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TMCVocabulary

How to Segment the Japan Market

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By Davis Huang Davis Huang

Situation
The Company, a U.S. semiconductor supplier, was late to enter the large and growing Japan market for FLASH memory. FLASH is non-volatile memory that can be erased and reprogrammed. The Company's FLASH products are used to store program code that provides electronic functionality to a variety of devices and systems. Japan is considered one of the most difficult markets to penetrate. By its nature Japanese culture is consensus-driven, taking the time to consider all opinions in the group. The best business decisions are those that are comfortable, known, and dependable. This culture produces tight long term business relationships between suppliers and their customers, including a range of business models from outright ownership of suppliers by "captive" customers, to webs of close financial and strategic partnerships called "Keiretsu". The overwhelming preference in the Japan market is to buy Japanese.

Keiretsu are large conglomerates interlinked through share purchases to form integrated alliances across many industries. The major Keiretsu are typically centered by one bank providing major financing to the Keiretsu's member companies. There are two types of Keiretsu: vertical and horizontal. Vertical Keiretsu are organized much like a vertically integrated multi-national enterprise. Business entities include component, sub-system, system, and service suppliers across the value chain, for instance, the Keiretsu of Toshiba, NEC or Matsushita. The larger horizontal Keiretsu include relationships between a group of financial entities centered on the bank, such as those of Mitsubishi or Sumitomo group.