Is it more difficult for foreigners to start a business in Japan?

May 19th, 2010By Category: Starting a Business

Kentin / Wikimedia

The simple answer to the question above is YES. But it can also be more rewarding!

This is the third article in a mini-series that outlines what it takes to set up your own business in Japan. This article discusses the practical challenges facing entrepreneurs in Japan and offers some tips and hints to help you get started.

If you haven’t read the other articles in this series, please do skim through them, as they may save you much time and resources.

1. So you think you have a great business idea?

2. Setting up your own business in Japan – Is it worth the risk? (Part 1)

The “gaijin factor”

Starting up your own business is hard enough in your home country, but in Japan with a different language, business customs and market place, it is twice as hard. Having said that, there can also be twice as much opportunity for foreigners as a result of the “gaijin factor”. As a foreigner in Japan, you may come up with ideas which others may not have thought of, and it is easier to differentiate your business and get noticed. So while it is certainly more challenging for foreigners, it can also be more rewarding.

Do you speak nihongo?

Unless your business is a niche business targeting foreigners, a working level understanding of Japanese is vital. In short, if you don’t speak Japanese, you will always be dependent on someone else, and that is a huge handicap as an entrepreneur.

Even if you speak Japanese however, managing a business in Japan can be surprisingly challenging, as both Japanese customers and staff may not be on the same wavelength as you are. Products or services you think should sell may not. And things which are common sense to you may not be obvious to your local staff (and vice versa). It is therefore vital that you make the time to fully understand both your customers and staff and meet them at the same level. A good local manager is invaluable.

Kentin / Wikimedia

How much is it going to cost?

The process for setting up a company in Japan is straightforward, although bureaucratic and a little tedious. Foreigners are at no major disadvantage to locals in terms of the procedures for setting up a business in Japan. If your Japanese is excellent, you may be able to do it yourself. However, most people use legal advisers called judicial scriveners (“shiho shoshi”), who are efficient and not too expensive. You can find several on the web offering services in English.

The cost of setting up a company has fallen significantly in recent years as the Government has tried to encourage entrepreneurs. In most cases, a joint stock company (“kabushiki kaisha” or “KK”) is the best company structure to adopt and the KK need only have share capital of ¥1 initially. Most big companies such as Sony and Toyota are KKs, so you will enjoy the same status as them. The KK status is important if you will be dealing with other Japanese companies. There is another company structure called Goudou Gaisha (similar to a LLC), which is easier and cheaper to register, but is not often used and does not give you the same status as a KK. You should budget around ¥350,000 to set up a KK and another ¥200,000 or more if you use a legal adviser.

Deep pockets

The importance of arranging enough funds at the outset to see you through the lean early years cannot be overstated. Things always take longer and cost more than expected and a buffer should be built into your budget. Unfortunately, there are few sources of funds available to entrepreneurs when they first start up their company. Japanese banks are unlikely to lend to businesses with less than a 2 year track record. Venture funds do not typically invest in early stage ventures. So you will mainly have to use your own money as seed capital, or rely on friendly angel investors.

The Government (through various financial institutions) does offer loans and guarantees to start up a business and foreigners can also take advantage of this. Conditions apply and these loans may not suit everyone. A good way to find out more is to visit the JETRO library for the latest information.

You should also be aware of the personal guarantee system in Japan. As owner of a company in Japan, you will often be asked to become personal guarantor to your company’s obligations (bank loans, leases etc). It is often impossible to avoid taking on these personal guarantees, but you should not enter into these guarantees lightly, and always make sure you will not become over extended in a worst case scenario. Unfortunately, personal bankruptcies are common in Japan.

Finally, before you give up your regular job and income, don’t forget to take advantage of your good credit status while you still have it. You may wish to renew your leases, apply for PR, increase your credit card, and take out a loan etc. while you can!

We’re right behind you!

There are a number of successful foreign entrepreneurs in Tokyo and the foreign entrepreneurial community is quite strong and can be very supportive. As an entrepreneur, your network is likely to be your biggest asset and so you should take advantage of the various entrepreneur networks in Japan. Most entrepreneurs want to share their experiences and seeking their advice could save you a lot of time and money. The library at JETRO is also a good place to find information in English.

You can search the internet for up to date information on the following:

Government institutions (such as JETRO and Japan Finance Corporation)
Chambers of Commerce (American, British, Australian and Canadian are particularly active)
Entrepreneur associations (Entrepreneur Association of Tokyo, FEW etc)

 

Good luck and enjoy the ride!

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Author of this article

Marcus Yeung

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