Increasing numbers of Japanese companies are making efforts to develop international business. This comes on the back of a lacklustre domestic economy that grew just 0.3% in the last quarter, and a market that, in population terms, is shrinking year on year and is forecast to decline from 126 million today to 107 million by 2050. For many Japanese companies, building an international business has literally become a matter of life or death.
The facts speak for themselves. At Intralink KK, the Tokyo-based subsidiary of our UK parent, we have seen a steep upsurge in the number of enquiries from Japanese companies seeking help with overseas expansion. In the past 12 months alone, our Japanese ‘outbound’ business has grown more than six-fold, illustrating the growing appetite on the part of Japanese companies to explore the opportunities outside of Japan. They are doing this through direct or partner sales into markets in Europe or North America, or by acquiring companies or technologies that will give them a foothold in new markets and help them gain the advantage over their local competitors.
Among Intralink’s Japanese clients are many large corporations, but we are also working with increasing numbers of smaller, privately-owned businesses. The common denominator is that all these companies are experiencing declining growth at best or contraction at worst, but by appointing distributors in international markets they can open up new sales channels for their products and services. For those companies choosing to acquire or in-license new technologies from European or American companies, they are able to gain or maintain their leadership positions in their established business domains. Whichever path these choose, these are strategies designed to combat declining sales and return to a path of sustainable growth.
The shrinking Japanese market is happening at a time when new, emerging technologies have the potential to disrupt the traditional business models of many Japanese companies, among them service providers such as banks and manufacturers such as car makers that for decades have formed the backbone of the Japanese economy. These companies are facing the double whammy of a shrinking domestic market and highly disruptive technologies and business models which could threaten their very existence. While we are seeing a growth in innovation and start-up activity in Japan, the fact is that many of these new technologies and business models are emanating from Europe and the United States. To stay competitive, even relevant, Japanese companies need to stay abreast of these developments, either by working with overseas companies in joint development programs, or by investing in or acquiring companies with new core technologies.
There have been announcements of overseas acquisitions by many Japanese corporations, not least from telecoms giant Softbank, and this is borne out in the statistics that show Japan’s outbound M&A deal value has jumped 34% annually over the past three years. Only time will tell whether these acquisitions will pay off—and there are many examples of acquirers getting it badly wrong—but difficult times require difficult decisions, and it could be said that only the brave will survive. Buying an overseas business is not straight forward and requires courage and conviction, not least for historically conservative Japanese companies.
At Intralink, we are helping Japanese companies gain a foothold in new markets by offering them a “proxy” sales team through which they can target new customers or appoint distributors to sell into established channels. Such an approach is low risk while at the same time highly effective in securing new and growing revenue streams. Many Japanese companies have unique products and service offerings that will find a market outside of Japan, but management needs to have the courage to step outside of their comfort zone and invest in international business development. If researched and executed correctly, the rewards of an overseas market expansion strategy can be transformative—even life-saving—for Japanese companies staring otherwise into an abyss of falling domestic sales and, potentially, terminal decline.