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Japan serves up market for sophisticated product and service categories

By: Debbie Howard

I am sometimes asked to explain why Japan is still a relevant Asian market for foreign multinational companies to consider in light of the rapid uptake of markets such as China and India.

The fact of the matter is that when foreign multinationals are considering their “Asia strategies,” it is not simply a matter of “choosing” between Japan vs. China vs. India (or any other Asian market, for that matter). Instead, it is a matter of starting with what you are aiming to sell, and taking it from there.

In particular, for products and services that have evolved to serve developed markets (i.e., financial investment products, advanced pharmaceuticals and medical devices, and high tech to name just a few), it may be more relevant to consider the spending power of an individual consumer — not necessarily the raw number of people in a given market.

For example, the CIA World Fact Book estimated that the 2006 GDP (PPP) per capita in Japan was US$33,100, compared to only US$7,800 for China. In fact, Japanese consumers are among the most well-heeled and sophisticated in the world, with consumer spending in Japan reportedly accounting for 11% of the global economy. Today’s Japanese consumer is also more diverse and more open-minded than in the past, creating new opportunities for foreign multinational companies.

According to the Japan External Trade Organization (JETRO), Japan is characterized by a rising demand for a far more robust, efficient and diverse service sector, which accounts for almost 70% of the Japanese economy, whether measured in terms of GDP or employment. The same JETRO study cites opportunities for foreign companies to supply services that improve the productivity and efficiency of Japanese service providers (i.e., data gathering, software and IT consulting, etc.). Opportunities also exist for foreign banks, hedge funds and private equity funds to offer a multitude of investment products to the Japanese market.

It is also important to keep in mind that Japan remains the world’s second-largest economy (real GDP of 551.7 trillion yen in 2006), with virtually every Fortune 500 company conducting business in or with Japan. In 2004, 17 U.S. companies were among the top 250 companies in Japan based on taxable income; according to the most recent 2007 data, there are currently 3,308 foreign-affiliated firms in Japan, 1,464 of these being medium- to large-sized firms.

And, as we all know, Japan is on the rise again having recently emerged from an extended period of economic stagnation and currently experiencing the longest expansion in post-war history, with output growing between 2 and 3% in 2006 and 2007.

It stands to reason that any company marketing relatively sophisticated products and services would want to consider Japan a critical part of its Asia strategy. This has become even truer as Japan’s economy has become increasingly integrated with that of Asia, since Japan actually can serve as a good “jumping off point” for approaching other Asian markets. I do not see that trend changing any time soon.

Debbie Howard is President of Japan Market Resource Network and Chairman of the American Chamber of Commerce in Japan.

Originally Published in Nikkei Weekly, 29th October 2007

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