U.S. Firms Less Negative About Japan, Survey Shows

Keiretsu , the Japanese industrial groupings that have so troubled American trade officials, may not be quite the villains they are often made out to be.

One-third of the 340 American businesses questioned about Japan’s trade and investment environment in a study released Tuesday by the American Chamber of Commerce in Japan (ACCJ) said keiretsu have a positive impact on their business in Japan, while 40% said they had no impact.

Less than one-fourth of the respondents said keiretsu presented a problem for them. American trade negotiators are trying to chip away at keiretsu in hopes of making the Japanese market more accessible to American business.

The somewhat surprising results may reflect the long-term presence in Japan of many of the companies that responded to the questionnaire, said William J. Best, managing director of the Tokyo office of A. T. Kearney, which conducted the study. Over half of the respondents had been in business in Japan since the 1970s. “Since they are here in Japan doing business, they may be related to keiretsu in one way or another,” Best said. “They benefit from the long-term relationships (Japanese foster).”

America has attacked Japan’s keiretsu structure in the Structural Impediments Initiative (SII) talks with Japan because the business relations between companies with interlocking directorates and mutual holdings tend to lock outsiders out of the market. The questionnaire results suggest that even foreign companies, if they are in Japan long enough, can benefit from becoming part of a keiretsu structure.

The 125-page chamber study also painted a surprisingly upbeat assessment of the Japanese market. Although past protectionist policies by Japan continue to have a “hangover” effect resulting in behavior that hinders foreign business efforts, Best said the overall investment and trade environment in Japan is better than widely perceived and continues to improve.

Over half of the American businesses surveyed said the investment climate in Japan has improved in the past five years and is now favorable or somewhat favorable. Two-thirds of the respondents said they had increased their investments in Japan since 1985, and 60% said their trade with Japan had more than doubled over the period. Nearly half said they were at, or had exceeded, their sales targets.

It still takes time to make money in Japan, however. The largest percentage of respondents said it took five to six years for a wholly owned subsidiary to break even and more than 10 years to reach average U.S. corporate profit levels. Other studies have suggested that once American companies are well-established in Japan they tend to report substantially higher profit margins than their counterparts at home.

For the most part, respondents had few complaints about Japanese government regulatory practices. Many, however, fingered Japan’s complex distribution system as a barrier to trade, and a whopping 80% complained about Japanese government procurement practices.

“Negotiating an end to Japan’s protectionist barriers has been a long and tortuous process,” said Edmund J. Reilly, president of Digital Equipment Corp.’s Japan operation and head of the chamber, “but in the past few years we’ve come a long ways in evening up the field.”

While American sales in Japan have risen in recent years, Japanese exports to America have grown even faster resulting in America’s $41-billion trade deficit with Japan last year.

By far the largest percentage of survey respondents said the key obstacle to doing business in Japan was the difficulty of hiring workers in a tight labor market and Japan’s high land and housing prices. It is not unusual for an executive to spend $10,000 a month for his apartment. Such problems apply equally to Japanese and American companies though foreign companies, as new entrants, may bear the brunt of the problem.

To deal with such problems, American companies have taken such countermeasures as moving operations outside of Tokyo to lower-cost regions, offering more responsibility to capable Japanese employees and exploring non-traditional distribution channels such as mail-order sales, according to the report.

Twenty executives of the chamber will offer more such tips when they travel to the United States to conduct a series of three one-day seminars on how to crack the Japanese market beginning with a session in Los Angeles on June 17. The ACCJ executives say they hope to counter the widespread perception among American businessmen that Japan’s market is impenetrable and not worth the required time and money.