JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 1

Getting started:

A guide to doing

business in Japan

April, 2014

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 2

Table of Contents Why Japan? ............................................................................................................................................. 4

But isn’t Japan a difficult market to break into? ..................................................................................... 4

Relationships ........................................................................................................................................... 5

Quick guide to doing business in Japan .................................................................................................. 6

1. Market Analysis ......................................................................................................................... 6

2. Test the market for your product(s) or service(s) ................................................................. 6

3. Route to Market ......................................................................................................................... 6

4. Sales and Marketing .................................................................................................................. 6

Protecting your IP abroad ....................................................................................................................... 8

UK Trade Mark Registration ............................................................................................................ 8

International Trade Mark Registration ........................................................................................... 8

Routes to Market .................................................................................................................................. 10

Using an import agent, distributor or re-seller ............................................................................. 10

Setting up an office ....................................................................................................................... 11

Joint ventures/licensing ................................................................................................................ 13

E-Commerce Website ................................................................................................................... 13

Acquisition .................................................................................................................................... 14

Franchising .................................................................................................................................... 14

Japan based business consultancy ................................................................................................ 14

Tax considerations ........................................................................................................................ 14

Setting up a business in Japan .............................................................................................................. 15

Kabushiki Gaisha time line and associated costs .......................................................................... 15

Godo Gaisha (GK) .......................................................................................................................... 17

Godo Gaisha vs Kabushiki Gaisha ................................................................................................. 17

HMRC and what you need to do ........................................................................................................... 17

CHIEF (Customs Handling of Import and Export Freight) ............................................................. 17

Export documentation .......................................................................................................................... 18

Import Procedures for Japan ................................................................................................................ 18

Import licences .............................................................................................................................. 18

Customs......................................................................................................................................... 18

Bill of Lading .................................................................................................................................. 18

Sales and Marketing Strategy Development ........................................................................................ 19

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 3

Market research ............................................................................................................................ 19

First mover advantage .................................................................................................................. 19

Sources of Japanese market data ......................................................................................................... 20

Identifying your ideal customer(s) in Japan .................................................................................. 21

Product/service considerations .................................................................................................... 21

Payments and Pricing ............................................................................................................................ 22

Localised pricing ............................................................................................................................ 22

Preferred methods of payment in Japan ...................................................................................... 22

International Payment Gateways ................................................................................................. 22

Japanese Business Etiquette ................................................................................................................. 23

The giving and receiving of business cards ................................................................................... 23

Business Meetings ........................................................................................................................ 23

Sources of assistance with exporting to Japan ..................................................................................... 24

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 4

Why Japan?

Japan is the world’s third largest economy after the US and China and second largest computer and

telecommunications market in the world. The World Bank ranks Japan as the 27th easiest country to

do business with out of 189 economies1.

The Japanese market is characterised by consumers with high levels of disposable income who are

drawn to premium, high-end goods and services. Japanese companies often exhibit a global outlook

and a willingness to invest long-term in viable products and services. Japan is synonymous with

quality and innovation and this goes hand-in-hand with Japanese companies’ commitment and

loyalty to business partners.2 Furthermore, for many foreign companies, Japan has also become the

place for development of new products and concepts.

There are strategic advantages and cost advantages in doing business in Japan. It is possible to set

up a business entity in Japan in just 14 days and successful business in Japan can generate a

significant proportion of global profits within 3 - 5 years.3 According to a global study of online

consumer behaviour commissioned by UPS in 2013, by 2016 it is expected that 40% of all e-

commerce sales will come from the Asia-Pacific region.4

Japan has a highly developed, modern infrastructure of roads, highways, railroads, subways, airports,

harbours, warehouses and telecommunications for the distribution of all types of goods and services.

Japan has over 20 ports and 5 international airports. Tokyo International Airport (HND) and Narita

International Airport (NRT) are the two major airports in the Tokyo region while Osaka International

Airport (ITM) and Kansai International Airport (KIX) are the two major airports serving the Osaka

region of Japan. Japan's ports, airports and import processing are generally well organised and

efficient.

If you succeed in Japan, you can succeed anywhere as it means you have developed a

product/service which has met the high expectations of the discerning Japanese market which has

extremely high standards for quality.

But isn’t Japan a difficult market to break into?

UK companies may be concerned about Japan’s complicated distribution channels, a high

concentration of domestic competitors and Japan’s unique business culture. However, thanks to the

internet, a lack of physical geographical boundaries means it’s easier to reach customers in Japan

than ever before. In addition, global payment gateways and mobile payment solutions offer

convenient ways to receive funds in different currencies. While Japan does have a well established

domestic market in many sectors, there is an exoticness and status associated with Western brands

1 World Bank Group, Ease of doing business in Japan, 2014. www.doingbusiness.org/data/exploreeconomies/japan. Accessed 24/03/14. 2 www.austrade.gov.au/Export/Export-Markets/Countries/Japan/Doing-business#.Uy6na4UVUUg 3 Venture Japan, www.venturejapan.com. Setting up in Japan, Accessed 28/03/14. 4 Source: United Parcel Service of America, Inc, UPS Pulse of the Online Shopper: A Customer Experience Study, September 2013. http://pressroom.ups.com/pressroom/staticfiles/pdf/fact_sheets/2013_PulseShopper_FINAL.pdf. Accessed 21/03/14

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 5

that drives Japanese consumer demand for Western products and services. Moreover, Japan’s

business culture isn’t as challenging as many businesses believe – patience, integrity, respect for

their business customs and a long term view to business success are the main ingredients to success

in Japan.

