DOING MAIL ORDER BUSINESS IN JAPAN: LICENSING YOUR BUSINESS MODEL

1. WHEN TO LICENSE

You should license if:

• your organization is too busy just handling domestic growth
• you have no resources (staff, budget) to enter Japanese market with the same attention/commitment you would give a US start-up
• you are getting some Japanese orders and have had no time to figure out why
• your potential licensee can generate higher sales faster than you think you can

2. TYPICAL LICENSING AGREEMENT

Structure of typical licensing agreement:

Licensor provides:

• training
• product knowledge
• technical support (customer service manuals, etc)
• elements of marketing materials (graphics, product shots, copy)
• fulfillment to Japan via licensee's shipper (usually out of your own US facility)

  Licensor receives:

• cost of product + small handling fee (NOT a profit center)
• licensing royalty (percentage of sales payable quarterly)

  Licensee provides:

• marketing (catalog and website production and maintenance, space ads, catalog mailing)
• customer service
• order processing
• payment collection

  Licensee's profit

Licensee's profit = net sales MINUS product cost MINUS handling fee MINUS licensing royalty (all three payable to the licensor) MINUS operating costs

Duration:

The licensing agreement is typically a 5-year rolling agreement (it automatically extends for another five years at the end of each year), so the contractual notice is NEVER shorter than 4 years.

3. WHY YOU NEED A SEPARATE LICENSEE FOR JAPAN

Japan is a difficult and unique market.

Few non-Japanese possess the skills, resources, contacts, and organization to run successful business in Japan. Your licensee in Japan should be a JAPANESE corporation/businessman.

On the other hand, few Japanese individuals/corporations have enough of a strong presence in other parts of the world to be successful licensees for other parts of the world.

For these reasons you should not attempt to create a regional licensee for "Far East including Japan", or "North Asia including Japan". Your chances of finding a corporation or an individual who can function well in all these environments are very very slim. You should treat Japan as a separate licensing area.

4. WHY YOU NEED A SEPARATE LICENSEE SEARCH

The Japanese businessman, whether he is a self-made entrepreneur or a life-time corporation man, is very different from his foreign counterparts. He has a very unique idea of how a business relationship is arrived at, and how it is to be conducted. It takes specialised knowledge and skills to form business relationships with the Japanese.

Partner search firms with global or regional focus develop a different set of skills, which are successful in vast majority of other countries, and therefore tend not to do very well in targetting this unique population. This lack of specialization by the Partner Search Firm is the main reason why the majority of licensing agreements in Japan are not very successful.

Far East Direct, Inc., specializes in Japan. We are geared towards Japanese businessmen and the Japanese business climate.