You've decided to enter Japan...

...which market entry option is right for you?

Medical device companies have an array of options for entering Japan. The right option for a specific company depends upon its resources, level of risk tolerance, and the overall market opportunity for its portfolio. Smaller companies with limited portfolios and resource constraints tend to favor distribution agreements. Larger companies with broad portfolios and more substantial resources tend to opt for more direct modes of entry such as co-marketing, acquisition, or a "go-it-alone" organic build out of the organization.

In reality, for most companies, market entry is an evolutionary process in which they leverage multiple options over the course of a business expansion. New entrants will typically enter the market via a distribution agreement but will choose to pursue a more direct entry option once they've had an opportunity to learn about the market and have begun to generate significant cash flow.

Distribution agreements are particularly attractive for companies that do not have the experience or resources to pursue other options. By entering into a distribution agreement, companies are able to limit their investment while still generating sales and learning about the market. In exchange, these companies sacrifice a portion of their sales to the distributor (usually 30-50%). As the business expands, the dollar value of the margin given to the distributor increases. As a result, most companies choose to enter more directly and will establish their own Japanese entity. Conservative companies may choose to start small via a co-marketing agreement; however, more aggressive companies make acquisitions or "go-it-alone" and choose to build organically. Although joint ventures are a possibility, the history in Japan is that they do not produce the same level of control or profitability as other options and are often fraught with problems (e.g., conflict of interest with parent companies, inability to attract top talent, slow decision making, etc.).

In recent years, well-capitalized companies have been more aggressive about building a direct presence in Japan. Companies with significant scale and resources have chosen to boost their commitment to Japan as a way to drive growth. They have done this by either 1) taking back the products sold by their distributors to capture additional margin (e.g., Boston Scientific / Japan Lifeline) or 2) entering Japan for the first time to drive an increase in international sales (e.g., AMS, KCI).

To know which market entry option is right for your company, it is important to make an honest assessment your organization?s appetite for investment and knowledge of the Japanese market. Smaller companies with niche products and little experience in Japan tend to fare better with distribution agreements. Larger companies with more significant portfolios and a greater familiarity with Japan often find that a more direct mode of entry pays substantial dividends.