Relationships

Japan‘s business culture attaches a high degree of importance to personal relationships and these

take time to establish and nurture. A strong network of personal contacts is vital in the Japanese

market. It is also advisable to understand the network of relationships which your partners and

competitors work within.

It can be difficult for UK firms to gauge the real thoughts and intentions behind the politeness of

Japanese people. It is a common mistake for Western companies to return from negotiations with

Japanese businesses to celebrate success while in time, it becomes apparent that the Japanese are

in fact, not interested in doing business with your company. This is where a local representative

who has experience of doing business in Japan can be invaluable as they will be able to read

between the lines of the behaviour and language used by your Japanese counterparts and interpret

them for you to minimise your chances of misunderstanding and miscommunication. The pace of

decision-making in Japan is generally much slower than in the UK. Patience and repeated follow-up

are typically required to successfully close a deal. However, once the Japanese have decided to do

business with you, things can then move very quickly.

Historically, traditional big industry in Japan was organised around industry groups called Keiretsu.

Each Keiretsu tended to have a large bank and trading company at the centre with a large number of

companies in many different areas grouped around it. Traditionally, Japanese companies would only

do business within the same Keiretsu. High levels of merger and acquisition activity in Japan in

recent years brought about by challenging economic conditions, have seen a decrease in the

influence of the Keiretsu, however Keiretsu relationships are still hugely important in Japanese

business. In Japan today, you will find both competitive bidding and cases where traditional business

relationships take priority over achieving the best price. Therefore, it may be useful for UK

companies to research and understand the Keiretsu structure in their targeted business sector or

industry and construct their business plan accordingly.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 6

Quick guide to doing business in Japan

Here is a quick checklist of things you need to do on your journey to doing business in Japan:

1. Market Analysis o Research and understand the opportunities in the Japanese market for your

product(s) and service(s) including the potential market value of your products and

services in Japan. Include a SWOT analysis as part of your research.

o Identify any government bureaucracy, certification or regulations (import tariffs or

quotas, approval processes, testing processes, labelling requirements etc.) that may

apply to your products and services in Japan.

o Conduct a competitor analysis.

o Profile your ideal prospective customers in Japan and complete pre-launch product

evaluations.

2. Test the market for your product(s) or service(s) o Attend a trade show or trade mission to test the market in Japan for your product(s)

or service(s).

o Contact UKTI Japan (exporttojapan@fco.gov.uk) or Export to Japan

(info@exporttojapan.co.uk) for details of support available to UK firms wanting to

exhibit in Japan or participate in a Trade Mission to Japan.

3. Route to Market o Determine your route to market (i.e. direct selling online, distribution, joint-venture,

representative office, acquisition etc).

o Check your business insurance covers you in Japan. Most standard business

insurance policies in the UK do not cover companies for business outside of the EU.

o Locate office space that meets your market entry strategy, cost and location needs.

o If applicable, setup a local IT infrastructure that is fully integrated with your head-

office infrastructure. Also ensure that all utilities are connected e.g. broadband,

electricity, telephone.

o Recruit relevant staff (e.g. Sales Manager, Business Development Manager etc) and

induct them into your corporate culture and sales and marketing strategy.

4. Sales and Marketing o Clearly define your sales and marketing strategy for Japan including online, in-store

and mobile channels as appropriate.

o Decide on branding for your company, product(s) and service(s) - this may be

different to your branding for the UK market.

o Consider localising your web site, corporate literature, business cards, sales and

technical materials and presentations.

o Identify potential distributors, suppliers, joint-venture partners, acquisition targets

etc., negotiate distribution agreements with them and help to integrate them into

your existing sales channel infrastructure.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 7

o Check that the financial controls and systems in place for doing business with or in

Japan are fully compliant with both Japanese and UK accounting requirements.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 8

Protecting your IP abroad

Before you launch your product or service in a foreign market, consider whether you have sufficient

protection of your brand name and logo. If you have built up significant value in your brand name or

logo, it may be worth considering registering them as a trade mark.

To register a trademark in Japan, you first have to have the trade mark registered in the UK.

However, an international trade mark application can be submitted while a UK trade mark

application is in progress. It is important to note that the international trade mark application will

be linked to the domestic registration. This means that if your UK trade mark registration is allowed

to lapse due to lack of use etc, then the international registration will also end. Similarly, the

international trade mark must be identical to your UK trade mark.

There is an international system of trade mark classification which allocates trade marks to a specific

class of goods and services. There are 45 different classes of goods and services. A list of these

classes can be found at www.ipo.gov.uk/tm/t-find/t-find-class.htm .

UK Trade Mark Registration

To register a trade mark in the UK, simply go to www.ipo.gov.uk/types/tm/t-applying/t-apply.htm

and follow the step-by-step instructions. Trade mark registration is usually valid for 10 years.

International Trade Mark Registration

For international registration of a trade mark, there are two main options: the first is to file a

trademark application directly with the trademark office in Japan, or you can apply through the

Madrid Protocol which is administered in Geneva by the World Intellectual Property Organisation

(W.I.PO.).

