How 3 U.S. Firms Solved the Japan Enigma : Trade: A willingness to examine their faults helped Apple, Dow and the little-known JMDS succeed in a tough market.

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,” a panic-stricken Kaname Kashima, director of the Japan Soda Industry Assn., declared on a 1974 television show.

Dow Chemical persevered, steadily developing relations with Japanese firms and taking advantage of cracks in the barriers to foreign investment. The company currently has seven units in Japan--some wholly owned subsidiaries and others joint ventures--that operate in 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., which conducts a lucrative business helping bigger firms--including Apple--make direct-mail end runs around Japan’s complex distribution system.

As Washington and Tokyo 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. firms willing to examine their own faults can become winners in what is still one of the toughest markets in the world.

During Apple’s first decade in Japan, the Cupertino, Calif.-based firm 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 H. Spindler noted during a recent visit to Tokyo. The challenge, he 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 was the same year it 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% share in Japan’s intensely competitive personal computer market, up from 8.1% in 1992. That consolidated its position as second only to long-dominant NEC Corp., whose share slipped from 52% in 1992 to 49% last year. Company officials predict a 20% Apple market share next year.

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

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 the company more acceptable. For example, Japan’s three-year recession has prompted more companies to consider Dow’s lower-priced products.

“ ‘Quality at any price’ is no longer acceptable to the local consumer or manufacturer,” said James W. 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 has also helped it sell itself as Japanese companies themselves have become 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.

Sumitomo Dow Ltd., a 50-50 joint venture, will open Japan’s largest plant for manufacture of polycarbonate plastics, a key material for the automotive and consumer electronics industries. The 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 responsibility is to help Japanese companies ensure a match between their new products and Dow materials.

Japan Marketing Data Systems’ success is due to its ability to facilitate direct marketing to get past a key obstacle to foreign firms doing business in Japan.

Japan’s infamous multilayered distribution system not only jacks up prices by 30% or more, due to profit taking at each level of the network, but it also ends up blocking foreign manufacturers from contact with their customer base, said Charles T. 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 as a result of increased demand for its services by foreign firms that don’t know how, or have no mechanisms, to reach Japanese consumers directly, said Marc D. Fuoti, executive vice president.

JMDS clients include L.L. Bean, Philip Morris Cos., Cigna Corp. and Apple. A key JMDS function is to act as its clients’ agent in Japan, Luebker said. For L.L. Bean, JMDS handles requests for catalogues and other customer queries. For Cigna, it channels insurance applications to Japanese consumers.

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.

But Apple needed to be in touch with a sample of its user base “in order to know what’s happening in the market,” he said. By selling software upgrades through JMDS, Apple now has a data base of customers it can survey to learn what can be done to sell still more in Japan.

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.