oversight

International Trade: Competition for Japan's High Value Agricultural Market

Published by the Government Accountability Office on 1990-03-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                     United   Mates   General   Accounting   Office

                     Report to Congressional Requesters                           ’ .,
 GAO

 j .March1990
                     INTERNATIONAL
                     TRADE
                     Competition for.
                     Japan’s High Value
                     Agricultural Market




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t * GAO/NSlAMO-134
I.
United States
General Accounting  Office
Washington, D.C. 20548

National Security and
International Affairs Division

B-226269

March 30,199O

The Honorable Patrick Leahy, Chairman
Committee on Agriculture, Nutrition, and Forestry
U.S. Senate

The Honorable E (Kika) de la Garza, Chairman
Committee on Agriculture
House of Representatives

In response to your requests, we have reviewed market development
activities of the U.S.’ major competitors in Japan’s high value agricul-
tural market. You were interested in learning how other countries are
trying to gain a larger share of this lucrative market.

This report summarizes high value agricultural product market develop-
ment activities of the nine foreign competitor countries that spend the
most resources on such activities in Japan. These competitors include
New Zealand, Australia, Canada, France, West Germany, the United
Kingdom, the Netherlands, Italy, and Denmark. Agricultural imports
from these nine countries plus the United States represented about
63 percent of all agricultural imports to Japan in 1988.


To succeed in the Japanese market, marketing organizations must be
prepared to spend considerable time and money to learn the intricacies
of the marketplace and to develop the necessary relationships with
importers, wholesalers, and distributors. In addition, their products
must meet Japanese consumers’ demanding standards for uniqueness,
convenience, ingredients, and packaging. Of the many market develop-
ment activities conducted by foreign marketing organizations in Japan,
trade and consumer education are considered particularly useful in
developing demand. Alternative importation methods to bypass the
expensive and restrictive Japanese distribution system lowers costs and,
thus, have proven to be attractive options for some organizations to gain
access to the Japanese market.


High value agricultural products include three groups: high value
unprocessed foods such as eggs, fresh fruits, and nuts; semiprocessed
products such as flour, oilseed products, and meats; and highly
processed products such as prepared meats, dairy products, and soups.
Trade of these products now accounts for about two-thirds of world


Page I                                     GAO/NSIAD-90-134   International   Trade
                         5226269




                         cultivate. One Danish marketing representative indicated his organiza-
                         tion spent 7 years in Japan developing relationships before selling any
                         products. His organization established a network of importers, wholesal-
                         ers, and distributors who were willing to handle its imports. It also
                         developed ties with political and cultural groups, and it educated Japa-
                         nese consumers about Denmark through the promotion of tourism and
                         cultural events.

                         Moreover, new products must meet *Japanese requirements regarding
                         uniqueness, convenience, ingredients, and packaging. For example, con-
                         venience products, such as microwavable dinners, are becoming more
                         popular because the numbers of working women and people living alone
                         in Japan are increasing. Packaging must be attractive and of good qual-
                         ity-many     products in Japanese stores are wrapped more thoroughly or
                         arranged more carefully in their packages than comparable products
                         available in the United States. Packages should also be sized to Japanese
                         consumer specifications because the average Japanese consumer shops
                         daily. According to officials we interviewed, Danish and New Zealand
                         producers are very willing to adapt package size for the Japanese mar-
                         ket; this result may be due, in part, to their economies’ dependence on
                         exports.


                         Foreign marketing organizations provide a broad range of trade and
Foreign Marketing        technical assistance to producers in Japan. For example, they conduct
Organizations’ Efforts   market research; match importers with exporters; serve as liaisons
to Gain Market Share     between producers and Japan’s regulators; participate in trade exhibi-
                         tions; conduct in-store promotions as well as restaurant promotions;
                         fund trade missions for Japanese importers and journalists; and evalu-
                         ate the effectiveness of their market development activities.

