Given the demand for devices such as image reading software in the Japanese market, MediTech will introduce the thermomed™ Pro to the Japanese medical sector. It is a non-invasive diagnostic system using Digital Infrared Thermal Imaging (DITI) to detect physiological problems. It also provides information about a patients’ response to treatment and their subjective feeling of pain. It offers accurate measurements at less than half the cost of conventional systems with comparable temperature and spatial resolution. It is simpler, easier-to-use, more durable, with longer camera calibration intervals and it delivers the accuracy of the much more expensive systems.
The thermomed™ Pro has two parts, the IR camera and a standard PC or laptop computer, making the system very portable. The system has been designed to be user-friendly with very few controls and the software is intuitive and menu driven.
The thermomed™ Pro does more than simply scan and record thermal images. Due to the fact that it is a PC based software, the system can hold vast amounts of data on thousands of patients. Images can be stored and retrieved for later analysis – this ability to statistically analyse the thermograms at a later date is very important in clinical work. Copies of images can easily be sent via e-mail, floppy disk, etc to referring doctors or other healthcare professionals.
Apart from the digital imaging system, the thermomed™ series also include other products suitable for nursing home facilities. The system is undoubtedly an economical easy-to-use tool for examining and monitoring patients quickly and accurately. MediTech, together with its Japanese associate will provide training, support and consulting services for MediTech’s customers. The need for cost-effective solutions that are reliable, user-friendly and “hi-tech” are high in demand in the Japanese market, therefore the introduction of the thermomed™ Pro may be acknowledged with a good response in the medical sector.
3. Country Analysis
3.1 Country Overview
Japan has built itself to be a high-income, developed country, with a highly urbanized population of approximately 127 million, and a population density of approximately 335 people per square kilometre. The country of Japan is divided into various sectors specializing in certain industries whereby over 44% of the population resides in the major cities such as Tokyo, Osaka and Nagoya. Since MediTech Inc. is involved in the medical industry, it is therefore pertinent that the company is based in Osaka to take advantage of the high concentration of biotechnology R&D around the northern Osaka area and the manufacturing bases in Osaka City and Higashi Osaka City. An alternative location would be Hyogo Prefecture – Kobe City where the medical industry is centred and costs are relatively cheaper as opposed to Osaka.
3.2 Political Risks
Japan is noted to be a country with relatively low political risk. This is an important factor when taking into consideration the ideal country for expansion so the company will not be frequently concerned with issues such as labor strikes and changes in law and policies governing operations of foreign-based companies. The less developed the country, the more difficult to predict political risk (Keegan, 2002).
3.3 Product-Market Profile
Apart from being the world’s second largest economy, the country is a promising market, with a market scale ranking among the top of the developed nations (Refer to Appendix 1). Japan boasts a very homogeneous, affluent society, with a rapidly aging population and one of the longest life expectancy rates in the world. By 2040, it is estimated that nearly one third of the Japanese population will be older than 65. With one of the lowest birth rates in the world (0.2 per cent) and negligible immigration, the overall population is ageing rapidly, with life expectancy for Japanese women now 83.99 years and 77.1 years for men.
Table 1 : Population aged 65 years old and over - % of total population
Source: OECD Health Data 2003 – Refer to Appendix 2 for full table
Though the Japanese economy is showing signs of recovery, consumer spending is still slow-moving. However with the elderly population of Japan (as a percentage of the total population) which accounts to the largest of any nation except Italy (as displayed in Table 1 above), it indicates that even without economical recovery, companies involved in medical devices especially for the care of the elderly population will continue to see a gradual steady growth in the demand for such products in the Japanese market.
3.4 Country/Prefecture Infrastructure
The company (MediTech Inc.) will most likely focus on the area of Hyogo-Kobe as a foundation because it is located close to the geographical center of Japan. The Hyogo-Kobe sector has developed as the center of “Kansai”, the country's second largest economic bloc, since early times. With the Port of Kobe and Kansai International Airport, major international trading port and airport, further growth of Hyogo-Kobe is expected to develop into an economic zone poised to facilitate the efficient transaction of world wide business. Hyogo-Kobe, having the advantage of being the center of a large economic bloc, allows business advancement at a very low cost as compared to the Kanto bloc, where Tokyo is its hub.
