“Think Japan” Seminar in Auckland

The Japan Business Council with support from Asia:NZ and the Japan External Trade Organisation (JETRO) held a seminar in Auckland on 3rd August to highlight the potential of the Japanese market for innovative New Zealand companies. A range of representatives from government agencies and business with an interest in encouraging New Zealand companies to do business in Japan offered their insights. A second seminar will be held in Christchurch on 26th August.

Japan’s attractiveness as a market for New Zealand business

To illustrate the purchasing power of Japanese consumers, Kohei Suzuki, JETRO’s representative in New Zealand, pointed out that Japanese consumers have accumulated savings of 15 trillion yen. In addition to its colossal size, expenditure on R&D in the Japanese economy is equivalent to 3.6 percent of GDP; many Japanese industry sectors are at the forefront of technological innovation; and the Japanese market can act as a gateway to other East Asian markets. According to Mr Suzuki, a key characteristic of Japanese consumers is that rather than buying on price they tend to make purchases following a process of “sophisticated analysis of a product’s attributes.”

Japan has for some time been concerned to increase inward FDI and the government has set the goal of an increase to five percent of GDP by the year 2010. Denham Shale, Chairman of the New Zealand Japan Business Council, urged New Zealand business people “not to be shy about taking up JETRO’s offer of assistance to companies wishing to invest in Japan.” Over the last six years JETRO has provided assistance to several small New Zealand companies by providing temporary office space and expert advice when they established themselves in Japan.

Progress towards a closer economic partnership with Japan

Patrick Rata of New Zealand’s Ministry of Foreign Affairs and Trade described the relationship with Japan as a “bedrock relationship” underpinned by the fact that Japan is New Zealand’s fourth largest trading partner, the fifth largest source of tourists and the third largest source of students. The New Zealand government is vigorously pursing a free trade agreement with Japan because of its importance to the New Zealand economy and a desire to avoid being disadvantaged as it concludes closer economic partnerships with other countries. Mr Rata explained how there are strong arguments to support a free trade agreement (FTA) with New Zealand beyond the two countries’ long-established trade relations and mutual knowledge and trust. However, Mr Rata also said, “although the relationship is well developed it is yet to reach its full potential [and] closer economic relations through trade liberalisation would reinvigorate the overall relationship and be consistent with Japan’s proposed Closer Economic Partnership for East Asia.” Other key factors auguring well for closer economic ties are the complimentary nature of the trade relationship and the lack of a threat posed by New Zealand exporters were they allowed freer market access due to the limited extent to which they can increase exports to Japan.

Mr Rata provided an update on official moves towards looking into how to boost Japan and New Zealand’s economic relationship. In 2005 Japan and New Zealand governments established a joint working group of officials and academics to look into ways of reinvigorating the relationship “by any available means short of concluding an FTA.” A report providing a descriptive overview of trends in trade and investment can be found on the MFAT website.  A recent development has been the agreement in March 2009 to establish an officials’ group with a mandate to examine trade and investment issues “including from an FTA perspective.” The group will look into the economic relationship from the perspective of trade in industrial goods, customs issues and cooperation on agricultural issues. The officials’ group process will provide their respective governments with the information they need when a move towards entering FTA negotiations is made.

Preparing your business for Japan

BTM Marketing’s Tony Boot, a consultant specialising in assisting New Zealand companies to enter the Japanese market discussed the need to conduct thorough research when developing products for the Japanese market. Foreign firms both large and small, he said, have foundered in the Japanese market for lack of adequate research and product adaptation.

Food and beverage companies for example should consider the how their products should be adapted as Japanese consumers’ food preferences are quite different from New Zealanders. Mr Boot cited honey as an example of a product requiring changes to suit the Japanese palate; market testing has shown that Japanese consumers find our honey to be too bitter.

Regional differences are also often overlooked. Weaker food flavours are preferred in West Japan compared to the East where stronger flavours dominate. Tour operators promoting their products in Japan need to be mindful of the fact that while tour groups emanating from Tokyo may consist of as few as two people, but those from Osaka tend to include a minimum of 15 persons.

Japan’s changing demographics also presents market opportunities for companies able to leverage the rapid aging of Japan’s population. Currently 21 percent of Japan’s population is over the age of 65 and will reach 35 percent by the year 2050. To strengthen the marketing proposition of health related products aimed at the older segment of Japan’s population, Mr Boot suggested New Zealand companies emphasise the benefits their products offer and problems they can help resolve, rather than relying on a direct sales pitch covering only a product's attributes.

In general, when selling in Japan, exporters “should expect to play an educational role focusing on the benefits to consumers first and promote their products with facts rather than appealing to the emotions.” Most importantly, exporters should be prepared to provide high quality Japanese translations of their company literature carried out by competent professionals.

Japanese distributors place high importance on the quality of the product, consistency of supply and after sales support. To gain the interest of importers, New Zealand exporters “must prove there is market pull.” It is also vitally important to match your capability with the appropriate type of distributor. Distribution options include Japanese trading companies; local importers and distributors; supplying directly to Japanese wholesalers; manufacturers or resellers; third party brokers; and the Japanese internet. In the case of the later channel, health products have been successfully marketed in Japan using direct marketing methods that rely on making the actual sales direct to the customer through the internet, who technically becomes the importer, thus avoiding the regulatory hurdles that apply to products imported by exporting companies.

