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Succeeding in Japan: Demystifying the Cultural Divide

Welcome back :) This is the second article in the “Succeeding in Japan” series. The first article addressed the issue of “when to enter Japan”. This article begins our discussion regarding “how”, starting with cultural and structural issues that will help inform your entry strategy.

Introduction

On July 8, 1853, Commodore Matthew Perry of the US Navy entered Edo Bay with cannons firing to force the Japanese to end their 200 years of isolationist policy and open their ports to US trade. Fortunately, American corporations have since adopted more subtle approaches to Japan entry. However, in emerging IT markets where speed and scale are paramount there is still a tendency, even amongst well-intentioned executives, to overlook important differences in Japan’s business landscape. This can trigger hesitation on the Japan side, resulting in frustration on the side of Silicon Valley companies. This fundamental friction between two different business cultures is perhaps inevitable, but how Silicon Valley CEOs plan and react can be the difference between the massive successes and the frustrating underperformance that Silicon Valley companies have experienced in Japan over recent decades.

While there are definitely proven operational best practices for entering Japan (and we will cover these in detail in subsequent articles), there is no one size fits all model that guarantees success. While playbooks are helpful, an effective entry must start with a proper understanding of the fundamental cultural and structural reasons that make Japan challenging. This understanding will inform not only your initial strategy but also your daily decision making as you respond to the realities you’ll face on the ground. This article provides an overview of Japanese business culture, and specifically IT purchasing idiosyncrasies and common pitfalls that can frustrate Silicon Valley companies in their initial efforts to gain traction in Japan.

Demystifying Japan

The first thing to remember about Japan is that it is not inherently difficult, it is just different. Some Asian countries (not to be named here) are notorious for unscrupulous shakedowns by government officials or nefarious bad actors (often parading as business partners) who seek to pilfer and exploit others’ IP. That is not Japan. Japan is a country where consistent application of the rule of law and respect for intellectual property are the norm. Japan is also the third-largest economy in the world where companies pay their bills, honor their contracts and view their vendors as long-term business partners to whom they are surprisingly loyal. Fundamentally Japan is an attractive market in all the ways that Western companies should hope for and expect and this is important to remember as a starting point. When things get difficult (which they usually do), it is entirely unproductive to assume some fundamental flaw with Japan. Almost always there is an operational and/or product issue (perhaps partially obscured by cultural differences) but which can be diagnosed and fixed within a framework reasonably close to one SV companies are used to and comfortable with. So this begs the question, “why then is Japan so consistently difficult for SV companies?”

The Cultural Divide

Simply stated, Japanese are risk-averse and prefer the status quo while SV companies are aggressive and are trying to change the world. Speaking of IT purchasing specifically, some structural insights are helpful: it is generally understood even in Silicon Valley that Japanese companies outsource much (sometimes all) of their IT operations to their preferred systems integrator. Moreover, Japanese IT executives­­­, are often not even IT professionals, but rather “generalist” executives sometimes from finance and often in IT as part of a three to five year rotation. So while trained in the basics, IT is most often not their specialty or even preference and their mandate is basically to manage vendors and not screw things up. If an enterprising individual in the IT department therefore musters up the gumption to propose something deemed too aggressive, they will most likely be smothered by the decision-making process which requires broad consensus including not only management but also an external SI vendor. Hence the conservative culture wins out over any individual voice — and this is by design.

Moreover, over the years Japanese companies have gotten quite used to seeing Silicon Valley companies “test the waters” in Japan making grandiose promises only to exit after a few quarters’ results don’t seem to justify further investment. They leave early adopters without local support resulting in projects that must be abandoned at great cost both financially and in political capital for the project’s champion. These anecdotal yet reliably reoccurring episodes serve to reinforce the Japanese’s natural tendency to “wait and see” especially with regards to large strategic purchases. So while companies are usually anxiously doing technical diligence (including POCs) in areas of interest, in new emerging markets or with unknown startups, they will then patiently wait to see which companies truly deliver on their promises and are able to establish solid local credibility before they actually buy.

Part of establishing credibility is of course the relative strength of your product (and we’ll assume that your company’s technology is significantly differentiated) but a substantial part of credibility is operational and reputational. The operational component can be broken down into specific activities for each functional area (sales, marketing, customer success, product, etc.) that meet the slightly unique needs of Japanese customers and we will discuss best practices in each of these areas in a later article. The reputational aspect is a function of the quality of the people you hire, engagement from HQ (including executives) and most importantly your ability to deliver compelling case studies with local Japanese early adopters.

Suffice it to say, given the cultural challenges described above, establishing these foundational building blocks takes time. For SV companies with anxious investors pushing quarterly timetables, the temptation is strong after a quarter or two to “pull up the plants to see how the roots are doing” oftentimes disrupting progress below the surface if one is not trained on what to look for. Said another way, SV companies look for pipeline and bookings as signals to guide their investments, while Japanese companies look first for commitment and credibility as signals before they buy and this is the fundamental chicken and egg problem startups face as they ambitiously embark on their journeys to Japan.

Conclusion

Given the unique structural idiosyncrasies and cultural considerations on one side balanced by the sheer size of the market and other attractive attributes on the other, Japan both demands and justifies a unique approach to market entry. In this brief article, it goes without saying that we didn’t even scratch the surface of Japan’s unique business culture. Suffice it to say, as a company entering the market, the key to success is to take the time to understand the specific operational and product-related signals Japanese companies look for as they select new vendors.

In our next two articles, we will present a strategic and operational framework for how to think about Japan entry to efficiently build this credibility and to shorten the time required to establish a predictable and scalable GTM. For companies that have made the proper investments in Japan, all of the cultural and structural factors that initially act as pesky headwinds impeding them during their entry phase, at some point once credibility is established turn into significant tailwinds. This propels subsequent sales and marketing efforts as well as forming prodigious barriers to entry for new entrants or competitors. Hitting this tipping point is an important step not only in securing the future of the company in Japan but also as a necessary step in establishing a solid beachhead into the rest of Asia.

I’m Marcus Otsuji of Geodesic Japan. My team and I in Tokyo help Geodesic Captial portfolio companies to develop and execute winning strategies as they enter and compete in Japan. If you’re thinking about Japan and would like to chat, send us a note via LinkedIn!

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Marcus Otsuji

Marcus Otsuji

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Head of Geodesic Japan. Helping companies develop and execute winning strategies as they enter and compete in Japan.