American Success in Japan: Part II
Grim tales abound of difficulties in selling to Japan. So it is surprising that while a strong dollar and weak commodity prices helped shrink our exports as a whole from 1980 to 1984, our exports to Japan actually grew substantially. Japan is the largest foreign buyer of U.S. data-processing equipment, aircraft parts, inorganic chemicals and pharmaceuticals. In 1984, the Japanese bought more, per capita, from us than we bought from them, despite their lower per capita income at the time. And that doesn't include the over 1,000 American subsidiaries in Japan with more than $50 billion a year in sales.
Robert Christopher, in his book Second to None: American Companies in Japan, outlines the reasons for American firms' success. Last week I discussed patience, choosing the right partner, mastering the convoluted distribution system, and tailoring products to cater to Japanese tastes.
Complex pros and cons underlie each of those issues. But Christopher is unequivocal about quality, service, and maintenance of business relationships. Here the Japanese are uniquely demanding. What we might consider to be utterly "trivial" defects—the finish and polish on an unseen part of an industrial machine meant for the grubby factory environment—blow you out of any market, from semiconductors to lipstick. The field is strewn with corpses of American firms ignoring this message. Constantly working at relationships is vital. A Teledyne executive explains, "It's very hard to do business on the telephone in Japan. There is a lot more personal selling than in the U.S. ... the Japanese customer expects a lot more attention than a U.S. customer would look for."
Yet Christopher quotes a highly placed Japanese official who contends that he has never met a U.S. salesperson who speaks fluent Japanese. Ninety percent of U.S. executives don't even bother to try to learn the language, says Christopher. While you might get away with doing business in English in the office by day, real business—after-hours relationship building—is conducted almost exclusively in Japanese. Likewise, less than one percent of Japanese wholesalers speak English.
Analogously, Christopher attacks the short tenure, typically three to four years, of most U.S. executives who come to Japan. Such a brief sojourn thwarts any chance of becoming an "insider."
In general, a short-term orientation bites Americans, not only in relationship building, but in the execution of basic business strategy. The Japanese market is violently competitive. Profits and stock price do not reign supreme; market share does. Highly leveraged Japanese firms will forego profit for years to invest in market share. Market share ranked first and share price ranked last on a recent survey of Japanese executive priorities.
In Christopher's analysis entitled, "Of Barriers and Bureaucrats," he unequivocally acknowledges Japan's historically very restrictive behavior toward foreign firms. In fact, "vestigial protectionism," as he calls it, still exists. Resultant horror stories make good newspaper reading and sway protectionist-leaning hearts and minds on Capitol Hill. But he argues, with abundant supporting evidence, that improvement has been dramatic.
Christopher provides a thoughtful list of policy suggestions for both countries. However, he argues that these should not delay any firm's attempt to enter the Japanese market. Creative strategies and patience—as old and new American success stories in every sector of the Japanese economy demonstrate—can overcome remaining "non-tariff barriers." Successful U.S. firms that have paid their dues consistently down-play these barriers. Most of the tilts in the playing field are simply the complexities of an ancient society with established business and living patterns—such as crazy distribution systems, tight old-school linkages between big companies and federal bureaucrats, years required to build a trusting relationship, a suspicion of foreigners, and a passion for flawless products and service. None of these can be legislated out of existence. And almost without fail, U.S. firms that have screamed the loudest about unfairness have been the least patient in dealing with these barricades.
Despite more good-news stories than one might have expected, the overall numbers do not bode well. In 1979 Johnson & Johnson Chairman Jim Burke singled out Japan as his number-one target for market growth outside the U.S. This must become the norm, given the size of the existing market, the growing power of Japan and its leadership in Asia, and Japan's high-growth economic trajectory. Yet 40 percent of the Fortune 200 do not yet do substantial business in Japan. Overall U.S. investment in Japan is three percent of our total foreign investment, which is the equivalent of investment in Belgium! And while total investment by U.S. firms in Japan is still higher than Japanese firms' investments in the U.S., they are now investing here seven times faster than we are there.
In the end, Christopher argues that it can be done—and must be done. While much more has to be accomplished over the negotiating table between the world's two most potent industrial powers, most of the barriers reside in the minds of American managers and in the Yankee habit of impatience. Our gun-slinging approach might serve us well at home; it simply doesn't work in Japan. If we do finally make patient investments of money and especially time, then the worst of trade protection can be avoided. There will be very big winners—consumers in America as well as in Japan.
(c) 1986 TPG Communications.
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