Being situated in Hyogo-Kobe will allow MediTech Inc. to be within reach of its natural resources, which are sourced from major corporations such as Toshiba, Nikkon etc. The sector also provides a diverse range of incentives from national incentives to support for foreign-affiliated companies, comprising of tax incentives, subscription, guarantee of obligation, advisor system etc. Due to the fact that Japan boasts one of the highest rates of university attendance among developed nations, talented, highly educated human resources are available in abundance, and since Hyogo-Kobe is the core of the medical industry, there are many professionals and technicians in the field of medical devices.
3.5 Market Access
The Japanese government, through the Ministry of Health, Labor and Welfare (MHLW) regulates all medical devices whether manufactured in Japan, or imported. The country’s regulatory environment attempts to ensure that only safe and effective medical devices are approved. Refer to Appendix 3 for further details.
3.5.1 The Medical Device Market
The major competitors in the Japanese market for medical devices are mainly corporations from the U.S as shown in the table below. They dominate in categories such as pacemakers, advanced interventional cardiology products and other advanced device categories. The total market for medical devices is difficult to measure because different sources offer widely differing figures. Exchange rate fluctuations and different methods of estimating market size contribute to the disparity in estimates.
Table 2 : Japan’s Medical Device Market (in billions of dollars)
Source: International Trade Administration, Japan Country Commercial Guide 2000
4. Trade and Investment Benefits - WTO and APEC
4.1 Deregulation
Japan, one of the most powerful nations in the world, is not a member of any free trade agreement, however it is a member of APEC and WTO, and also the United States' largest non-NAFTA trading partner.
The Japanese Government's multi-year deregulation program, while modest, has eliminated a range of impediments to business activity. It hurts both manufacturers of medical devices and equipments and Japanese citizens who are denied access to innovative, cost-effective, life saving equipment and treatments. In addition, many Japanese corporations have been aggressively restructuring their businesses to reduce costs, improve profitability and enhance their competitiveness. The potential exists to reduce costs and prices to world levels, thereby stimulating demand and growth. Steps have also been taken by the Japan Fair Trade Commission (JFTC) to increase competition. These elements are in addition to the stimulus to competition provided by Japan's further liberalization of its trade and investment regime, partly in accordance with WTO commitments. These measures have in return, contributed to growth in sales of internationally competitive medical devices and equipments. Foreign investment into Japan, which more than tripled in 1999, is contributing to a more vibrant business environment (U.S Department of State, 2000).
Increased sales of devices in recent years can also be largely attributed to rapid technological innovation within the industry. Although substantial barriers to the timely introduction of new medical technologies into Japan remain, a number of policy modifications recently implemented by Japan’s Ministry of Health and Welfare (MHW) have eased some market entry hurdles. These steps included an expansion in the number of products for which foreign clinical data is accepted in the product approval process, which has been a key concern of exports into Japan.
4.2 Trade and Tariff Grants
The Japanese Government has recently taken several measures to increase access for foreign suppliers to the government procurement market. The market demand for some imported durable medical equipment may benefit as a result of a recent change in rules affecting purchases by municipal governments. For procurements funded by the central government, local governments in Japan now possess the authority to utilize the Overall Greatest Value Method (OGVM). This allows procurement decisions to be made based upon selecting the medical equipment that provides the best overall value. Previously, procurement rules required selection of the lowest cost supplier meeting the bid specifications. Given the company’s (MediTech) advantage in developing the most sophisticated medical devices, where higher initial product costs are often offset by long-term cost savings, it is anticipated that the company will benefit from this change.
