When to Expand to the Japanese Market

Written by
Marcus Otsuji
  1. Companies are getting pulled into Japan earlier and (separate but related);
  2. Competition for category hegemony in Japan is much more fierce.
  • If you have achieved product-market fit in the US and you have a working (or even semi-working) GTM, chances are you should probably start to peek across the Pacific and see what is happening. Conversely, prior to establishing product-market fit and a functioning GTM, Japan can be a distraction — so allocating scarce resources there too early is not generally something we recommend. A big caveat to this is in cases where Japan, for whatever reason, represents a disproportionately large or strategic market for your technology. This was the case for a few of our portfolio companies in natural-disaster resilience, AI and automation where early investments in products for Japan reaped outsized results because clear use cases there developed faster than in other regions. Despite these exceptions, as a general rule get your product and GTM right in the US first, but once done don’t wait too long before assessing the opportunity in Japan.
  • The most obvious, although still not very common, indication that Japan is ready for your company is of course revenue — Japanese customers purchasing your product even without a local Japan presence or a localized product. This rarely happened before, however, with the advent of cloud-based services it is no longer that unusual (especially in OSS, DevOps and creative/productivity/collaboration tools.) One mistake here though is to assume that because customers are already purchasing your product, even without local sales or support, that you can expect the market to continue to grow without making a direct investment. This is in most cases absolutely the wrong conclusion to come to. Early adopters in Japan behave very differently from the vast majority of companies who will require local sales, support, Japanese contracts, payment in yen and maybe even a fully localized product before they commit to buy. If you are one of the lucky few who are able to close business from Japan prior to your entry, see this as a positive market signal and justification for an earlier and perhaps more aggressive Japan entry and not an indication that the Japan opportunity can be exploited remotely.
  • For most companies, however, significant or any revenue generated from Japan prior to a formal entry doesn’t usually happen and waiting for Japanese customers to buy first to “justify” an investment in the market is another losing (but unfortunately common) “strategy.” This usually happens not as the result of a conscious decision to deprioritize Japan, but more often because focus and resources get shifted naturally to English speaking regions from which inbound interest and orders are more common (ANZ, HK, Taiwan, Singapore, etc.) How then, can one assess the opportunity in Japan and avoid missing the optimal window of opportunity to enter the market if no (or few) inbound inquiries and orders are coming? The answer here is to start by identifying relevant market signals. At Geodesic, one of our portfolio company’s primary market signal was cloud adoption. This was a few years ago as the public cloud was just starting to gain significant traction outside of the US. For this particular company, in geographies where cloud adoption was strong, demand for their service predictably followed. So when they sent an executive to Japan to explore the market they wanted first and foremost to meet not with potential customers, but with AWS and GCP to ask about cloud adoption in general, relative to other Asian countries. They knew that if companies were adopting the cloud, their services would eventually also be needed even if companies didn’t recognize the need now. AWS and GCP confirmed that Japanese companies were adopting the cloud, and significantly faster than other APAC countries, so the company did formally enter Japan and has been performing very well ever since. Conversely, another one of our portfolio companies protects against a very specific type of fraud in the US and Europe. When their CEO visited Japan to explore a possible Japan entry, he found that the specific type of fraud they protected against was not a big problem in Japan. So the company correctly decided to delay their Japan entry until they could develop more relevant products for the Japanese market. Once again, while inbound interest from Japan is on the rise, Japanese companies often will not purchase until a company has an established presence in Japan (even after a successful POC!) so interpreting lack of revenue as lack of demand is counterproductive. Instead, identifying the relevant market signals and then looking for those signals in Japan and using that as a gauge to determine Japan market entry timing will produce far superior results.
  • Competition: always keeping an eye on the competition is a good idea. Not that you have to blindly follow them, but ignoring them is also not a winning strategy. Especially if you see them moving in Japan before you, then understanding why is a good idea. Even if you are not ready, you should at least start to prepare in order to avoid falling behind.