                         Representatives of foreign marketing organizations often cited trade and
                         consumer education as particularly worthwhile and effective. In their
                         view, knowledgeable retailers are more likely to stock products, and
                         informed consumers are more likely to buy products. For example, in
                         the relatively undeveloped Japanese wine market, Wine Australia is
                         educating beverage wholesalers and retailers about wine to obtain shelf
                         space for Australian wine. Once the wine is available in stores, the
                         organization plans to target promotions at consumers. The Australian
                         Meat and Live-Stock Corporation sponsors seminars directed at both the
                         trade and consumers. For example, it features lamb dishes and instruc-
                         tions on preparing lamb in family restaurants, and it has invested in a
                         nationwide television advertising campaign.


                         Page 3                                    GAO/NSIADW-134   International   Trade
B-226269




from an American consulting firm that conducts market research and
promotion activities in Japan, the U.S. Meat Export Federation’s” Japan/
Korea Director, and the US. Export Development Office’s Japan
Director.

Our scope was limited somewhat in that some foreign competitors’
nongovernment marketing organizations in Japan would not meet with
us. Also, some of the representatives we spoke with would not provide
us with data on funds for promotions. However, we have no reason to
believe that the omitted information would have significantly altered
our findings. We conducted our work from October 1988 to March 1990,
in accordance with generally accepted government auditing standards.
As requested, we did not obtain agency comments on this report.

We will release this report to other interested parties on the same date it
is released to you. Staff members who made major contributions to the
report are listed in appendix IV. If you have any questions regarding
this report, I can be reached at (202) 275-4812.




Allan I. Mendelowitz, Director
Trade, Energy, and Finance Issues




‘The U.S. Meat Export Federation   is a nongovemment   marketing   organization   that promotes U.S.
meat products.




Page 5                                                     GAO,‘NSIAD96-124        International   Trade
Page 7   GAO/NSIAD90.134   International   Trade
                                            Appendix I
                                            High Value A@-icdturd     Products   and the
                                            Japan Market




Table 1.1:Agricultural Imports and Export
Promotion Expenditures in Japan for 10      Dollars     in millions
Countries in 1988                                                                                                                Export promotion
                                            Countrv                                         lmD0t-h   into JaDan’                   expenditure@
                                            United      States                                          $9,&8.00                                 $42.7
                                            Australia                                                     z733.00                                   70
                                            Canada                                                        1,462.OO                     -2.1
                                            Denmark                                                         753.00                                  0.7
                                            New Zealand                                                     741 .oo                                 5.0
                                            France                                                          531 .oo                                 17
                                            United      Kingdom                                             401 .oo                                 12
                                            West Germany                                                    337 00                                  1.3
                                            Netherlands                                                     290.00                                  0.9
                                            ltalv                                                           107.00                                  0.9

                                            ?Source Japanese MInIstry of Finance. as reported by Japan External Trade Organization.       Data are for
                                            calendar year 1988

                                            “Source: U S Department of Agriculture estimates   U.S expenditure   IS for fwal   year 1988: other expen-
                                            diture data are for calendar year 1988


                                            In 1987, seafood accounted for 3 1 percent of Japan’s total agricultural
                                            imports, followed by meat (14 percent); maize, wheat, and other grams
                                            (12 percent); processed foods (12 percent); other foods (11 percent);
                                            vegetable oils, fats, and oilseeds (11 percent); and fruits and vegetables
                                            (9 percent).

                                            Changing lifestyles and dietary patterns in Japan are also creating
                                            opportunities for increased HVP sales. The numbers of working women
                                            and people living alone in Japan are expanding demand for convenience
                                            foods, and Japanese consumers are acquiring tastes for Western-style
                                            foods. Japan’s tradition of lavish expense account entertaining contin-
                                            ues to support demand for upscale foods and wines, and the large gift
                                            market also offers potential for expanding sales of upscale food
                                            products.


