Cracking Japan's Complex Market -- From Famous To Small Firms, Perserverance, Relationships Key

TOKYO - When Apple Computer Inc. first ventured into the Japanese market in 1977, its name recognition was so low and management coordination so poor that its first shipment of "Apples" was met by a refrigerated truck.

Dow Chemical Co. faced the opposite problem when it proposed 20 years ago to build a caustic soda plant here. The well-known Dow name terrified Japanese chemical companies.

"We must suppress Dow, a world seller with its massive capital and technology, before it lands in Japan," said a panic-stricken Kaname Kashima, director of the Japan Soda Industry Association, on a 1974 television show.

Dow Chemical persevered, steadily developing relations with Japanese companies and taking advantage of cracks in the barriers to foreign investment. Dow currently has seven units in Japan - some wholly owned subsidiaries and others joint ventures - that operate in various industries ranging from construction to pharmaceuticals.

And Apple now ranks second in Japan's fiercely competitive personal-computer market.

But it is not just famous companies that are finding ways to overcome the difficulties of doing business in Japan. Among the little-known successes is Japan Marketing Data Systems Ltd., or JMDS, which conducts a lucrative business helping bigger companies - including Apple - make direct-mail end-runs around Japan's complex distribution system.

As the U.S. and Japanese governments face off over contentious trade issues that could spiral into a tit-for-tat trade war, the experiences of these three very different companies demonstrate both the depth and limitations of change here. Their experiences also show that U.S. companies willing to examine their own faults can become winners in what is still one of the toughest markets in the world.

From wrong to right

During Apple's first decade in Japan, the Cupertino, Calif.-based company seemed to do almost everything wrong: from illogical distribution routes, to trying to sell computers with user manuals and software available only in English, to installing managers who didn't speak Japanese or understand the market.

Apple is an example of "how not to succeed in Japan," a U.S. State Department official said in 1988.

"People called us a laughingstock," Apple President Michael Spindler said during a recent visit to Tokyo. The challenge here, Spindler added, was: "Get the product right, so people can use it. Price it right, so people can buy it. Then build a distribution system, so people can find it."

Apple's turnaround began in 1989, when it put on the market Japanese-language software for its products. That year, Apple also hired Shigechika Takeuchi, a highly respected Toshiba Corp. executive, to head Apple Japan. He quickly broadened Apple's distribution networks and cut prices.

Apple sold about 300,000 Macintosh computers in Japan last year, carving out a 13.4 percent share in Japan's intensely competitive personal-computer market, up from 8.1 percent in 1992. That consolidated its position as second only to long-dominant NEC Corp., whose share slipped from 52 percent in 1992 to 49 percent last year. Company officials predict a 20 percent Apple market share next year.

Although Takeuchi stepped down as president late last year and his successor has not yet been named, Apple Japan seems well on its way to achieving its goal of $1 billion in annual sales here.

Winning strategy

For Dow Chemical, the key to winning in Japan was seeking opportunities in many market segments and looking for joint ventures and other ways to serve Japanese companies after its initial plan to enter the market was barred.

Dow's determination paid off as trade barriers fell and other market forces made Dow more acceptable.

For example, the recession in Japan of the past three years has prompted more Japanese companies to consider Dow's lower-priced products.

" `Quality at any price' is no longer acceptable to the local consumer or manufacturer," said James Harris, president of Dow Chemical Japan Ltd. "A lower-cost (foreign) product is (an option) now even if it means they have to break relationships with somebody they've been doing business with for a very long time."

Dow Chemical's worldwide presence also has helped it sell itself as Japanese companies themselves became more global.

"A global company that can supply Toyota in Japan, Toyota in North America and Toyota in Europe with a common product, made any place and delivered to meet their needs, at the lowest cost-to-serve, is going to win," Harris said.

A 50-50 joint venture, Sumitomo Dow Ltd. will open Japan's largest plant for manufacture of polycarbonate plastics, a key material for the automotive and consumer electronics industries. This joint venture pairs Dow's technology with Sumitomo's customer network, Harris said. Dow is also building an aluminum nitride plant in Michigan for production aimed primarily at the Japanese computer-chip manufacturing market, he said.

Dow has a staff of five here whose sole job is to help Japanese companies ensure a match between their new products and Dow materials.

Overcoming obstacles

JMDS' success is due to its ability to facilitate direct marketing to get past a key obstacle to foreign companies doing business here.

Japan's infamous multilayered distribution system not only jacks up prices by 30 percent or more after profit-taking at each level, but also ends up blocking foreign manufacturers from contact with their customer base, said Charles Luebker, founder and president of JMDS.

Direct mail and related telemarketing operations overcome such problems by delivering goods directly to consumers and also providing manufacturers with information about what kind of people buy their products, he said.

JMDS, with $10 million in revenue last year, has doubled its business every year for the past five years as a result of increased demand for its services by foreign companies that don't know how, or have no mechanisms, to reach Japanese consumers directly, said Marc Fuoti, executive vice president.

JMDS clients include L.L. Bean, Philip Morris Cos., Cigna Corp. and Apple.

Apple sells software upgrades to existing customers in Japan only through telephone orders made to a JMDS number, Luebker said.

When Apple relied on Japanese distributors for sales in the 1980s, it "had virtually no contact with the people who were actually using Apple computers," Luebker said.

Executives at Apple, Dow and JMDS said pressure from Washington has helped win more access for foreign products in Japan. But they also expressed fear that the United States might overplay its hand.

"We greatly support the continued pressure of the United States government on the Japanese to increase market access," Luebker said. "The only possible downside . . . is the way the American government so clumsily goes about doing it. There's no finesse, no style. They just look like a bully."