Challenges and Opportunities – Successfully Establishing Your Business in the Japanese Market

With its significantly larger continental neighbor, China, often dominating the business headlines these days, it is easy to forget that Japan is by some measures the world’s third largest economy, with a GDP of around $5 trillion and a substantial population of almost 126 million people, of which who hold some of the highest levels of median wealth per household and disposable income in the world. Despite this, Japan remains largely under the radar both as a destination for investment and as a market for non-Japanese companies.

There are several reasons for this, but essentially, the barriers to market entry are consistently perceived as simply being too high. With very few exceptions, Japanese businesses, particularly at the SME level, are seen as very conservative, overly focussed on the domestic market and unwilling to engage with non-Japanese entities. And it is fair to say that this perception is not completely unfounded.

Beyond decision-making processes that, like the tea ceremony or bonsai cultivation can seem esoteric, unnecessarily complex and glacially slow, there is also the barrier of a language and culture that are unique, notoriously nuanced and difficult to master, with complex verbal and non-verbal communication rules and pitfalls aplenty. The regulatory environment too appears complex and xenophobic to the outsider; overburdened by unfathomable rules and excessive red tape.

Taking the right initial steps to establish successful business relations and maintain them whilst simultaneously managing expectations and retaining mutual respect remains a frustratingly elusive process for many companies, and the path to meaningful cooperation is littered with failed projects, abandoned deals and defunct startups. An awareness of and keen sensitivity to business etiquette, language and culture are key to success both during, and crucially before, the undertaking of any initiatives, and without specialists with these skillsets in house, bringing in a third party to bridge the gaps and smooth the way is the only effective way to move forward.

Some of the misconceptions that can trip up the unwary come from preconceptions about life in modern Japan. When it comes to daily life in the office, despite Japan’s image of being a high-tech paradise of maglev trains, robot waitresses and Blade Runner-esque cityscapes, in truth, the vast majority of Japanese offices, particularly those of SMEs remain remarkably analogue, with computer systems verging on the obsolete and fax machines and dot matrix printers still commonplace. In the field of marketing too, less than 10% of Japanese companies operate comprehensive PIM systems. In fact, in a recent study, over 60% of the Japanese companies surveyed were completely unfamiliar with the concept of PIM/PXM systems. The same applies to concepts such as the automation of catalogues and the management of print processes, which are now commonplace in other countries and have been for some time.  It is an interesting fact that even today, most Japanese catalogue pages are produced using Adobe Illustrator, making Japan the country with the highest number of Illustrator licenses at this time.

The truth of the matter is that Japanese companies remain very risk averse and building a relationship where they genuinely feel that they can trust you with something as critical as their business data, in whatever form that may be, takes a tremendous amount of time and dedication. Senior management teams and boards in Japanese companies, however, are now finding themselves forced into a position where they must move with the times. With the aging and shrinking of the Japanese population continuing to accelerate, this year, 2025, is seen as the critical year for Digital Transformation (DX) and automation in Japan.

As far back as 2018, The Japanese Ministry for Economy, Trade and Industry (METI) was publishing white papers on the so-called “2025 Digital Cliff”; the point at which economic losses within the Japanese economy resulting from excessive reliance on complex, outdated, legacy systems would top 12 trillion JPY, and would accelerate exponentially from there, leading ultimately to complete economic collapse if replacement systems are not put into place.

With an extremely limited domestic ecosystem of the kind of state-of-the-art PIM/PXM, print, digital publication and ERP systems that will be the foundation for the digital transformation, and with an understandable reluctance to entrust their precious data to neighbouring China, Japanese companies are being forced to begin to look for industry partners in Europe and the U.S. in earnest.

For prospective European or American partners who may consider taking up the gauntlet though, it is not just the “offline” interpersonal business relations where linguistic and cultural differences engender multifaceted challenges.

The nuances and complexities of the Japanese language itself and its fundamentally different sentence structure present tremendous difficulties in automated translation and automated text generation; even established systems like DeepL and ChatGPT struggle to consistently hit the right tone with their content.

At the time of this writing, the only company to my knowledge with at least a system able to work comprehensively with Japanese is Stuttgart-based AX Semantics, with whom we have the privilege of partnering.

But to return to Japan, just as the arrival of Commodore Perry’s Black Ships famously precipitated the end of the Sakoku or “closed country” period in Japan, heralding the rapid economic growth and unprecedented internationalization of the Meiji Period, the inexorable advance of new digital technologies coupled with a shrinking and aging population is forcing a fundamental re-evaluation of long-held ways of doing business and managing data in Japan. 99% of the companies registered in Japan are classed as SMEs, most of which remain an untapped market and resource for non-Japanese companies. As we begin 2025 with the end of 20-plus years of stagflation, Japanese property prices are surging back above the 1990s pre-bubble levels, nascent economic activities like the post-pandemic creation of start-ups, mergers and acquisitions are at record levels, and the creeping realization that Japanese companies must look outwards if they are to survive, there has not been a better time to enter the Japanese market.