"The Essential Secrets You Must Know for Japanese Service Industries to Succeed Overseas" Mr. Hironobu Kitagawa, Japan External Trade Organization (JETRO)

Mr. Taro Minami of DENTSU SOKEN INC. Japan Studies Group interviewed Mr. Hironobu Kitagawa, who served as General Affairs Manager in the General Affairs Department and as Chief of the Service Industry Department at the Japan External Trade Organization (JETRO), where he conducted research on Japan's service industry for many years and supported overseas expansion.

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Business leaders themselves should walk the streets of each country

Minami: The need to promote a service-based economy to revitalize the economy has been advocated for a long time. How do you view the recent overseas expansion of the service industry?

Kitagawa: Overseas expansion by retailers began in the 1970s, initially targeting local Japanese residents as the main customer base. However, from the late 1980s, the focus shifted to targeting local commercial areas. Then, expansion accelerated dramatically from 2008 to 2009. Faced with a stagnant or shrinking domestic market, the number of companies rapidly increased, diversifying into sectors like food and beverage, beauty and wellness, and education. Even industries and business models traditionally seen as domestic demand-driven found that uniquely Japanese services were accepted locally. I can feel this paradigm shift happening firsthand in recent years.

Minami: What are the key points for successfully expanding overseas?

Kitagawa: Above all else, the business owner themselves must walk the streets of the target countries, thoroughly comparing and evaluating them. It's crucial that the same person visits and compares all potential locations, rather than having different people inspect separate areas. For service industries, raw, unfiltered information is vital. You must use your five senses to gauge whether your products match the maturity of the local consumer society and the characteristics of the commercial district. Walking the streets yourself yields insights unique to a business owner, like realizing "this market resembles Japan back then." Companies succeeding now are those that did this. Whether to localize the service is also a critical decision the business owner must make.

Minami: Of course, I don't think Japanese brands are universally accepted everywhere.

Kitagawa: The level of pro-Japan sentiment and knowledge about Japan in the target country is a crucial key. However, even in countries with high levels of this, a chain store that is extremely famous in Japan might be completely unknown. To boost recognition, some collaborate with anime or deliberately use hiragana in their store names to emphasize their "Japanese" identity. Choosing the right local partner is also crucial for advancing such locally rooted business strategies. Providing opportunities for such matching is a key theme for JETRO going forward.

Moving beyond intuitive judgment toward a scientific approach

Minami: When it comes to Japanese service, the word "omotenashi" often comes to mind these days. What are the strengths of Japanese service?

Kitagawa: To be understood overseas, I believe we need to break down the somewhat vague expression "omotenashi" into its constituent elements. For example, sincerity, kindness, and sensitivity. Additionally, the speed of customer service and operations, along with punctuality, significantly influence the quality of omotenashi. Particularly, the cleanliness of stores is a point mentioned by 100% of successful retailers expanding overseas.

Minami: What is needed to further sharpen competitiveness?

Kitagawa: Relying on the "Japanese way" and assuming our service will be universally accepted is a recipe for failure. Comparative analysis with local services is essential. It's crucial to base decisions on scientific verification and approach, not just gut feelings. The value of a service lies in its perceived "value for money" compared to others, not in its absolute price. It's not just about the price; the high perceived value is the strength of Japanese services. However, as mentioned earlier, Japan's service industry, especially B2C, only began serious overseas expansion in the 2000s, making its history shorter than manufacturing. It may take 20 to 30 years for Japan's unique strengths to become firmly established as recognized value. Whether it's Japanese cuisine recognized as a UNESCO Intangible Cultural Heritage, the food service industry boasting unique concepts, or convenience stores and barber shops with innovative business models, they must continuously evolve to keep winning against emerging local competitors.

Building Support Systems Starts with Understanding the Service Industry

Minami: What types of industries do you see expanding overseas in the future?

Kitagawa: I believe the momentum in food service and retail will continue unabated. Additionally, we'll likely see unexpected sectors like coin-operated parking and office leasing achieve success. They are B2B businesses, but ultimately serve consumers (C). It's essentially a B2B2C model. The biggest challenge, without a doubt, is securing global talent. When appointing local CEOs, there are still few candidates stepping forward. Improving the retention rate of local talent and establishing training systems are also unavoidable. Furthermore, new approaches are needed for financial support to expanding companies. The service industry is dominated by small and medium-sized businesses, typically using regional financial institutions as their main banks. However, few of these institutions have staff knowledgeable about overseas markets. Unlike manufacturing, it's also harder to secure tangible collateral for loans. Consequently, financial institutions become reluctant, making it difficult for ambitious entrepreneurs to realize their dreams. JETRO is currently accepting seconded personnel from financial institutions to deepen their understanding of overseas business.

Minami: So, when considering future means of acquiring foreign currency, deepening understanding of the service industry is necessary?

Kitagawa: Over 70% of Japan's workforce is now employed in the service industry. Yet, even in mass media, discussions remain centered on manufacturing. If we fail to strengthen the service sector, which drives the Japanese economy, it could impact the next generation. I believe a shift in mindset and the establishment of support systems are necessary, encompassing finance, media, and the education sector.