Japan is a key strategic partner for Australia and the size and the proximity of the Japanese market makes it an attractive destination for Australian SMEs who are thinking of taking that next step into a new market.
Japan is the world’s third largest economy, after the US and China, and is Australia’s second largest export market and trading partner. In 2014 alone, Australian exports to Japan were worth US$50 billion and Australian investment in Japan was worth A$70 billion.
However, identifying new export markets is one thing; understanding exactly what the opportunities are and how to go about taking advantage of them, is another.
Opportunities for Australian SMEs in Japan
Japan is a highly-industrialised market economy with a very high per-capita income and a well-educated workforce. Crucially for Australian SMEs, Japan also has one of the world’s largest consumer markets with a population of around 127 million.
What makes this market so attractive for potential exporters is a population with high levels of disposable income and strong demand for premium, high-end goods and services. Three sectors in particular offer excellent opportunities for Australian SMEs; services, agriculture and mining.
In 2013-2014 services exports to Japan were worth A$2billion, with tourism providing 58 per cent. Japan is currently Australia’s fifth largest tourism market behind China, US, UK and New Zealand, and continues to offer excellent opportunities for SMEs in the tourism and hospitality sectors.
With a rapidly ageing population, health and welfare goods are forecast to create further opportunities for exporters in the services sector.
Meanwhile, Japan offers opportunities for Australian SMEs operating in the agricultural industry. In 2014 alone, Japan imported A$4.2 billion worth of Australian agricultural products.
Japan continues to be Australia’s largest export market for beef, fish, fruit and vegetable juices, animal feed and dairy products. This demand for Australian agricultural products is driven by our agricultural industry’s reputation for quality, environmental sustainability and food safety, all of which are highly valued in Japan.
Finally, Japan offers excellent opportunities for Australian SMEs operating in mining and mining services. Japan has few natural resources of its own and Australia is a critical exporter of minerals and energy to the country.
In 2014, Australia’s major exports to Japan included A$14 billion of liquefied natural gas, A$11.9 billion of coal, A$8.4 billion of iron ore and A$8.4 billion of copper ores and concentrates.
Even with the recent volatility in natural resources prices, Japan will continue to rely on Australian minerals and energy for years to come.
How to go about entering the Japanese market
When thinking about entering the Japanese market there are a number of steps Australian SMEs can take to make the transition as smooth as possible.
Develop strong relationships and a local network
As with many Asian markets, relationships are very important in Japan. Before any business partnership can be secured, it is crucial to establish strong relationships with your key partners.
This is particularly important, given that 61 per cent of Australian SMEs are most likely to service their Japan market directly from Australia, as many don’t have a presence on the ground.
In fact, committing to a valued partnership in Japan is just as important as a legal contract in establishing a successful export relationship.
Tap into expert support
Just as important as developing relationships is the need to seek out advice and support. The Australian Government’s trade and investment agency, Austrade, provides a range of services for Australian companies seeking to grow their business in Japan.
Services include export strategy development, market research and risk management advice. Using experts such as Austrade can reduce the possible pitfalls in entering a new market.
Recognise cultural differences
One final consideration when entering the Japanese market is understanding the business culture. In Japan, business etiquette is very important, with the Japanese placing great importance on respect and social rank.
For example, seating arrangements are used in formal business meetings – the most important guest sits furthest from the door and the host sits closest to the door. Understanding such customs will ensure you don’t have any embarrassing moments with your Japanese counterparts.
All in all, Japan offers great opportunities for Australian SMEs thinking of taking the next step and expanding into a new market. If you’re in the services, agriculture, or mining sectors the opportunities outlined here are the tip of the iceberg of what’s on offer.
And if you are thinking of taking that next step, then you can make the transition as smooth as possible by developing strong relationships, seeking expert support and learning the cultural differences.
Aussie success in Japan: Cassegrain Wine
Cassegrain is a multi-award winning winemaking company based in Port Macquarie, NSW, which is growing its exports to Japan and China in response to high demand.
Having established the business in 1984, Cassegrain started exporting in 1987 in response to specific demand from a Japanese buyer. Since then, the company has been successfully exporting its wines to Europe, UK, North America and Asia for a number of years.
Japan remains its main export market, representing around three quarters of its export products. Currently, exports represent 30 per cent of Cassegrain’s sales but the company is aiming to increase that to 70 per cent in five years’ time.
Faced with growing demand from buyers in Japan and China, Cassegrain was worried about matching product supply to the purchase orders it was receiving.
The wine industry has a significant lag phase, as the harvest cycle doesn’t necessarily align with demand for product and the lead time from production to supply can vary significantly.
This means that Cassegrain has to invest in manufacturing its wines before receiving orders, to have sufficient product to fulfil a contract when it comes in.
In order to realise its potential growth in Japan and China, Cassegrain needed working capital to pay suppliers and keep production running smoothly.
Efic provided Cassegrain with a A$500,000 export contract loan to enable the company to deliver on its growing export contracts in Japan and China by investing in its manufacturing capacity.
Export contract loans give SMEs access to the finance they need support, when their bank is unable or unwilling to help, for a specific export contract or purchase order, multiple export contracts with different buyers, or involvement in an export supply chain.
Andrew Watson is the Executive Director, Export Finance at Efic