You must submit your application to WIPO to register a trademark in Japan through the UK

Intellectual Property Office who will then submit it on your behalf. You cannot submit the

documentation directly to WIPO. An international application form can be downloaded at

www.wipo.int/export/sites/www/madrid/.../form_mm2-editable1.pdf along with notes on how to

complete the form at www.wipo.int/export/sites/www/madrid/en/.../form_mm2_inf.pdf.

Fill in the information requested in the form and select Japan as the designated country where you

are seeking international trade mark protection. To give an idea of the fees involved, as of March

2014, a colour trade mark was 903 Swiss Francs (approx. £612) + £40 IPO charge for submission +

Japan country charges of 114 Swiss Francs (£77) for one class of goods/services and 87 Swiss Francs

(£ 59) per additional class.5 Please note that these costs are indicative and are subject to change.

Any questions about UK or international trade mark filings can be sent to information@ipo.gov.uk

or you can call the Intellectual Property Office direct on +44 (0)300 300 2000. Contact details for the

Japan Patent Office (JPO) can be found at www.jpo.go.jp.

5 World Intellectual Property Office, Schedule of Fees and Individual Fees, 6/03/14, www.wipo.int/madrid/en/madridgazette/remarks/ind_taxes.html. Accessed 28/03/14.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 9

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 10

Routes to Market

There are many routes to market entry for UK firms wanting to do business in Japan:

Using a distributor or re-seller

Setting up an office

Set up your own Limited Liability Partnership (LLP) company in Japan

Joint ventures/Licensing of your company’s technology/IP

Direct sales via your own e-commerce site

Established online ecommerce site such as Amazon Japan www.amazon.co.jp, Nissen

www.nissen.co.jp , Yahoo! Shopping Japan www.yahoo.co.jp or Rakuten www.rakuten.co.jp.

Serviced office

Virtual office

Acquisition

Franchising

Japan based business consultancy or OEM sales representative.

If you are just starting to do business in Japan, then the research done in your first month of

business (e.g. the data accumulated regarding your product's value and projections of future

revenues) will be crucial in deciding whether starting a Japanese company, setting up a

representative office or contracting a distributor is the most efficient route to market for your

company.

To help you decide which business entity is best for you in Japan:

1. Examine each entity's administrative requirements and tax structure

2. Consider the statutory paid-in capital requirements for each type of business entity

3. Investigate how HMRC treats income from each entity

4. Estimate the fixed and variable costs each entity will incur to achieve your projected revenue

The most frequently used type of business entities used by foreign companies when starting a

business in Japan are Kabushiki Gaisha and Godo Gaisha. A Kabushiki Gaisha is similar to a plc in the

UK while a Godo Gaisha is the equivalent to a Limited company in the UK. Most SMEs enter Japan

with the support of local partners.

Setting up a Japanese company or representative office is a major commitment which needs to be

carefully structured in order to extract maximum value from your investment.

Using an import agent, distributor or re-seller

Hiring a reputable import agent or distributor is a popular first step for SMEs entering the Japanese

market for the first time. Using a distributor or re-seller to take care of product localisation, in

country marketing and to provide technical support can be a cost effective route to market for firms

dipping their toes into the Japanese market for the first time.

Most Japanese people prefer to do business with someone they have met face-to-face and have

established a rapport and level of trust with. Utilising the strong relationships built by

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 11

agents/distributors with their customers over many years can help UK companies quickly expand

their sales network. In addition, using third parties for introductions such as UKTI Japan, JETRO,

Trade Associations, Chambers of Commerce, other Japanese companies or other UK companies who

have successfully done business in Japan, can accelerate the relationship building process as they are

effectively vouching for you to your Japanese counterparts.

Distributors in Japan usually cover a specific territory or industry and importers are often appointed

as sole agents for the entire country. Exclusive distribution agreements may be used to encourage

loyalty and strong commitment from a Japanese agent. While the Japanese Fair Trade Commission

has guidelines applicable to exclusive agency contracts, there are no statutory damages required

upon termination of an agency agreement. However, given the close-knit nature of business circles

and the traditional wariness towards foreign suppliers in Japan, replacing an agent or distributor

could damage a UK firm‘s reputation – and even compromise its entire market strategy – if not

handled sensitively. Japanese agents may request “parting compensation” in the event the UK

exporter decides to dissolve the distribution agreement. Since this is common practice in Japan, UK

companies should address this eventuality prior to signing a contract.

UK companies should ensure comprehensive due diligence is carried out prior to the signing of any

distribution agreements. In addition, UK firms should check whether the distributor handles

competing lines, is restricted to operating in a particular industry group (keiretsu) or has any other

potential conflicts of interest.

Another important consideration is sales commissions paid to agents and distributors. Under an

agency contract, the supplier normally invoices the agent for the same amount that the agent will

sell to the customer (”back-to-back”). The supplier then pays a sales commission to the agent at the

percentage provided for in the agency contract or agreement. Under a distributorship contract, the

supplier sells the product to the distributor, who then adds a mark-up which determines the final

sales price to the customer. Commission rates vary according to the product and contract terms.

Once an agent or distributor agreement is signed and the UK company‘s products gain a foothold in

the Japanese market, the UK company may want to establish a representative office in Japan to

support the distributor's sales and marketing efforts.

