Japanese Market Entry in 2022 – A Crash Course for Inbound Businesses

Posted By Jim Kersey

For companies considering international expansion, there’s an understandable temptation to focus on markets that are geographically and culturally close.

Yet, while the task of bringing your brand and products to Japanese consumers may not be as simple as expanding to a neighboring country, the nation presents incredible opportunities for those bold enough to make this move.

In this post, we offer a crash course for businesses considering the challenging yet fruitful task of Japanese market entry in 2022.

Table of Contents

  • Japanese Market Overview for 2022
  • Booming Sectors in Japan
  • Choosing How to Enter Japan in 2022 — Entry Strategies Explained
  • The Importance of Localization in Japanese Market Entry
  • Questions to Ask Yourself when Planning Your Entry Strategy
  • Hiring Local Staff in 2022
  • Finding the Right Local Partners
  • Getting Started

Japanese Market Overview for 2022

  • After the United States and China, Japan has the third-largest economy
  • There is strong consumer demand here for foreign products and significant purchasing power among the population
  • Japan has the third-largest (and one of the fastest-growing) ecommerce sectors, connecting brands with millions of digitally savvy Japanese consumers
  • The nation offers an ideal foothold in the APAC region from which to expand to the wider Asian market, due to the nation’s position as a trend-setter across multiple retail categories
  • Japan has the second-highest R&D spend in the world at 3.4% of world GDP
  • Consumers have a strong appetite for modern technology, premium products, and popular international brands

Demographic Highlights

Japan has a declining birth rate and a rapidly ageing population, presenting certain economic challenges for the country, but this also presents clear opportunities for businesses who are able to cater to the needs of older citizens through suitable products and services.

According to Santander’s foreign investment profile for Japan, medical equipment, pharmaceutical products, biotechnology, safety equipment, and dietary supplements are among the key areas of opportunity within the national economy.

0-14 years 12.49%
15-24 years 9.47%
25-54 years 36.8%
55-64 years 12.06%
65 years and over 29.18%

Source: CIA World Factbook

Top 10 Most Populous Cities in Japan (2022)

Tokyo landscape for businesses engaged in Japanese market entry 2022

One-third of the national population resides in and around Tokyo, which has over 8 million residents. Most major cities provide reliable infrastructure and a burgeoning consumer population with a high ratio of high-income consumers compared to many other Asian countries.

Tokyo 8,336,599
Yokohama 3,574,443
Osaka 2,592,413
Nagoya 2,191,279
Sapporo 1,883,027
Kobe 1,528,478
Kyoto 1,459,640
Fukuoka 1,392,289
Kawasaki 1,306,785
Saitama 1,193,350

Source: World Population Review

Investment Profile

As the fourth largest importer of US products after Canada, Mexico, and China, Japan has exhibited a substantial appetite for foreign brands.

Although Foreign Direct Investment (FDI) investment compared with other developed nations is generally low, Japan is actively trying to welcome new foreign businesses with a collection of policies and incentives backed by the government’s pro-global business stance.

These changes are supported by a stable political system and complex yet clearly defined legal protections for businesses and intellectual property.

Ecommerce Market Highlights

The majority of brands eyeing up the Japanese market are interested in the potential the country offers as the third largest ecommerce market in the world after China and the US. Revenue is expected to show an annual growth rate of 6.5% between 2020 and 2025, resulting in a projected market volume of US$143,279m by 2025.

Year Revenue in million US$
2017 72,647
2018 80,729
2019 88,110
2020 104,639
2021 112,465
2022 120,292
2023 128,054
2024 135,666
2025 143,279

Source: Statista

What Do Consumers Buy Online?

Lady putting on makeup – key sector for Japanese market entry 2022

Product Type % of Shoppers
Groceries 31
Electronics 24
Beauty & personal care 19
Clothing/shoes 18
Household products 14
Luxury 12
Alcohol 10
Home & furniture 10
Medicine & healthcare 9
Financial products 9

Source: GWI

Japanese Cultural Tendencies

While certain cultural tendencies will make it harder for brands to gain initial traction in Japan (e.g. high ‘uncertainty avoidance’), other consumer characteristics also make long-term profitability more achievable. For instance ‘long term orientation’ which often translates to much higher customer loyalty levels than are found in other markets is no small thing.

