Japan currently has the third largest economy in the world, after the U.S. and China. It was valued at $5.2 trillion USD in 2019 and Investopedia estimates it will grow to $5.4 trillion USD in 2020. Japan presents an attractive franchise market for businesses looking to expand their global operations. However, savvy companies know that their business model, operations and marketing collateral must be adapted to the language and culture of the local market.
Below are some areas to be aware of before expanding your franchise into Japan.
Japan has the 11th largest population in the world with 126 million people. The population has been decreasing since 2009, primarily due to the decreasing birth rate. The birth rate is the lowest it has ever been since they began recording the data in 1899.
The government type is a constitutional monarchy. The Emperor of Japan, Naruhito, is the head of the Imperial family and the ceremonial head of state. Under the 1947 constitution, the emperor is “the symbol of the State and of the unity of the people” and has no constitution powers. The Imperial House of Japan is the oldest continuing monarchical house in the world.
Japan’s government is divided into three branches: Legislative, Executive and Judicial. The Cabinet, comprised of the Ministers of State and the Prime Minister, directs and controls the government.
The largest sectors are retail/distributors (30%) and manufacturing (24%). Japan is the 3rd largest automobile manufacturer and has one of the largest electronics industries. Manufacturers are concentrated in the Kanto region surrounding Tokyo, the Kansai region surrounding Osaka and the Tokai region surrounding Nagoya.
The GDP was worth just over $5 trillion USD in 2019.
Transparency International ranks Japan’s transparency index at 13 out of 180 markets with a score of 73 out of 100.
Language and Business Culture
Japanese is the official language of Japan. A few tips about the language include:
- The word order is normally subject-object-verb.
- The Japanese writing system is made up of three scripts:
- Kanji (漢字), which uses Chinese characters.
- Hiragana (ひらがな or 平仮名)
- Katakana (カタカナ or 片仮名)
- The use of numbers is mostly shown as Arabic numbering in conjunction with Chinese numbers.
The traditional form of a greeting is a bow rather than a handshake. Typically, the more respect you want to show, the deeper you bow. Non-verbal communication is crucial in Japan. They often trust non-verbal messages more than the spoken word.
Japanese are non-confrontational. If the request cannot be agreed to, they may say, “it’s inconvenient” or “we’ll consider” instead of answering “no”. So, you need to be vigilant at observing their non-verbal or indirect communication.
It may take several meetings for your Japanese counterparts to become comfortable enough to conduct business with you. Japanese look for a long-term relationship, it is not advisable to refuse a request even if it may appear unprofitable or difficult to achieve.
The U.S.’s franchise business model has heavily influenced how franchises are conducted in Japan. Japanese franchisors then modify, or localize, business plans for the preferences of their local audiences. Everything from how to run the business and manage inventory to customer communication are customized for each region.
Popular franchise chains in Japan include convenience stores like 7-Eleven and general merchandising stores. There are more than 19,000 7-Eleven stores. These have been so successful in part because of their mission to contribute to each neighborhood the stores are in.
The franchising models available in Japan include:
- Wholly owned subsidiary as a master franchisee with a flagship store.
- Joint venture partner to help get established.
- Agreement with a master franchisee.
The laws surrounding franchise businesses in Japan are rather relaxed compared to the United States. Japan has a unique culture that businesses must adapt to, but once you learn and adapt it, there are many franchise business opportunities in Japan.