The tariff is Japan's principal trade policy instrument. Most imports to Japan are either duty free or are subject to low tariff rates, which are in fact one of the lowest in the world. In the fiscal year (FY) 2000, the simple average applied MFN tariff rate was 6.5%; the rate is expected to fall to 6.3% once the Uruguay Round tariff cuts are fully implemented, by 2009. Nearly 99% of tariff lines are bound and most applied tariff rates coincide with bound rates, thereby imparting a high degree of predictability to Japan's tariff schedule (Australian Trade Commission, 2003).
As a member of the Harmonized System Convention, Japan shares the same trade classification system as the United States. Japan’s tariff schedule has four columns of applicable rates: general, WTO, preferential, and temporary. Goods from the United States are charged WTO rates unless a lesser "temporary" rate exists. Japan’s preferential systems of tariffs grants lower or duty-free rates to products imported from developing countries. Given that, MediTech can therefore benefit from lower tariff grants since it will be exporting part or all of the medical devices from Australia.
5. Market Entry Strategies
Japan is a large and sophisticated market, and the competition can be fierce especially in the medical equipment and devices sector where U.S firms dominate most of the imports. One of the most powerful strategies for penetrating a new national market is to offer a superior product at a lower price (Keegan, 2002). The thermomed™ Pro is offered at a competitively low price, and with this price advantage, the product will get immediate customers’ attention. As for hospitals and physicians who purchased the thermomed™ Pro, the superior quality will make an impression.
MediTech can adopt the incremental approach to expansion whereby the process begins with exporting, followed by setting up local sales subsidiaries, and then the establishment of production facilities (Verlag, 2002). This incremental process allows the company to learn from the experience they acquire in the initial operations, and use this knowledge to reduce the uncertainty they face in subsequent expansion efforts. Additionally, it protects the company from the downside risks of failure by increasing its overseas resource commitment over a certain time period, contingent on the performance of prior foreign operations.
Alternatively, MediTech can begin by immediately setting up a joint venture with its Japanese associate Nihon Schering, a unit of Schering AG. The companies can then sign a marketing and sales agreement so the product(s) will be marketed to hospitals and physicians in Japan, simultaneously giving them the exclusive rights to sell the product. Nihon Schering can then provide sales, support, training and consulting services for MediTech customers, with an emphasis on thermogram interpretations. The notion of a joint venture will benefit the company in terms of keeping capital at minimum, decreased risks, build a national image, gain market knowledge with an access to a distribution network, recruitment of labor etc. (Luostarinen and Welch, 1993, p.159).
Apart from establishing a joint venture, MediTech may choose to enter the market through acquisition of a local Japanese company. This strategy allows the employees at the Japanese acquired company time to adjust and adapt to the “new working environment” whilst also allowing the company more time to evaluate and value the worth of the acquisition target.
Despite high rental costs, MediTech should consider locating a sales office in Tokyo (together with most U.S. companies) because of the need to interface with Japanese customers, to obtain market information and in many cases, to handle relations with Japanese Government ministries. Consumers in Tokyo are more likely to come into contact with foreign products, food and styles than elsewhere in Japan. It has been noted that other good export prospects to the Tokyo area include medical products, computers, telecommunications hardware and software and business services. The idea of a production facility or manufacturing plant can then be assessed at a later stage after the product has established a direct presence in the Japanese market. This is known as a defensive strategy whereby the firm will benefit from local manufacture, thus be enabled to knock out imports as it grows more efficient or becomes better able to cope with demand (Brooke & Remmers, 1970, p. 230).
6. Conclusion
International operations and exports to foreign markets are subject to a number of risks, including currency exchange fluctuations, trade barriers, exchange controls, national and regional labor strikes, political risks and risks of increases in duties and taxes, as well as changes in laws and policies governing operations of foreign-based companies. (Shapiro, 2002, p. 122). The membership of Japan in WTO and especially APEC has encouraged foreign and international speculation and trade, which in return helps the economy to grow and create job opportunities. Hence, the establishment of MediTech in Japan will contribute to the overall economic situation of the country in terms of revenue and decreased unemployment rates. APEC works to create an environment for the safe and efficient movement of goods, services and people across borders in the region through policy alignment and economic and technical cooperation.
