A superior product isn't enough to succeed in Japan. You need to becomea dynamic presence in the marketplace as well
From Perry to Pearl Harbor and now to the era of the Yawning Trade Surplus, Japan has presented a forbidding face to Western culture. For the American, trying to do business there in the past two decades has been tough -- closed markets, dumped goods, and bootlegged trade secrets. Better perhaps not to mess with Japan, no matter how fruitful the market appears, no matter what the experts and your gut are telling you about a rapidly globalizing economy.
That's a dangerous way of thinking, says Donald M. Spero, a founder and president of Fusion Systems Corp. The Rockville, Md., company makes sophisticated industrial equipment used to produce an array of goods, including optical fibers, automobile parts, graphic-arts printing plates, and semiconductor chips. Any U.S. technology-based company, no matter how small, says Spero, should consider doing business overseas, particularly in Japan.
"Increasingly, the most demanding customers are not in the United States. A lot of the shots are being called in Japan," says Spero. "Our business is market driven. If we are unable to sell to the leading customers, then we're not really in the business."
Fusion Systems has been in the Japanese market since 1975, four years after its founding by Spero and four colleagues. That first year Fusion ventured overseas, the company had all of 15 employees and sales of $450,000.
Fusion, with 320 employees, had sales of $33 million in 1989. It has grown over the past five years at a compound annual rate of 25%. A steadily increasing share of the business -- now 35% -- comes from offshore, half of that from Japan. Currently, the company's shares of the Japanese market for each of its three major lines of business range from 30% to 90%. How has Fusion, no Fortune 500 behemoth, made such inroads on terra so incognita?
In the most basic sense it has accomplished that simply by being there. "We've spent a lot of time and attention getting to know our customers, getting to know our distributor," says Spero. "We've spent a lot of money on travel to Japan, on communications, and on demonstrating the equipment." Spero has done everything in his power short of gunboat diplomacy to insinuate his company into the Japanese marketplace.
More specifically, Fusion's Japan strategy can be distilled to four moves the company has made to carve out and secure a niche in the Japanese market:
* Start with a proprietary product. Having a proprietary product, believes Spero, is the sine qua non for a technology company doing business in Japan. This provides the necessary wedge into an otherwise closed market. "We start off with unique technologies that provide significant benefits to the end-user," says David Harbourne, a Fusion vice-president and manager of its core business, equipment that uses ultraviolet radiation to cure and dry paints, inks, and adhesives on manufactured products. "We don't sell me-too products."
Fusion couldn't do business in Japan without a superior product, because the Japanese are the world's most demanding customers, says Harbourne. They want the best. Give it to them, though, and they will buy it. Fusion has backed up its technology with 60 patents, granted or pending.
* Provide a lot of service and support. Because of its small size when it first went to Japan, Fusion lacked the resources to hire its own sales staff there. It had to rely on a Japanese distributor. "We knew we couldn't just hire a trade house that would buy and resell our product," says Harbourne. "We can always teach a distributor how to sell our product, but if it doesn't have strong service, we can't do much about that. Our philosophy at Fusion is to look for strong service organizations that have a lot of after-sales support."
Harbourne says Fusion's Japanese customers routinely call, asking to have light bulbs in their equipment replaced, a task hardly more complex than changing a household light bulb. "The Japanese customer won't do it," says Harbourne. "He fully expects to pay for the service, but he also expects the serviceman to come right over. As a result, we guarantee our products for the tiniest of defects."
* Let customers into the plant. To strengthen its bond with its finicky Japanese customers, Fusion has opened itself to scrutiny as a gesture of good faith -- and good business. Says Harbourne: "We are prepared to let our customers come in here and look at our production processes and tell us what they don't like. Our biggest customer came here [to Rockville] and spent a week critiquing the manufacturing and quality control areas. As a result of that visit, we have a terrific product. It helped us improve it. So our American customers benefited from the higher product quality that has resulted from our doing business in Japan."