                                             Japan’s HVP market is considered a difficult market for foreign compa-
Japan-A Difficult                            nies to enter. Several factors contribute to this difficulty, including
Export Market                                (1) the highly competitive nature of the HVP market itself and the resul-
                                             tant battle among new products for shelf space in supermarkets, (2) the
                                             complexity of Japan’s product distribution system and the personal con-
                                             tacts needed to use it effectively, (3) quotas and tariffs that either
                                             restrict product trade or make products more expensive and therefore
                                             less competitive, and (4) the need to adapt product size, packaging, or


                                             Page 9                                                     GAO,‘NSIANJ@134          International   Trade
                              Appendix I
                              H&h Value Agricultural   Products   and the
                              Japan Market




                              that his organization spent 7 years developing those relationships before
                              making any sales. In addition to developing a network of importers,
                              wholesalers, and distributors willing to carry Danish products, the Dan-
                              ish organization also developed ties with political and cultural groups in
                              Japan. The marketing organization also promoted Denmark’s image to
                              Japanese consumers by promoting tourism to Denmark and participat-
                              ing in cultural events. According to one marketing consultant, large com-
                              panies should expect to spend between $2.0 million and $2.5 million for
                              the first 1 or 2 years to develop the market for their product(s) and
                              about $1 .O million for follow-up surveys, additional market research,
                              and evaluation.


Trade-Limiting   Quotas and   Trade barriers, such as quotas and tariffs, also make Japan a difficult
Tariffs                       market to enter. Although the Japanese government has agreed to end
                              or reduce tariff barriers on nine processed food categories and to end
                              imported beef quotas by April 1991 under the 1J.SJapan Beef and Cit-
                              rus Agreement, it nevertheless maintains quotas and tariffs on many
                              food items. For example, according to a French marketing organization
                              report, two-thirds of the cost of French wine in Japan is accounted for
                              by taxes and duties. In addition, several foreign officials noted that the
                              government strictly enforces rules on food ingredients and inspection.
                              As a result, producers may have to alter their usual production lines in
                              order to enter the Japanese market. This factor increases producers’
                              costs and may discourage exporting.


Importance of Product         Numerous officials told us that appearance, packaging, and sizing are
Packaging                     extremely important for product success in the Japanese marketplace.
                              The average Japanese consumer’s standards for product freshness,
                              appearance, and quality tend to be high. For example, many consumers
                              check the production dates of everything they buy-even canned
                              goods-making older products difficult to sell. Displays, packaging, and
                              arrangements in Japanese supermarkets appear to receive more empha-
                              sis than they do in 17,s. supermarkets. Also, Japanese consumers tend to
                              prefer smaller-sized packages because they value freshness and have
                              limited kitchen storage space for leftovers.




                              Page 11                                       GAO/NSIAD90134   International   Trade
Appendix II                        -~

Foreign Marketing Organizations’ Efforts to
Gti Market Share

                Foreign marketing organizations use a variety of resources and market-
                ing activities to gain market share in the Japanese market. Budgets and
                staff vary, reflecting the different marketing objectives of the foreign
                marketing organizations in our review. The marketing activities con-
                ducted include market research, trade and technical assistance, and sev-
                eral kinds of promotions.

                The foreign marketing organizations in Japan maintain staffs that vary
                widely in size and are generally composed of both home-country and
                Japanese personnel. Promotional budgets also vary widely among mar-
                keting organizations, due to the types of market promotion activities
                employed and the availability of resources.

                Marketing organization staffs vary in size from 2 to 52 people, and they
                always include some Japanese personnel-generally      more Japanese
                than home-country personnel. For example, the New Zealand Dairy
                Board employs 2 New Zealand managers and 50 Japanese staff. Simi-
                larly, the Australian Trade Commission has 9 Australian and 27 Japa-
                nese staff. At the other extreme, the Flower Council of Holland and the
                International Flowerbulb Centre Holland each employ one Dutch mana-
                ger and share one Japanese staff member.

                Promotional budgets for marketing organizations vary widely. Of the
                organizations that provided data on their funds for promotional activi-
                ties, the International Flowerbulb Centre Holland and the Australian
                Trade Commission spent the least. The International Flowerbulb Centre
                Holland spent about $20,000 in 1988, and the 1989 budget for the Aus-
                tralian Trade Commission was approximately $140,000. The Flowerbulb
                Centre’s Area Manager said that his organization’s market promotion
                budget is relatively small because the flowerbulb importing community
                in Japan is small; therefore, his promotional efforts have consisted of
                visiting flower shops rather than employing more costly mass media
                campaigns aimed directly at consumers. Similarly, the Australian Trade
                Commission’s market promotion activities are limited in scope. The
                Commission’s budget does not include funds for promotion of beef, an
                important Australian export, and the Commission does not fund any
                mass media advertising. According to the Trade Commissioner, the
                majority of the market promotion funds this past year were for partici-
                pation in Foodex, the annual international food show in Japan, with
                 lesser amounts allocated for promoting cut flowers and sponsoring a
                processed foods mission to -Japan.




