Japan - The "Welfare" Economy
Japan is a deeply layered society, complex in social-cultural norms and economic challenges. Whether you are entering Japan for the first time as a start-up or have had a long-time in-country presence, successful integration, appeal and traction of a brand, product or service, can take considerable time and investment.
In 2003, Apple opened its first retail store in Tokyo - a notable entry in a market that has strong affinity towards local brands. Even today, you still see long lines of patrons queuing outside of their Omotesando Apple store long before its doors are open. Every weekend, the stores are bustling with people attending their myriad of free classes, from single millennials to Gen-X couples and families - they turn out to create and innovate with Apple products and their affiliates. Global brands like Apple - with heavy local footprints - are more of the exception than the norm in Japan - because of the complex dynamics of Japan's welfare economy. Unlike its attribution to low-income subsidy programs in the US, "welfare" in the Japanese context is more accurately referred to as the "health, happiness and fortune of a group or state".
"welfare is the health, happiness and fortune of a group or state"
In Japan, sacrifice for family, community and nation, is deeply ingrained and reinforced by educational, civic and corporate institutions. Children are taught delayed personal gratification for the benefit of family and the greater good of society. And as adults, salary workers devote long hours to their company and bosses, which can mean less hours for family. Though this cultural legacy of 'self sacrifice' still prevails across a myriad of institutions, it is changing in niche groups and among some younger generations.
Sometimes this translates to consumers' preference of local brands over foreign brands, because choosing local brands support local businesses which essentially support the economy as a whole. This is reinforced by the Ministry of of Economy, Trade and Industry (METI, formerly known as MITI - the Ministry of International Trade & Industry) - which has heavy influence over the industries that are subsidized in Japan. METI has over 100 departments and divisions under a myriad of bureaucratic entities, including commerce, trade policy, economic/industrial policy, industrial science/technology, and manufacturing (to name a few).
Historically, METI and corporations collaborated closely. Though there has been some restructuring in the past decade, the overlap of these two entities are deeply intertwined. Sometimes, this hurts competition and efficiency, as government preference for a particular industry may not be driven strongly by consumer demand. Japan experienced severe stagnation and decline throughout the 90's and lost significant competitive edge in the global economy from enormous debt, industry ineffectiveness and overcapacity. Japan's severe restructuring and massive layoffs in the 90's is more widely known as the "Lost Decade".
In one example, the United States has over 14,000 commercial banks, while Japan has about 158. In another example, the majority of Japanese consumers still prefer compact discs (CDs) to digital streaming of music, even when CDs cost significantly more. This is partly due to the way J-pop markets their girl and boy bands - urging fans to buy more CDs to raise their billboard rankings or for a chance to win concert tickets; but it is also largely due to the loyalty towards CDs - which Sony first commercialized.
In some areas, this "welfare" economy e.g. self-sacrifice for the greater good and strong work ethic, is taking its mental toll on Japan's society at several levels. Families spend less time together as "salary men" are required to put countless hours in the office on weekdays and weekends. A "survey by the country’s family planning association found that nearly half of married couples had not had sex for more than a month.. and 35.2% of men felt work left them too fatigue for sex" - as reported by the Guardian. Overworked dads mean children grow up mostly in one-parent homes and spouses are inundated with household duties. Some younger men and women are avoiding marriages and delaying having kids altogether - partly to deter from repeating the life that their parents had before them. This further exacerbates the low birth rates and the aging population dilemma. The backlash has even resulted in a rebelling millennial workforce that are choosing to leave their work offices at normal hours and avoid weekend work.
In the “Generation Z: Global Citizenship Survey”, published by The Varkey Foundation - the attitudes of young people aged 15 to 21 in 20 major countries were surveyed. "Young people in Japan had the lowest mental well-being of all countries surveyed" — particularly worrying given that the figures for 2014 gave suicide as the leading cause of death among Japan’s 10 to 19 year-olds. Japan's youth suffers from higher anxiety and pessimistic outlooks compared to 19 other surveyed countries.
Suicide is the leading cause of death among Japan's 10 to 19 year olds
During my time in Japan, someone had jumped in front of the train I was about to board. The welfare state can create an inadvertent shaming culture that becomes pervasive in family, social and professional circles - which can compound the fear of failure and further exacerbate short-term disappointments. Sometimes that leaves little room for making mistakes - which further compounds the mental anxiety of young people. In an OECD (Organization of Economic Cooperation and Development) study, "out of 35 OECD countries, only South Korean and Turkish teens rated their life satisfaction lower than Japanese young people."
