Marketing Research and Partner Search in Japan

For a Russian exporter, Japan can be both a very distant country and a neighbor, albeit across the sea.

Of course, the Japanese market is more attractive for companies from Eastern Siberia and the Russian Far East, but opportunities also exist for businesses located in the European part of the country. In the modern world, logistics is an important, but not a key factor for success in trade. Some significant aspects of exports from Russia to Japan are discussed below.

About Japan as a Market and Current Exports from Russia

Japan is a country with very active foreign trade. Looking at the latest available data for 2019, it ranks fourth in the world in terms of export volume (for comparison, Russia is 14th) and also fourth in terms of imports (Russia is 22nd). Another distinctive feature of Japan is the high level of balance between exports and imports; the delta is just over -15 billion US dollars. None of the top ten countries, or those nearby, have such a trade balance close to zero (South Korea has +39 billion US dollars). Thus, it can be concluded that Japan, which is not a significant transport corridor, pursues an extremely balanced foreign trade policy, using the advantages of the international division of labor to develop its economy and maintain the standard of living of its population.

The Japanese market as a whole is characterized by high purchasing power. The country ranks fourth in the world in terms of GDP, recalculated by PPP, after the USA, China, and India, and in terms of nominal GDP – third place (after the USA and China). In terms of population, Japan is the eleventh country in the world (it was recently displaced from the tenth position in the ranking by Mexico).

A very important economic indicator for exporters of products aimed at final consumption is the indicator of population income inequality. The higher the inequality, the more difficult it is to promote one's product on the market (if we do not take luxury categories of goods into account), since the majority of the population simply does not have the opportunity to purchase quality and more expensive imports.

The UN calculates three basic indicators of inequality for cross-country comparisons – the income ratio of the top 10% to the bottom 10% of people, the income ratio of the top 20% to the bottom 20% of people, and the Gini index. Japan leads the world in the first two indicators, and ranks second in the Gini index, only slightly behind Denmark with a much smaller population. This order of income distribution among the country's residents indicates that most Japanese have the ability to pay for a quality product, but at a reasonable price for it.

At the same time, the Japanese market is already saturated with diverse offerings, and therefore competition is very high. Moreover, domestic production, including in the food sector, has a very good level, allowing for active exports of Japanese goods worldwide. Especially if we are talking about traditional products for the country. There are many interesting examples of how Japan manages imports. For instance, rice purchased from the USA is used mainly for fodder or processing, and is also included in humanitarian aid to countries with poor economic situations, such as nearby North Korea.

Let's look at the trade between Russia and Japan.

In 2019, Russia exported goods to Japan worth over 11 billion US dollars. For our country, Japan is the 12th largest importer of Russian products (considering the two Customs Union countries – Belarus and Kazakhstan). In turn, Russia for Japan is the 21st largest importer of Japanese products (over 7 billion US dollars).

Despite the fact that in terms of the absolute volume of Russian imports, Japan looks like a very attractive direction for developing the export activities of Russian companies, it must be admitted that Russian exports to Japan have a pronounced raw material orientation.

Three-quarters of all exports to Japan fall under commodity group 27 of the HS – mineral fuels. Another 8% is for precious and semi-precious metals and stones, 5% for aluminum. Thus, the first three commodity groups, directly related to mineral resources, account for a combined share of about 88%.

Also in the top five by ranking are commodity group 44, for which customs clearance is carried out for wood and wood products (4%), and commodity group 03 – fish and seafood – 3%. In total, this is already 95% of all Russian exports to Japan.

The remaining in-demand positions, with supply volumes exceeding 100 million US dollars per year, are steel and ore, organic fertilizers, grain, rubber products, machinery and equipment, electrical equipment, some chemical goods, vegetables and root crops, animal products, plastics, and a number of others.

Thus, the established trade practice shows that despite the predominance of raw material goods directly related to mineral resources, a fairly wide range of products is supplied to Japan by Russian companies, covering the sectors of agriculture, food industry, chemicals, engineering, plastic and rubber production. In small volumes, the list of exported products is much wider and includes dozens of commodity groups. All this speaks not of a distant prospect, but of a real possibility of exporting many types of products to Japan. However, such a project must be carefully worked out, primarily by conducting marketing research on the Japanese commodity market of interest.

Marketing Research of Japanese Commodity Markets

Most commodity markets in Japan are characterized by high competition among players. In addition to developed domestic production, this is facilitated by active trade relations with nearby China, as well as the USA, whose goods have been present in large volumes on the Japanese market since the post-war years.

European producers are less active in Japan, which is also due to expensive logistics for supplies. However, high-quality and unique European goods, for example, some types of food products, alcoholic beverages, especially wines, have significant shares in the respective Japanese markets.

For Russian companies, primarily located in the eastern part of the country, Japanese markets are more accessible from a logistical point of view, and the lower cost of production compared to companies from the European Union quite allows them to compete on price. The key issue becomes the quality of goods and the effectiveness of the commercial policy itself. To build it competently, it is necessary, first of all, to collect information on how the corresponding market "works" in Japan. This is the purpose of marketing research.

As in any developed market, in Japan it is possible to conduct both desk and field research. It should be noted that the cost of field work is substantial, which is associated with the high standard of living and prices, as well as a smaller number of offers. Mainly, field research services are offered by local companies, and selecting a successful option is already a difficult task. In certain cases, it is reasonable to try to reach out to individuals who can assist in collecting data "from the field," but in this case, it is difficult to conduct large-scale research.

