Japan is the most developed Asian country and offers plenty of growth opportunities for eCommerce companies that wish to enter the market.
The eCommerce market is the third-biggest in the world, ahead of the UK and just behind China and the US. In 2020 alone, it grew by as much as 26%.
The same as for the US, Amazon is a major marketplace but there are also a handful of other options available. In this article, I explain the most important information for foreigners who wish to enter the Japanese eCommerce market.
- Market Entry Strategy
- Japan Market Entry Obstacles
- Market Entry Research
Market Entry Strategy
Entering a market can mean different things and highly depends on your level of involvement.
For instance, while some companies initiate their market entry with marketing and brand enhancements, larger brands might go all-in, trying to capture large sales from day one.
The country you wish to enter will also determine how long the entry process takes. For instance, Japan and China are considered more competitive as the countries are more developed and with stronger purchasing power.
In Southeast Asia, on the other hand, some can get started selling online for as little as a few hundred dollars.
Let’s review the options companies generally have when entering new markets.
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- Selling on Tmall & Lazada
- Logistics & fulfillment options
- Payment gateways
- Incorporation & trademarks
Initial Marketing Campaigns
Initial marketing campaigns aim to build up local brand awareness, or even tell potential buyers that a brand will be launched soon.
I experienced this in Vietnam before Decathlon’s launch where they let Vietnamese students drive bicycles in a row, carrying the Decathlon logo.
You could also notice vast brand promotions and advertisements stating that the first shop would open soon.
Initial marketing campaigns can be managed both offline and online. Typically, companies give away items for free or offer discounts.
Pop-up shops and events are one way of creating brand awareness, by letting the crowd taste food samples in supermarkets, for instance.
Another example can be to hire key-opinion-leaders (KOLs) to advertise the brand, reviewing the products. Visiting trade fairs is also common for companies that want to network and reach a broad audience offline for a few days.
Looking at online marketing campaigns, these are best managed together with local marketing agencies that can help with the translation of materials. They also understand the local audience and how to present the products.
Selling cross-border in Japan requires a bit more effort than other countries as only 10% shop on foreign websites.
It’s well-known that the Japanese prefer to buy from local sellers, something that most likely boils down to cultural reasons and language barriers.
Having said that, you still have the option to sell cross-border on websites like Amazon Japan (more about that later).
My point is that if you plan to attract buyers to your website, you better work with a third party to help you design the store and manage translations.
If you sell on Amazon Japan, for example, you can sell in multiple markets thanks to the Build International Listings tool (BIL).
You can add offers and synchronize prices across the platform. Besides, you don’t necessarily have to use Amazon’s fulfillment and shipping services.
You can either use a separate third-party, Amazon, or a combination of both.
Domestic eCommerce Operation
As mentioned, the Japanese prefer to buy from local sellers and websites. You don’t necessarily have to incorporate in Japan, but can let a local distributor or import agent manage the necessary paperwork and registrations.
If you plan to incorporate it in Japan, I want to highlight that it comes with certain challenges.
A benefit of using a domestic eCommerce setup is that you can sell offline to bricks & mortar stores, as well as on multiple websites. This will give you maximal exposure and penetration in the market.
Larger brands are well-known for taking on this approach, enjoying economies of scale by selling in multiple channels.
Japan Market Entry Obstacles
Entering the Japanese market can be lucrative but also comes with some challenges and barriers, as mentioned.
Not only is it important to understand the five forces as explained by renowned author Michael Porter. Including suppliers’ power, substitutes, and rivalry among existing competitors, for example.
Entry barriers can ultimately determine whether a market is a right choice for you. Below you can find some of the most notable ones.
Sellers are subject to import duties and taxes that vary according to product types and your country of manufacturing.
The VAT is referred to as consumption tax and is mostly set to a flat rate of 10%. The only exception is food, beverages, and newspaper subscriptions where the rate is 8%. The rate of 10% does apply for alcoholic drinks and if you dine outside though.
To learn more about the import duties and rates that apply, I recommend you visit the Japanese Customs website.
Companies that wish to set up a local entity in Japan to import products must allocate a budget for the setup costs. This is something we will cover in greater detail later in the article.
Product Standards & Labeling Requirements
National labeling requirements, certifications, and standards are used in different markets and Japan is not an exception.
Being one of the most developed countries in the world and being renowned for superior management, Japan has a wide array of local quality standards.
Even if Japan and other countries try to harmonize national regulations according to ISO- and other Western standards, there are often some dissimilarities.
While the EU uses the CE mark and the US the FC mark, Japan has its mark called the JIS mark. The JIS mark is needed for products such as textiles, electronics, furniture, office equipment, and tools, for example. The same as for equivalent marks in other countries.
