Negotiating With The Japanese
In order to achieve any business success anywhere in the world, it is highly likely that negotiations have to take place. Negotiating with the Japanese is not totally different from any other sort of negotiations, and indeed the principles they follow are ones that we can easily work to, provided that we understand these principles in the first place. As we have already seen, the key to Japanese business style is the establishment of a firm relationship, and no serious negotiations can get under way until that relationship is in place. Japan is not a country where quick deals can be done, where you can offload your excess stock at a cheap price or expect to make good money from a one-off deal. The relationship is all.
ESTABLISHING A RELATIONSHIP
Establishing a relationship with any Japanese organisation requires the right introductions. You cannot just turn up on their doorstep and hope to sell your widgets, or indeed to buy their widgets. They must know who you are first. Even direct sales and telephone cold calls, which in Japan are a part of the economy if not quite so great as in many western countries, rely on a general awareness of the company offering the services and some attempt on their part to understand the needs of the potential consumer.
The Internet has certainly gone some way to breaking down the personal interface that people have long assumed is essential in dealing with the Japanese, but Internet sales in Japan are mainly limited to standard items such as books, air fares and some foodstuffs. Pizza and Chinese food delivery services thrive in Japan, but this is because of the personal service they offer: you can fax or e-mail your order through to the restaurant and they will send a man on a motorbike with your order to your apartment within minutes. They rely on a regular high quality service to bring in repeat business, to build a relationship with the customer even if he or she is only glimpsed briefly at the front door as the food is delivered. Once again we should note that in everything, quality counts. The lessons of W E Deming are still valid.
If you do not have the right introductions when you come to call on a new potential business partner, you may not reach the right people to talk to. Many Japanese companies still employ people who are known unofficially as madogiwazoku ( ‘the tribe beside the window’). These are the middle managers who may have started brightly in the company 20 years before, but who now have run out of steam. They may have a title such as kacho (section chief), but they are unlikely to have any real function or duties. Their role in the organisation now is to sit at their comfortable desks by the window, and spend the day checking that the car park is still there, or that nobody has stolen the coffee shop across the road. As soon as they reach the retirement age of 55, they are released. There may be fewer of these people in Japan these days, but they still exist. What’s more, one of their main uses is to meet and greet visitors who are not important to the company.
You may therefore turn up for a first meeting and have an apparently very positive welcome from one of these people. He will be very interested to learn of your new products, services and price lists, but that is only because anything is more interesting than sitting looking out of the window all day. When he reports back to his colleagues, they will quickly decide that no further action should be taken, and you will be back to square one, or even worse. The only way to be sure that you will not meet one of these people when you first try to establish relations with a Japanese company is by having a go-between who can give you good introductions. You have to be brought into the web of Japanese corporate relations by somebody who is already within that web.
Getting to know each other
Assuming that you do get to sit down with the right people in the new company, what are the next steps? Well, the first part of any negotiation is the process of getting to know you. Your Japanese potential partner will look on the business relationship as a kind of marriage, which is for richer and for poorer and in sickness and in health till death do you part. It is not a quick one night stand. The first meetings and exchanges of information will cover the way your company works, the way you go about your business, your status in the local community and in your business sector, your reputation for quality and for trustworthiness. Your Japanese counterpart will also be happy to hand over to you information on all these topics, expecting you to want to know, in the words of the man in the film Butch Cassidy and the Sundance Kid, ‘Who are these guys?’
Exchange of information
At this stage in the negotiations, you should be keen to show the Japanese round your factories and other sites, give them access to all non-confidential information and expect similar information in return. If you do not do this, the Japanese will find out anyway. This is their fact-gathering tendencies coming out, as well as their desire to avoid uncertainty: they want to know as much about you as possible before entering into the relationship so that there will be fewer surprises in the years ahead.
It is no good exaggerating either. If you have a market share of 5%, don’t claim it is 15%. If you produce 500 widgets a day at your most efficient factory, don’t pretend you can make 1000. Japanese sources of information are very reliable and they will discover the truth. Falsehoods and exaggerations will kill the relationship off before it has started. Whether the Japanese are intending to sell their products to you or you wish to sell to them, you can be sure that they will know a great deal about you even before the first approach is made.
BINDING THE ROOTS
To the Japanese, this is all part of the preparations for the negotiation process. They call it nemawashi () which literally means ‘binding the roots’. In order to transplant rice seedlings from the nursery fields into the main paddy fields, the roots have to be bound up to enable them to survive the process. Thus nemawashi has come to mean the preparation before any major undertaking, and is used frequently in Japan, even when a Japanese is speaking in English. Nemawashi takes as long as it needs to take. There is no set time for the process to be deemed complete. Whereas a western company would set a time limit on concluding a contract, Japanese companies set no time limit on the process of reaching agreement.