                Page 13                                    GAO/NSIAL%9@134   hternationel   Trade
                           Appendix II
                           Foreign Marketing Organizations’   Efforts   to
                           Gain Market Share




                           The Agricultural Counsellor stated that his office does not have the
                           resources to undertake in-depth research activities. The staff members
                           in Japan of two Dutch marketing boards, the Flower Council of Holland
                           and the International Flowerbulb Centre Holland, research their markets
                           through their contacts with industry representatives. The Flower Coun-
                           cil’s Director for Japan performed initial research into the cut flower
                           market several years ago. At that time, he was working within the Japa-
                           nese flower distribution system as a European Community management
                           trainee. Similarly, the International Flowerbulb Centre Holland’s Mana-
                           ger initially researched the Japanese bulb market about 5 years ago,
                           when he was a university student in Tokyo. Both continue researching
                           their markets through their daily contact with members of the flower
                           distribution network.

                           New Zealand Embassy staff stated that they perform market research
                           only at exporters’ request and charge the clients by the hour for the
                           services. For example, a recent 57-page report on the market for
                           kiwifruit wine was requested by the industry, which paid for it. In addi-
                           tion, the New Zealand Meat Producers Board and the New Zealand Dairy
                           Board have commercial operations that perform some market research
                           for the meat and dairy industries.


Trade and Technical        The marketing organizations we reviewed offer several types of trade
Assistance                 and technical assistance to exporters. These include matching exporters
                           and importers, acting as liaison between exporters and the Japanese
                           government concerning compliance with import regulations, negotiating
                           with the Japanese government to change or modify regulations affecting
                           imports into Japan, and disseminating market and trade information to
                           producers and exporters.

Matching Importers   and   Most marketing organizations we reviewed match potential exporters
Exporters                  and importers, most often at the request of an exporter who thinks a
                           product might be saleable in Japan. In some cases, however, the import
                           ers solicit the business, having recognized demand for a particular prod-
                           uct. For example, when Japanese domestic fish supplies decreased,
                           Japanese importers inquired through the British Embassy Commercial
                           Section about possibilities of importing fish and fish products from Scot-
                           land, and the Embassy consequently contacted potential exporters.

                           The marketing organization generally supplies the would-be exporter
                           with a list of indust,ry contacts for the exporter to contact to establish



                           Page 15                                           GAO/NSlAlMC-134   International   Trade
                          Appendix 11
                          Foreign Marketing Oganizatioms’   Efforts   to
                          Gain Market Share




Dissemination of Market   Foreign organizations disseminate information to producers in various
Information               ways. They pass information to producers through official government
                          channels and through periodic publications and reports; they answer
                          direct requests from producers; and they keep and make available gen-
                          eral marketing information in their Japanese offices.

                          Some organizations distribute marketing information to producers
                          through official government channels. For example, Canadian Embassy
                          officials told us that the government’s Department of Industry, Science,
                          and Technology distributed through its provincial offices the market
                          profile for bottled water. The profile had been prepared by Embassy
                          staff. Similarly, the British Embassy’s Commercial Section provides
                          market information through official channels such as the Department of
                          Trade and Industry’s Export Intelligence Service.

                          Another method of dissemination is through periodic publications or
                          reports distributed to producers in their home countries. For example,
                          the Australian Meat and Live-Stock Corporation distributes to producers
                          newsletters that inform them of market trends in Japan and other coun-
                          tries Similarly, the German marketing organization reports marketing
                          information to producers through its central office in West Germany.

