Japan business relationships: Japan’s business communities traditionally prioritize long term relationships over naked transactions

Japan business relationships: Relationships are important in every country, and even more so in a “high context” country as Japan. You need to build relationships, take care of your relationships, understand why and with whom you build relationships, and avoid certain kind of relationships. You also need to understand the network of relationships which your partners and competitors work under.

You need to carefully plan your relationships in Japan, and you need to understand your relationships. You need to be aware, that relationships in Japan are seldom defined by legal contracts alone, you need to work on your relationships and take care of them.

Business in Japan tends to be relationship based, while business in Europe and especially Anglo-Saxon countries tends to be transaction based (at least generally speaking).

.

You need to be aware that, as anywhere else, your business partners in Japan will not tell you everything they know and everything they think and feel and plan for the future. In that regard Japan is really not that different from other countries. However, in your own country it will be easier for you to make guesses about what your partner could think and feel, while in Japan this might be more difficult for you.

There are many examples, even in this day and age, where Western top management returns from negotiations with Japanese partners, celebrating success, while two days later the same misunderstood relationship breaks up. There are many cases where the Western side view and the Japanese side view of one and the same partnership are dramatically different, and one or both sides do not even know about this difference. Be warned, and do your homework.

There are many examples of such miscommunication, and one of the most dramatic examples is the failed and recently dissolved Volkswagen-Suzuki relationship. (In his Japanese language Nikkei-blog Suzuki Motors Chairman Osamu Suzuki called Volkswagen by the nickname “Wagen-san”)

The attempted Volkswagen-Suzuki partnership did not fail because of “cultural differences”, but for many other reasons, explained here (the first two articles were written before Volkswagen’s Diesel issues became known):

• “Mr. Suzuki didn’t want to be a Volkswagen employee, and that’s understandable”
• Suzuki Volkswagen “Wagen-san” divorce: a teachable moment
• Was Osamu Suzuki first to understand Volkswagen’s Diesel issues? Osamu Suzuki: “we looked at Wagen’s technologies, and could not find anything we need” (Nikkei, 1 July 2011)

Traditional big industry in Japan tends to be organized and structured in historically grown industry groups. These used to be called “Zaibatsu” (= financial groups), and today these groups are usually called “Keiretsu” (= industrial groups). Until recently there were six such large groups, each grouped around a large bank and a large trading company at the center with a large number of companies in many different areas ranging from transportation, ship building, cars and electricals to insurances and department stores and beer factories. Recent bank mergers and other economic difficulties mean that the importance of these Keiretsu has somewhat decreased, but Keiretsu relationships are still enormously important in Japanese business and economy. For many foreign companies it is essential to understand the Keiretsu structure and to plan your business taking account of this knowledge.

We have detailed mappings and explanations of Japan’s keiretsu groups in our market research data base.

Traditionally companies will only do business within the same keiretsu. For example, a keiretsu member will buy beer from the beer company within　the keiretsu, even if that beer is more expensive than non-keiretsu beer. They will buy their copy machines from the keiretsu copy machine maker, and their elevators from the keiretsu elevator company, and their cars from the keiretsu car company etc.

Of course such traditional business practices are opposite to procurement of the lowest priced offer by competitive bidding.

In today’s Japan you will find both competitive bidding, and other cases where traditional relations take priority over achieving the best price.

1. Why can business in Japan be difficult?
2. Changes and new opportunities
3. Avoid well known mistakes
4. What can we do about the difficulties of Japan business?
5. Relationships
6. Japanese business etiquette
7. Japanese business meetings

.