Japan - Commercial Guide
Using an Agent to Sell US Products and Services

Includes typical use of agents and distributors and how to find a good partner, e.g., whether use of an agent or distributor is legally required.

Last published date: 2019-10-13
For many companies, establishing a direct presence in Japan is the best way to enter the Japanese market. However, a more realistic first step for many small or medium-sized U.S. firms is the use of distributors or agents.  Selecting a representative and negotiating the terms of its agreement requires careful attention.  

U.S. firms should not try to use contact lists for “cold calls” on prospective Japanese agents. Most Japanese business people prefer to do business with someone to whom they have been properly introduced and have met face-to-face, often by a trusted intermediary party. Appropriate third parties for such introductions can include other Japanese firms, U.S. companies that have successfully done business in Japan, banks, trade associations, chambers of commerce, the Japanese External Trade Organization (JETRO), U.S. state representative offices in Japan, and the U.S. Commercial Service in Japan (CS Japan).  

As in any country, U.S. companies should conduct comprehensive due diligence before selecting a partner.  The common issues of negotiation include assuring sufficient attention is paid to selling and supporting the U.S. product versus others, competing directly with established Japanese products, and developing new accounts and market awareness.  
Distributors in Japan usually cover a specific territory or industry. Importers are often appointed as sole agents for the entire country. In some cases granting exclusivity may be necessary to ensure a strong commitment by the Japanese agent towards expanding sales. However, under no circumstances should a U.S. company be pressured into granting exclusivity if there is doubt as to the ability or willingness of the Japanese agent to develop the relevant market.  

Under an agency contract, the supplier normally invoices the agent for the same amount that the agent will sell to the customer (”back-to-back”). The supplier then pays a sales commission to the agent at the percentage provided for in the agency contract or agreement. Under a distribution contract, the supplier sells the product to the distributor, who is then free to add to the purchase price whatever markup it chooses in determining the sales price to the customer. Commission rates vary according to the product and contract terms. Generally speaking, sales commissions range from 10 to 20% for ”spot” (one-time or irregular) transactions, and from 5 to 10% for regular, ongoing business transactions. In the case of bulk materials (e.g., iron ore or coal), however, commission rates are much lower, around  1 to 3%. In the case of medical, laboratory, and scientific analytical instruments, commission rates typically are much higher, in the neighborhood of 20% or above, due to the complexity of the products. 

Once an agent or distributor agreement is signed and the U.S. company’s products gain a foothold in the Japanese market, the U.S. company may want to consider establishing a representative office in Japan to support the distributor’s sales and marketing efforts and to facilitate communications with U.S. company headquarters. For businesses offering technical goods and services, a technical engineer or appropriate tech support on site is an important expectation of customers.  

The Japanese Fair Trade Commission has guidelines applicable to exclusive agency contracts, but there are no statutory damages required upon termination of an agent or distributor. However, Japanese business relationships are formed, conducted, nurtured, and ended with an extraordinary degree of attention to appearances and decorum. Replacing an agent or distributor could damage a U.S. firm’s reputation – and even compromise its entire market strategy – if not handled sensitively. A U.S. company should discuss “parting compensation” in the event it decides to dissolve a business relationship prior to executing a contract.