* Open an office in Japan and hire the Japanese. In 1983 and 1986, to complement its ultraviolet curing business, Fusion Systems started two new product lines. The first was equipment to be used in the fabrication of semiconductor wafers. The other was production equipment for the printing, film, and graphic-arts industries.
Because its products were growing more diverse, more complex, and more customized to the needs of individual customers, the company realized it had to be in Japan in an even bigger way. In 1986 Fusion Systems opened its own office in Japan to augment and improve the service and support supplied by its distributor. This office would be staffed by Japanese nationals who could see to the specific needs of customers more effectively than a distributor could. Fusion Japan K.K. now has 12 employees, all Japanese. "The Japanese like to deal with other Japanese," says Harbourne. "They relay our customers' desires to us in a way we can understand."
Fusion was able to hire some key people from its Japanese distributor, but that was not without difficulty. "It was only a few years later that I realized how traumatic an experience it was for them. Our employees went from a large Japanese company to a three-man American company." Fusion's Japanese employees and their families found themselves shunned. "The neighbors stopped talking to them and their wives." On top of that, adds Harbourne, there is little prospect of Fusion's Japanese employees going back to their large Japanese employers and getting senior positions.
Recently, Fusion sought to hire a Japanese semiconductor process engineer who would travel frequently between Rockville and Japan to work closely with the company's Japanese semiconductor customers. Unable to find the right person, Fusion had to settle for an American. That frustrated John Matthews, the Fusion vice-president who heads its semiconductor subsidiary. It served as a reminder that Fusion will probably never be a true insider in Japan.
"One way or another we have to gain admittance to the Japan club," says Matthews. "I'm convinced we need to be there, no matter what. The Japanese customer is won on the basis of good products that are well designed and well supported."
Fusion Systems has grown used to fighting the odds in Japan. The company, whose very foundation is its ability to exploit proprietary technology, now finds itself under siege from the mammoth Mitsubishi Electric Co. Mitsubishi has flooded the patent office in Japan with applications for products Spero claims incorporate elements copied directly from a Fusion product that Mitsubishi had previously purchased or are trivial variations on Fusion's technology. Fusion has fought back in the Japanese patent office and by taking its case to trade officials in Washington.
Spero says his company is not about to retreat in the face of such muscle-bound competition. In fact, that would be precisely the wrong thing to do. "The Japanese respect companies that stand up for themselves. They respect power," says Spero. "They are used to dealing with power, and they use it effectively."
Spero regards taking the Japanese on as simply part of the price his company must pay to be able to compete in one of the world's toughest -- and best -- markets. The United States, he believes, must wake up to the fact that at every level -- in every industry -- it must compete on a global scale. "It's an illusion to think that you will survive by just doing business here in the United States. That sort of insular view will kill you.
"It [Japan] is a great place to do business, but it's also hard work," Spero continues. "It's a tough test, but you have to pass that test."
When it comes to Japan, Don Spero knows he has to be there. Otherwise, he believes, his company will end up being nowhere at all.
How to minimize your risk
If you want to get into the Japanese market, but your company's lifeblood is proprietary technology, better go with your guard up, advises Donald M. Spero. Here are some guidelines:
* Be aware that the U.S. and Japanese patent systems are fundamentally different. When patents are applied for in the United States, they remain secret until they are granted. When patents are applied for in Japan, they are made public 18 months after a filing, but they are often not granted until four to six years later. "The U.S. system protects trade secrets," says Spero. "The Japanese system exposes them."
* Establish patent and general legal advice in Japan. It's hard to find good attorneys there who are sufficiently aggressive for their U.S. clients, says Spero. There's no surefire way. But perhaps the best way is to find a foreign company that has been in Japan for a while that has hired Japanese counsel in these matters.
* Don't file patents in Japan unless you intend to exploit the Japanese market aggressively. "If you just file a patent and it sits there, it becomes more of a liability than an asset," says Spero. "You've put up a billboard that says, This is what I've invented. There's no point in taking that risk unless you've coupled it with an aggressive strategy for sales and service in that market."