By Deanna Petersen, CBO of AVROBIO, and Ted Tanaka, consultant with Tanaka International LLC, as part of the From The Trenches feature of LifeSciVC
Imagine yourself setting out to do business in Japan. You step off the plane, check into your hotel, take a quick nap and then head to a restaurant to meet your potential new Japanese colleagues. You shake hands, sit down, enjoy a delicious meal, talk business – get straight to the deal – and then graciously pick up the check when it arrives at the table. It’s the beginning of a beautiful relationship.
Except that isn’t even close to how things are done in Japan …
While there are many important elements to business negotiation (including basic deal making tactics and strategies), partnerships that extend across international waters can come with a unique set of rules and nuances. A handshake to introduce yourself to someone you do not know is generally viewed as far too forward in Japan. You should know someone’s name before you touch them, which is one reason for the well-known Japanese emphasis on the exchange of business cards – cards essentially introduce your identity. And if you host a business dinner in Japan, don’t expect to talk about business, don’t settle the bill at the table and don’t tip — it’s considered demeaning.
As the third-largest pharmaceutical market in the world, Japan is a prime target for U.S. partnerships. It has similarities to the U.S. biopharma market; for example, Japan has a form of the Orphan Drug Act, as well as an accelerated approval process called Sakigake. But there are important differences, too. Drug approval is more of a two-step process, with marketing approval by the Pharmaceuticals and Medical Devices Agency followed by a reimbursement pricing process governed by the National Health Insurance system. There are also strict shipping rules on biological material which may make it more economical to manufacture drug product on the ground in Japan.
While there are many important factors to consider before journeying down the partnering path with a Japanese company, understanding a little bit about the country’s unique culture is a valuable prerequisite for doing business there.
Five basic rules for engagement in Japan
One: Mirror the culture of politeness and formality
You may sometimes be tempted to break the ice with a joke or casual remark, but in the context of a business meeting, slang and humor may be viewed as a lack of seriousness. While business negotiations can get stressful and contentious no matter where they take place, it is also vital in Japan to avoid confrontation, visible irritation, verbal explicitness or raised voices. The Japanese often try to avoid awkwardness or even a friendly dispute, which is why, at the hypothetical business meal we imagined at the outset, the bill would never come to the table. When hosting dinner for your Japanese business counterpart, you will discreetly pay the bill with the cashier at the front of the restaurant before the meal winds down.
First meetings are more formal, too. Instead of shaking hands, you first introduce yourself using your last name and then present your business card with both hands so that it is readable to the recipient. Again, the business card is a formal representation of a person’s identity. So that means when accepting another’s business card, avoid writing on it and treat it with respect. Do not just fling it into your purse or briefcase, and definitely do not leave it behind, as that is seen as disrespectful. And if you really want to impress your Japanese colleagues with your understanding of their culture and customs, after you exchange business cards then immediately bow for about three seconds and do not extend an American style handshake.
Long after introductions are over, Japanese business culture continues to emphasize formality to express politeness and respect and help build relationships and trust. In more traditional settings, colleagues from different companies never use first names unless invited to do so – it is too personal. Instead, use a person’s last name with the honorific phrase “San” following it to show respect. If someone’s last name was Tanaka, it would be “Tanaka-San.”
The Japanese are courteous to the point that they may not even reject a deal with an outright “no,” and will avoid a negative response, if possible. And if that moment does come, expect the utmost politeness. One U.S. biotech executive of our acquaintance had the experience of flying to Japan with the intention of coming to a mutual agreement with a Japanese company only to discover that no meeting would occur – the deal was off. The Japanese negotiators felt they owed the executive the courtesy of a face-to-face rejection, even at the cost and inconvenience of two trans-Pacific flights.
Ultimately, going the extra mile to learn specific local customs and etiquette can help build trust early in the establishment of a successful partnership. Demonstrating this knowledge also signals an attention to detail – even small things like writing out dates (year-month-day, all in numerical form) and addresses in the Japanese manner (start with the postal code, then state, city, district name, etc.). Such thoughtfulness will not go unnoticed.
Two: Recognize that Japan is a consensus-driven, risk-averse society where decisions take time
Japan is a society where decisions are made through consensus and where all interactions are defined by respect. It is thought that having more minds focused on a decision is better than having one champion or leader who has the final say. As a result, deals may take time and cannot be rushed. In our experience, there is no such thing as a quick deal in Japan.