Setting up an office

Representative Office

The representative office is the easiest way of establishing an office in Japan and is typically used

when a foreign company wants to conduct market research in Japan before committing to a branch

or subsidiary. Under Japanese law, a representative office can only engage in the limited business

activities of purchasing and storing assets, and auxiliary services such as advertising, information

gathering and market research.

A representative office cannot participate in sales activities but can supply information to

distributors, communicate prices and terms of sale and identify sales opportunities. There is no legal

restriction on the number of employees a representative office can have and as it is considered an

extension of the parent company there are no shareholding requirements or restrictions.

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There are no legal registration requirements for a representative office and there is no requirement

to report the direct inward investment to the Ministry of Finance via the Bank of Japan which is

required under the Foreign Exchange Law for Branch entities. The representative office needs to

have a representative resident of Japan (i.e. someone with a legal address and right to work in

Japan). Note that where there are employees receiving remuneration into a Japanese bank account,

there are payroll and social insurance registration requirements.

A representative office needs to be able to show the following in order to prove existence:

A lease for office space in its own name - the lease for a representative office’s space may be

signed between the head office in the home country and the Japanese building owner. In

many cases, however, the owner will require that the representative office have a guarantor

resident in Japan

A utility bill in the name of the representative office

A copy of the contract between the representative and the foreign company.

A representative office can hold a bank account in Japan but is not required to retain books and

records in Japan unless the representative office claims input tax credits. There is no statutory audit

requirement and representative offices are not subject to taxation in Japan.

Subsidiary or Branch Office

The simplest form for a foreign company to establish a base for business operations in Japan is to set

up a branch office. The branch office can begin business operations as soon as an office location is

secured, the branch office representative determined, and the necessary information registered

with the Legal Affairs Office. A branch office does not have its own legal corporate status, but

instead is deemed to be an extended arm of the foreign company.

A branch office:

Must be registered with the Japanese Ministry of Justice’s Legal Affairs Office

Must have a registered representative who is resident in Japan

Must have a registered office in Japan (can be the representative's home address)

A branch office can operate a bank account, rent office space, lease equipment and do most

other things a domestic company can do

A branch office can employ any number of employees but must adhere to all requirements

of the Labour Standards Law

A branch office is governed by Japan's Commercial Code and is liable under Japanese law for

its debts etc

A branch office is subject to corporate income tax on all of its Japan income, including all

revenue derived in Japan by its foreign parent

A branch office is not required to deduct any withholding taxes when transferring revenue

back to the foreign parent

The head-office is allowed to assign some part of its G&A costs to the branch-office to offset

against Japanese corporate tax

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 13

A branch-office can 'roll-up' any year's losses and carry them forward for a maximum of

9 years to offset against profits when calculating corporate taxes

A branch-office cannot be directly converted to a Japanese company so the corporate tax

benefit of rolled-up losses will be lost if for any reason a switch is made to a kabushiki gaisha

or godo gaisha prior to the rolled-up losses being offset.

Serviced Office

In the case of service companies, there are various partnering scenarios. To fully localise and

replicate the Western company’s service menu, a joint venture partner willing to commit significant

staffing, infrastructure, and market development funding is recommended. If the service can be

delivered remotely, a pure sales agency relationship will suffice.

Serviced Office Considerations:

Recruit distribution partners

Strategic customers

Investors

Western companies must calibrate quality and delivery levels to meet Japanese norms

A Japanese partner or local representative to manage language and cultural differences.

Virtual Office

A virtual office is arranged through an office service that has the ability to take calls and relay

messages. Some clients use a shared office facility, but have an employee in Japan (either a foreign

national from headquarters or a local hire) to support and monitor local distributors, negotiate joint

development agreements or gather customer and competitor information. Still other clients open

their own office to provide direct support to distributors or even sell to end customers directly.

Joint ventures/licensing

UK companies may consider a joint venture with a Japanese company or licensing agreements when

considering entering the Japanese market. A joint venture enables a UK firm to combine its

knowledge and resources with that of a Japanese company and work together as a single business

entity. For assistance with finding a joint venture partner in Japan, contact Export to Japan on

info@exporttojapan.co.uk. For additional information regarding licensing your technology or

Intellectual Property, please visit the Intellectual Property Office’s website at www.ipo.gov.uk/t-

licence.htm.

E-Commerce Website

Japanese consumers are amongst the most tech savy in the world and Japan is the number 1 market

globally for mobile phone penetration. This combined with Global Payment Gateways and improved

speed of international delivery logistics means that it has never been easier to sell to customers in

Japan via the internet.

There are two e-commerce options for UK firms wishing to sell online in Japan – localise your own

company website to sell direct to the Japanese market or sell through an established, reputable e-

commerce site such as Amazon Japan, Nissen, Yahoo! Shopping or Rakuten who are already firmly

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 14

established in Japan with a massive customer base. Companies should note however, that only firms

registered in Japan are able to own a Japanese .co.jp domain name.

Acquisition

Acquisition of a company which is already established in your target sector in Japan with existing

offices, distribution network and contacts etc can be an effective route to market. However, this

market entry strategy tends to suit larger SMEs or corporations.

Acquisition considerations include suitable target companies, organisational and technical due

diligence and the costs of negotiation of the Acquisition transaction including the cost of

interpreters/translators, solicitors etc.