Uncertainty Avoidance 92
Power Distance 54
Individualism 46
Masculinity 95
Long Term Orientation 88
Indulgence 42

Source: Hofstede Insights Country Comparisons

Post-Pandemic Trends

The pandemic still continues to dictate certain realities in the Japanese market, having both negative and positive consequences for both businesses and the population.

  • Many are still worried about shopping or eating in public places, forcing people to spend more time at home and perform their essential shopping tasks online.
  • Social media usage has increased overall as many look to various platforms as a source of news and way to connect with others.
  • More seniors have taken to social media, compelling many brands to target older demographics through platforms like Facebook in a way they weren’t able to before.

Want to Learn More About the Impact of Covid-19 On Japanese Social Media?

Booming Sectors in Japan

Child playing on gaming device representing booming sector in Japanese market entry 2022

Gaming After only China and the US, Japan has the third-largest games market estimated at $21.78B and is made up of 75.62M players, according to Newzoo. The country is home to many of the biggest (and oldest) gaming companies in the world like SEGA, Konami, Namco and of course, Nintendo, which continue to thrive here.
Retail Japan is the third-largest ecommerce market in the world with much of the population enjoying the convenience of online shopping on both population C2C and B2C platforms.
Automotive As well as being the world’s biggest producer of cars, it is the fourth largest automotive market globally in terms of new car registrations and is home to one of the largest markets for automotive parts, technology, and expertise.
Healthcare Japan is the world’s second-largest market for both healthcare and medical devices, with nearly 45% of medical devices being imported. The overall health technology market was forecast to increase to approximately 270 billion yen by fiscal 2026, encompassing hardware, software, and services used for health, medical, and nursing care.
Information Technology Japan’s IT sector is strong. And for the nation to keep developing its economy as the population declines, many are looking to tech and software solutions to improve the usefulness and effectiveness of its workforce.
Electronics Almost a quarter of the world’s high-tech products are made in Japan, but there is also strong domestic demand for electronics from abroad — with consumers embracing innovation in design and technology.
Tourism Tourism has not yet returned to normal in Japan which only recently announced it would open its borders to visitors since the pandemic started. However, as one of the most visited destinations on the planet, most predict it won’t be long until tourists flock to the nation’s most attractive locations — renewing opportunities for businesses who serve this sector.

If you’re currently still trying to figure out whether your business will do well in Japan, we’d recommend taking a look at our blog: Japan Market Analysis – Intelligent Insights to Guide Your Market Entry Process

Choosing How to Enter Japan in 2022 — Entry Strategies Explained

Company offices for Japanese market entry 2022

There are several ways to enter the Japanese market. Some opt for more indirect methods at first while others are keen to build a strong physical presence and establish brand new offices in places like Tokyo.

Company Incorporation in Japan

There are a few different ways companies can register themselves officially in Japan. While this a major commitment compared to some of the other options in the table below, it can often make the difference when striving for long-term success here.

  • Establishing a representative office — a representative office creates a location for carrying out limited business operations within Japan, such as advertising and market research.
  • Establishing a branch office — the Japanese government considers branch offices as a ‘semi-foreign company’ where all financial transactions are the responsibility of the parent company (rather than having its own legal corporate status)
  • Establishing a wholly-owned subsidiary — a subsidiary company requires registration with the Legal Affairs Bureau and the submission of key business documents. The result of this process is the creation of a completely separate corporation, which will then be liable to local laws and regulations independently of the parent company.

HB Pro Tip: Each of these methods requires careful planning and the mapping out of your long-term goals as a business. Japanese advisors and consultants are a good move for businesses who are unsure about the method that will offer the most benefit to them now and in the future.

Other Ways to Enter Japan in 2022

Distributorship Foreign businesses can first start by working with distributors to get their products in front of Japanese consumers — if they want to limit their initial investment burden.

