I. COMMERCIAL OVERVIEW (EXECUTIVE SUMMARY) A. Overview of Import Market Unquestionably, Japan's large and sophisticated markets remain a challenging and expensive place to do business. To be successful in Japan, a U.S. company must take a long-term approach to entering the Japanese market. A U.S. company should have a presence in Japan in order to develop relationships that will show its Japanese business partners that it is a sincere member of the business community. U.S. companies with quality, competitively-priced products, that are willing to undertake the high cost of initial market entry in Japan, may nonetheless achieve a respectable market share with a reasonable--or even large--profit. Distribution is the most important factor to success in exporting to Japan. It is crucial to have a presence in Japan, where a company can establish the networks needed to get its products onto Japanese shelves and its components designed into Japanese products. Despite the lack of substantial price competition in Japan, companies that succeed in Japan are formidable international competitors. The unique challenge presented by this market is one reason why entering the Japanese market should be an indispensable part of the global strategy of almost every sector of American business. The expense of doing business in Japan may lead some companies to conclude that they cannot afford to make the commitment to do business in Japan. However, it is extremely difficult to penetrate the Japanese market from an exclusively U.S. base. Many manufacturing companies, especially those with Japanese competitors, cannot afford not to have a presence in Japan. Market entry into Japan is an essential element of their international strategy, and their long-term survival at home and in third-country markets. Reasons why U.S. companies should have a presence in Japan, are, therefore, (1) at minimum, to gather information on the Japanese competition and new Japanese technology; (2) to develop sales and distribution routes to exploit the large Japanese market; and (3) to compete with the Japanese competition on their own turf, thereby enhancing competitiveness and market share ultimately in the U.S. An additional reason is (4) to establish relationships with Japanese business and government entities and gather information to enable the company to work in Japanese-financed development projects in third countries, as Japan's official development assistance program is now the world's largest provider of AID-type grants and loans. Also, experience gained in Japan responding to the exacting standards of Japanese customers can result in improvements to a company's products made and sold throughout the world. The U.S. Government's trade-related agencies have worked to eliminate trade barriers to market access in Japan in the "Big Emerging Sectors" and "Best Prospect" industry areas (discussed in Section II) through trade negotiations and high visibility trade promotions. The United States and Foreign Commercial Service (US&FCS) of the U.S. Department of Commerce has 63 commercial officers and staff who serve U.S. companies pursuing opportunities in Japan. US&FCS has offices in the Embassy in Tokyo, the Osaka and Sapporo Consulates-General, and the Fukuoka and Nagoya Consulates, as well as the US&FCS's U.S. Trade Center in Tokyo. The State Department also assists U.S. business through the U.S. Consulate-General in Naha, Okinawa. The Tokyo office of the U.S. Travel and Tourism Administration of the U.S. Department of Commerce promotes the United States as a tourist destination to Japanese travellers. The Agricultural Trade Office serves U.S. agricultural and food exporters through offices in Tokyo and at the Osaka Consulate-General. In one or more of these locations, State Department Foreign Service officers and staff, and representatives of a large number of other U.S. government agencies including the Treasury, Energy and Defense Departments, are also actively engaged in analyzing economic conditions and working with their US&FCS and Agriculture colleagues to assist U.S. business. In addition, the Government of Japan, especially its trade agencies (the Ministry of International Trade and Industry, Japan External Trade Organization, and Manufactured Imports Promotion Organization) have responded to pressure from Japan's leading trading partners by implementing further market opening measures such as the "Trade Promotion Cooperation Program" with the U.S. Government [see section III] to increase exports of American products to the Japanese market. These measures open doors, but it is up to individual companies to make the commitment to come through those doors. The commitment that is required includes: (1) allocation of long-term financial resources and personnel, with a high priority on American staff who can speak and read Japanese, to set up necessary operations in Japan and provide after-sales services to customers; (2) modification of products as necessary to suit the needs of Japanese customers, translation of technical manuals and sales literature into Japanese, and metrification of products, manuals and sales literature; (3) patience and a long term view towards maximizing market share at a reasonable profit; and (4) careful monitoring of the activities of Japanese competitors and Japanese government regulations and research and development programs. With these efforts and the right product, it is possible to succeed in Japan. B. Brief Synopsis of Commercial Environment Japanese companies compete in a tough domestic market where customers are still willing to pay a high price for quality. The Japanese consumer, being essentially conservative in taste, is highly brand conscious. At the same time, Japan's group-oriented and conformist culture means that when a new item or brand catches on, it catches on big. A new generation of more individualistic consumers is emerging, centering on the 8.1 million Japanese between ages 18 and 21, who have an estimated $33 billion in disposable income. Japanese consumers under 30 are increasingly deciding purchasing based on price and overall value. Although sectors of Japan's society are committed to "internationalization," Japan remains a highly homogeneous society, with longstanding, close-knit relations among individuals and firms. Regulatory processes and local business practices in Japan have reflected a society which is traditional, and which formulated systems for