Although I advise any foreign firm doing business in Japan to show commitment by setting up a small representative office here, there is no doubt that it is an expensive exercise. At the very least you need a local country CEO, a sales/marketing manager, a technology person, and someone to look after the office.
But apart from the expense, setting up your own company can also be a risky exercise in that you need to bring a totally unknown person to head it up. This then raises the issue of whether you are willing to entrust not only your businesses’ future but also your head office’s reputation and the legal and financial responsibility for the operation in Japan to a complete stranger. Although you may have done some reference phone calls, the fact is that you’re going to be talking to people that the candidate or their recruiter has already sanitized and it is unlikely that you are getting an unbiased view. Indeed, you could be hiring a polite axe murderer and not know it.
Therefore, I believe that if you are serious about your long-term success in Japan, you need to have a strategy for managing the risk of hiring an unknown senior person. Larger companies manage this risk by bringing the candidate back to head office for several months of training – where they can watch him or her. Some companies, such as Sweden’s IKEA, apparently send their new country CEOs off to another country for up to 12 months, to work in one of their stores and thus both learn the corporate culture as well as be tested for their personal integrity and mettle.
Unfortunately, not only is this type of induction expensive but it also doesn’t tell you whether or not the new Japan CEO can actually function in a proper business leader role in his or her own country. The market is fraught with excellent English-speaking, urbane CEO candidates who have charmed the boards of a trail of companies, and who have well-thought out excuses as to why they have had to move on every 3 years. It’s not until you talk to people in the market that you find out that the candidate has a serious character flaw or reputation issue that causes them to have to continue moving on.
Instead, and certainly for smaller companies, there is another methodology for appointing a country CEO that can significantly reduce your risk. This involves putting your candidate on a one-year probation and in the interim hiring someone to sit above that candidate and manage their training, their activities, and most importantly how they hire other staff and spend company funds. Yes, this same result could be achieved by giving a new candidate the full rights and responsibilities from Day One and also putting in a board of outside trusted advisors. However, the system I’m suggesting not only removes risk, it can also reduce cost.
The process is to bring in a part-time consultant or friend of the company to be the nominal country CEO (“Daihyou Torishimariyaku” – Managing Director) for at least one year. This person will be trusted to oversee the usage of cash, the development of local strategy, the interaction of the CEO candidate with the distributor/resellers, and general implementation of the business plan. This nominee does not need to be an executive member of the team. He/she simply needs to have credibility with your CEO candidate and be able to motivate and mind them for the one year probation.
The CEO candidate on the other hand can function in part capacity as Daihyo-in-training, and part as Sales Manager. However, you will need to give them Country Manager status for the benefit of clients, or else you will be “castrating” them in terms of their effectiveness.
While serving as a more junior manager may be ego-bruising for a candidate who is already a CEO, it is perfect for a Sales Manager who is now looking to step up to a CEO role. I can tell you from watching client experiences that unless you have a particularly talented and accomplished CEO candidate who is already a proven quantity, then more often you’re going to do better with an ambitious sales manager type. This is simply because this kind of person is hungrier and more likely to make personal adjustments in style and execution, so as to fit in with your company culture.
In terms of cost advantages, a full-blown bilingual CEO for a start-up operation is going to cost JPY20m base and JPY5m-JPY10m incentive in today’s market, depending on the industry. On the other hand, a trusted nominee Daihyo and a Sales Manager-cum-CEO will cost JPY15m base and JPY5m-JPY10m incentive between them. Then, on top of the initial cost savings, what price for peace of mind in covering your initial risks while incubating your future country CEO candidate?