Franchising

Finding reputable franchisees on the ground in specific locations in Japan can be a successful route

to market for firms who already have an established brand identity that they wish to leverage to

drive sales. The International Franchise Association (IFA) www.franchise.org and JETRO can provide

you with more detailed information about franchising opportunities in Japan. In addition, the

Japan Fair Trade Commission’s Guidelines on Franchising can be downloaded at

www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines.files/franchise.pdf.

Japan based business consultancy

There are several consultancy companies on the ground in Japan who provide support to firms trying

to break into Japan. This support ranges from market research, website localisation advice, to

identifying potential partners, distributors and even setting up meetings with potential clients.

Check out Export to Japan’s partner page at www.exporttojapan.co.uk/build-your-network/your-

business-network for some examples of Japan based firms who can help you enter the Japanese

market.

Tax considerations

The Japanese Government has recently reduced corporate tax rates in the Tokyo area to 35.64%,

however, corporate tax rates across the rest of Japan are still around 41% or more. Encouragingly,

for UK firms looking to invest in the Japanese market, corporate tax rates are expected to fall further

from April 2015. Tax efficiency should be a consideration when deciding whether starting a

Japanese company or using a representative office is the best entry route to market for your

business as the entity used, structure of agreements and ownership between the entity and its

foreign parent will significantly affect corporate and withholding taxes paid in Japan.

Several factors should be considered including:

Projected profit margins

Any tax treaties between Japan and HMRC, which (if starting a Japanese company) affects:

o transfer fees paid to the parent company

o dividends paid to the parent company

o Japanese withholding taxes applicable to those transfer fees and dividends

If you choose to start a kabushiki gaisha then how you structure directors' bonuses will have

corporate tax implications.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 15

Setting up a business in Japan

It is possible to set up a business entity in Japan in 14 days. In order to promote start-ups, the

government lowered the required capital for setting up a joint stock company (Kabushiki Gaisha) to

1 yen from 10 million yen in 2003.

Japan‘s Ministry of Economy, Trade & Industry (METI) sponsors programmes to promote foreign

investment into Japan including bank loans through the Japan Bank for International Cooperation

and the Development Bank of Japan. Entry-level business support programs are provided by the

Japan External Trade Organisation (JETRO) as well as by some municipal and prefectural

governments. Current information on investing in Japan, establishing an office, and other JETRO

programs for foreign businesses can be found on JETRO‘s website at www.jetro.go.jp .

Kabushiki Gaisha time line and associated costs

PROCEDURE TIME TAKEN COSTS INVOLVED

Make a company seal 3 days JPY 10,000 - JPY 20,000

Obtain the certificate of seal registration from the Ward

Office

1 day JPY 400 (each)

Register at the Legal Affairs Bureau of the Ministry of

Justice

1-3 weeks 0.7% of the capital amount

or JPY 60,000, whichever is

higher

File the notification of company incorporation and the

opening of a payroll office; and Apply for the approval

of blue tax returns at the District Tax Office

1 day no charge

File the notification of commencement of business at

the tax office of the municipal or prefectural

government

1 day no charge

File the necessary labour insurance notifications and

employment rules at the Labour Standards Inspection

Office

1 day no charge

File the applications for health insurance and public

welfare pension at the Japan Pension Service

Less than one day

(online procedure)

no charge

File the company application for employment insurance

at the Public Employment Security Office

Less than one day

(online procedure)

no charge

Source: World Bank Group, Ease of doing business in Japan, 2014. www.doingbusiness.org/data/exploreeconomies/japan. Accessed

24/03/14.

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Appoint representative who is resident in Japan

Compile all required documents (e.g Articles of incorporation etc)

Submit documentation to the Legal Affairs Office to process for commercial registration

Open bank account

Complete tax notifications

Business and import licences

Arrange connection of office premises' utilities e.g. electricity, broadband, telephone etc.

Staff recruitment

Ensure compliance with social and labour insurance laws

Steps to setting up a Kabushiki Gaisha (KK)

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Godo Gaisha (GK)

A Godo Gaisha or GK, is a type of business similar to the UK’s private limited company (Ltd). It has a

simplified internal structure which offers limited liability for all investors.

A GK is formed by articles of incorporation signed by its investors. Each investor may provide a

capital contribution in the form of money or property. Once the GK's articles of incorporation and

corporate seal have been registered and processed by the Legal Affairs Bureau, the company may

open a bank account and sign contracts etc as a legal business entity. GKs profits are taxed at

corporate tax rates, and dividends are taxed at individual tax rates.

Godo Gaisha vs Kabushiki Gaisha

The following distinguish Godo Gaisha (GK) from Kabushiki Gaisha (KK):

All members must consent to amendment of the articles of incorporation, unless the articles

of incorporation provide otherwise. In a KK, only a supermajority of shareholders is required.

All members must consent to any transfer of ownership, unless the articles of incorporation

provide otherwise. In a KK, the transfer of shares is unlimited by default.

All members are representatives of the company by default, unless managers have been

appointed. In a KK, only the representative directors represent the company.

Major business decisions such as large asset sales or winding up of the company may be

made informally. In a KK, resolutions of shareholder and board meetings are often required

for such decisions.

Members may invest any type of asset in exchange for their interest. In a KK, non-cash

contributions require an appraisal supervised by a court.

KKs have traditionally required a larger capital and resource investment and have a long

history and the highest prestige of legal entity in Japan. GKs do not have the same level of

prestige among Japanese companies.

A GK can be changed to a KK with the unanimous consent of all of its members.

