186: The Art of Leading a Foreign Business in Japan

<p>Running a business in Japan is not for the faint hearted.  Plenty of big companies with deep pockets have failed here.  There are plenty who have succeeded though.  Let’s pull back the velvet curtain and get real on leading a business here in Japan.</p> <p> </p> <p>Running your own business is challenging anywhere, but Japan adds a bit of spice to the broth.  According to official statistics, seventy percent of Japanese companies are unprofitable.  Business seems pretty simple at one level – constantly seek to increase revenues and reduce or hold down costs.  To increase revenues you can find more customers, more repeater customers and raise prices. </p> <p> </p> <p>Raising prices in Japan gets tough, when you are in the churning wash of decades of deflation and when there are always lots and lots of competitors.  When the consumption tax was raised the last two times, the economy immediately took a hit, which indicates the price sensitivity of the populace. </p> <p> </p> <p>The usual way of differentiating yourself and justifying higher prices is through the added value you provide.  Naturally, there is a major sales and marketing effort required to get that value message out.  Both options in Japan however come with high price tags. </p> <p> </p> <p>By the way, whenever we do training as part of a global arrangement, we always get push back on the pricing in Japan, especially when the yen is converted to other currencies.  Why overseas head office staff would imagine that pricing here should be the same as at home is a mystery, but that is often the expectation. The cost structures here in Tokyo for wages and rents are high relative to other countries and the prices reflect that. </p> <p> </p> <p>I refer these global partners back to their own local operation’s wage and rent bills in Tokyo. I point out these are nothing like what they are costing at home, so why expect global pricing to be uniform?  In general, fixed costs as a percentage of revenue are high in Tokyo and it is a struggle to get them down.</p