Recently I was quoted in the Japan Times in an article about Facebook's Japan launch saying:

The Japan Times
Wednesday, June 25, 2008

Japanese Facebook takes Model T approach
By LISA KATAYAMA

[...]

Joi Ito, a venture capitalist and CEO of Creative Commons, points out the importance of staying humble and of maintaining the mind-set of a startup. "You need to assume your brand in the U.S. means diddly squat in Japan," he says. "You also need a local partner with an equity stake, unless you're Google and you're willing to spend years and years becoming relevant."

It is REALLY hard to launch in Japan without a local partner. There are many reasons. Foreign brands have very little value in Japan without local promotion.

It is very hard to hire people into fully-owned subsidiaries. Many foreign companies pull out of the market. Japanese companies tend to go public more quickly than US companies. Even when US companies do, often they don't give subsidiary team member any or as much upside incentive. Local partners tend to incentivize local teams and push for local IPOs. Everyone knows this. Even Google had a tough time and are finally getting traction.

Business in Japan, as the stereotype suggests, is fairly closed. Business development in Japan is very difficult without a local partner.

eBay went it alone and had to leave and now don't exist in Japan having lost net auctions to Yahoo Japan and Rakuten. Friendster and now Facebook who have launched "localized versions" are not getting traction. Mixi, the Orkut knockoff with arguably a much clunkier interface, has 10M users and is public.

Infoseek, Technorati, Twitter, Six Apart/TypePad/Vox/Movable Type and other brands that we've helped launch are all doing pretty good in Japan IMHO.

I think the only two non-joint ventured web companies that are doing well in Japan right now are Google and Amazon and both took years and lots of investment to get there.

facebook.jpg
Spike in Facebook mentions on blogs after localization, but flat again after that


I realize this is tooting my own horn since what I do is set up joint ventures in Japan but I though this chart was interesting in this context.

9 Comments

I have thousands!

local partner is also very important for western companies want to launch China.
there are so many examples can prove this, google is defeated by baidu.com, ebay was defeated by alibaba, Bertelsmann was defeated by dangdang.com this year ……

I've thought about this issue a bit lately. What if you just want to gain some awareness in Japan and don't have unrealistic goals of bringing in tons of business or millions of users? What if you just want to see if it catches on with a few thousand and you don't have a budget to make a business partnership? Are there recommendations for achieving just some conservative awareness in Japan about a service?

Ariel: I guess it depends on the kind of business. There are some interesting niches, but if you want a niche business, China has huge niches the size of national markets in other countries.

On the other hand, YouTube had millions of users without any localization. There are some interesting "hits" that happen unintentionally. If I remember correctly, the LL Bean site, way way back during the beginning of e-commerce had significant traffic from Japan on their US site.

Japanese consumers are sophisticated in an interesting way and high end niche products, designer brands and other things can also do quite well.

Test marketing in Japan I think is fine and can me fairly interesting.

I remember having a discussion about this topic on IM with you Joi! Anyone who thinks about going to the Japanese market without a local partner in the hot seat is nuts.

I believe (but don't know for certain) that Burberry initially got interested in the Japanese market because of the volume of online orders they were getting from Japan.

I can't see the point of test-marketing in Japan unless you are prepared to go in big.

I am sorry to say this, but I know that western companies are very wary of potential Japanese partners stealing their ideas and bring them to market themselves. No one wants to talk about this, but this is certainly an issue in my limited experience to doing business in the far east for some European companies, especially smaller ones (and by smaller, I mean 'sub-10-billion dollar').

Hi,
first is it possible to have more explanation about this statement "Japanese companies tend to go public more quickly than US companies."?
so for any companies which wants to have business in Japan, it should adapt its products and the best way is to have a local partner there?
in fact, I think that such issues is common. for example if you want to have business in MEAN region it is better to have local partner at least to resolve administrative problems etc.

Regards

Rafik: The Japanese stock market has typically had lower restrictions for going public and higher PER ratios, making going public in Japanese easier and sometimes more profitable. (This is changing with newer restrictions with JSOX).

I agree that localization is require in every market, but I think there are a few things that make Japan a bit harder. First of all, there are just aren't enough professional managers who are willing to take risk or join companies. Recruiting in Japan is very hard. I think that more than anything, staffing is what limits the ability for wholly owned subsidiaries of foreign companies from growing and localizing well. A good Japanese partner will both recruit proper staff as well as second staff from the parent to get a company goes.

Relationships are typically more important for Japanese business than most markets.

Finally, Japan is a big economy and just focusing on Japan is, at least in the past, was good enough. Most Japanese companies don't "go International". Smaller markets are typically more open to outsiders coming in as well as insiders going out.

I realize I'm generalizing, but I think Japan is sort of a perfect storm of insularism.

Mr. Ito - Based on a recent trip to meet Japanese bloggers/startups, you're exactly right re U.S. tech companies (Facebook) attempting to "penetrate the market."

Worth noting is that Japanese startups face the flip side of this when they try to get onto the Internet playing field and that self-funded startups (microISVs) in Japan while they have a much higher social onus than in the U.S. do exist and are getting some traction.

I think there's another factor at work: quality. Americans such as I simply cannot imagine the importance of quality to Japanese consumers, any more than they believe the level of cleanliness/order public spaces enjoy. It's beyond our imagination until we directly experience it. The only US tech firm that gets this is of course Apple.

Hi Joi. Great post - I think you highlight an important point that Japan is entirely a different beast, but as someone currently seeking active Japanese partners and distributor launch of an industrial, B2B product (not web) I'd love for you to scope a little bit more in your post.

Would love thoughts on

1. Specific strategies for choosing a partner in Japan? How would you recommend companies choose a partner?
2. Partnership or distributor? Thoughts on each.
3. What systems you suggest for controlling interests in partnerships? IE - how do you mediate and negotiate interests from each party.
4. Your companies experience both negative and positive on these engagement with firms.

Conversely - I'd love to hear your thoughts on Japanese companies partnering with Foreign companies to launch in international markets. Do Japanese firms also need a "local partner" when going abroad? Have you tried to bring any Japanese technology to the West, China or other markets?

Thanks.

@ Ariel -

" I am sorry to say this, but I know that western companies are very wary of potential Japanese partners stealing their ideas and bring them to market themselves."

I think you are confusing China and Japan. Japanese firms respect IP in my opinion. What experiences have you seen where a Japanese company has "stolen" Western product technology.

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