Key to successful relationships with distributors in Japan is focusing on developing the relationship first. But it is also necessary to periodically audit the distribution partners to ensure that the opportunities for market penetration are being maximised. It may in some cases become necessary to ease out of existing distribution relationships, or where this is difficult negotiate complimenting them with additional distribution partners.

Mr Boot concluded his discussion with a description of Japanese business culture. Central to the Japanese approach to business is the long range view, a high degree of risk aversion, but also a willingness to make short-term financial sacrifices or compromises when the long term benefits are understood.

Mr Boot cited several examples of New Zealand firms whose patience in the Japanese market eventually paid off. The New Zealand wine importer, Diva, had been in Japan for three years before it began to show a profit. To prepare for the lengthy time frames required to successfully implement a market entry strategy in Japan, Auckland-based software company, Maximum Availability, which has a marketing office in Tokyo, developed a business plan extending over a two-year period with goals to be achieved along the way. Mike Shearer, of Hamilton Jet, which supplies the Japanese coast guard with water-jet propulsion units, has said that “in order to succeed in Japan you must learn to wait longer than in other markets.”

New Zealand success stories in Japan

Fonterra’s trade policy manager, Ken Geard, described Japan as a very large, mature market – one of Fonterra’s largest - but also as having high trade barriers – even for manufacturing inputs. “To succeed [in Japan] it’s important to be “attuned to local preferences and to be innovative as it is a developing market.” Fonterra’s business in Japan, involving a range of milk-based products, produced from 1.4 billion litres of milk (worldwide exports equal 12 billion), is managed through a 50/50 joint venture with Japanese trading company, Nissei Kyoeki.

Fonterra looks forward to the day the WTO Doha round is concluded as it will increase access to Japanese consumers through lower tariffs and larger quotas. While the Doha process is proceeding very slowly and will provide some additional access, Mr Geard said “the New Zealand Japan FTA would provide significant access but is making no progress.” He concluded with the comment that “despite the trade barriers, Japan is an exciting, mature market and offers unique opportunities for innovative New Zealand companies.”

Zespris Gold kiwifruit, developed for the Japanese palate, is a good example of successful product adaptation for the Japanese market. Market research has shown it is most popular in Japan with male and elderly consumers - the green variety tending to be preferred by middle-aged Japanese housewives. By deploying 100 sales teams in supermarkets around Japan Zespri has discovered “if consumers try - they buy.”

Key to succeeding in Japan, according to Gen Arrowsmith, Zespri’s Organic Category and Consumer Insights Manager, has been the development of long-term partnerships based on trust and delivery.

Bringing people down from Japan helps to build a connection with New Zealand. Japanese distributors who visit New Zealand learn more about the product and become inspired to work harder at selling on Zespri’s behalf. Focusing on fostering relationships and getting everything right when it comes to delivering on promises has worked well for Zespri, according to Mr Arrowsmith.

Working with Dole and other distributors for 15 years, Japan has become a key market for Zespri, which from a total export volume of 100 million trays, exports 16 million trays to Japan. Zespri has achieved its 98 percent market share by “effective trade strategy communication” to its distribution partners in Japan.

"Prices are set at the start of the season - as we don’t want customers competing amongst each other - and thereafter discussions focus on how best to promote product in the market."

Over nine years Zespri has invested NZ$89.4 million with a promotional spend peaking at 15 percent of net sales, in order to build a market for Zespri Gold, of which Zespri exports 7.5 million trays, amounting to 20 percent of total export volumes. Zespri is targeting 95 percent growth in three years to 2011/2012 NZ$ 290 million (FOB) or 24 percent of total exports.

Secret of success is to manage people and relationships - sometimes involving cementing relationships at karaoke bars – and to deliver on expectations and not to disappoint. Quality checks and robust systems to sort out problems are important segregating best-tasting kiwifruit and sending those to Japan. It is necessary to spend more on Japanese market which has higher costs associated with better packaging Japanese consumers expect and more refined grading systems required by buyers.

When it comes to human resources for the Japanese operation Mr Arrowsmith says “a blend of Japanese speaking Kiwis and local people seems to work.”

Future Business Counterparts Programme 2009

The seminar concluded with a presentation from Tiffany Leeder of the University of Auckland’s Icehouse who participated in the 2009 Future Business Counterparts (FBC) programme. Initiated in 2008, the ten day study-trip to Japan for 50 promising New Zealand business people is paid for by the Japanese government. It involves briefings on important aspects of Japanese commerce and industry from government agencies and well known corporations, such as Toyota. Ms Leeder urged businesses considering the Japanese market “to experience and get to know [Japan’s] culture, to collaborate and communicate with others, and to leverage contacts, networks and support infrastructure.

Ms Leeder emphasised the value of relationships, investing in long-term partnerships and advocating for Japan as a market for New Zealand products. Finally she emphasised the importance of encouraging each other and persevering at accessing the market opportunities.

FBC participants intend to meet periodically in order to hold the group together as alumni, preserve the sense of momentum and maintain relationships among those perusing business ventures in Japan. Anthony Bruford, managing director of Aozora, an exporter of fresh produce and wine to Japan, concluded the presentation with the observation that “success in the Japanese market will require building a New Zealand Inc approach and collaborating to meet the market.” Mr Bruford has volunteered to help the FBC members to organise the alumni association. He can be reached by email. abruford@aozora.co.nz

Page uploaded July 2009