Demand (cash) first or localization first?

When entering a new market, the question often arises: should identifying the demand in the new market be the first priority, or should you focus on localizing your product or service first to be market-ready?

Honestly, there is no definitive right or wrong answer because every product or service is different, as is the target market. The approach to a new market varies, so it’s almost impossible to say which is universally right or wrong.

Demand is everything!

But let's consider the pros and cons of each option. The "demand-first" approach is straightforward: if you don’t believe there’s demand, generating revenue from the new market would be impossible. If you already have leads, or customers reaching out via your website or social media, then it’s clear there is demand, and you can decide to seize the opportunity.

However, especially in a market like Japan, if you don’t have website content in Japanese, Japanese consumers are unlikely to use English to search for overseas businesses. Some do, but not many.

This perspective is typically brought up by the overseas business side: if you don’t expect a return, why invest? It’s a simple, logical approach when thinking about entering a new market.

Nah, you don't get the importance of localization

On the other hand, the argument for localization suggests that to effectively communicate with customers in Japan, you must localize your product or service, as well as your sales and marketing materials. You’ll likely also need to set up a legal entity by hiring accountants and lawyers. This argument, often raised by local sales reps or agencies in Japan, is valid because if things aren’t localized, how can you engage with Japanese customers who don’t speak English?

From a legal standpoint, you must have a legal entity in Japan to conduct sales activities, including cash transactions within the country. Imagine traveling to Japan without setting up an entity and thinking about routing transactions through your headquarters in Singapore or elsewhere in Asia. The question is: will Japanese companies accept international transactions?

Additionally, if you’re a software company, will Japanese customers be comfortable with sensitive information being stored on overseas servers? The answer is usually no. So, it’s quite clear that you need to be properly prepared before engaging with Japanese companies.

Here are some of the typical questions Japanese customers ask overseas businesses:

1. Do you have customer support in Japan that can speak Japanese?
2. Do you have a legal entity here?
3. How many people are in your Japanese entity?
4. Do your engineers understand Japanese? If not, do you have bridge engineers?
5. Is your user interface translated into Japanese?

These are basic questions Japanese companies will ask. Logically, if you cannot answer those questions in a convincing manner, it becomes challenging to maintain engagement.

The only activity overseas companies can do in Japan without having an entity is market research, which includes finding partners.

Of course, finding partners is another big topic, so we won’t dive into that here. But if you can successfully find the right partner in Japan, you generally don’t need an entity because the partner will handle transactions. All interactions with Japanese customers go through the reseller or distributor, and overseas transactions occur only between the overseas entity and the reseller. Plain and simple.

What are the options, then?

To address this chicken-and-egg issue of entering a new market, it comes down to conducting proper research and validating the market based on your product or service. Every time we work with overseas clients, we use the analogy: when starting a business or trying to raise funds from venture capitalists or banks, you need a solid business plan, which includes market research, sizing, competitive analysis, and how your product fits into the market. We consider that to be market research and validation—engaging with the market to ensure your product works there, giving you solid evidence to present to investors.

In a market like Japan, we believe a similar process is necessary before even considering entry. Of course, it doesn’t need to be a one- or two-year in-depth research like starting a new business, but the landscape is different. It’s not like bringing an English product from the US to the UK. That’s why we see proper research and validation as essential to successful market entry in Japan.

If you're interested in doing market research and validating your product or service, that’s exactly what we do as a trial. Our goal is to generate revenue from this market for overseas businesses, so the research and validation phase serves as practical training—and you may even find potential leads in the process.

We offer this service for $1,500 over 30 days for startups and SMEs. For more mature companies, the speed of execution can be a bottleneck, making it almost impossible to complete research within 30 days. However, with smaller companies, we often communicate directly with C-suite executives, which enables us to work at a much faster pace, resulting in highly productive activities.

If you’re interested, please contact us.