Going Global: Japan

The last post suggests that there are a number of ironies in transporting American management expertise to the German automotive industry given the Japanese leadership in the car business. There is an interesting piece in the current issue of BusinessWeek entitled "Japan Takes a New Bite Out of Detroit" which suggests that the Japanese dominance of this industry runs deeper than one might see from the surface.

Despite Detroit's historic complaining about Japanese competition in their market space, it seems that even your American car is increasingly more than a little Japanese under the hood. According to the BusinessWeek story, Japanese parts manufacturers, competing with the likes of Delphi and Visteon, have 25% of the $26 billion automotive parts market, with a significant percentage of those sales going to American car companies. Aisin Seiko, an affiliate of Toyota, saw its sales in North America grow 37% to $2.4 billion with an estimated 45% of those sales going to companies other than Toyota. Another Japanese supplier, Denso Corp., had $5.9 billion in North American sales and was GM's supplier of the year.

Of course it is getting harder to discern who is an American car company now that on the one hand Chrysler is owned by Daimler-Benz, and on the other Toyota has 11 U.S. manufacturing facilities spread over 7 different states. Also, as argued in a previous post on Japan as an export market for U.S. goods, one reason that Japan is so successful at exporting to the U.S. is that they have created a value proposition that appeals to the tastes and preferences inherent in a fully developed market economy -- which is why U.S. companies can have success selling the other direction if they invest the time to explore the market opportunities.

The last post focused on the developing "hot" markets of India and China. It seems like when most U.S. business people think about Going Global in Asia these days, India and China are at the top of their list (and too often their entire list). Who can resist the growth curve?

Japan, by contrast, has been a sleepy story steeped in deflation in more ways than one over the past decade. Unless it's talking about a hot new sushi bar stateside, I don't see American business people getting excited about Japan as a potential market. So lest we overlook a real opportunity, let's take a minute and think about Japan -- focus on these simple facts to begin with.

Japan is a unified market of 125 million relatively affluent middle class consumers (I would argue that this is roughly the size of the real consumer economies in China and India today since most of their populations remain in poverty isolated from the economic boom);
Japan is a market with a single currency and single language (I make this point in comparison to the EU which, although it has a single currency, still has many languages which drives up exporting, marketing and sales representation costs; even China and India can seem like many different smaller markets when one wades into regional dialects and cultures separated by a large geography with a poor transportation network);
Japan is connected internally by world class transportation infrastructure in terms of highway networks, railroads and airports and connected to the rest of the globe by world class air and shipping ports (this is in stark contrast to India and China, although China at least is making massive investments in an effort to upgrade its infrastructure).
It has a well established system of commercial laws and a stable democratic / parliamentary political system (certainly an advantage over China).

These four simple facts alone should make Japan worth a look for an American company in search of a market in Asia -- but here's the real kicker: consumers in Japan already share the same technological preferences as consumers in the U.S.. Whether its high tech electronics or something as "rust belt" as industrial equipment, for all our complex cultural differences, as a consumer economy, we are very much alike.

When I was running a business exporting industrial and commercial roofing materials from the U.S., Japan was the one market in the world that most mirrored the U.S. in terms of the production techniques and technological preferences that determine product selection. I can tell you that Apple has found Japan to be a good export market -- for all the Japanese electronics that come our way, when I was in Japan this past fall, every person under the age of 30 had white ear-buds in. This is why I call Japan the United States of Asia.

Frequently the biggest objection to Going Global in Japan is a perception that the "group-think" that characterizes the cultural cohesion in Japan have led to a quasi-protectionist economic culture which makes markets hard to penetrate -- and there is certainly some truth to this perception. But let me show you the other side of that coin -- once you have taken the time and made the effort to get into the Japanese market, that same group mentality can create the most loyal group of customers you'll have anywhere in the world and can become your best marketing tool.

So is Japan the market for everyone? No! Won't China and India be bigger market opportunities in the long run? There is certainly a good chance of that if things don't change (which of course they frequently do). But if you have a product which is successful in the United States, and one of the reasons it is successful is that your value proposition appeals to the tastes and preferences inherent in an already developed market environment, Japan might just be your next best market away from home. It's at least worth some serious analysis.