This will involve finding a reliable partner whose goals align with your own. Through the expertise and resources they are able to offer, it can be possible to grow your brand presence quickly until the point you decide to establish a more permanent presence in-country.

License agreement This model involves a Japanese company acquiring the rights to develop and sell your product or services in the Japanese market. Many international brands including Burberry have adopted this model in the past.
Joint ventures Collaborating closely with a Japanese company may be the safest way to engage in Japanese market entry, given the opportunity to tap into resources, knowledge, and expertise.

However, success depends on having strong partners, balanced contribution, and fast and efficient integration of work processes. It is perhaps also the method that puts the most strain on potential cultural differences.

Cross border selling It’s possible to simply sell your products online in Japan on one of the country’s many popular platforms like Rakuten or Amazon Japan.

This may not require you to work directly with any Japanese partner, but it can help to have guidance and support when getting started, as well as help with local language support and Japanese customer services. And keep in mind that certain platforms will require you to set up a local bank account.

Learn How to Get Into Japanese Ecommerce!

The Importance of Localization in Japanese Market Entry

Local staff hired for Japanese market entry 2022

Many brands have failed to find the kind of success they hoped for in the Japanese market. And one of the reasons for this is a lack of localization both at a brand level and in the execution of creative output used in marketing and advertising initiatives.

Not only is Japanese a unique language that does not directly translate from English, but one can’t assume the preferences and behaviors will match up with global trends. Anything from social media platform behavior to what people look for in products could be different. For instance, Japan is one of the only countries where Twitter is more popular than Facebook and LINE is the top SNS app among its population.

Whether you are localizing your actual brand and products or just your marketing, you’ll need a team of Japanese native speakers to be involved in the process at some point. Without this, the chance of misrepresenting yourself and not building the right sense of credibility and integrity in the Japanese market increases massively.

Questions to Ask Yourself when Planning Your Entry Strategy

What are my brand’s weaknesses? A weakness could be the way your products are packaged to the name of your actual brand. English words spoken by Japanese people can sometimes sound strange and negative and numerous brands have adapted their names slightly to make a better impression on the local audience.
Is my product suitable for Japanese consumers? Is your product solving the needs of real Japanese people? Or, is your value proposition centered on what Japanese shoppers value the most, rather than what people in your home market value about your products? Some cursory market research will help you understand what your product offers to the local market and how you should organize your messaging to put your best foot forward.
What does the competitor landscape look like? Japanese customers are typically more loyal to brands and services than consumers in other nations, meaning it can be hard to poach them once they’ve established a relationship with a competitor.

Hiring Local Staff In 2022

Team of creatives hired for Japanese market entry 2022

If you’re establishing a local office, there are a number of ways to access talent in Japan. Several companies exist in the Japanese market entry space to support new businesses with recruitment as they set up. However, you must be considerate about the potential lack of skills for specialized roles (especially if you require bilingual language capabilities).

For instance, we’ve found it can be more difficult to hire the right kind of digital marketing talent in Japan and some companies, rather than building a brand new department in-house, prefer to outsource this side of things or hire professionals from outside of the country on a remote work basis.

Whatever you do, always be mindful of Japanese labor laws and how they will impact your organization. A Labor and Social Insurance Attorney can be helpful during your hiring period — ensuring you’re 100% compliant with local regulations.

Finding the Right Local Partners

Going it alone is tough in Japan. And while finding the right support during your market entry strategy isn’t easy either, having a local partner is a priceless component when tackling many of the natural challenges that will come your way as you try to build presence and scale.

When considering partner companies within a Joint Venture Agreement, or Distributorship, a few things you might want to look for are:

  • Clear financial resources and backing
  • Specialized knowledge and experience with the local market
  • An existing network of sales channels and infrastructure
  • A good reputation in the market
  • The willingness to be patient while you learn more about your new market
  • The risk of a partner turning into a future competitor

Need a Partner?

We Might be Able to Help!

Getting Started

If you need help with creating a roadmap for your Japanese market entry in 2022 and specifically how to build a marketing and advertising strategy that will support your goals as you first try to grow your presence here, we’d love to hear from you!

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