Do's and Don'ts of Setting Up an Asset Management Business in Japan
Watching the Olympic diving competition last night and seeing how after every dive the Chinese athletes humbly bow, making a simple, graceful gesture foreign to most Americans, reminded me of how much we could learn and benefit from other countries' customs and practices. Such an attitude is critical to doing business in Asian countries, according to Roger White, managing director of IT consulting firm Citisoft. White recently completed a six-year stint in Tokyo, where he helped U.S. firms expand their asset management businesses in Japan (while working for PriceWaterhouseCoopers). When he first arrived, "I found everything was different - I had to check everything I knew at the door and learn to do things differently." He observed that the U.S. firms that took a softer approach to implementing new practices, first trying to develop a deep understanding of existing processes and customs before introducing changes, fared far better than those that slammed their American ways on Japanese employees. Also, White found that demonstrating a new process in front of local employees and proving before their eyes that it worked before making them do it, helped them accept it.The number-one key to success for U.S.-based asset management firms doing business in Japan is to have a strong local presence and local expertise, White says. "You have to have a good understanding of local compliance rules and best practices," he notes. He acknowledges, though, that there's a Catch-22 here: while trying to support a Japanese subsidiary from U.S. headquarters can bring about skepticism and disconnects with local employees, "in this economic environment, hiring a large local staff is not practical," he says. There needs to be a balance. It's important to hire client support staff who understand the nuances of local markets and of operational, legal and regulatory requirements. But finding a local person who is fluent in English and the Japanese language Kanji and understands the minutiae of trade order management and as well as legal and operational requirements is a tall order.
The biggest mistake firms make when they enter the Japanese market, White says, is that they underestimate local client expectations and demands. For instance, it's not uncommon for Japanese clients to make monthly requests for changes to the client reports they receive. They might want their investments measured against unusual benchmarks, for instance, or they might have more exotic requests. "One client asked that a seating chart for the board meeting be included in his client report," White says. To work in Japan, client reporting software must be able to produce reports in Kanji as well as English, naturally, yet translation among such different languages is always tricky and fact-checking can be almost impossible.
Fortunately, U.S. financial firms are looked upon with respect among the Japanese populace, White says. "The instances of resistance are due to deployment, especially where there's a frequent rotation of managers coming over from the U.S.," he says. "This has to be a long-term commitment."