Consequences of Doing Business in Japan

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Any Western country attempting to expand its business into the Japanese market will encounter a number of challenges that are almost unique to this region. Superficially, it may seem that Japan has adopted many characteristics of Western culture—including, most prominently, consumerism—but underneath the surface, Japan is still a very different country from, say, the United States. Its cultural norms are different, its social structures and attitudes are different, and as a consequence, the way the Japanese conduct business is different from the U.S.

One fairly well-known aspect of the difference between U.S. and Japanese business dealings is in the process of negotiation. Americans tend to be very direct in both the questions they ask and the responses they give to questions; their attitude is “no-nonsense.” Japanese business negotiators, in line with their overall culture, consider directness and bluntness to be rude and confrontational. It is, in fact, considered very rude to outright refuse an offer or request. This leads to often comical and sometimes critical misunderstandings: the American says, five minutes after the meeting has started, “We want to obtain an import license for our computers.” The Japanese say, “We will have to study this proposal very carefully.” What the American rarely understands is that he has just been told the Japanese equivalent of “NO!!!!!!” He then compounds the error: “When can we expect a response from your company?” The answer is, “This is a difficult question and we will endeavor to give you an answer as soon as possible,” which actually means, “You stupid, uncouth American, what part of “NO!!!” didn’t you understand?” (It was very rude of the American to press the point after he had already been given an answer, even though he saw it as only an “answer.”) After such an exchange, the Japanese will view the American as pushy, uncouth, and rude, while the American will view the Japanese as evasive and untruthful. Only an understanding of how each culture differs from the other will prevent such misunderstandings.

Another pitfall in American-Japanese business negotiations is that the highest-ranking American usually makes introductions and opens negotiations, while this job is almost never handled by the senior-ranking Japanese present but rather, by his lieutenant. This can lead to massive confusion on both sides as to who is actually running the show. This is particularly important in that the Japanese are very sensitive to rank and hierarchy.

This leads to a third pitfall. Most Japanese businessmen work for the same company for life, in effect “marrying” it. They also work very, very long hours. As a result, they have a sense of commitment to the companies they work for that is almost unfathomable to the average American business executive. Americans are used to being able to jump ship from one company to another if better pay, working conditions, etc. present themselves. By contrast, there is very little horizontal mobility in Japan; one is expected to better one’s lot only by rising through the hierarchy of the company one is “married” to. The harried Japanese salaryman is as ubiquitous as the American “suit,” but they lead very different lives. So one resultant danger in American-Japanese business relations is that the former will underestimate and the latter will overestimate the importance of the other side’s hierarchical relationships.

In terms of the classic “four P’s” of business marketing: Product, Price, Promotion, and Place, the American and Japanese markets differ markedly. Any company that transports its marketing strategy from America to Japan unchanged is doomed to fail. Such a company may be lulled by the fact that both countries have affluent consumer societies and that they regularly buy huge quantities of each other’s products (though that relationship is one-sided, in that there is a major trade imbalance in Japan’s favor). The importance of proper market modeling, tuned to the particular social characteristics of the target market, was emphasized by Jager (2007): “Both researchers and practitioners in the field of marketing will benefit from increasing their understanding of how the four P's relate to market dynamics and how marketers should employ them in managing dynamic markets” (Jager, 868). Jager advocated the use of “social simulations” (Jager, 869-870) to predict market behavior. This underscores the need to understand the social conditions that affect target markets before plunging in blindly.

In Japan, the product must satisfy demand, and it is not as easy to create demand as in the U.S.; Japan is a much more conservative society, as well as being figuratively as well as literally insular. Many, if not most Japanese have an inherent distrust of foreign products. This is exacerbated by the Japanese government’s policy of trade protectionism. The good news is that the life cycle of a product that is accepted in the Japanese market will likely be long, because of the abovementioned inherent conservatism. Also, the product mix will not be a significant issue as most likely, the need for complementary goods will be satisfied from existing domestic sources.

The price elasticity of demand is unlikely to be as great as it would be in the U.S. in a similar situation. This is because though Japanese incomes are high—higher than the U.S. on a nominal basis—taxes and the cost of living are also quite high. Therefore, consumers, with relatively small amounts of discretionary income, may not respond to price incentives as readily as U.S. consumers.

Promotion would necessarily be quite different than in the U.S. The single greatest obstacle to be overcome would be the Japanese reluctance to purchase foreign goods, especially if the domestic market offers equivalent substitutes. Japanese consumers, for the most part--often with good reason—regard domestic goods as superior in quality to foreign ones. Couple this with the tariffs and import quotas that the Japanese government imposes on foreign goods, and a firm attempting market entry in Japan is facing a challenging situation indeed. It would be hard to convince the Japanese consumer of the superior desirability of a given American product.

The question of place is fairly straightforward. Japan has one of the world’s most highly developed transportation infrastructures. It would, therefore, be relatively easy to initiate nationwide marketing and if successful, distribution program. The problem is not in selling and distributing the good once demand exists; it lies in creating the demand in an insular and almost “hostile” market.

Even if these paths are negotiated, one germane issue remains, and that is in the matter of business ethics. One place where the American and Japanese business cultures clash is in the giving of gifts when business parties are introduced and also when business deals are closed. This mirrors the Japanese practice of social gift-giving. Often, these gifts are elaborate and expensive. Americans, fearful of corruption, tend to shy away from such practices and thus, they may feel uncomfortable when offered such gifts. Japanese companies consider gift-giving to be so routine that “Gifts” is a regular entry on most companies’ financial statements. Americans may consider these more as bribes, which in some cases, is exactly what they are—regarded by the Japanese as a cost of doing business, neither unusual nor unethical.

Another difference in business ethics is that the American business system is policed by the many regulatory and oversight agencies at the state and federal levels, overseeing virtually every aspect of operations. This network is very much operative for companies doing business overseas. Businesses in Japan have much more regulatory freedom (though the Japanese government is by no means laissez-faire) and thus, they may take unilateral actions that could surprise U.S. business executives. Adhering strictly to governmental oversight (to whatever extent a given U.S. company does that) may produce a negotiating climate wherein one side feels that the other is reckless, while the other feels that the one is needlessly constrained. The extent to which a given business must obey the government is often misconstrued as an ethical matter.

Reference

Jager, W. (2007). The four P's in social simulation, a perspective on how marketing could benefit from the use of social simulation. Journal of Business Research, 60(8), 868-875.