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SPECIAL
Saturday, Feb. 4, 2006


Report on Japan

The 'ultimate challenge,' the ultimate reward

The initial headaches are painful, but worth the payoff for doing business in this lucrative market, GEOFFREY YORK writes

TOKYO -- When he launched his education business in Tokyo a few years ago, it took four months for James Yellowlees to solve the bureaucratic obstacles that would have needed only a few days in Canada.

Even after finishing the paperwork to register his company, he struggled for another month with regulations at his Japanese bank when he tried to get money transferred here from abroad.

"Everywhere you turn, there are mounds of documents and regulations," said Mr. Yellowlees, a 47-year-old business consultant and education entrepreneur from Toronto who has lived in Japan for two decades. "It's still a very socialistic system. When you set up a company here, the taxes and waiting periods are unbelievable."

Yet despite the bureaucratic complexities, he doesn't regret for a moment his investments in Japan, which have produced growing revenue and profits in recent years. His latest venture is a $500,000 (U.S.) investment in a LEGO Education Centre for children in Tokyo. His company plans to open a dozen of the centres in the next two years.

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"Japan is a tremendous market," he says. "This is still the second largest economy in the world, it's still the economic giant of Asia. It's 130 million people and they all have money to spend. This is a sophisticated premium market."

For him, and for many other Canadian investors, the frustrations of Japan are easily outweighed by the long-term rewards of doing business here.

"Japan is the ultimate challenge," Mr. Yellowlees says. "If you can compete on this stage, you can compete anywhere. If any Canadian company wants to be a player in the world, it has to be here."

Hydrogenics Corp., a fuel-cell technology company based in Mississauga, Ont., has found similar challenges and rewards in Japan. After creating an office in Tokyo five years ago, the Canadian company now generates 10 to 25 per cent of its global revenue from Japan.

"It's profitable, but it's a lot of hard work," said Alexandre Beaudet, general manager of the company's Japan office. "The business culture here is very document-oriented and detail-oriented. Our customers want perfection. They demand twice as much as people in other countries. They want manuals, drawings, production schedules and meeting notes. You sweat over it, but you come out of it stronger."

When it first entered the Japanese market, Hydrogenics sold its products through large Japanese trading companies or sogo shosha -- a unique system that can be both a blessing and a curse.

The trading firms are huge distributors that act as an intermediary between foreign suppliers and Japanese customers. They can be a major asset to a Canadian firm -- providing sales staff, translating catalogues, arranging payments, drawing up contracts and navigating the Japanese bureaucracy -- but they also charge markups of 20 to 40 per cent. And they can be a barrier between a foreign investor and its customers.

"You're forced to deal with trading companies, but it's a small price to pay," Mr. Beaudet says. "The Japanese market is worth it. If you're a leader in your field, you are welcomed in Japan."

While the booming economy of China dominates the headlines in Canada, there are still many more Canadian companies active in Japan than in China.

Canadian investment in Japan has increased significantly in recent years, reaching about $9-billion in 2003, up from $7-billion in 2001.

The most prominent Canadian investor here is probably Manulife Financial Corp., which acquired a major Japanese life insurance company and is now ranked as one of the top 20 foreign employers in Japan.

Japan's complex culture and language, still difficult for outsiders to penetrate, are among the biggest obstacles to doing business here. But Canadian companies have found ways to adapt.

Harlequin Enterprises Ltd., the Toronto-based romance novel publisher, has translated some of its books into manga -- the novel-length comic books that are enormously popular in Japan.

British Columbia forestry companies have hired a famed Sumo wrestler as the pitchman for B.C. hemlock, one of their biggest export products in Japan.

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