Successes and Challenges of Network Marketing in Japan

By Chad Grange

In the old Japanese paradigm, a good education and “lifetime” employment at a major company guaranteed a stable income and a comfortable retirement plan. The traditional Japanese educational system and society suggest that this is the right path for everyone. This paradigm, however, is beginning to shift. More and more, Japanese companies hire and fire employees at will, making job security a thing of the past. The slow erosion of the historical notion of lifetime employment and employer/employee loyalty, coupled with the crumbling pension system, encourages Japanese men and women to consider alternatives in securing their current and future finances. The environment for the emergence of Multi-Level Marketing (MLM) companies in Japan is more inviting than ever.

MLM business models have been so successful in America due in no small measure to the natural entrepreneurial spirit upon which America was founded. The chance at “striking it rich” and gaining financial independence are elements of American culture that are as strong now as ever. The influence of the U.S.-style MLM business continues to grow both here and abroad, and shows no signs of slowing down. In a recent article written by MLM in Japan expert, Yusuke Imura, (www.japaninc.com) we read that sales in network marketing were $28.69 billion in the U.S. alone for 2002, with some 13 million independent distributors. Some 55% of the American public bought goods via direct sales during 2002, according to the United States Direct Selling Association (DSA, www.dsa.org). Globally, roughly $85 billion in products and services are sold via direct sales.

Network Marketing actually began in Japan with the launch of Tupperware home parties in 1963. However, the presence of so-called pyramid marketing schemes in Japan gave the U.S. industry a bad name. The establishment of Amway in Japan in the late 1970’s under the direction of Kirton & McConkie lawyer, Conan Grames, was met with great skepticism by the Japanese government, but ultimately became a great success. During the 1990s, a number of large American companies entered the Japanese market with some success, including NuSkin, Herbalife, and others. Since then, other Utah based MLM companies have seen a great deal of success in Japan, such as Tahitian Noni and 4Life Research. Still others, such as MonaVie (of Monarch Health Sciences) are poised for entry and success in Japan in the near future.

While several unique challenges confront MLM companies looking to enter the Japanese market, one of the more pervasive of these surrounds the culturally charged "salaryman" mindset. Most Japanese professionals, while regretting their long work hours, are addicted to the pseudo security their “life-long” positions give them. Even if they are extremely dissatisfied, most Japanese have historically been hesitant to branch off in pursuit of more entrepreneurial avenues.

Other challenges in Japan to the MLM business model stem from the Japanese notion of conformity. An old Japanese proverb illustrates this mentality: Deru kui wa utareru. [Translation: The stake that stands out will be hammered down.] Network marketing presents an alternative to the salaryman path, challenging the traditional business and social structure of Japan. Despite these and other challenges, U.S.-style MLM companies have been successful in Japan.

Given the new paradigm shift in the Japanese business culture, younger and bolder generations of Japanese entrepreneurs are branching out to become independent distributors for U.S. based MLM companies and are seeing impressive results. The Japan Direct Sales Association showed industry sales of 28.75 trillion yen (US$260 billion) for 2002. These kinds of numbers cannot be long dismissed by the Japanese elite. Still, network marketing in Japan is not as widely known and has a somewhat smaller market scale than that experienced in the United States. With its recent MLM successes, Japan has seen its share of MLM oriented scams as well—lending additional weight to the initial inertia associated with moving people from the traditional corporate lifestyle to owning their own potentially lucrative MLM distribution chain.

As for network marketing in Japan, cultural and economic trends indicate that continued success and wider acceptance are on the horizon. With continued exposure to professional, entrepreneur/business-owner distributors who have downlines in Japan, and the increasingly global nature of network marketing companies, more Japanese distributors are likely to choose to expand rather than contract their businesses outside of Japan as well. Likewise, the wealthy and aging Japanese population remains an attractive lure to many Westerners seeking to do business abroad, particularly in the health and wellness arena. MLM companies appear to be in the right category of new business models that will successfully challenge the status quo in Japan for years to come.

For more information on MLM law in Japan, contact Chad Grange at (801) 633-4713 or cgrange@kmclaw.com or chadgrange@gmail.com.

1 MLM, Direct Sales and Network Marketing companies will be treated synonymously for purposes of this article.

2 Network marketing in the U.S. has also become an increasingly big business, with over 20 network marketing companies now traded publicly on the US NASDAQ and New York Stock Exchange, and many others planning IPOs. A number of Fortune 500 companies own network marketing subsidiaries as alternate sales channels for their products.

3 The top MLM sales categories in Japan include: cosmetics, nutritional products, cleaning supplies and under-garments.