Entrepreneur Association of Tokyo
Seminar Summary - Saying Yes to Japan

"Saying Yes to Japan"
Mr. Carl Kay
April 2005,

When outsiders talk about Japan, the phrase kyakusama wa kamisama —“the customer is God”—frequently pops up. Whether it's the white glove service from taxi drivers or the exceedingly polite department store clerks, Japan has a reputation for providing customers with uniformly excellent and elegant service, arguably the best in the world.

But as author Carl Kay explained to an audience of entrepreneurs at EA-Tokyo's April 2005 seminar, Japan's service market isn't the consumer paradise many believe it to be. In fact, he says, it's a market characterized by people badly underserved in crucial service sectors such as finance, health care and real estate—a “trillion dollar hole” of opportunity waiting to be filled by innovative entrepreneurs.

Kay's recent book, “Say Yes to Japan—How Outsiders Are Reviving a Trillion Dollar Services Market”, which he co-authored with U.S.-based entrepreneur Tim Clark, details some of these shortcomings:

- Irresponsible lending practices, discrimination and a host of unwritten rules that shortchange customers in the banking industry.

- Bad service at hospitals, where patients are often subjected to poor hygiene, treated by incompetent doctors and underprovided by available technology.

-Sleazy rental practices, conflicts of interest and lack of transparency at real estate agencies.

- Loan sharking, usurious interest rates and other shady dealings in the financial services industry.

- Burdensome regulations, low competition, protection for inefficient players, and other arcane business practices that provide little value to consumers.

In essence, Kay says, while many Japanese consumers enjoy an exemplary level of service when visiting gas stations or getting their gifts wrapped, their critical, “deeper level” service needs are not being met. He asks: “Which matters more, complicated financial services or superficial services?   If you want to get financial services, is Japan the place you would go? Probably not.”

Kay says banks are an instructive example of how Japan's service sector hurts consumers and, ultimately, hampers the economy. It is quite common, for example, that Japanese banks make superficial judgments on the credit worthiness of their customers based on who they work for; the more prestigious the company, the better the deal. Loan interest rates are just a few percent for qualified customers, but those who fail to meet lending criteria must pay up to 30% at consumer finance companies which are allowed legally to lend at loan shark-like rates of 30% per year . The entire middle of the market, where rates of 6-15% would be expected for medium risk customers, barely exists in Japan. On the other side of the equation, he says, banks consistently offer investment products paying absurdly low rates. Other irresponsible examples include an unwritten policy at some banks that bars single women and foreigners from home mortgage loans and refusal of loans to self-employed individuals even if they have sufficient assets and income.

The upside of all these problems, Kay says, is that an enormous opportunity exists for innovation in Japan's service sector for those willing to take bold risks. In many cases, domestic competitors simply lack the methods and techniques common overseas. In others, outsiders can create powerful advantages over competitors simply by injecting common sense and rationality into existing processes.      

Some examples of entrepreneurs who've already made inroads include:

- Todd Budge, an American who has downsized, streamlined and automated operations at Tokyo Star Bank, boosting the bank's profits at a time when many other banks are struggling.

- Suda Tadao, an entrepreneur who renovates old homes and sells them for 30 percent less than comparable homes. Fighting entrenched biases against “used” homes in the real estate market, he has helped bring home ownership to a new class of Japanese buyers.

- Song Wen Zhou , a Chinese entrepreneur who recognized the irrationality of traditional Japanese sales habits and introduced a software-driven service that has helped reform the way salespeople work and are evaluated.

- Kameda Hospital, run by an American COO, has challenged Japan's medical orthodoxy through intensive application of IT.

Kay says that even when barriers to entry such as tight market regulations appear insurmountable, opportunities abound for risk-takers around the edges of Japan's service economy. “Japan has a highly regulated health care system, but Kameda and others have shown that vast profit potential still exists,“ he says.

Meanwhile, American Seth Sulkin has de velop ed a shopping mall called “Vivit Square” based on an American mall model. Vivit's shopper-friendly features have made it a huge hit among consumers. Sulkin did what Kay and Clark call in the book “cultural arbitrage”— exploit business practice gaps between cultures. More simply put, foreign entrepreneurs take advantage of their foreigner status to bring innovation to a previously stultified market.

“Seth isn't chasing fashion, or competing on price. He's just taken something common in his own country and adopted it in Japan,” Kay says.

Kay points out that now is the best time for entrepreneurs to jump into the Japanese services industry. Due to recent reforms, he says, it is easier than ever for outsiders to start businesses here. The bottom line is, Japan's domestic economy needs revitalization that will no longer come from population increases. As the population ages, economic expansion will likely come through delivering better ideas, strategies and approaches in critical, not trivial, services. The key for entrepreneurs, Kay says, will be to:

- Apply standards and proven service methodologies.

- Take advantage of the speed and flexibility enabled by IT.

- Take bold risks, be flexible, and use good risk management practices.

- Deliver greater professionalism to Japan.

- Maintain customer focus.

Employing such strategies , Kay says, will lead to success for entrepreneurs in Japan's multi-trillion dollar services economy.

See more about Clark and Kay's book, “Say ing Yes to Japan—How Outsiders Are Reviving a Trillion Dollar Services Market” at the book's web site www.sayingyestojapan.com

Text: William Steele

William Steele is a writer and editor at Business Grow, an innovative company specializing in providing a wide range of top quality Editorial and Advertising services to Japanese and foreign organizations.

For information about Corporate & Publicity Writing and Editing, Corporate Newsletters, Seminar Summaries, Translation and other valuable services, please contact info@businessgrow.net