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To decide whether to set up in business in Japan, it is necessary to investigate a large number of many different factors. If for entering of any new market in-depth economic and strategic study is just an important part of preparatory work, in case of entering Japanese market it is indispensable to life. Japanese market differs from others by high prices and severe competition, so working there is either risky or profitable. The deep understanding of characteristics of this market is compulsory condition for positive results.
This paper provides the thorough economic and strategic investigation, which covers:
Market size research
Choosing the most suitable strategy for entering the market
II Market Success Analysis
Estimation of market size is an essential step when you calculate market share of a business and its competitors.
Every year Japan imports more than 130 millions cubic metre of wood, and the need in wood steadily grows. One more company that imports wood will be a real salvation. (Tokarev, 2008, p. 379-392)
Whatever market niche I take up, the annual turnover will be at least $400 millions because of the great demand of wood. But I am going to supply Japanese only with high-quality and licensed wood so I can multiply $400m by four or even five.
My company will need both well-educated employees and non-educated laborers. About 25 people will hold a high post (so they must be responsible and qualified workers) and other (about 40-50) people can be labouring men, which will work as loaders, assistance, and so on. Thereby I will create new jobs and decrease the growth of unemployment.
Also I will need such professional services as legal and accounting services, services which provide professional development, and some advertising agencies.
Regulations and procedures
Now in Japan are only 63 goods that are not liberalized for import. Japan does not take a discriminatory liberalization policy.
Wood, raw wood and timber are not included in any restricted category so import of these goods is free. Also timber is a little taxed.
There are no any customs fees or exchange controls for Japan. Moreover, there are no consular fees. Sometimes for selling wood to Japanese, wood (rare wood or wood with superior quality) should be certified or have a license signed by the consul. And this license does not require money. If your wood (rare wood) meets all the requirements described in declaration, you get the license very quickly.
But this would be unreal if you should not pay for import at all. There are imports duties. The rate of duties depends on several factors such as an amount of importing goods, the exporting country (for example if you import wood from Canada the import duties will be higher than if you would import from Russia), and the quality of goods. In general, import duties on wood vary from 5 to 15%. ("Japan's Tariff Schedule".)
All import goods should be accompanied with description and all documents should be translated into Japanese.
Japanese produce high quality goods and they expect import goods be high-quality too.
The main risks I (and everybody importing wood) should take into account are political risks. Increasing of taxes will decrease amount of import goods or make the prices on these goods very high. Also if export taxes in exporting countries will rise, the price on Japanese market will rise too. For example in Russia custom duty on export of wood and timber became very high - 25% and it is not the end. So the price on wood increased on 25% too. If the price increases a little more, it will be unprofitable for Japanese import wood from Russia.
Also there are many laws that preserve the environment. So if some countries decide to use as little wood as it possible, most of companies importing wood will close because of very high taxes and very low demand.
There are also society risks. As I have already said in my first paper, Japanese build many wooden houses. It is because of their traditions, customs and habits. But as the population of Japan (actually not only of Japan, but also of the world) steadily grows, some people can decide that the building of one timber house on a place where could be constructed a skyscraper is a real wasting of land. And - again - the import of wood will dramatically decrease.
II Market Entry Analysis
The choice of a strategy for a company is an essential step. If you want your company to be successful it is beneficial to discuss all advantages and disadvantages of all strategies you may choose for your company.
The three strategies which my company "Woody" can pursue are joint venture strategy, import strategy, and foreign direct investments.
Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". (Carter, 1997, ch. 7)
Also the business (the company proper) is usually situated in a native country of one of partners. For my company this strategy is rather good, but it has ether advantages or disadvantages.
It is difficult to set up in business in foreign country; you need to know all nuances and rules doing business in another country. But if you have a partner from that country (of course I mean a good, reliable person) it is much easier to enter the market. Your partner will know "secret passages" and all necessary information to have a legal successful business;
There are more opportunities in finance point - the capital will be twice as much. If not, then the joint financing is much steadier;
Partners supplement each other therefore they reduce the risk related to doing business; (Carter, 1997, ch. 7)
Partners may have different interests or set different goals connected with business;
One of the partners can turn out irresponsible or even unfair person, and if he/she is the person in whose native country the business is set, his/her knowledge of laws can help this person to misappropriate the whole company. So joint venture increases such risks;
If it will be needed to recover capital, it will be almost impossible; (Carter, 1997, ch. 7)
The collaboration in export-import operations is the only way for a small company to enter the international market. This strategy is also a variant for a large company to enter the international market with a little investment. As a rule, import strategy is only a transitional strategy, the first step to the international business. (Zub, 2008)
The main purpose of my company is to supply Japan with trees that means that I should IMPORT wood, that my company is aimed to import.