HMRC and what you need to do

CHIEF (Customs Handling of Import and Export Freight)

CHIEF, which is part of HMRC, records the movement of goods by land, air and sea and allows

importers, exporters and freight forwarders to complete customs formalities electronically and

automatically checks for entry errors.

CHIEF connects with five Community System Providers (CSP’s) which are independent trade systems

that directly serve hundreds of carriers, transit sheds and freight forwarders to record and track the

movement of goods within ports and airports. CHIEF identifies which goods within a consignment

need to be physically examined. This gives legitimate goods and those deemed to be a low-level risk

faster passage when they are directly exported to countries from the UK. An overview of CHIEF, user

guides and more information can be found at http://bit.ly/1gBfMuE .

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Export documentation

To export goods to countries outside the EU you have to:

Include the sale on your VAT return

Make sure you qualify so you won’t have to pay VAT

Find the correct commodity code for the goods you are exporting (research your commodity

code at www.gov.uk/trade-tariff)

Register with HMRC’s CHIEF system (http://bit.ly/1gBfMuE )

Declare the goods you export using the National Export System (NES) which is part of CHIEF.

Check if you need a strategic export licence for some controlled goods, eg military, defence or

security related goods. Go to www.gov.uk/do-your-goods-need-an-export-licence to find out if your

goods require an export licence.

UKTI’s website contains a wealth of information about Export Documentation. Go to

www.gov.uk/starting-to-export for an overview of exporting or review the FAQ at

www.ukti.gov.uk/uktihome/item/117327.html.

Import Procedures for Japan

Import licences

Most goods can be imported into Japan without controls although transactions must be reported to

the Ministry of International Trade and Industry through banks authorised to deal in foreign

exchange. However, some important items (alcohol for industrial use, leather, rice and rice flour,

wheat) are subject to import quotas. 6 For postal imports, an import licence is required for all

merchandise exceeding £50 unless the item is a relief parcel or gift.7 A copy of Administrative

Procedures for Importing into Japan can be obtained on request from the Japan External Trade

Organisation (JETRO) in London: Tel. 0207 470 4700 or at www.jetro.go.jp/uk.

Customs

Tariffs are based on the Harmonised System which is a standardised international system for

classifying traded products. Details of the Harmonised System can be found at the World Customs

Organisation’s (WCO) website at www.wcoomd.org. For Japan, duties are levied according to the

Cost, Insurance and Freight (CIF) value of the consignment. However, some raw materials,

agricultural machine tools and industrial equipment are not subject to customs duty. Further

information regarding customs requirements for Japan can be found at www.customs.go.jp .

Bill of Lading

Japan has introduced compulsory declaration of consignments to Japanese customs 24 hours before

expected arrival (this is usually done by the carriers themselves). Release of goods to the consignee

may be hastened by the use of an express bill or release if applicable. 6 Tate’s Export Guide – Japan, 2014. Accessed 03/04/14.

7 ibid

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 19

Sales and Marketing Strategy Development

There are differences to marketing and selling in Japan compared to the UK:

Different language and culture

Different currency and exposure to exchange rate fluctuations

Different search engines and social media

Different markets for product(s) or service(s)

Different consumer behaviour

Different regulatory and product certification requirements

Compliance with tax regulations in Japan.

Market research

Before investing resources in exporting to Japan, research the Japanese market and your potential

competitors thoroughly. Don’t make assumptions about your target market(s) in Japan. Make

strategic decisions based on data and facts. Consider:

Is there demand for your product/service?

Who are your competitors?

How are similar products/services priced and marketed?

What payment methods are used?

What service levels are expected?

What technology do your target consumers use?

Your initial market assessment should include an industry profile and profiles of the firms who will

be your main competitors in the market, their marketing strategies, pricing and promotion.

First mover advantage

Japanese market consumers and companies tend to exhaustively evaluate and research products

prior to buying. Achieving first-mover status in the Japanese market is always a massive advantage

as Japanese corporate buyers are often loyal to suppliers and end user consumers are very brand

conscious and follow trends.

Sources of Japanese Market Data

The figure below highlights some sources you can use to gather information about everything to do

with doing business in Japan from tax treaties to search engines.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 20

Sources of Japanese

market data

Japan Consumer Marketing Research Institute (JMR)

www.jmr-marketing.com

Social Media

Google

Yahoo.co.jp

HMRC

www.hmrc.gov.uk/nic/japan.htm

www.hmrc.gov.uk/cnr/dt-guide-note-10.htm

Export to Japan

www.exporttojapan.co.uk

UKTI Japan

www.ukti.gov.uk/japan

JETRO

www.jetro.go.jp

British Chamber of Commerce in Japan

(BCCJ)

www.bccjapan.com

Japanese Government Departments

Ministry of Economy, Trade and Industry -

www.meti.go.jp/english/index.html

Ministry of Finance -

www.mof.go.jp/english/index.htm

Ministry of Foreign Affairs -

www.mofa.go.jp/index.html

Ministry of Internal Affairs and Communications

- www.soumu.go.jp/english/index.html

Japan Chamber of Commerce and Industry in the UK

(JCCI UK)

www.jcci.org.uk English language news and media in Japan

Japan Times - www.japantimes.co.jp

Asahi Shimbun - www.asahi.com/english

Japan Today - www.japantoday.com

News on Japan - www.newsonjapan.com

Metropolis - http://metropolis.co.jp

The European Business Council in Japan (EBC)

www.ebc-jp.com

Japan Fair Trade Commission (JFTC)

www.jftc.go.jp/en

EY Global Tax Alert: Japan & UK Tax Treaty Protocol, Dec 2013.

http://bit.ly/1hIz4dU

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 21

Identifying your ideal customer(s) in Japan

Before you can develop a sales and marketing strategy for Japan, you need to understand the

customer you are selling to. Profile your ideal customer(s) in the Japanese market, keeping in mind

that you may have more than one type of target customer.