                          Foreign organizations also provide marketing information in response to
                          requests from producers to determine whether a potential market exists
                          for exporting their products to Japan. For example, the Italian Trade
                          Commission sends market information to potential exporters upon
                          request and suggests possible links with Japanese importers. Similarly,
                          the Danish Agricultural Counsellor said that he spends the majority of
                          his time advising exporters on whether or not a market exists for their
                          products.

                          Several organizations keep general marketing information in their
                          offices that is available to exporters. Exporters may obtain the informa-
                          tion either by contacting or by visiting the offices. For example, the Brit-
                          ish Embassy’s Commercial Section distributes general information
                          pamphlets to assist potential exporters; the German marketing organiza-
                          tion provides general information to producers on arranging in-store
                          promotion displays; and the Canadian Embassy distributes market sec-
                          tor information to requesters.




                           Page 17                                         GAO/NSIAD-W-134   International   Trade
                       Appendix II
                       Foreign Marketing Organizations’   Efforts   to
                       Gain Market Share




                       assess the programs’ effectiveness. The French marketing organization’s
                       Director in Japan noted that, while he does not always hear exporters’
                       opinions on campaign effectiveness, he believes the exporters would not
                       continue to participate in special campaigns if the exporters did not
                       believe they were effective. Finally, some representatives believe that
                       their experience, knowledge of the market, and close contact with the
                       various participants in the trade gives them a fair idea of their pro-
                       grams’ effectiveness.

                       Evaluation of promotional efforts has led some organizations to alter
                       their activities. For example, the Canadian Embassy no longer offers
                       monetary incentives to supermarkets for sponsoring Canadian food fairs
                       because the staff accurately perceived that the supermarkets would
                       host the fairs anyway. The Canadians arc also planning to build a hall
                       for exhibiting Canadian products as an alternative to participating in
                       Foodex. Embassy officials believe larger exhibitions probably over-
                       shadow the Canadian exhibitions during Foodex, and a smaller exhibit
                       of only Canadian products may be more effective. Similarly, the Austra-
                       lian Trade Commission previously advertised Australian products but
                       discontinued the practice about 12 years ago, after concluding that
                       advertising produced little reaction.

                       The marketing organizations’ representatives generally seemed confi-
                       dent that their evaluation efforts are appropriate, given their products’
                       market situations and the organizations’ limited resources. Some stated,
                       however, that they would like to evaluate their activities’ effectiveness
                       more systematically to better direct future efforts, but do not have the
                       resources to do this.


Promotion Activities
Trade Exhibitions      Most of the marketing organizations we reviewed arrange or help to
                       arrange exporters’ exhibits at large, international food shows such as
                       Foodex. Foodex is an annual exhibition in Tokyo that features food
                       products from all over the world. The event lets Japanese food trade
                       representatives see exporters’ products and establish business links. For
                       several marketing organizations, funding Foodex activities is an impor-
                       tant promotional activity. For example, a Canadian Embassy official
                       said about 60 percent of the Embassy’s agricultural market promotion
                       budget is allocated to its Foodex participation,




                       Page 19                                           GAO/NSIAD-90134   International   Trade
                                 Appendix II
                                 Foreign Marketing Orgmizatiom   Efforts   to
                                 Gain Market Share




Cmsumer and Retailer Education   Several officials told us that educating consumers and retailers is an
                                 important part of market promotion. They believe that informed con-
                                 sumers are more likely to buy products, and knowledgeable retailers are
                                 more likely to stock products. For example, Wine Australia, an organiza-
                                 tion that promotes Australian wines in Japan, has funded wine tastings
                                 for wine traders and conducted seminars aimed at educating retailers on
                                 all aspects of wine.


                                 The markets for two high value agricultural products, beef and wine,
Case Studies-                    provide examples of how marketing organizations promote naps in
Different Approaches             Japan.
to Marketing Beef and
Wine

Marketing Beef                   According to officials from several marketing organizations, Japan
                                 offers significant export potential for foreign beef producers. They
                                 believe there is a latent demand for beef that, when combined with
                                 Japan’s high level of personal income and relatively low per capita con-
                                 sumption of beef, will result in greatly increased sales as beef restric-
                                 tions are phased out. A principal beef exporter to Japan, Australia is
                                 investing considerable market promotion efforts, with the goal of
                                 increasing its share of the beef market once quotas are lifted.

