U.S.-Japan Business and Law by Naoko Inoue Shatz

There are several ways for a foreign manufacturer to do business in Japan. One of the ways to enter the Japanese market is to set up a wholly or majority owned subsidiary. Because they can have full control over the subsidiary and operate their business as they desire, this option might be the best for their long term success in the Japanese market. However, choosing this route can be an expensive and time consuming undertaking. There will often be a steep learning curve as it can take quite some time to understand the various differences between the Japanese marketplace and their own. Hiring the right employees, developing the right business relationships can also be fraught with potential problems. This method can also involve significant upfront cost and can take some time to potential payoff. Another less risky and less expensive way to enter the Japanese market is to form a joint venture with a Japanese partner or distributor. This typically enables a foreign entity to take advantage of their local partner’s preexisting knowledge base and distribution network. This method can also help them avoid the many possible pitfalls of striking out on their own without an experienced local partner and may be the fastest and least expensive way to get a product to market. This method, however, is not without its potential downsides. In order to keep their business diversified, many joint venture partners sell multiple products from competing manufacturers. It may be difficult to get a Japanese partner to give any particular product the level of focus and attention that is expected. Japanese business people often put much more stock in personal relationships than those from some other countries. Building these relationships takes time, and in the long run, lessens the potential misunderstandings and disagreements. Thus, it is important for a foreign partner to understand their Japanese counterpart and allow the relationship to develop naturally. It is also important, when moving ahead with an agreement, that every requirement and expectation is spelled out clearly in their joint venture agreements.  

More often than not Japanese companies have a slow decision making process in which managers do not always raise important issues they think must be addressed based on their experience and expertise. This makes it difficult to quickly respond to various problems, and when coupled with Japan’s centralized decision-making process it exposes Japanese companies to potential liability. The Japan’s centralized decision-making process is primarily designed to promote corporate harmony by building consensus among a key management group from various divisions, and problems at the corporate level are settled behind the scenes by the key management group. Although this system has historically worked well for Japan, in today’s global economy Japan’s unique decision-making style appears unsustainable. Toyota’s failure to swiftly address reports of safety problems and its poor handling of the recall issue after these reports came to light show how Japanese corporations’ emphasis on profits has caused them to overlook the necessity of creating workable action plans for resolving problems. The Toyota debacle can also be traced to Japan’s somewhat outdated decision-making system and Japanese corporations’ inability to localize its operations overseas. Yes change may come to Japanese corporations relatively soon given the pressures of today’s competitive global marketplace, as foreign governments will hold Japanese companies accountable by shunning Japanese products made by companies that are known to have covered up problems. In order for Japanese corporations to be able to quickly and effectively respond to problems that may occur outside Japan, a key management group of Japanese corporations should relax their centralized decision-making process and give managers of their subsidiaries outside Japan more power to decide important issues based on expert knowledge and experience of local counsel.

Japanese corporate clients are often surprised at the amount of time involved in investigation and associated legal fees required in the process of litigation in the U.S. In Japan, where the legal system is filled with devices that deter litigation, pre-trial discovery is severely limited. Interrogatories, depositions and requests for admission are unavailable, and requests for production of documents are restricted. However, in the US, where the discovery process is embedded into the adversarial system, cases with higher discovery volume generate more motions and consequently increase the litigation costs. Japanese corporate clients who are facing litigation with a US company would benefit from retaining US counsel to assess the case and control costs of discovery process. That can cut litigation costs and increase the likelihood of a favorable result for the Japanese corporate clients.

日本企業のクライアントはしばしばアメリカとの訴訟にあったって調査の量とそれにかかる費用に驚くことがある。訴訟を避ける傾向にある日本では、裁判前の調査の方法に限りがあり、例えば、質問書、宣誓証言や自白要求等をかなり制約している。それに対して、証拠開示手続きが対審主義に組み込まれているアメリカでは、証拠開示の際の提示資料の量が非常に多く、それによって申請量が増え、結果的に訴訟にかかる費用がかさむことになる。アメリカ企業との訴訟に巻き込まれた場合は、日本企業は、米国の専門弁護士に案件の管理と証拠開示にかかる費用の管理をさせることによって訴訟にかかる費用を抑え、利益を得ることができる。また、それによって勝訴の可能性も高めることができる。

The benefit of having an agent selling goods is that the agent does not necessarily have an ownership right /title to the goods a manufacturer owns. The agent does not usually bear risk of loss on credit sales or a loss from unsold goods. The agent is usually paid by commission in addition to a base salary, depending upon the amount of sales as well as a commission rate. However, a manufacturer sometimes chooses to have a distributor who has an ownership right/title to the goods because the distributor generally has a sophisticated system of selling the goods, which can result in substantial sales of the goods. That means that the distributor is free to sell goods to anyone they choose without contractual restrictions. Thus, the manufacturer might want to consider having a well drafted distributorship agreement with the distributor, which restricts the distributor from handling goods that compete with the goods the manufacturer sells. The manufacturer may also need to set a territory and resale prices among distributors. It should also be noted that certain restrictions to the distributors’ activities may violate the antitrust law.