All this determines the particular importance of desk marketing research, which in most cases gives a clear understanding of whether there are prospects for a particular product on the market and whether it is worth delving deeper into the analysis being conducted.

Desk research is conducted quite standardly, regardless of the country, according to general logic, but for each region of the world, there is also its own specificity related to data collection methods and the priority importance of different information channels.

Since Japan is a country with a very active trade policy, import analysis can often provide a good idea of how interesting certain product positions are for the local market. As with most developed countries, customs declaration databases are not offered for purchase for Japan, but at the same time, fairly detailed (in the case of Japan, up to 9-digit customs classification codes) import statistics by country are freely available. Similar data are available for exports. This allows for a general approximation of the interest in certain product groups.

As for such types of data sources on various markets as government statistics, in Japan, despite the predominance of information in electronic format in Japanese, there is a specialized portal for official statistics https://www.e-stat.go.jp. The volume of statistical data here is significantly inferior to, for example, the European Union portal, and many other countries of the world, but still contains a lot of useful information, especially collected through household censuses. So for consumer goods market researchers, there is a lot of interesting information stored here. Site navigation is not highly user-friendly, so it will take some time to adapt. Part of the information is downloadable in table format, a certain volume is available in database format. The text is duplicated in English.

When searching for commercial information online, it is advisable to use queries in Japanese. This is because many Japanese companies, even large ones conducting international activities, do not have websites in languages other than Japanese, or the translated pages are significantly inferior to the originals in terms of the volume of information posted. As a result, the quality of search when using queries in English (not to mention Russian) will be much lower.

A large volume of consumer goods purchases is made through marketplaces. Accordingly, it is possible to collect a quality database there to assess competition and the level of final prices. In Japan, the main volume of goods is purchased on two marketplaces – Rakuten and Amazon (about 60 billion US dollars per year in total). Therefore, most major market players place their products on them.

Information on B2B market offerings is harder to collect, as there is little open data and it is fragmented. Therefore, conducting marketing research on B2B commodity markets in Japan is much more difficult due to the high level of confidentiality of such information. Communication with business representatives, if possible, is almost always only in Japanese.

Another important point when conducting marketing research on Japanese markets is to consider this geographical market not as a point on the map, but as a heterogeneous socio-economic space, including 47 diverse prefectures and located on several islands. Tokyo is a pronounced economic center of the country, but not all company headquarters are located there. Good internal logistics allow for the quick movement of goods and people, so other potential entry points into the country should also be considered. The level of economic development and competition in the markets of individual prefectures also varies.

When studying Japanese markets, it is important not to lose sight of the analysis of entry barriers into these markets, including from the point of view of state regulation measures. Many types of goods can be released into free circulation within the country only after passing certification procedures, which can be costly both in time and finances. It is important to assess these costs to correctly evaluate the potential commercial success of an export project.

How to Find a Partner in Japan and Close a Deal

Already at the stage of market research, it is extremely important to form a correct profile of a potential partner. This will save a lot of time later at the stage of the actual search and conducting initial negotiations.

The list of companies to check for interest can be formed in various ways, but the most reliable will be preparing effective search queries in Japanese and analyzing search results, studying the websites of Japanese companies. Almost all potential importers have websites on the Internet, but far from all in English (Russian is generally an exception, even for companies cooperating directly with Russian business). It must be admitted that Japanese businessmen highly respect their language and often do not bother with the adaptation of websites of organizations for foreign visitors, doing it formally.

Of course, you can find offers to purchase databases of Japanese companies in English and use them, work on this issue with industry associations or organizations engaged in international cooperation, but more often it is better to search the Internet yourself and study the websites of potential partners, which, among other things, allows for a better understanding of the specifics of doing business in Japan.

One can also mention the possibilities of social networks that business "favors." If we talk about international networks, LinkedIn and Facebook provide the greatest opportunities for finding Japanese partners. However, the return on investment from searching and establishing direct communication with Japanese companies here is much lower than with European ones.

The next step is "cold contact." Attention should be paid to the peculiarity of Japanese negotiation culture that the initiator of the contact must make the first call to the company and in the process of communication reach the decision-making person.

On the websites of Japanese companies, you will almost never find the email addresses of employees; even a corporate email is rarely present. Most often, you can find a feedback form where you can write, but responses will be rare and almost always with a polite refusal.

Since in the offices of Japanese companies, the person answering the incoming call usually only speaks Japanese, productive communication requires knowledge not only of the local language but also of business telephone etiquette. Thus, the search, even a cold one, will require the exporter to have an employee who speaks Japanese or to outsource to a person, preferably residing in Japan (for telephone negotiations, time synchronization is important) and fluent in Japanese.

In case of the first positive response, it is usually then required to prepare a detailed cooperation proposal in Japanese and send it by mail to the responsible employee of the company. Essentially, this is a commercial proposal, but with its own specifics both in terms of the content of the information and the form of its presentation.

If the proposal is interesting, then oral communication will likely continue and an invitation for face-to-face negotiations will follow. This is a very important point that the Russian exporter must be prepared for – it is very likely that a trip to Japan for personal communication will be necessary, which requires both time and resources, as well as the appropriate competencies.

Business missions and international exhibitions, which are held in large numbers in Japan across a wide range of industry sectors, primarily in Tokyo Prefecture, can help with this. When entering the Japanese market, one must prepare for them in advance, collecting market information and forming a list of "warm" contacts. In 2021, a trip to Japan could be especially interesting and eventful, as the summer Olympics, postponed from the previous year, are scheduled to take place in the summer, so all hospitality infrastructure is in "full readiness."