The regulatory regime for medical devices in Japan is very strict, however efforts at deregulation in both the medical device arena and economy-wide continue. With regards to market entry, MediTech can establish a joint venture with its Japanese associate, Nihon Schering to allow time on building a better understanding of the market before establishing an independent foreign presence. Overall, while growth in Japan’s medical equipment and devices has slowed, there are still opportunities in the country for companies with products that provide cost effective solutions.
7. Recommendations and Implementations
The diagram below is a proposed guide on the Establishment and Development of the Business in Japan.
1. Before entering the market
Access the Japanese Market
Selection of an office site
Feasibility study for inward direct investment to Japan
Selection of Form of Entry into Japan
Registering the company
Law and Regulations related to the medical device and equipment sector
2. Entering the market
DIRECT INVESTMENT
- Capital Participation in a Japanese Company
- Changing a Branch Office to a Japanese Corporation
- Procedures for Joint Ventures
- Purchase of a Japanese Company
- Acquiring Real Estate
- Opening a Bank Account
TAXATION SYSTEM
(E.g. corporate tax, consumption tax, taxation system on profits from the sales of shares and securities, taxation on remittance of profits, registration of establishment of salary payment office etc.)
EMPLOYMENT
(E.g. Relations between labor and management, labor unions, procedures for recruitment, general personnel systems etc.)
FINANCING
(E.g. Loans, leasing, opening of bank accounts, stock listings etc)
FINDING AN OFFICE
ADVERTISING AND INSURANCE
NECESSARY PROCEDURES FOR REPRESENTATIVES
3. Upon Entering the Market
EXPORT, IMPORT AND SALE OF PRODUCTS
- Flow of Export-Import Procedures
- Preparations for Transactions
- Procedures for Contracts
- Settlement of Accounts
- Transportation
- Insurance, Trade, Finance, and Taxation
- Pre-Check & Test
- Customs Clearance
- Measures against Complaints
- Items of Expenses and Business Practices
- Trade Agreement
MANUFACTURING
(E.g. restricted areas for industrial location, national and local incentives, procedures in purchasing an industrial site, pollution regulations, subcontractors etc.)
RESEARCH AND DEVELOPMENT
(E.g. Search a partner company for research support and joint study, financial support for R&D, location of research institutes etc.)
Source: Ministry of Economy, Trade, And Industry (METI)
8. References
Australian Trade Commission, Austrade – For Australian Exporters <http://www.austrade.gov.au/australia/layout/0%2C%2C0_S2-1_CLNTXID0019-2_-3_PWB162870-4_-5_-6_-7_%2C00.html> 2003
Keegan, W.J. (2002), Global Marketing Management, (7th edn), Prentice Hall, Sydney.
Brooke, M.Z., & Remmers, H.L. (1970), The Strategy of Multinational Enterprise, Longman Group Limited, London
Luostarinen, R., & Welch, L. (1993), International Business Operations, Kyriiri Oy, Finland
Ministry of Health, Labor, and Welfare (MHLW), (1999), Annual Report on Health and Welfare 1999, Japan
Ministry of Trade, Economy and Industry (METI), <http://www.meti.go.jp> 2003
Shapiro, A.C. (2002), Foundations of Multinational Financial Management, (4th edn), John Wiley & Sons, Inc., USA.
U.S Department of State, (2000), FY 2001 Country Commercial Guide: Japan
Verlag, G. (2002), “Foreign market uncertainty and incremental international expansion: the moderating effect of firm, industry, and host country factors” Management International Review, Vol. 42, No. 4, p. 419
World Health Organization (WHO), The Japanese and Healthcare
<http://www3.who.int/whosis/country/indicators.cfm?country=jpn&language=en> 2003 (Accessed 19 August 2003)