Never expect to reach agreement in the conference room in Japan, as private discussions are needed before any decision is made. And if you do pressure the Japanese for a decision, they are more likely to slow down than pick up the pace, sensing your urgency as a sign that something may not be right. Quick decisions leave more room for error: the Japanese are risk-averse and apply due diligence to every action they take to ensure important details are not missed. In a business culture where employees often stay with the same company for 30 years, people have an innate understanding they will have to live with their decisions for the long run.
Three: Know your audience
Slow decisions also make sense if you consider your audience: the Japanese party you are courting is likely a manufacturer, whereas you are likely to be in the business of R&D. After signing a contract with a U.S. company, a Japanese firm may need to pull a salesforce and facilities together and sell the product for the lifetime of the patent, which could be a 20-year commitment.
Additionally, in Japanese biotech deals, targeting both the business development and the R&D team is important. First, any proposal to a potential partner will require going through a Japanese company’s business development and licensing department, which likely includes license evaluation, license negotiation and license management. After a license agreement is signed, the last group will become the permanent team assigned to implementing and managing the signed contract – another example of how your counterparts are in it for the long haul.
But BD teams cannot do their job without R&D in their court. While Japanese BD teams will be more familiar with U.S. customs, it’s even more important to exercise Japanese etiquette with their R&D teams, who may not be as familiar with American business practices. Their exposure to your language may also be more limited. In many companies, R&D technical experts will know your technology by reading English material but will not understand it in live conversation – consider discussing whether an experienced, technical translator is needed during the meeting. Only companies in a full-time international business will be fluent in English – domestic companies, even in the largest cities, often will not have many fluent speakers.
Given the language barrier, it is in a presenter’s best interest to avoid confusion by following agendas and slides to a tee. Ensure verbal communications are precisely aligned with written materials and place more emphasis on diagrams and handouts over conversation when relaying complex concepts. And because Japanese businesses tend to make decisions based on a historical lens, compare your data to the current standard of care instead of sharing forward-looking projections, which will be less valued.
Finally, keep your mind open to meeting with Japanese counterparts outside a formal setting or dinner – an international conference is a great opportunity to connect with a peer from a Japanese company of interest.
Four: Business is built on relationships
It’s true anywhere in the world that relationships are essential to business success. But in Japan, those relationships are deeper, more complex and more personal than in other parts of the world. For example, the Japanese are gracious hosts, and if you have advanced your negotiations to the more detailed, advanced stage, long, late and delicious dinners are part of the process. It is important for you to also invite your counterparts to lunches or dinners after your business meetings to further deepen your engagement with your potential partners – reciprocating at the right time throughout negotiations is vital. In Japan, time spent at meals is just as important as time spent in conference rooms – people do deals with people they like. But again, contrary to our imaginary opening anecdote, meals are not for business discussion; they are purely for relationship building. Meetings are not where decisions are made – it is where information is gathered. Strong, personal relationships better round out people on both sides of the license agreement.
If you really want to be on your A-game, participate in the gift-exchange culture of Japan, which is shared with other parts of East Asia. In the United States, you may give a gift to a business colleague to mark a special occasion or celebrate a shared accomplishment, but in Japan gifts are seen as a way to build, not just recognize, relationships. So be thoughtful in the selection of your gift and ratchet up the thoughtfulness of the gift as the relationship deepens. For example, initially bring a gift that reflects where you come from – maybe it’s baseball caps from your home team or a regional food product like maple syrup. As you get to know your counterpart across the table, make the gifts more personal. A well accepted and appreciated gift-giving option is to have a seasonal fresh fruit basket (carefully gift-wrapped) delivered from a local market about an hour before your meeting. Whatever it is, gift-giving is seen as another great relationship-building tool.
Five: Don’t go it alone
Finally, no matter how strong your BD team is, know when you need to bring in a local consultant who can help you navigate the Japanese market. I (Deanna) have traveled to Japan 4-5 times over the years…including Tokyo, Osaka and Kyoto…and have always utilized a consultant to help make business development connections and organize the trips. Along the way I’ve tried to implement the Japanese training and tips I’ve received, and it has been very much appreciated by my Japanese counterparts who are genuinely grateful to interact with a Westerner who has learned and respects their customs and ways of doing business. Depending on your own company’s needs, local expertise might come in the form of a single expert or an entire company that has experience getting drugs approved in their respective market. If the deal eventually requires a company entity or manufacturing facility to be set up, those consulting relationships will also facilitate the hiring of local experts to run it.
Biotech is a complex business, and often these sorts of arrangements allow a biotech company to focus on what it does best – discover and develop new solutions for unmet medical needs. International partnerships can help more patients benefit from those innovations, expand a growing company’s commercial horizons and often provide a useful source of funding, as well. If you end up partnering with a Japanese company, it might just be the best corporate relationship of your career.