The impression most people have of Japan is of a regimented society, with rules and regulations for every occasion. Although true that there are plenty of rules to deal with, the surprise for most foreign businesspeople is that most laws are not clearly defined and thus the emphasis on doing lawful business is to meet the spirit of the law, rather than the letter of the law. This means one’s actions speak louder in a conflict resolution than one’s intelligence—a great way to level the playing field.
Not having clear rules to play by can be very disconcerting for foreign managers arriving in Japan. The frequent refrain is, “How do we know what we’re allowed to do when it isn’t clear what the limits are?”
At first this frequency of “grey zone” interpretation of laws may seem to be an oversight by the Japanese, and an impediment to the progress and building of business. However, to the contrary, I believe it is a very pragmatic solution to high-density populations and the propensity of such denizens to have conflict. By keeping the rules opaque you keep people on edge and careful about how they are involved with the law.
In most Western countries, the company that does not invest large amounts of cash on legal advice is likely to lose their business by way of a lawsuit after their first misstep. A great anvil is having to deal with a temporary cash flow crisis. If you are pushed into a Japanese court, the judge is likely to try to broker a compromise payment plan—which at least offers some long-term chance of repaying creditors.
Overseas, you will quickly be declared bankrupt and your assets dissolved. The Western way is very quick, very final, and unlikely to bring much relief to creditors. On the flip side, the system that is designed to nurture is also open to abuse. For someone who has decided to deliberately bankrupt their company or defraud someone else, there is little recourse for creditors to get their money back. To be sure, you can go to court, but you’ll need to place a large deposit representing around half the damages you are seeking—money which will be tied up for the duration of the case. For many people, the option of tying up millions of yen is not viable, and thus they opt to walk away from the problem.
So what do you do if you can’t use the courts? This is where we as foreign businesspeople can learn lessons from the Japanese. Usually, a successful Japanese company will limit a customer to a series of small orders over a period of several years, before they build up sufficient trust to offer more credit. When I was running an IT company, I had to have multiple suppliers to help me source product for large projects, because each supplier would limit us to ¥5 million. On a ¥50 million project, this meant aggregating 10 suppliers. While this was tiresome to do, I learned over time that it is a great way of both sharing the risk around, and also keeping lawsuits out of court.