The nemawashi will also form the major part of any final decision-making process. Remember also that for a Japanese company to enter into a relationship with you, they will probably have to break an existing relationship. It does not matter whether your product is cheaper, better quality, smaller or anything else: if another company is already supplying your potential client with the widgets you now intend to supply, a relationship must be broken off, or at least considerably reduced. This is a painful process, because it involves real people who might now find themselves struggling with empty order books, real people who have been part of a successful relationship for many years. There is virtually no shareholder pressure to do business simply on the financial criteria of price, quality and delivery as there would be in the West. Japanese companies will continue relationships with companies whose prices may not be the keenest simply because the relationship has worked until now.
Once a Japanese company has decided that your company is worth dealing with, they will then want to build consensus within their company about the way the relationship will work. This involves negotiating with everybody within the organisation who might be affected by the decision to work with you. If you are going to provide widgets as a component for one of their key products, for instance, then the people who need to be in agreement with the change of supplier are not just the purchasing department. The accounts people will need to be sure that payment terms and prices are fair, so that there is no unfavourable movement in cash flow, for instance. Production departments need to understand the differences between this component and the previous one; sales need to understand if this makes any difference to their methods or to the key selling points; marketing need to know if the current marketing strategy needs to change; human resources need to know if there are any issues of training or varying staff requirements occasioned by the change; shipping need to know about the way the components will arrive. The list will usually cover the entire company.
As we have seen, a meeting of all the heads of the departments involved to settle all the issues in one go will not work. If any department has reservations, they will be unlikely to voice them in public for fear of causing somebody else to lose face. So the discussions with each department have to be done individually. Normally, the department taking the lead in the decision (in the case of our widgets, the purchasing department) will conduct a series of discussions with each department in turn, investigating all the issues and trying to resolve individual difficulties. At this stage, questions may come back to you for resolution. They may be trivial, such as ‘Can you pack widgets in tens rather than dozens?’ or they may be more fundamental, such as ‘Can you lower the price by ten per cent?’ It is important that you do your best to answer all these questions openly and efficiently, because as long as the questions are still being asked, you are still in business. When the questions dry up, the project has most likely gone dead.
Public face and true intentions
You will also have to put into practice all you have discovered about the tatemae () and the honne (), the public face and the true intentions. The Japanese never want to say no, so will always be looking for a way out of the negotiations if things are not developing in the way they had hoped. The most common way, apart from just going silent on you, is to ask questions or make suggestions that they know will be unacceptable to you. If you only supply your widgets in blue or red, they will ask for green widgets, hoping that you will break off the talks because you cannot supply green ones. The real reason why they do not want to complete the negotiations will almost certainly be very different. Similarly, they may ask questions in such a way that they are really hoping you will see their point of view, because they really want to do the business (their honne position), but there is some internal reason why face must be maintained (the tatemae position).
One aspect of the negotiation process that is usually very different from the western experience is that the Japanese like to set aside difficult questions and come back to them later, while we in the West tend to want to take the tough questions first, because if they cannot be settled, then there is little point in wasting time reaching agreement on the minor points. The Japanese style of negotiation comes partly from a desire to avoid confrontation, but also from a desire never to be the ones who say ‘no’. If the issue is something they cannot agree to, they will put it to one side in the hope either that time will resolve it or that, if it is truly a stumbling block, something else will crop up during later negotiations which will be unacceptable to the other side, who will then be forced to be the ones to break off the deal. Be aware of this tendency and do not assume that because they have stopped talking about an issue, it is resolved. The opposite is more likely to be the case.
Making the decision
When eventually the questions are all resolved, things will move very quickly. There is no time frame for the whole nemawashi process, and this is why so many Westerners describe the Japanese decision-making process as incomprehensible and interminable. In fact, if you are keeping a close eye on how things are developing, by judiciously timed e-mails, phone calls and visits, you should be able to tell how near to a decision your Japanese partners are getting. It is only those companies who let the Japanese get on with the process, without making any other efforts to keep the relationship alive, who are sometimes surprised by the timing and outcome of the negotiation process.
The way the Japanese announce a decision is by means of a document called the ringi ( = ‘circular memorandum’). As one commentator put it, ‘corporate decisions and actions seldom take place without ringi’. Nor do government decisions and actions: Japanese bureaucrats use the ringi as a matter of routine. How does this document work? The ringi (or ringi-sho, ‘sho’ merely means ‘piece of paper’) is an internal document which summarises the proposal and which is then circulated internally. It is usually brief and to the point, so that in the case of your widgets it would probably merely list in a series of bullet points the fact that the company was proposing to buy widgets from The Widget Corporation, in stated quantities at a stated price. It would list matters such as payment details, any staffing or training implications and quite possibly the names of the main contacts in the Widget Corporation. The memo would be generated by the department that originated the proposal, in this case purchasing, and would be circulated to every part of the company affected by the decision.
As the ringi reaches each department in turn, the department may well hold a brief meeting to confirm they are all happy with the contents (which have, of course, already been sorted out by the long-winded nemawashi process), and then the head of the department will place his seal on the document. The department chief’s seal on the ringi is the sign that his team approves the document. It then passes on to the next department where the process is repeated. When the ringi has returned to its originator with all the seals imprinted on the paper, the decision is made. The first you may hear about it, however, may well be the placing of a first order. Unless you keep your relationship contacts strong, you may not be aware how close to a decision your Japanese colleagues have got.
