From “Nemawashi” to “Genba” - 7 tips for startup founders when entering the Japan market

Entering the Japanese market can be a tantalizing prospect for startups. With its robust economy, a strong appetite for innovation, and a unique business culture, Japan offers a wealth of opportunities for those willing to adapt and learn. Why is Japan an attractive market for startups, and what can overseas founders do to make their mark in Japan?

The Allure of the Japanese Market

Japan is the one of the world’s largest economies in the world, boasting a GDP that ranks fourth globally. This immense market size is one of the primary reasons why international startups are keen to enter. However, it’s not just the numbers that attract overseas founders; the landscape is rich with large corporates eager to engage in open innovation. In fact, CVC-backed funding rounds in Japan increased 239% in August 2024 versus a year ago, an increase larger even than in USA, China, or India [1]. This indicates a strong willingness among established companies to collaborate with innovative newcomers.

Moreover, the Japanese government has been proactive in fostering a startup-friendly environment. For example, in its Startup Development Five-Year Plan, it aims to increase the amount invested into start-ups to JPY 10 trillion by March 2028, more than 10 times the amount in 2021 [2]. This combination of market size, corporate appetite for innovation, and government support creates a fertile ground for start-ups.

As such, here are 7 tips on entering the Japan market for overseas start-up founders.

#1. Understand the root of Japanese culture

Decision-making processes in Japan can differ significantly from those in other countries. In traditional Japanese organizations, consensus-building is valued over quick, top-down decisions. This is known as “nemawashi (根回し)”, which literally means “going around the roots”, or preparing the soil before planting the tree.

In the business context, this means that founders may need to identify and involve the key stakeholder, or even stakeholders, at an early stage, and seek their inputs incrementally before a decision can be made.

This may mean navigating a more prolonged (and sometimes murky) decision-making process, which can be frustrating if founders are accustomed to faster-paced environments. However, founders should be patient and invest time in nurturing the relationship for it to eventually bear fruit.

#2. Customize your product for local operations

Japanese corporates often prefer customized solutions that fit in with their existing operations, which they might prefer not to change. The concept of on-the-ground operations is known as “genba (現場)” – literally “the actual or real place” – referring in business to operational sites such as the factory floor. Many of these “genba” have well-established operational processes that have long relied on humans, leading to hesitance in considering new technologies.

As such, founders should be prepared to adapt their offerings in a way that requires minimum operational changes for corporates. While it may be tempting to offer a standardized product, demonstrating flexibility and a willingness to customize can significantly enhance a startup's chances of success. In addition, founders should also show the return on investment of their customized solutions.

#3. Be strategic about which System Integrator (SI) to work with

For startups in the B2B IT space, it is hard to ignore System Integrators (SIs). SIs dominate the IT systems market in Japan, and many traditional corporates outsource their IT systems to be managed by to these firms. While SIs can be seen as competitors to startups, they can also serve as valuable partners. By collaborating with the right SI, startups can integrate their solutions into existing systems and gain access to a broader customer base.

Certain SIs have strong ties to specific sectors as well. Startups should strategically choose their SI partners based on their strengths and target industries.

To gain traction, founders could showcase successful collaborations with other Japanese corporates. Japanese companies tend to be risk-averse, and will perceive a startup to be more credible if it has a track record of working with other Japanese corporates. With this credibility, startups can more easily gain traction with other companies in the market.

Additionally, working with a local partner with established relationships can help to boost the start-up’s credibility. Such partners could include a channel partner, a venture capital firm with local networks, or even the local embassies. Local partners can provide insights into the market, help navigate cultural nuances, and facilitate introductions to potential clients.

#5. Ensure your solution fits with Japan’s laws and regulations

Another critical aspect of entering the Japanese market is understanding the regulatory landscape. Regulations can vary significantly from those in other regions, and startups must ensure that their products or services comply with local laws, such as building codes for start-ups involved in building maintenance or warehousing. Founders should conduct thorough research on relevant regulations and seek local expertise to avoid such pitfalls.

#6. Don’t be late – Respect cultural etiquette

Cultural etiquette plays a significant role in business interactions in Japan. Punctuality is paramount; arriving late to a meeting can be seen as disrespectful. Additionally, it’s advisable to provide at least several weeks' notice to secure appointments with corporate executives.

Language is also a consideration. While many Japanese professionals understand English, some may not speak it fluently. Founders should consider using simple language, speaking slowly, and providing materials that have been translated into Japanese. These efforts can go a long way in building rapport and trust.

#7. Trust goes a long way with Japanese companies

Once a startup gains the trust of a Japanese corporate, it can lead to long-term partnerships. Japanese companies value stability and are less likely to switch vendors frequently. This presents an opportunity for startups to establish enduring relationships that can yield significant benefits over time.

In conclusion, entering the Japanese market is not without its challenges, but the potential rewards are substantial. By understanding the unique business culture, demonstrating a commitment to customization, enhancing credibility through collaboration, and navigating regulations, startup founders can position themselves for success in this dynamic market. Patience and perseverance are essential virtues for those looking to thrive in Japan.

About the Vertex Partnership Group
The Vertex Partnership Group works with leading corporates at the forefront of innovation to explore synergies and partnerships with our portfolio companies.

*If you're interested to find out more, please contact communications@vertexholdings.com *

[1] https://globalventuring.com/corporate/cvc-rounds-japan-india-rise-august-2024/

[2] https://www.jetro.go.jp/en/invest/investment_environment/ijre/report2023/ch3/sec10.html