If U.S. businesses want to break into Japan's market they must be prepared to establish a base in that country and hire Japanese workers, an expert in Pacific Rim trade said Friday.
Dick K. Nanto, a specialist with the Congressional Research Service's Economics Division, told University of Utah Executive MBA students that government institutions, the education system, cultural characteristics and huge protected industrial groups are barriers to competing in the island nation."If you really want to sell in Japan, you have to establish a base and hire people locally," he said.
Nanto explained that does not necessarily mean American business has to go into joint ventures in Japan, but that may be required in certain industries like the highly closed construction industry.
At the same time, joint ventures are falling out of vogue as many American businesses are finding that the partnerships are simply being eventually bought out by the Japanese side of the enterprise. They often lose the business and the technology they brought to operation.
American businesses are finding success in consumer goods. Coca-Cola, McDonald's, 7-Eleven and Johnson and Johnson have found a lucrative trade in consumer products where the consumer, not company executives' connection to a highly structured "old-boy network," determines sales, Nanto said.
"This past year Coca-Cola sold more in Japan than it did in the United States," he said.
Even in the industrial sector, tightly controlled by the government's Ministry of International Trade and Industry and huge industrial groups such as Mitsubishi and Mitsui, some American companies are becoming highly respected. Included on the list is IBM, which now draws top graduates from highly respected Japanese universities.
"More and more foreign companies are becoming accepted in Japan," he said.
He said U.S. business must learn to compete with the Japanese system of import-substitution-industrialization. The system involves copying foreign imports - like the VCR - improving them and eventually exporting them. He said this system accounts for much of Japan's trade imbalance with the United States.
"If there is little technological change there is a very big danger it will be copied," Nanto said. "As long as you are keeping ahead and making improvements I don't think there is a big problem."
He explained one strategy for American businesses is to establish a base in the country and hire managers who may be available from related businesses because of acute management overstaffing.
He said that a class of employees, hired from college at the same time and usually promised lifetime employment, will all be promoted throughout their career at the same time even that means being promoted to "director of nothing." Many able managers are in these positions, Nanto said.
From a cultural point of view, Americans need more detailed planning for expansion in Japan. The Japanese may take a long time to close a deal, but are very quick in implementation because of their meticulous planning. Such planning is often lacking with American counterparts.
"They care a lot about the little things. The are very detailed. Growing up in Japan I think this is ingrained in you," he said.
American business people should also understand that the Japanese like to write vague contracts and believe trust is the foundation of agreements.