Japan is currently Latvia’s 43rd largest foreign trade partner. The Expo in 2025 could be a turning point for the economic relations between Latvia and Japan.
“Considering the country’s economic development and values, Japan is a potential market for. And it is a very big country with the population of 127 million,” says Lāsma Līdaka, the Director of the Expo 2025 Pavilion.
Japan is currently Latvia’s largest export trade partner in Asia. In 2022, total trade between Latvia and Japan reached EUR 123 million placing Japan in the 43rd spot among Latvia’s foreign trade partners. Exports to Japan amounted to EUR 86 million, while imports reached EUR 37 million. The information and communication technologies, latest technologies and unique solutions have the greatest potential in that market.
“Japan is a very conservative market. It is difficult to enter and work in. However, that market is also wonderful - the trust, integrity, reliance and structure ruling there are very good for business,” Zane Lasmane, Marketing Manager at the IT company Zabbix, says.
The first step is getting to know the culture
Līdaka stresses that the company needs to be very well prepared for the Japanese market even before entering it. “The most important thing is to have a strong, competitive product or service. Before going to Japan, every company needs to do a thorough market feasibility study, understand its positioning and identify advantages of its product or service. The key is a well prepared offer. That is why the first step in Japan is to get to understand the market while learning about its culture and business relationships. Understanding the culture is extremely important in this market," she says. Lasmane points out that Japan is not a standard market, and Europeans have to do a lot of preparation to be ready to start working with Japan.
Dāvis Vasilevskis, Head of International Pricing at Printful, a printing and sewing outsourcing company, highlights one seemingly small detail: it is very important to exchange business cards in the right manner.
“You can’t just put your business card somewhere and get on your way. It’s a whole process,” he stresses. In addition, Lasmane notes that your business card and the ritual of presenting it are very important. “All the rituals, e.g. how we address people and how we interact, mean a lot in Japan. There are big differences there, so you’d better read up on Japanese culture and business environment,” Lasmane recommends.
In Vasilevsky’s experience, there is a very strong hierarchy in Japan. “Local culture must be respected. You should know that people from all levels involved are there at the table during meetings. Usually, a person in a junior or lower-ranking position would speak first and only at the very end would the manager say a word or two, but sometimes not even that,” he says.
Not knowing the language can be a big hurdle
“You should know that not everyone in Japan speaks English. You may need an interpreter to make the negotiations more productive. The language may be a stumbling block,” Līdaka warns. Vasiļevskis agrees: “Very few people in Japan speak English. Some even may speak it, but they are reluctant to do so. That’s why all negotiations must be in Japanese.”
Nobody on the Azeron gaming keyboard manufacturer’s team speaks Japanese, but the company has translated product descriptions. "The Japanese have a rather poor command of English. Without translated content it is difficult to reach them, because they simply can’t understand what we are selling and Google Translate is not always accurate,” Azeron co-founder Jānis Kūlbārdis says.
Once, Azeron gave its texts for translation to Japanese to a translation company in Rīga which claimed to have a native Japanese translator. When Azeron asked the community on Discord to check if the translations were correct, it turned out that the English text “keypad for lefties”, or a controller for left-handed, was translated verbatim as a “product for left-wingers”. “It made us realise that we have to be extra careful when working with languages we can’t speak,” Kūlbārdis says.
Currently, only Azeron product descriptions on Amazon are available in Japanese. The company understands that this situation needs improving, but so far it has been unable to find a single person who would speak Japanese. “There is no point in paying an agency €10,000 for translations if we cannot provide customer service in Japanese after that. We need someone who can communicate with them. Japan is such a distant and strange market that the person who would represent us there is very important,” Kūlbārdis says.
Establishing a business relationship takes a long time
“It took us more than two years to start working with a partner in Japan. One of our mistakes was that we were not on the ground often enough and did not meet with our partner face-to-face,” Vasilevskis says. He makes a comparison: in Europe or the US, to get an answer to a question about a million euro decision, all you need to do is to write an email or make a phone call. In Japan, things happen much slower. “Face-to-face meetings are very important there. A Japanese may say yes, but it won’t always mean yes. Even if there is a written agreement in the email, it doesn’t mean it will happen that way. It was the same for us: things were moving very slowly until we went and shook hands," Vasilevskis says.