The following agencies should be reviewed for up-to-date information regarding labeling requirements:
- Consumer Affairs Agency (CAA)
- Japan External Trade Organization (JETRO)
20% of products don’t comply with local labeling regulations in Japan. In China, it’s said that as many as 40% of food products are rejected due to non-compliance with local labeling regulations.
Example A: Food Packaging
The CAA is responsible for the labeling of food packaging, something that you can read more about here. Food labels must include, in chronological order, the energy, protein, fat, carbohydrates, and sodium content.
Also, the following nutrients can be declared:
- Nutrients that are voluntarily declared (e.g. minerals and vitamins)
- Nutrients that are recommended to be declared (e.g. saturated fatty acids, dietary fiber
Example B: Clothing Labeling
The Ministry of Economy and International Trade and Industry – METI has listed requirements regarding the type of information needed on clothing labels. The information is generally:
- Care and washing instructions
- Name of manufacturer/supplier or officially registered number with – METI
- Type of fabric, textile yarn content, and percentage of lining, thread, material, etc.
Market Entry Research
Below is an overview of the different points that are important for market entry strategy.
Selecting a suitable marketplace is crucial to assure sales success and flawless deliveries later on. Japan is not the home of as many eCommerce platforms as China.
Rakuten and Amazon are the two most well-known options, while you also have some auction sites available.
Thus Amazon or Rakuten will most likely be at the top of your list.
Items to confirm before choosing a marketplace include the payment options available, the shipping options, if you can even sell cross-border, and more. Product restrictions are equally important to confirm.
Amazon Japan is one of the most popular options for foreign sellers in Japan. The benefit of selling on Amazon is that guides, materials, and support is available in English. As mentioned, you can also clone your store in multiple marketplaces.
Thanks to Fulfillment-By-Amazon (FBA), shippers can use its end-to-end solutions and manage deliveries swiftly to end-consumers.
If you have a Japanese bank account, Amazon can credit your account directly locally. But it’s not necessary. They can also convert revenues in Japanese Yen to your bank account overseas, in your local currency.
Rakuten was launched as early as 1997 and is the most famous eCommerce website in Japan.
The company is the sponsor of Barcelona FC and has been so for a few years. Even though Rakuten has been around for a while, it started to take off in 2005 thanks to mergers and acquisitions in Japan.
It’s one of the largest marketplaces in the world with around USD 75 billion in revenues. Examples of awards won by the company in recent years include:
- Forbes Top Regarded Companies 2019
- Forbes World’s Most Innovative Companies 2017
Rakuten accepts both local and cross-border sellers. To read more, I recommend you read this article where I list some of the top eCommerce websites in Japan.
When you create a market entry plan, you have to estimate the setup costs, to understand your financial burden.
The setup costs can be substantial as this will typically include many marketing activities, incorporation, and initial market analysis by third parties.
The following costs should be included at a minimum:
- Trademark registration fees
- Market analysis
- Marketing fees
- Costs to eCommerce agencies
- Deposits to fulfillment centers and related partners
- Registrations and inspections
Competitor Cost Analysis Research
Before selecting a website, you must analyze each website and confirm what option is best. As mentioned, Rakuten and Amazon Japan are undoubtedly two of the most popular options and easy to navigate.
By conducting competitor analysis, you better understand the profit margins and competition in the market. You can make a basic price analysis by checking competitors’ products in supermarkets or on the mentioned websites.
For more in-depth analysis, I recommend you either hire a third party or conduct research on your own.
Shipping & Logistics
Selling cross-border or on domestic eCommerce, marketplaces will determine what shipping option to use. If you import the products to Japan and sell them locally, the preferable option is to ship them in bulk and store them in a local fulfillment center.
Cross-border sellers can store their products in a bonded warehouse in Japan, or manage deliveries from a fulfillment center in Hong Kong, for example. As mentioned, Amazon offers fulfillment capabilities in-house that are widely used among merchants.
By incorporating in Japan, you can build up a strong local brand presence and reduce the need for third parties, such as import agents.
You can set up your own warehouse facilities and hire staff locally. Joint-stock companies and limited liability companies are preferred corporate forms.
Opening a company in Japan requires the following:
- Securing a resident Representative Director
- Have a local bank account
- Articles of Incorporation (how the company will be managed)
- Notarization of the articles of incorporation
- Deposit of capital
- Documents for company registration
- Apply for the company registration
- Tax and social insurance
The following documents are needed for corporations:
- Registry certificate of the parent company issued within 3 months
- Notarized Signature attestation of the parent company’s representative
- Seal certificate (Inkan shomeisho) issued within 3 months, from each director or private investor
- Signature (or seal) of the Representative of the parent company and each director
- The Representative Director’s bank account and their passbook
- Company seal, registered at the registry office