably avoid a distributor that targets only limited, high-price niches; is compromised by strong ties to one particular industry group ("keiretsu"); fails to compete directly with established Japanese products; or is not prepared to pursue volume sales for the U.S. exporter. Also, companies should be wary of distributors that co-handle competitors lines, or products that are complimentary in nature and could present conflicts of interest for the distributor.

To attract a Japanese business partner, a U.S. exporter must present an image of
dependability, innovation, superior quality, competitiveness, and a commitment to
building personal relationships. A U.S. company should show that it is well regarded in its industry; that it has researched the market; that it is prepared to respond to cultural requirements (e.g., by preparing high-quality marketing materials in Japanese on the company and its products/services); and that it responds promptly to all inquiries from Japan. Frequent communication by fax, email or phone is crucial. Regular visits to Japan are a must, as are offers to host new partners on reverse trips to U.S. headquarters to view manufacturing and operations.

* INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2005. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.