The outlook of Japan's youth has major implications for Japan's future economy.
Brands worldwide are attracted to the Japanese market because it has a strong GDP per capita (USD $49.5K) with a population of 126M. Yet Japan is still suffering from 2 decades of stagnation from 1991 to 2010. In the next several decades, Japan's declining birth rates will have huge economic impacts on labor supply and gdp.
In the next several decades, Japan will have one of the largest aging populations in the world
Large amounts of personal wealth is not being spent, but rather sitting mostly in the Japan's Postal System - roughly USD$2.4 trillion, or one-third of the all the country's banking deposits. In each of Japan's 24,000 post offices there is a public bank, owned and regulated by the Japanese government. Similar to the US social security system, it gives the government enormous amount of spending revenue - which may or may not be repaid when payments come due. On average, Japan's savings rate is around 27% compared to 5% in the U.S. The Japanese government is under enormous pressure to move this personal wealth into the economy, but the biggest issue in Japan is weak demand and weak consumption. The strong emphasis on delayed gratification, savings and sacrifice is having an adverse impact on the economy and the Japanese government is struggling to reverse this trend. The Japanese government has even tried taxing savings and issuing an IPO for the Postal Service Savings Bank to influence consumption behavior, with slow impact.
The strong emphasis on delayed gratification.... is having an adverse impact on the economy and the Japanese government is struggling to reverse this trend
In addition to understanding Japan's welfare state, Japan also ranks lower in English proficiency than many of its Asian counterparts. According to the English Proficiency Index, Japan ranks lower than South Korea, Vietnam, Malaysia, Philippines, Taiwan and Indonesia. Because the language of the internet happens to be English, Japanese companies are playing catch-up in creating mobile products and services to meet the global consumer marketplace. Similarly, Japanese consumers are also slower to adopt mobile products and services than some of their Asian neighbors.
+ This can also impact the way Japanese consumers receive global products and services via the web - some can become fearful and distrustful of foreign brands offering innovative approaches to consumer platforms; this mental mindset makes awareness and adoption of global products and services much more difficult - hence, long sustained investments in deconstructing this mental mindset requires considerable community investment and organic sustainability.
Some Japanese consumers can become fearful and distrustful of foreign brands offering innovative approaches
In exploring Japan's welfare state and the tremendous push-and-pull between responsibility and anxiety, there's also great demand for escape, experiences and entertainment. Japan is also known to be one of the greatest entertainment, design and experiential meccas in the world. The late Anthony Bourdain lauded Tokyo as one of his most beloved cities. There's tremendous creativity that defies tradition and is constantly being let loose in Japan. The ones that sustain seem to have succeeded in creating value for the community while uplifting individual experiences.
Novel businesses are finding success in serving real needs. A former Japan Airlines employee for 34 years, Hideki started a business by renting out his companionship and conversation to help others. With years working in human resources and suffering from his own depression, he found that he could give back some of his life experience by being a good listener. He takes walks with elderly clients and has helped married women understand their spouses better. His business is booming and others also want to join his staff.
Is there a solution for foreign brands entering the Japanese market? No - not an easy one, but start with challenging assumptions and using non-traditional methods to engage the consumer and uncover their underlying truths. Be in it for the long game - as that is what it takes to build trust and value. Physical presence in a community with solid value offerings and engagement in the long-term serves as a solid reminder of what is beneficial to the Japanese welfare state. Break down any misperceptions that your offerings are short-term, ephemeral or white noise.
Some ways to rethink research and strategy in Japan
1. Keep Japan's welfare state in mind when positioning and marketing your product or service
+ Leverage partnerships with entrenched foreign brands and/or well-aligned local brands
+ Build sustainable presence and valuable experiences with individuals and with their communities 2. The Japanese home can be the most secret and protected space for Japanese consumers - that's why it's imperative that you find your way in...so you see and understand things in context
3. There is no magic number for how many people can be in a Japanese home for an ethnographic study - it all depends on the person and how you set up your recruiting and conversation. The more engaging, honest and delightful you are - the more organic the conversation and greater the insights
4. Japanese recruiters are under stricter consumer protection laws compared to their US counterparts or in other Asian countries - find recruiting partners that are flexible and proactive with global clients; find a partner with a healthy balance between legacy and innovation
5. Always challenge what you think you know - it's amazing how quickly niche groups develop in Japan
6. On certain topics, try using a foreign or an English moderator when engaging Japanese consumers - sometimes consumers are more willing to open up to a foreign moderator because there are less assumptions around what topics are taboo
And finally, allow yourself to make mistakes!