Analysis
3 Oct 18

Leasing product in Japan

The European and American client will be surprised by the limited product offering of the leasing companies in Japan. It roughly comes down to a fairly standardized leasing product (most often on 36 months and 100,000 km), a management product for owned fleets and a re-leasing product. The latter corresponds to the extension of an existing lease beyond the initial contract parameters. 

Contracts 

Contract recalculations are possible but are not standard practice as this would be the case in Europe. Matrix contracts or contracts with guarantee of initial parameters are rare and not popular. 

Mobility solutions such as corporate car sharing, bicycle leasing or the possibility to use a different car in weekends or on holidays, are unheard of. Some of the leasing companies have a “mobility division”, but more than, at best, a theoretical concept, these divisions don’t have a real product or service offering. 

Unbundling is theoretically possible, but not common and the leasing company will definitely not promote it. Standardisation is crucial in all Japanese businesses and the leasing industry doesn’t escape. 

Relationships 

It requires understanding of the Japanese culture to correctly assess why the Japanese lessors are not more innovative. Relationships between client and supplier go much further than the occasional meeting with an account manager, as this is usually the case in Europe or the US.  

It all starts with a number of discovery meetings between both parties. Different people from different hierarchies meet each other over a longer period of time and slowly build a trust relationship. During those encounters, business is a secondary topic and pricing negotiations are completely out of the question. The client will explain their requirements on various occasions and these will be met with explicit signs of understanding by the supplier.  

From a Western point of view, these meetings are highly frustrating as it seems like no progress is being made. From a Japanese point of view, the presence of a Westerner and the type of questions this Westerner might ask, is equally disturbing as it hinders the natural evolution of the relationship building process.   

The agreement 

At a certain point in time, both parties will recognize that there is enough trust between them to go to the next step, which could be called “the agreement”. Only, in Japan it is not certain that a written document will seal the deal. It might very well be that client and supplier judge that a contract is not necessary, as the relationship is solid enough to move forward. 

This also implies that both the client and the supplier are fully engaged in the relationship. Both have a personal interest in making the relationship work. If the relationship doesn’t work, it’s not only an issue for the supplier: both parties lose face and will personally suffer from a feeling of intense failure in front of their companies. Disappointment is not something the Japanese take lightly. It will ruin their careers and they will lose respect from their peers and bosses. 

The service level 

As a result of the slow build-up of a commercial relationship and the mutual investment of both client and supplier, service implementation will be done with great attention for detail. Once the operations go live, the client expects a zero-error treatment. The processes that are put in place are extremely detailed and followed meticulously. This leads to a strong focus on standardisation, which is usually promoted by the supplier and accepted by the client. It also leads to over-administration, with an excessive number of documents that are meant to check and re-check each request and service delivery. 

Foreigners are often surprised to see that Japanese companies still do much of their business via fax rather than via email or digital processes. This has nothing to do with conservatism or a lack of technology; it’s all in support of – often tedious – processes that lead to a flawless execution of the services.  

Change 

This doesn’t mean that the Japanese supplier is per se change resistant. Innovation and change are possible, but always and only within the framework of a process that is well thought through and that will result in errorless execution. 

Similarly, Western style tendering is considered to be highly disruptive and as a potential risk for the company and its internal clients. Nevertheless, as relationships are rarely challenged, there are often valid reasons to change suppliers; it’s not uncommon for a client-supplier relationship to exist for over a decade and pricing to be off the charts. 

In this case, the best option is to share the concerns with the Japanese hierarchy, explain the benefits a change in strategy will bring to the company and guide and leave it up to the locals to execute a tender or a pricing readjustment. It’s very likely that a change in supplier is not necessary and that the incumbent supplier will adapt its pricing. Everything is better than losing the relationship.  

 

Authored by: Yves Helven