Lasmane also advises to expect that building relationships in Japan will take a long time. “Lasting partnerships are important to them. If in a couple of years a competitor with much lower prices comes along, the Japanese will not run to them immediately. They check their partners thoroughly to make sure that the partnership will last,” she says.
“The Japanese take integrity very seriously. They expect good faith from us and from themselves alike. If someone makes a mistake, the mistake is acknowledged, apologies are made and the outcome is communicated in a timely manner," Lasmane says. She has observed that the Japanese avoid conflicts and are prepared to do whatever it takes to prevent them. That is why they look so carefully at whether a partner is trustworthy and honest. This helps avoid potential conflicts.
Lasmane adds that in Japan, the decision is unanimous. “They want to achieve that all parties participate in the decision-making. If all parties have accepted and agreed on a particular decision, there is no room for a conflict afterwards. And if there really is a misunderstanding, they take it very seriously. In our daily communication with the Japanese branch, we sometimes misunderstood a question or someone was on holiday and we did not receive an answer in time. They always apologise and provide an explanation. For the Japanese, it is extremely important that we preserve our friendly mutual trust vibe,” Lasmane says.
Part of a wider region
Printful looks at Japan as a wider region, not just one country. “We see it as part of the Asian region, which has very developed e-commerce. From Japan, we also supply South Korea, the Philippines, Singapore and the entire South-East Asia region,” Vasilevski says.
Printful started thinking about doing business in Japan in 2017. In 2018, the company had its first visit to Japan with the LIAA, but it was not until 2022 that it became active in that market.
Choosing a new market, Printful looks at the population numbers there, the average e-commerce spend per person, popularity of online shopping and the consumers’ interest in personalised stuff.
“Of course, there are cultural differences in Japan, but fundamentally the market is very good for an e-commerce business. In Japan, companies grow and experiment with different ideas and business models,” he says.
Printful has its own production facilities in many countries, but in Japan it has a manufacturing partner. “This is still an experimental market for us, which is not like the US where know everything about how business works. That is why we have a partner in Japan who knows the market and the cultural differences, even if it’s the most ordinary thing like talking to Japanese business partners,” Vasilevskis says.
Having analysed various scenarios, the company saw this business model as the best choice. One of the advantages is the matter of investments, since opening a production facility requires substantial financing. Another advantage is that working with a partner gives Printful more flexibility and allows testing the market safer to see what works and what doesn’t. “We are still feeling the water and searching for the right answers. But we will definitely give this market a go, because all macro indicators are OK and we have made good progress," Vasilevski says.
Working with a local partner
Zabbix is one of the very few Latvian companies with a branch in Japan, perhaps even the only one. The branch has been there for 11 years, but the story began even earlier when the company’s founder Aleksejs Vladiševs received a letter from NTT Communications, a large Japanese telecoms company. They were looking for monitoring software to use when they provide services to others. After extensive correspondences and product tests and trials, they came to Latvia. Another year or so passed during which the Latvian party felt that cooperation had not yet started. “They later told us that they had also visited our competitors in Germany and elsewhere in Europe to see which monitoring tool to choose. It’s also important for them to check partners and their product to see whether they are reliable,” Lasmane says.
NTT Communications became the first Zabbix partner to open a company’s branch in Japan. According to the company’s experience, growing in Japan without a local presence is impossible. She makes no secret of the fact that there are many different barriers which a Latvian company cannot understand due to the different mindset, culture and language.
“Zabbix monitoring is now a de facto standard in Japan. If you ask someone in Japan what monitoring system they use, there is pretty much one answer: Zabbix,” Lasmane believes.
Trust the locals
“Unlike our other branches, we don’t work directly with our customers in Japan and all communication and business are done through our Japanese partners. It’s a cultural and business thing: they trust local service providers very much, especially in the IT sector. That’s why we have a branch in Japan with local staff to support our partners in that market,” Lasmane says.