its own needs with no consideration given to potential participation by foreign companies. Even for Japanese businesspeople, it takes time to develop relationships and become an "insider." For a non-Japanese businessperson, the task is formidable, but not impossible. Besides this guide, detailed information on Japan's commercial environment may be found in the second edition of "Destination Japan: A Business Guide for the 90's," written by the Japan Export Information Center (JEIC) of the U.S. Department of Commerce International Trade Administration (phone: (202) 482-2425) and available from the National Technical Information Service (Phone: (703) 487-4650) DOC. #PB94164787 and electronically on the National Trade Data Bank. The NTDB also contains the US&FCS Japan Services Guide, as well as hundreds of market research reports and analyses by US&FCS Japan and other U.S. Embassy and consulate offices. Further information on Japan's market can also be obtained from the American Chamber of Commerce in Japan, 5F, Bridgestone Toranomon Bldg., 3-25-2 Toranomon, Minato-ku, Tokyo 105, Japan, phone: 81/3/3433-5381, fax: 81/3/3436-1446. C. Host Country Business Attitude Towards the United States The fact that Japan is the second largest importer of U.S. goods and services after Canada reflects a positive attitude towards U.S. suppliers. Many U.S. companies have established reputations for their world-class goods and services in Japan, and Japan's consumers are now enthusiastically rediscovering U.S. automobiles, computers, food and other U.S. products for their high quality and reasonable prices. While many Japanese companies have close ties with U.S. suppliers, it has still proved difficult for some U.S. companies to overcome traditional Japanese attitudes toward foreigners and particularly toward the highly competitive U.S.-based companies that were essentially prevented by Japanese laws and regulations from investing in or exporting to Japan for over 30 years following World War II. It has also proved difficult for many U.S. companies to be accepted as business partners by Japanese manufacturers, wholesalers and retailers, who are bound through "keiretsu" (industrial grouping) ties such as cross-shareholding which impede them from doing business with non-keiretsu companies. While the official Japanese government policy is to promote imports, the extent to which traditional insular Japanese attitudes are actually translated into increased imports remains to be seen. D. Major Business Opportunities Japan's imports of manufactured goods from the United States increased by 8% in 1993 to $34.1 billion, accounting for 62% of total imports from the United States on a customs-cleared basis of $55.2 billion. Although the recent overall economic outlook has not been favorable, the outlook for exports to Japan remains positive. Accelerated by annual economic stimulus packages, there is a huge public and private infrastructure buildup underway in Japan as it strides into the 21st century. The Japanese government has committed to spend, between 1991 and 2000, 430 trillion yen (over $4 trillion) on public works, including airports, bridges, roads, port development projects, and heliports. Large scale private investment is expected in such areas as intelligent buildings, telecommunications systems, resorts, retirement communities, marinas, conference centers, medical cities, and science cities. In short, this is a large economy that presents good opportunities for U.S. firms. Strong first quarter 1994 results suggest that a recovery in private consumption may be underway. Consumers are likely to emerge more cautious about spending than in pre-recession days, but can be expected to buy clothes, sporting goods, furniture, and toys which they normally would have replaced by now. While the Japanese people remain remarkably tolerant and uncomplaining of the high cost of all consumer goods, products increasingly are selling on price and value. Discount retailing (particularly in liquor, toys, and apparel) is booming. Cost consciousness is partly due to long-term uncertainly about the economy (especially job security) and partly due to increased awareness of high prices compared to overseas. One-tenth of Japan's population travels overseas every year, many for the fourth or fifth time, and the extent of the price differentials is starting to sink in. Japan's large Official Development Assistance (ODA) program will also offer great opportunities, as the ODA budget is expected to increase from $11 to $20 billion annually within three years. There may be increasing opportunities by U.S. defense and aerospace firms to benefit from Japanese technology under the Perry Initiative technology swap plan. Over the coming year, the U.S. Mission in Japan, including the Embassy and the five consulates, will continue to monitor and report through the National Trade Data Bank on commercial and legislative developments in Japan, especially in the best prospect sectors, as they relate to market opportunities for U.S. companies. The U.S. Mission will also continue to support the bilateral and multilateral negotiations to open new market sectors in Japan, and to report through the NTDB on new opportunities these market- opening efforts produce. E. Nature of Local and Third Country Competition Japanese suppliers are strong competitors in most industrial and consumer goods areas. Their competitiveness is, however, eroding due to high costs in Japan exacerbated by the strong yen and by difficulties in their abilities to use and develop new uses for personal computers. European suppliers are active in specialty prestige consumer products, including automobiles, leather bags, and some food products, and in some precision and specialty machinery. Asian suppliers of low-cost clothing and some electronics goods compete mostly with Japanese transplant factories in Asia that are increasingly reverse-importing back into Japan. However, Asian suppliers of industrial and food products have had a difficult time breaking into the Japanese market because of poor brand recognition and an image of poor quality. Japanese agricultural suppliers are inefficient and high-cost, but highly protected. However, the average age of Japanese farmers, many of whom are part-time, is 57 and rising. U.S. exporters of rice, meat, fruit and fishery products have competition from Australia and many other countries in Asia, Europe and even Latin America.