                                 The Australian Meat and Live-Stock Corporation funds numerous pro-
                                 motional activities. For example, during 1988 it participated in trade
                                 exhibitions such as Foodex, in-store promotions, and restaurant promo-
                                 tions. The corporation also promotes through advertising. It has chosen
                                 to invest in a costly nationwide television campaign, and its Director in
                                 Japan stated that the television campaign goals are to promote Austra-
                                 lia’s image along with the product and to reach as many people as possi-
                                 ble. Although the cost is high, the Director believes television is the best
                                 way to reach the largest number of people.

                                 Other activities sponsored by the Australian Meat and Livestock Corpo-
                                 ration to promote beef include cooking competitions, a butcher exchange
                                 program, and trade missions consisting of journalists, Japanese govern-
                                 ment officials, and Japanese food industry officials.




                                 Page 21                                        GAO/NSIADB&134   Intemational   Trade
Appendix II
Foreign Marketing Organizations’   Efforts   to
Gain Mark& Share




Because Australian wine is comparatively unknown in Japan, Wine Aus-
tralia has concentrated on linking Australian wine exporters with Japa-
nese importers which, it hopes, will build business contacts through
long-term, calculated planning and activities. Wine Australia’s promo-
tional efforts are directed toward basic education to the wine trade on
all aspects of wine (because the wine market is still relatively undevel-
oped) and specifically on Australian wine as a viable competitor with
the better-known French, German, Californian, and Italian wines. Over-
all, Wine Australia is trying to create an image of Australian wine as a
good wine value and of Australia as the “Wine Paradise in the Southern
Hemisphere.” Wine Australia plans to aim promotional efforts at Japa-
nese consumers only after establishing a solid business relationship with
t,he wine trade.




Page 23                                           GAO/NSIAD-SO-134   International   Trade
                     Appendix III
                     Nontraditional     Importation  Methods   Can
                     Fncilitate   Market Penetration




                     Similar to the New Zealand Meat Producers Board, the New Zealand
Joint Ventures-The   Dairy Board began commercial operations to unify New Zealand’s previ-
New Zealand Dairy    ously fragmented dairy export efforts. According to the Dairy Boards
Board Approach       representative in Japan, in the early 1980s the Board’s Directorate
                     believed its position in the Japanese market was strong enough that it
                     could lessen its dependence on the large Japanese trading companies. It
                     planned to lessen its dependence by entering into joint ventures and dis-
                     tributing its products through the Japanese trading companies.

                     In 1981, the Dairy Hoard formed New Zealand Milk Products in a
                     50-50 joint venture with a Japanese firm, Nosawa and Company. In
                     1983, the Dairy Board purchased an additional 25 percent and now
                     holds 75 percent of the joint venture. Similarly, in 1982, the Board
                     formed Nippon Proteins in a 50-50 joint venture with Nissei Kyokei
                     Company for the marketing of various high technology milk-derived
                     protein products.

                     The Dairy Board’s Japan representative said the move to joint ventures
                     has improved its members’ positions in the Japanese market by lessen-
                     ing their dependence on the large trading companies. However, the rep-
                     resentative noted that the joint ventures’ success is due to two factors.
                     First, the joint ventures were undertaken with the Japanese companies
                     with which they had previously established relationships. The Dairy
                     Board hired the existing employees and administered the joint ventures
                     as normal Japanese companies, following local procedures for financing,
                     credit, insurance, and personnel matters. In addition, the Dairy Board
                     invested considerable effort in maintaining good relationships with buy-
                     ers who were accustomed to working with the local companies. In this
                     sense, the Dairy Board did not make as independent a break as did the
                     Meat Producers Board, which formed completely new companies. Sec-
                     ond, and perhaps most importantly, the Dairy Board acted from a strong
                     market position because it possessed both products and technology that
                     the Japanese companies wanted and could not otherwise obtain. The
                     Dairy Board made it clear to the Japanese companies that if they did not
                     agree to joint ventures, they risked losing opportunities for distributing
                     those products.




