The Importance of Building Trust in a Negotiation in Japan

As someone who has spent a deal of time living/working in Japan, I can say without doubt that Americans are from Mars and Japanese are from Venus. In the US, we say “the squeaky wheel gets the oil” while a Japanese proverb goes “the nail that sticks up gets the hammer”. Same scenario, yet completely different interpretation. Such fundamental difference in cultural norms have posed THE major hurdle for US companies from succeeding in the Japanese market and, conversely, Japanese companies from succeeding in the US market. Takeda, an uncommon (in fact the only) example of a Japanese company achieving success in the US, hired an entirely American management that was entrusted with actual decision-making powers. In a series of posts, I will take a closer look at such key differences that impede successful business development endeavors – on both sides of the Pacific.

The Importance of Building Trust in a Negotiation in Japan

Introduction

Without doubt, trust is vital for any business discussion anywhere. However, Japan is unique with respect to trust. It takes considerably longer and is more complicated because Japan is a culture and society that operates by building consensus and collaboration. It’s not a matter of gaining trust with one person alone, but rather all the stakeholders.

Main Content

Pernille Rudlin does a masterful job of explaining trust in her book Shinrai. The Japanese word for trust is “Shinrai”. Shin meaning “believe” and further “person” and “word”. Rai meaning “to request” and further “bundle” and “leaves or pages”. It implies communication between people is a fundamental part of building trust, but also getting things done and pulling together.

There are four elements of trust from the Japanese perspective:

1. Communication – Having a common language is critical. Unfortunately, Japanese is one of the most difficult languages to learn and Japanese feel similarly about English.

2. Interests – People have differing degrees of interests, but finding mutual interests means that there is a stable basis for negotiation.

3. Processes – An agreement needs mutually recognized standards to work well but Japanese companies are notorious for getting bogged down in bureaucracy and process.

4. Reliability – When you trust someone, it is not only because you believe they will obey the law, but also that they will do what they say they will do. For Japanese companies, this can be hard to define as the culture is often a family style one. Everyone’s roles are vague with no concrete job descriptions and a heavy reliance on a seniority-based hierarchy. It’s assumed everyone will do whatever necessary, in the best interests of the family or company.

 

So, what can you do to build trust?

  • Have someone on your team that speaks Japanese. You can hire a translator, but the quality is highly variable and the translator will not be able to replace your business acumen. For example, during a diligence meeting I faintly overheard the Japanese company’s team saying the technology was interesting, but they were unclear how they would structure a deal with a US start-up company. Later that evening after dinner, I met them in the hotel bar to discuss their concerns and laid out a path forward – we literally drew it out on a paper napkin. This never could have been achieved without being able to have an intimate conversation in a common language.
  • Engage in small talk – it’s a way of discovering mutual interests, which means mutual understanding. Compromises and agreements are more easily gained this way. For example, I was at a hopeless impasse negotiating a term sheet on behalf of a US client despite having several face-face meetings with the teams. I happened to bump into a junior member of the Japanese company’s team in the hallways of the BIO conference. We walked outside so he could take a smoke break and engaged in small talk. In repeated small talk over a smoke spanning three days, we both started to share the objectives, constraints, priorities that each side was facing. We ultimately were able to find terms that were acceptable to both parties and went on to close the deal.
  • Show that you are obeying regulations and following processes, but realize that ultimately this by itself will not be sufficient. How you do something, in terms of your intentions and behavior towards others, is as important as carrying out the process correctly and obeying the law. I always advise my US clients to never brag. As counterintuitive as it may seem, putting yourself and your organization down will actually raise your “trustability factor”. Nothing highlights this concept better than when I observed the CEOs of two very large Japanese companies spending the first 15 minutes of their very first meeting for M&A talking about how bad and poorly run their own companies were.
  • After the deal is done and a collaboration is established, prepare to be somewhat flexible and not always stick to the letter of the written contract.  I spent nine years as VP of Mergers & Acquisitions at Nikko/Blackstone.  Occasionally I would be involved in a Japan-Japan transaction (vs a cross border deal).  I was always amazed how short the written documents were.  I recall asking the head of the department why that was so.  His simple reply “Do what’s right for the collaboration and the collaborators will treat you right”.

Conclusion

As daunting as Japan can be, taking the time to understand your potential partner and carefully taking the steps to build TRUST will save time, energy, aggravation and will result in a business relationship that can survive the inevitable issues that will arise. Once trust has developed and a relationship is built, the path to closing a deal can be no more difficult than a US-US transaction (in fact less difficult in many cases) and the outcome extremely rewarding.

By way of example, a recently completed transaction has developed into a true win-win for one of MedCI’s clients.  Although it was not part of the original contract, the Japanese company suggested and funded product improvements that have benefited both the client and their retained territories (it is a Japan only license).  Our client, the US company, has gone out of their way to meet regularly with their Japan counterparts and openly discuss any/all issues – In short, they have established TRUST.  The two parties are now discussing additional new products built on the same platform and MedCI has continued to stay very involved in a consulting role for the collaboration.

Author: Tom Burger. Tom has spent approximately 1/3 of his life living, studying and/or working in Japan with high proficiency in Japanese language and business norms.

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