Consider:

Who are they? What vertical sector(s) or industry do they operate in?

Where are they located?

Why do they have a need/demand for your product(s) or service(s)?

Why should they buy those product(s) or service(s) from you (and not a competitor)?

What market trends, political and regulatory frameworks impact on your target customers?

What evidence do you have that a potential Japanese customer will benefit from buying

from you? For example focus group results, case studies, testimonials, calculations,

references.

How do you identify your ideal customer(s)?

What metrics will you use to identify your ideal customers and measure your success in this

market?

Product/service considerations

The following are suggested areas of focus for UK firms considering exporting their product(s) or

service(s) to Japan:

Any IP that needs protecting?

Local sourcing - can you source part of your product or service locally?

Climate in target market - Will the climate and humidity in Japan affect the efficacy of your

product or service?

Cultural customs and laws

Storage and delivery logistics - How secure, available, expensive is storage of inventory in

the target market?

Food perishability (storage considerations; sell by date regulations; storage facility

inspection and certification requirements)

Packaging and labeling standards and regulations

What logistics are involved in delivering your product or service to the end user?

Licensing, regulatory environment - Are any special licences, permissions required in order

to sell your product or service in Japan? Are there any laws or regulatory requirements your

product or service has to meet in order for it to be able to be sold in Japan e.g. CE marking,

Safety Certification, Component Traceability records etc?

Different time zones

Tax implications

Export documentation

Import restrictions if applicable

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 22

Payments and Pricing

Localised pricing

You should customise the price of your product or service for the Japanese market (localised pricing).

Research similar products/services on offer in Japan and consider how you are going to position your

offering in the Japanese market. Many retailers find that they are able to charge more in Japan than

in other markets. Beware though of customers being able to check your pricing in other markets if

you have prices published online.

Preferred methods of payment in Japan

To maximise your sales conversion rate use the payment methods that are preferred by Japanese

businesses and consumers. Preferred methods of payment in Japan are credit and debit cards, cash

and mobile payments.8 Cash is the most widely used form of payment in Japan and Cash on Delivery

(COD) is popular with consumers.

JCB is the only international credit card brand based in Asia and is co-branded with Master Card and

Visa. Second in popularity after using credit cards for payment in Japan are Konbini payments which

are payments made at convenience stores throughout Japan. Mobile Suica is a popular mobile

payment system used in Japan's major cities and towns. For online content, the PayEasy system

interfaces with digital content providers, billing agents, online payment providers, and consumers to

streamline the business of online content. Yahoo! Easy Payment is an online payment service

mainly used on the hugely popular Yahoo! Japan shopping and auction sites. Understanding which

payment methods are preferred by customers in Japan signals trust and authority to your targeted

audience in addition to providing the best possible options to get you paid.

International Payment Gateways

You need to consider which currencies to accept payment in and how you can minimise your

business’s exposure to exchange rate fluctuations.

Online payment systems such as PayPal are dominating the global market place while local and

regional online payment sites are gaining popularity. Mobile payments are the next largest growth

area with global mobile payment transaction volume estimated to increase significantly in coming

years. Both MasterCard (MasterCard Mobile) and Visa (V.me) are looking to be key players here.

Examples of International Payment Gateways include:

www.globalcollect.com www.worldpay.com

www.moneycorp.com www.safecharge.com

www.adyen.com www.cybersource.com

8 Source: Search Engine Watch, Global Online Payment Methods, 30/05/13. http://searchenginewatch.com/article/2271352/Global-Online-Payment-Methods.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 23

Using an international payment gateway enables you to receive payments in any currency you

choose but for your bank account to be credited only in pounds. It saves on International Transfer

Fees and enables you to manage your exposure to exchange rate fluctuations.

Japanese Business Etiquette

Politeness and sensitivity are at the centre of Japanese business etiquette. The main difference

between Western and Japanese business etiquette is that the Japanese tend to be more formal.

English is not widely spoken in business and government so an interpreter is generally required. If a

meeting is conducted in English, be sure to speak slowly and clearly and do not use regional dialects,

colloquialisms, idiomatic expressions or humour.

The giving and receiving of business cards

British businesses are advised to have their business cards translated into Japanese so that they have

two sided business cards – one side in English and the other in Japanese. Present your Japanese

business card holding it by the two corners closest to you with both hands, with the Japanese-

language side facing the person you are passing the card too. Tip - having your company logo at the

top of the Japanese-language side will help you to orientate it correctly! Firstly, exchange cards with

the most senior member of the Japanese company/group, bowing slightly as you do so and then

continue this ritual in order of seniority amongst the Japanese staff.

When receiving a Japanese business card, take the two bottom corners that are presented to you

with both hands, look at it respectfully saying “Thank-you”. The business cards should remain on the

table throughout the meeting. Never write notes on a Japanese business card or fidget or play with

it and treat the card with respect.