So this strategy is the closest strategy to my business, but whether it will be the best?
This strategy is appropriate for any company (either large or small);
It needs little costs;
This strategy helps to supply a country with essential products;
Few risks (Zub, 2008), (Gonzales)
There can be different problems connected with customs inspection;
Bureaucratic procedures in some countries are so much required and take so much time that it can become a really big problem;
If between an importing country and an exporting country suddenly appear disagreements, countries can impose an embargo on import (export). (Zub, 2008), (Gonzales)
Foreign Direct Investments (FDI)
Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin. ("Foreign Direct Investment".)
By making investments you increase production and create new jobs;
If a business in which you invested is successful, you earn money without any difficulties;
FDI also permits the transfer of technologies. (Rubcov, 2002), ("Foreign Direct Investment".)
The risks are very big. If you chose a company which become bankrupt soon, you lose all your money;
You have a little control on a company which you invested in; (Rubcov, 2002), ("Foreign Direct Investment".)
I think the best strategy for my company is joint venture. Japan is a very specific country and it is very difficult for a person who just starts working with Japan to learn and take into account all information you really need when doing business in Japan.
So the main advantages of choosing the joint venture strategy as the strategy of my company are:
As my partner will be Japanese, he/she will have all necessary information about laws, duties, taxes, etc. Also it is much easier to start a business in some country with a person from that country. I mean that all banking operations (establishing the account, cash transfers and so on), tax rolls, and business meeting will be in good hands of my Japanese partner.
The situation with capital is also an advantage. There are two ways: first way is that you double capital and second is that you need half as much money. So if you and your partner both have some amount of money and then decide to open a joint venture, your capital doubles and your opportunities double too. But if you have some money and do not want to invest in business all money, and you want joint venture, you can find a partner who will also invest money in, so the amount of capital invested will be the same, moreover you save some of your money, which you can spend on yourself, or buy shares on, or leave on "evil day".
If you are a native of country A (and still live there) and have a business in country B, there is a great risk due to politics. If between these two countries the relations will become worse, your business can be stopped, your account can be blocked and you may find that you have no rights to have a business in a country B, being lived in a country A. But having a partner from country B greatly decreases a risk of such a situation.
You and your partner will supplement each other. For example, you will have money, and he/she - connections. You - goods, and he/she - the ways of selling these goods, and so on. So I can find a Japanese partner, who owns a building company and offer him/her to joint our businesses. Hereby, my company will import wood and his/her company will build wooden houses (demand on which is very high).
IV Market Entry Implementation Strategy
"The fastest, easiest and safest wealth-building strategy in the world".
Jay Abraham about joint ventures
No matter what strategy for what company you chose, you always have to follow some rules. The steps which should be taken to implement the joint venture strategy and to enter the market successfully are next:
To work out the long-range goal of business. By defining the goals in advance, the company outlines scan points, which will be used in the future for estimating a progress of business.
To work out a common target. It happens that the future of a company of which one partner is dreaming absolutely differs from the future which another partner dreams of. It is impossible to do business successfully without understanding of partner's goals. So it is beneficial to develop a clear business plan where should be objectives and goals, investments of every partner, etc.
To work out a plan of a project's implementation. This plan includes concrete operations of how to solve each problem. It also consists of privileges and duties and amount of capital invested by every partner. This plan usually resolves all differences between business partners.
To work out the "exit strategy". This strategy should be prepared very carefully. Everybody should remember that the best partners are the partners, who carry out commitments before and after the collaboration. The exit strategy should include exit conditions from joint venture. Such contracts decrease the disagreements and conflicts at a later date. ("How to create successfully joint ventures".)
It is very important for partners not to think "how I can derive much benefit". Partners will not realize an expected profit playing a lone hand. Joint ventures should be carefully planned and partners should be "from the same side of the barricade".
Japanese do not have as much wood as they need, so the demand in imported wood is great. It increases with the growth of population. The risks are small, and the joint venture strategy, which my company is going to pursue, gives many opportunities to enter the market successfully. So I think that till business is not only a way of making money it will be successful. My business is a mix of business and the way of helping a country which does not have as many resources as it wants to use. I am sure that in my case the end justifies the means.