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

Japan has a “high-context” society: relationships trump transactions

by Gerhard Fasol

Japan business relationships: Relationships matter for business in Japan

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.

Japan business relationships: Plan your business relationships in Japan

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.

Transactions vs relationships

Business in Japan tends to be relationship based, while business in Europe and especially Anglo-Saxon countries tends to be transaction based.

Japan business relationships: You may misunderstand the situation

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.

The “Wagen-san” – Suzuki divorce: a striking example of misunderstandings, miscommunication and failed relationships

There are many examples of such miscommunication, and one of the most dramatic examples is the failed and recently dissolved Volkswagen-Suzuki relationship.

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

Mergers and acquisitions

  1. M&A process
  2. Understand the industry: research
  3. Find and approach partners
  4. Build cooperation
  5. Stakeholders
  6. Due diligence
  7. Finance
  8. Negotiate and close agreements
  9. Post merger

Industrial group bonds matter: you often need to understand keiretsu relationships

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.

For traditional Japanese corporations keiretsu relationships may be crucial for business

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.

Download Gerhard Fasol’s lecture slides at Stanford University: “New opportunities vs old mistakes – foreign companies in Japan’s high-tech markets”

Japan business: how to succeed? Detailed answers:

  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

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