The Labyrinth. What you need to know about distribution in Japan

It doesn't have to be convoluted. But doing the homework to choose wisely from the start is imperative.

How Are Building Materials Distributed in Japan?

When I was helping Canadian SME value added wood products manufacturers enter the Japanese market, one of my jobs was to take the newbies to meet with people who were handling or specifying imported products. One thing that surprised them all was the diversity of players.

• Home Centers (mainly low-cost products manufactured in China or SE Asia).

• Large specialized importer/wholesalers dealing only in building products.

• Building product divisions of massive diversified importer/wholesalers known collectively as ‘trading companies’ or ‘shosha’.

• A multitude of small importers specializing in a narrow range of products.

• Japanese subsidiaries of foreign manufacturers.

• General contractors

• Home builders.

• Architects

Except for home builders, general contractors and some architects who import small volumes for specific projects, most of the above importing entities sell direct to contractors, or to secondary regional wholesalers who may in some cases sell onward to tertiary wholesalers before products reach the contractor or installer’s hands. There are horror stories of products passing through 3, 4 or even more sets of hands before being installed, but that is increasingly the exception rather than the rule. Japan’s famously long distribution chains and the scarcity of manufacturers selling direct to contractors has more to do with financial risks, long established (multi-generational in some cases) business relationships, special ties to local networks, and rewards for introductions and continued loyalty.

“most successful foreign SME’s in the building and construction materials markets in Japan are either relying on specialized importing distributors, or setting up their own sales offices to sell as directly as possible to housing and construction end users”

All of the above options for distribution are potentially of value to the foreign exporter, depending on the nature of the product and market, pricing, ability of the exporter to deal directly with customers in Japan, acceptable payment terms, and several other considerations. But in my experience most successful foreign SME’s in the building and construction materials markets in Japan are either relying on specialized importing distributors, or setting up their own sales offices to sell as directly as possible to housing and construction end users. Both options are more complex than signing an exclusive contract with a major trading company, and involve a lot of very important decisions which can impact the company’s performance for years,

It Can be Done

I have spent decades cleaning up the messes made by distant executives unfamiliar with the subtleties, and even the basic features of the business environment in Japan, especially as it relates to the choosing and managing of importer/distributor partners and locally engaged staff. It's not that difficult if you know the language, culture and where to look for people to approach. In my next blog I’ll go into some of the common mistakes made, usually with the best of intentions, that end up costing foreign firms a lot, sometimes even forcing them out of the Japanese market.