It is worth remembering that if you do not keep in close contact with Japanese firms while the consensus gathering process is going on, you may well be surprised by the speed of events once the decision is made. You have to keep them fully informed of any development on your side that may affect the final deal. In the case of our widgets, they will want to place an order on the terms and conditions already offered, so it is no good going back to them once the order is placed and saying that the specification has changed or the price has gone up, or the factory is on holiday for a week. You should have kept them informed of all these issues, even if there appeared to be no movement on their side. You cannot see a Japanese decision being made, but the nemawashi process is going on all the time.
DECISIVENESS IS A SIN
Japanese decisions are group decisions. This gives them one major disadvantage in our eyes, but one major advantage. The major disadvantage is that they take a long time. Decisiveness is a sin in Japan, because it implies you are not consulting with others when you take a decision, but consultation takes time. In the West, time is money, and we cannot waste time checking that everybody in the organisation is happy with every decision. We’d never get anything done.
The Japanese, on the other hand, need unanimity. In actual fact, it is highly unlikely that any decision is unanimous, even in Japan, but the nemawashi process allows those who oppose an idea to adjust their tatemae, their official position, to that of the wishes of the group, even if their honne is that they feel the whole idea is daft. In the West, we would let our colleagues know what we really feel about a business project, because we feel it is important not to compromise our own personal beliefs, but in Japan the group is more important than the individual. The decision of the majority quickly becomes unanimous.
There is a risk that some of the decisions reached by consensus are somewhat anodyne, being merely the least unacceptable of the options put forward. In practice, this is rarely the case in Japan, because people are very quickly sensitive to the needs of the group, and allow bold decisions to be agreed if that is the mood of the organisation. The advantage of this method of making decisions is that everybody, at least in their tatemae, agrees with the decision, so that it can be enacted quickly and effectively. Too often in Western business, decisions can be made very quickly, but as they are put into effect, opposition begins to arise. This may be because the sort of discussions that the Japanese had before the decision was finalised are only now for the first time being aired. Making quick western-style decisions is pointless if they are never acted upon.
THE LEGAL POSITION
We have already noted that the Japanese consider lawyers largely unnecessary. All the same, they use the law to bind their business agreements just as we do. The difference is that in the legal department of a major Japanese corporation, you will probably find no more than one fully qualified lawyer, if that. Japanese legal departments are full of people who know exactly how effective their contracts have been over the years, which clauses work and which do not, what has to be stated and how to skate gently over the contentious issues and leave it suitably imprecise when imprecision is called for.
They are also full of people whose previous experience has been with the company’s production departments, or out on the road selling, or working out pay scales within human resources, so they have a practical experience of the impact of the agreements they are working on that is probably far greater than their western counterparts. Japanese legal departments are made up of specialists in the minutiae of their company’s legal and practical needs, so they are a formidable force.
Attitude to contracts
When an agreement is concluded, more often than not the contract is placed on file somewhere, and is never consulted again. In the rapidly changing world of Japanese business, where international habits are becoming more general throughout Japan, the attitude towards legal documentation is changing, but on the whole, the Japanese see a contract merely as a symbol of the business relationship it describes. It is not something that needs to be looked at, unless the business is going radically wrong.
In the West, we tend to consult contracts much more often, and use them as a template for how the business should be run: but not in Japan. Contracts are to satisfy the other party, but the business is conducted on the basis of ever closer personal and corporate relationships, which do not need a piece of paper to turn them into reality. That is not to say that the terms of a contract are flouted – they are not. It is merely not the Japanese custom to worry whether every sub-clause of every agreement is being carefully adhered to, provided that the business defined by the contract is proceeding satisfactorily for both parties.
YOUR AGENDA OR MINE
The concept of ‘satisfactorily for both parties’ is another that can often lead to misunderstandings. It goes without saying that when one does a deal within one’s own culture, there is an assumption that the other party has his or her own agenda, which does not necessarily coincide in all aspects with one’s own. This is understood and allowed for. The pursuit of different agendas by partners in business does not often lead to the breakdown of the business altogether.
It ought to go without saying that two business partners based in different countries, even if they are contemplating full merger or a joint venture, will have different concepts of what the business should be doing, and how to define success or failure. In my experience, too many western business people have come to Japan somehow believing that their purpose in doing business there is transparent (to them, at least) so the motivation of the Japanese side should be transparent too.
We have already seen, however, that the Japanese are very good at separating their public face from their real intentions. They will, to be polite to the visitor, profess a set of targets or goals for their mutual business that coincides with his. To the extent that the Japanese truly always look for a win/win situation in their business arrangements, this will be the truth, but it would be naïve to assume that a Japanese company’s reasons for working with a western company are the same as their partner’s. Their agenda is indeed hidden, because it would be impolite and potentially confrontational to reveal it, but it is there to be found, and it is always worth looking for it.
Different goals can easily be reconciled, but only if they are recognised as different from the outset. The Japanese person will know your agenda, because you will have told him. You will not necessarily know his, because he will not wish to upset the agreement by professing to different hopes and aims for the business. Find it out.