Business Meetings

Be punctual. It’s advisable to arrive 10 minutes early for a meeting, more if the meeting will

be with senior executives.

It’s a good idea to have an agenda for the meeting, set in advance so each party has a

chance to translate it into their own language and prepare what they want to discuss

(particularly advisable if there is going to be a language barrier).

Product brochures and a company profile should be taken with you when you visit a

Japanese company for the first time.

When you have been shown to the meeting room, wait to be seated as there are customs

regarding where people sit based on their position in the company.

When introducing themselves the Japanese say their surname or family name first. For

example, we say John Smith; they say Tanaka Hiro (Tanaka is the family name). When

referring to someone, the Japanese use the honorific term “san” after the person’s name.

For example, you would then refer to Tanaka Hiro as Tanaka-san. Do not call a Japanese

person by their first name unless you are very good friends. In business dealings, the

honorific form surname + san should always be used. The Japanese respect our Western

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 24

habit of using our first names but they will follow it with the honorific “san” e.g. John-san as

a sign of respect. Or they may address you using the Western form Mr/Mrs/Miss + surname.

The Japanese tend to take lots of notes during meetings as this is seen as good business

etiquette as it indicates interest in what the other party is saying.

The Japanese tend not to use non-disclosure agreements but if you need one signed, send it

well in advance of the meeting. If you produce an NDA at the beginning of a meeting or

negotiations, the Japanese side will be embarrassed, probably refuse to sign it until it has

been legally reviewed (which can take weeks) and avoid meeting again.

Consider investing in an interpreter to ensure you gain maximum value from the business

meeting.

The Japanese will only do business with your company if they feel that they can trust YOU as

an individual. Building this relationship is important so don’t keep sending different

members of staff to each meeting. Because the development of this relationship is so

important, expect to go out drinking with your Japanese clients and to eat dinner together

on occasions. This is a much more relaxed atmosphere (than a board room) and you can get

to know each other better. It is not common for spouses to be invited out for business

dinners.

Sources of assistance with exporting to Japan

If you’d like to find out more information about doing business in Japan or are ready to take your

first steps towards exporting to Japan, then the organisations below can assist you.

Export to Japan

www.exporttojapan.co.uk

Export to Japan helps UK firms succeed in Japan. A joint venture between UKTI Japan and 30+

partner organisations all with experience in the Japanese market, Export to Japan can help you

navigate doing business in Japan and provide specialist advice and market entry guidance for UK

firms. A wide range of support services are available including exclusive discounts for UK firms who

access partner services. For more detailed information regarding how Export to Japan and its

partners can help your business in Japan, please visit www.exporttojapan.co.uk/partners/business-

offers or contact info@exporttojapan.co.uk.

UK Trade and Investment (UKTI) Japan

www.gov.uk/government/world/organisations/uk-trade-investment-japan

UKTI in Japan helps companies in Britain increase their competitiveness through overseas trade in

Japan. UKTI Japan offers professional, authoritative and personalised assistance to help UK

companies expand in Japan and Japanese companies to grow in the UK. Export to Japan or UKTI

Japan can also provide information about Japanese Government schemes and other subsidies

available to UK firms considering investing in Japan.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 25

In addition, UKTI's Passport to Export Service assesses your readiness for international business and

helps you build international trade capacity. It is an assessment and skills-based programme that

helps new and inexperienced exporters with training, planning and ongoing exporting support. Find

out more at www.gov.uk/passport-to-export or contact exporttojapan@fco.gov.uk

Japan External Trade Organisation (JETRO)

JETRO, the Japan External Trade Organisation, is a government funded agency with offices around

the globe whose remit is to promote the benefits of doing business in Japan to foreign companies.

For UK firms considering starting a business in Japan, JETRO provides market data, consultation and

other support services. One of the benefits JETRO offers is the use of free office space at one of their

Invest Japan Business Support Centers, more information about which can be found at

www.jetro.go.jp/en/invest/ibsc. JETRO has an office in London and its website contains information

including upcoming events www.jetro.go.jp/uk.

Chambers of Commerce and Industry

Contact your local UK Chamber of Commerce’s International Trade Advisor for more information

about doing business abroad. Furthermore, the British Chamber of Commerce in Japan (BCCJ)

www.bccjapan.com can provide information and contacts to help you do business in Japan.

Japan Market Expansion Competition (JMEC)

www.jmec.gr.jp

The Japan Market Expansion Competition (JMEC) is a business training program in Japan which

strengthens the business skills of executives wanting to do business in Japan. The training program

is centred on a competition to write the best business plan. As a result, client companies receive a

quality business plan for Japan market entry or expansion. This is a great option for any organisation

doing business in Japan or thinking of starting a business in Japan.

JMG CONSULTING UK LTD| Getting started: A guide to doing business in Japan 26

Helping small firms do BIG business.

This report was produced by Jacqui Gray at JMG Consulting

(UK) Limited for Export to Japan. JMG Consulting is a market

research, management consulting and training company

committed to providing growth tools for businesses to help

them succeed at home and abroad. For more information

on international sales and marketing, management

consulting, market research, ISO 9001 compliance or

corporate training, please visit our website or contact us at

info@jmgconsulting.biz.

WWW.JMGCONSULTING.BIZ