日本の企業がアメリカとかかわる事業を行う場合、主に8通りの方法がある。 1．アメリカ企業との契約による事業活動と市場開拓。この場合、業務上の支配力は契約書によって決まる。 2．アメリカ駐在の代理店を通して他のアメリカ企業との取引および市場開拓。 3．アメリカ企業との販売代理店契約を通して他のアメリカ企業と販売契約。 4．アメリカ企業と合名会社契約を結び、共同でアメリカ市場を開拓。 5．アメリカ企業との合併による事業活動および市場開拓。 6．アメリカ企業への投資。 7．アメリカでのフランチャイズ展開。 8．アメリカに子会社を設立し親会社との連結を通してアメリカでの事業活動および市場開拓。最近はアメリカで日本企業相手の訴訟が増えてきているため、本社と法律上隔離した子会社をアメリカに組織設定することによって親会社への賠償責任の限定を目的とした日本企業のアメリカ進出が増えてきている。

The Personal Information Protection Act under the Japan Law has become very important for Japanese companies when a business transaction with a US company involves handling individuals’ information such as call center services. Under the Act, “personal information” means “information regarding a living individual that contains such name, date of birth, or other descriptive information as will enable identification of the individual.” The Act applies to any “business handling personal information,” and a breaching company is subject to a criminal penalty and/or a fine. Although forming a written contract is not as common as companies in the U.S., nondisclosure agreements are commonly used with employees, independent contractors and in contracts involving the company’s customer list. Furthermore, with the increasing number of people who leave companies before the retirement it is becoming more common for Japanese companies to provide non-compete agreements with employees.

Japanese subsidiaries of the US that hire rotating staff from their home country may face lawsuits over rotating staff in discrimination against U.S. citizen employees. Rotating staff are usually citizens of the home country, hired by their parent company but assigned to the U.S. (overseas) for a certain period. The pay differentials and different type of promotions between rotating staff and U.S. citizen employees have been challenged in the past. Based on the past cases related to employment discrimination against U.S. citizen employees, however, it seems clear that treating rotating staff as employees of their parent company, as opposed to their U.S. subsidiary, will decrease the parent’s exposure to discrimination claims.

アメリカに所在する日本企業の子会社で働く日本人役員・社員は通常日本から派遣された駐在員で、アメリカ現地で採用された社員との関係において差別問題が生じることがしばしばある。日本人駐在員は通常ある程度アメリカ子会社で働いた後日本の本社に戻る社員であるが、その社員に対する給料体系や昇格に関する規定が違うため、アメリカ現地採用の社員から過去に訴えられたことがあった。しかしどの訴訟も日本企業側が勝訴しており、それは駐在員と現地採用の社員とはもともと雇用形態が違うという理由からである。従って、日本企業は駐在員を現地子会社の社員としてではなく日本の本社採用の社員として扱うことがこうした差別にかかわる問題を避けることになる。

Like the U.S., Japan has gone through a serious recession in the past year. It seems, however, that the fact that the population is shrinking faster than the slow GDP growth – Japan has a higher GDP growth per capita than the United States, even though the US GDP growth is higher than Japan's— may help them recover quicker than the rest of the countries in the world. With the sharp decline in Japan’s population and an extremely low level of immigration, they are now concerned about where their businesses go in the next twenty years. The first question is whether the government should put emphasis on nurturing business that create long-term domestic demand, such as in medical services, nursing care and information technology. There is no question Japan as well as U.S. has to take steps internally to try to stimulate demand and to look at how to diversify their own economies. The second question is whether Japanese companies should continue to expand their businesses overseas that allow them to bring extra revenues into Japan. It seems clear that they need to continue relying on export business to offset the sharp decline in domestic demand. In the past couple of years, at least, rapid export growth played a crucial part in boosting industrial production and so company profits.

アメリカと同じように、日本でもこの１年間不景気が日本の経済に影響を及ぼしている。しかし日本は人口減少によって１人あたりの国内総生産量の伸びがアメリカよりも高いため（アメリカの総生産量の伸び自体は日本よりも早いが）、世界のどの国よりも景気回復が早い可能性がある。そこで日本の問題は、こうした人口減少と少数の移民によって需要と供給の不釣合いが生じるため、この先２０年間の間にどのようにして経済を伸ばすかということである。最初の課題は、医療業務や介護業務などの国内産業をどのようにして支えていくかということで、こうした産業は長い目で見た国内の重要な産業として伸ばしていく必要がある。二番目の課題としては、日本ははたして海外業務を引き続き伸ばしていくべきかということである。これに関しては日本の人口減少やそれに伴う国内での需要減少を相殺するためにも輸出に依存せざるをえないと考えられる。少なくとも過去２年間は輸出によって日本の産業がうるおっていたことは確かである。

In the U.S., the discrimination laws that have been established by EEOC may come into play when an employer discharges temporary workers. For example, employers will be legally responsible as “an employer” for temporary workers who were hired through a temporary agency, as long as the employers exercise control over the temporary workers’ assignments. However, temporary workers are not subject to the same degree of protections against discrimination if they are treated as “an independent contractor.” A temporary worker is treated as an independent contractor if an employer had no ongoing relationship with the worker, did not pay the worker based on the hours worked, and had no authority over hours, assignments or other aspects of the means or manner in which the work was achieved. Unfortunately, most of the temporary workers hired by Japanese companies in the U.S. are considered employees. That said, employers should be aware of the discrimination laws when they discharge temporary workers, just as they are with regular employees.