The Two Big Choices Enterprise Software Companies Make in Opening Japan

For no apparent underlying reason, a lot of the companies I have worked at over the years have been quite successful in Japan.  Thus, while I don’t write about it much, I have a fair bit of experience working with Japanese subsidiaries and/or distributors in the enterprise software market. 

On a recent trip to Tokyo, I met with an old friend who’s lived in Japan for well over a decade and who is now the GM of Japan at a large enterprise software company.  Over a beer, she validated two of my basic beliefs about how enterprise software companies should approach business in Japan and the purpose of this post is to share them.  To be clear, these are my beliefs — not hers — but they at least passed muster during a nice chat with an expert.

Let’s start at the top.  Much as I believe, at the first order, that there is no Europe (only France, England, and so on), I believe that there is no Asia-Pacific:  only Japan, Australia, and so on.  While in the organizational hierarchy, East, West, Central, and Japan might all sit at the same level (sub-regional), there is a world of difference between a US sub-region and a country.  And that world of difference is perhaps no larger than when we’re discussing Japan. 

The odds that an Australian expat running Asia-Pacific out of Singapore can effectively conduct business in Japan are low.  Sure, if they’re an experienced Asia-Pacific leader they’ll have previous exposure to Japan, but that usually means they know much more about how to manage a Japanese operation than they do about how that Japanese operation works on the inside.  Contrast that to how your head of Americas works with the RVP in Chicago – the central region is not a black box at all, and the Americas head absolutely knows how the operation works and how to conduct business within it.  Hierarchically, it’s the same level in the org chart, but there’s a world of difference in the interface.

With that warm-up, let’s cut to the two big choices you have when working in Japan:

• Direct or indirect?
• Insider or outsider as general manager (GM)?

The First Choice:  Direct or Indirect?

The first decision you make in Japan is whether to go direct (i.e., build a subsidiary that markets and sells to customers directly) or to go indirect (i.e., enter the market through signing one or more partners to market and sell your software). 

The default play is to start indirect, but you’ll quickly realize that the Japanese partners are much more demanding than US partners and ergo require much more support.  You can try to support them remotely, but that doesn’t usually work.  Hence, the smart play is to do both – sign a small number of partners to represent you and open a direct office in Japan to support those partners.  The “small number” part is important (and may reduce all the way down to one) because the more partners you work with the less incentive any single partner has to develop the market.  I’d call this model indirect distribution with a high level of local support.  The subtlety is that many people equate “indirect” with “no local presence” and that does not have to be the case.  In fact, the smart play in Japan is to do both.

I’ll make an odd analogy here that should hopefully resonate:  Japan is a lot like Federal.  Wut?  How? 

Well, in Federal:

• You usually distribute indirectly through partners.
• Those partners are often large, somewhat ungainly, organizations.
• Those partners require a lot of support.
• You create a local organization whose primary purpose is to support those partners.
• They speak kind of a different language.
• They generate their own idiosyncratic product requirements.
• The deals can be large, complex, and require a lot of system integration.
• If you half-ass the investment, you’ll probably fail.

I’m always amazed at the similarities between these rather odd bedfellows, but there are indeed many.

Now let’s move to the second big choice.

The Second Choice:  Insider or Outsider GM?

Gaijin means “alien” or “outsider” in Japanese.  You can read the Wikipedia entry for more, but I don’t take it as having a negative connotation.  I believe it’s simply matter of fact:  you’re not from here, you’re not one of us.  Without diving into topics I know little about, let’s just accept that it’s a common word and one used to make an important distinction:  insider or outsider.

And the question for you is:  who do you want running your Japanese operation?

The easiest way to answer this question is to transform it into (what I believe) is a semantic equivalent:  do you want to know anything about what’s going on within your Japanese operation? 

• If yes, hire an outsider.
• If no, hire an insider.

And by outsider, I don’t just mean any outsider.  That “outsider” may speak reasonable Japanese, be married to a Japanese national, and have lived there for 20 years.  But they’re still an outsider.

Put differently again:  do you want your Japanese operation to be a black box?

• If yes, hire an insider.  They might well do a wonderful job building the business.  You just probably won’t understand much about what happens within it.
• If no, hire an outsider.  They will serve as the interface between the Japanese world in which they live and work and the larger world of the company. 

Some would dispute the semantic equivalence of these three questions.  And I’m sure there are exceptions such as insiders who can build the bridge quite well.  I’m just saying I’ve never met one of them, and in my experience, if you can hire the right outsider, you can have your cake and eat it, too – you can build a successful business in Japan without losing visibility into it.

Personally, because I have a strong preference for understanding what’s going on, I’d recommend the outsider GM in most cases.  But decide for yourself.  Just be aware of what you might be deciding, because you’re not just deciding who runs the organization, you’re quite probably deciding your relationship with it.