Joint ventures or licensing in Japan

Joint ventures or licensing in Japan

Licensing your product either directly to a Japanese company or to a joint venture company formed between your firm and a Japanese firm represents another relatively low-risk way to enter the Japanese market.

Not only does such a scheme reduce the initial investment, it also potentially can return money to your firm faster because office space and personnel are readily available from the Japanese partner.

However, some research has indicated that joint ventures are often not as successful as initially hoped. The reason for this may be the same reason that made the joint venture attractive in the first place - the minimal investment required. If your company has little capital at risk, and few of its people are involved in the undertaking, the venture may drift away from your control.

Also, such a venture may lead to trouble if the foreign firm looks at the venture as a fast way to gain a high return on investment, while the Japanese partner looks for technology or simply to expand its product line. Obviously, if the two partners are potential competitors, the venture could lead to problems down the road.

Until the mid-1970s, many American companies were forced into joint-venture operations or else the Japanese government simply would not allow them to operate in Japan. With the loosening of investment restrictions by Japan in the 1970s, most of the new subsidiaries set up by American firms have been wholly-owned subsidiaries.

For markets that have high value-added products like electronics or software, and where the distribution system is relatively simple, a joint venture partner seems to add little more than cash, people and land.

However, a foreign firm may gain more from a joint venture partner if the market is already saturated and has a complex distribution system.

For example, when General Foods linked up with Ajinomoto to distribute cereal, General Foods gained access to a distribution system that would have taken years and millions of dollars to otherwise establish.