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Joint Ventures Scrapped in Bid to Gain More Control : Foreign Firms Decide to Go It Alone in Japan

From Reuters

Foreign companies are casting off the security of joint ventures in Japan and stepping out on their own to take advantage of booming consumer demand, marketing consultants say.

U.S. fast-food chain operator Wendy’s International and West German car maker Volkswagen AG are among companies that are trying to boost sales by taking greater control of their own marketing efforts here.

“The issue is gaining control,” said William Best, manager here of consultants A. T. Kearney International. “They see the booming consumer market while their own sales languish.”

Some frustrated foreign companies are boosting their stakes in their ventures with Japanese partners to a majority interest while others are gearing up to go it alone.

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“Frankly, a joint venture is a lousy arrangement from a strategic point of view, because it only serves to minimize risk,” said James Abegglen, president of consultants Asia Advisory Service.

“Always try first to do it on your own, and fall back to joint arrangements only when you have to.”

Best found in a study of 2,000 companies with foreign capital here that 3% to 5% of the foreign investors had recently upped their stakes. By the end of next year that could reach 15%.

In the past, foreign firms readily set up joint ventures to penetrate Japan’s multilayered market, often signing away exclusive distribution rights to trading companies or to distributors in the same or a complementary business.

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But they have had trouble getting the Japanese partner to sell their brands aggressively, marketing consultants said.

Eastman Kodak subsidiary Eastman Kodak (Japan) Ltd., for example, formed ventures with two former distributors and one customer for hands-on control in the Japanese market, an Eastman Kodak Japan spokesman said. By last August it had secured a majority interest in all three ventures.

“We think about what’s going to happen 50 years from now,” said spokesman Toshio Nakano. “Trading companies have slightly different objectives than manufacturers.”

Abegglen said a hookup may be necessary to help companies with staffing and distribution--the biggest headaches foreigners face--until the company outgrows the need.

U.S. chemical company Du Pont, which has nine joint ventures here, could develop by relying on its partners, an official said. But the policy now is to concentrate new investment on its wholly owned subsidiary.

“We’ve built up enough of an infrastructure that now we have the luxury of choosing whether to put technology into our own operations or into a venture,” said Thomas Jordan, head of planning for the subsidiary Du Pont Japan Ltd.

“Why automatically share the profit and rewards if you have the option of keeping them in your own subsidiary?” he asked, stressing that Du Pont would consider additional joint ventures to obtain a specific skill or technology.

Some foreign companies say a controlling interest is not enough.

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They aim to run the show by setting up a subsidiary independent of any exclusive licensing agreement. This would result in the subsidiary temporarily competing against its parent’s joint venture.

It may be awkward, but some have decided it is worth it.

Swiss confectioner Jacobs Suchard opened a Tokyo subsidiary last month to create its own sales network. Toblerone and other Suchard brands have been imported and sold by Japanese confectioner Meiji Seika since 1971 but only in selected department stores and supermarkets.

“We aim to widen our market and put our candy bars in the neighborhood shops,” a Suchard subsidiary spokesman said.

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Suchard may also renew the contract with Meiji.

Wendy’s also expects to increase sales by creating a direct network. It has 27 stores now under an exclusive franchising contract with supermarket giant Daiei via a joint venture.

A Wendy’s official said the company expects to open 15 stores within five years and will target the suburbs to avoid competing directly with the venture, which has aimed for urban areas. “We don’t want to interrupt their operations,” he said.

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Volkswagen is also preparing for twin billing. The German car firm is negotiating with trading company Yanase, its sole importer and dealer in Japan, to allow Volkswagen to set up its own distribution network.

The firm expects an agreement this month with Yanase, which will continue to import and sell Volkswagens, said Robert Janson, Volkswagen Asia Ltd executive vice president.

Businessmen warn that the market here is still a labyrinth of personal contacts that can obstruct the newcomer. Kodak got around that by hiring staff from its former distributor.

“Japanese business is still Japanese business and relationships are still very valuable,” Best said.


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