Zabbix software is used worldwide and can be downloaded by anyone, but there are also tangible products in Japan like Zabbix servers and Zabbix devices. “Our partners had an idea that it would be easier to market and develop the software if there were also devices. The partners designed and developed these devices using outsourced manufacturers. We don’t sell Zabbix hardware anywhere else," Lasmane says.
An unusual export story
Azeron is the story of an exporter extraordinaire. “Since our inception, we have been interested in all markets where English is spoken and where FedEx delivers. It’s only natural that we’ve always had customers from Japan from day one. Already the day of the product launch, when in was 3 AM in Japan, we already had our first orders. I remember it very well, because you have to be crazy enough to sit in front of your computer at night waiting for the opportunity to buy our keyboard,” Kūlbārdis says.
Although Azeron’s largest market is America, which accounts for 60% of its sales, no market other than Japan accounts for more than 5% of sales. In the first years, Japan generated 1-3% of Azeron’s total sales. That all changed a few years ago when the company decided to offer its product on Amazon Japan and sales started to go up.
Today, business in Japan already accounts for around 13% of sales. Top performers so far include popular content on X, influencers’ stories about how they use Azeron products, and Amazon Japan.
“In Japan, people are very influenced by what their idols, friends or neighbours use. A trustworthy recommendation is necessary. As much as we hate to admit it, we cannot find the right key to quadrupling our sales in that market. But Japan is the market where we see the most potential,” Kūlbārdis says.
Opportunity to raise the country’s profile
According to a survey by the Investment and Development Agency of Latvia, only 11% of people in Japan have heard about Latvia. It is, of course, a very small share.
“In Asia, people are very cautious and reluctant to work with anyone who is unfamiliar, unknown or untested. Therefore, Latvia needs to work on improving it’s visibility, which is quite a challenge considering all the cultural differences. In 2025, the World Expo will take place in Osaka, Japan, which can also help boost tourism and the potential for economic cooperation. We need to be wise about how we can make it happen,” Līdaka says.
The recent Expo in the United Arab Emirates is a proof that such exhibitions bring positive results. 443 Latvian companies participated in the fair establishing 3,182 new business contacts and signing 35 contracts. Exports to the United Arab Emirates in 2022 went up 52% compared to 2021. In addition to the direct benefits of cooperation with the United Arab Emirates, ties have been strengthened with other countries in the region, in particular Saudi Arabia, an economic powerhouse in the Middle East. Therefore, after Expo 2025, Latvian exports to Japan are expected to grow by EUR 50 million in 2028, while Japanese investments are expected to increase by EUR 30 million.
Joint Baltic Region Pavilion
This time, Latvia and Lithuania will have a joint pavilion promoting the entire Baltic region. “These distant countries see us as one region, a bit like the Scandinavian countries, and Sweden, Denmark, Norway, Iceland and Finland will also have a joint Nordic pavilion,” Līdaka says. The idea of a joint pavilion belongs to the Japanese who suggested this approach. They see the Baltic States as one region and invited all three countries to participate together giving Latvia the honour of leading the association. “Together with the Lithuanians, we will look for a common story which describes both countries,” Līdaka says. Estonia will not participate in Expo 2025.
The business programme and the activities for the participants are still being worked on. The work on the programme should be completed in early 2024. However, it is already known that there will be exhibitions, trade missions and business forums and seminars. “We would like to hear the views of industry associations, various business support organisations and businesses themselves. We will also hold seminars and try to understand the interest of companies in that market,” Līdaka says.
She adds that a strong and competitive product or service is the key. Every company should do its homework: conduct a market feasibility study and understand its product positioning, its unique competitive advantages and its growth strategy, which Līdaka recommends working on together with a partner. “A well-prepared offer is the main thing, and the cultural aspects of the business are a secondary factor. Although Japan seems a distant and difficult market because of its language and culture, it is a market with great potential for the future. It is no coincidence that the Investment and Development Agency of Latvia has been working in Japan since 2008 and continues to support Latvian companies in that market,” she adds.
Article prepared in a cooperation with Latvian Exporters Association "The Red Jackets", www.eksportabarometrs.lv.