                     Page 26                                         GAO/NSIAD&O-134   International   Trade
Appendix IV                                  -~

Major Contributors to This Report


National Security and   Judith K. Knepper, Evaluator-in-Charge
International Affairs
Division, Washington,
D.C.

                        Karla Springer-Hamilton, Evaluator
Far East Office         David J. Wise, Evaluator




(483540)                Page 27                                  GAO/NSL4D@O-134   International   Trade
                                                                          -




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                      Appendix III
                      Nontraditional     Importatim   Methods   Cm
                      Facilitate   Market Penetration




                      Some Japanese retailers and wholesalers are using “nontraditional”
Japanese Companies’   methods in order to import HVPS more cheaply. They are engaging in
Nontraditional        direct or parallel importing and offshore production.
Importing Methods

Direct Importing      Some Japanese retailers are importing directly from producers as an
                      alternative to working through the usual distribution system. For
                      instance, The Daiei, Inc., a large Japanese chain store, employs this
                      method for about 30 percent of its imported food. Company officials
                      told us they prefer direct importing because The Daiei can obtain prod-
                      ucts more tailored to the company’s specifications. Also, by eliminating
                      various middlemen involved in the traditional distribution system, the
                      company is able to offer products at lower prices and, therefore, be
                      more competitivcl.


Parallel Importing    To cut costs, some Japanese companies are “parallel importing” HVPS
                      from sources outside of Japan rather than buying the identical, but more
                      expensive, products that are produced locally. The identical products,
                      which are also produced under license in Japan, may be cheaper when
                      exported either because of the relative strength of the yen or because
                      input costs are lower outside of Japan. For example, an official from
                      Mitsui and Company, Ltd., one of Japan’s leading trading companies,
                      told us that Mitsui can import Coke bottled in the United States or Singa-
                      pore and resell it more cheaply than they can sell the same item pro-
                      duced locally.


Offshore Production   To offset high production costs in *Japan and to take advantage of the
                      strong yen, some -Japanese manufacturers are developing production
                      facilities overseas, where the costs of materials and labor are signifi-
                      cantly lower than in -Japan. For example, the Mitsui officials told us
                      they are importing canned tuna that is being produced in a Japanese-run
                      facility in Thailand. According to the officials, Mitsui provides technical
                      assistance to ensure that the product meets Japanese specifications.
                      Although the label specifies that the item is made in Thailand, the prod-
                      uct is the same as the one produced in Japan. The officials estimate the
                      product can be produced for 20-30 percent less in Thailand than in
                      Japan and can, therefore, be sold more cheaply to Japanese consumers.




                      Page 26                                        GAO/NSIAD-90134   International   Trade
Appendix III

Nontraditional Importation Methods Can
Facilitate Market Penetration

                      In an effort to be more competitive in the Japanese HVP market, import-
                      ers are increasingly using innovative, or “nontraditional,” methods to
                      import and distribute their products. The rationale for these methods is
                      to circumvent the traditional steps, or middlemen, that control product
                      distribution and add to product cost. By gaining more control over the
                      products and by cutting costs, the innovative exporters and importers
                      hope to make their products more competitive and successful in Japan.
                      Specifically, among the exporters, two foreign marketing organizations
                      distribute their products through private companies or joint ventures
                      they established rather than through traditional Japanese distribution
                      channels. Among the importers, some Japanese retailers and wholesal-
                      ers are using nontraditional means to import items more cheaply, as the
                      following examples illustrate.


                      In 1984, the New Zealand Meat Producers Board established its own
Independent           commercial operations to market sheep meat in Japan. Previously,
Commercial            38 New Zealand producers exported sheep meat independently. Accord-
Operations-The  New   ing to the Board’s Asia Director, the individual export efforts were inef-
                      ficient and fragmented and, as a consequence, the large Japanese
Zealand Meat          trading companies were able to keep prices down and limit exporters’
Producers Board       access to markets. The Meat Board’s Directorate believed that producers
                      needed a unified effort to build up their markets in Japan. Conse-
Approach              quently, they established three companies-one each for importing,
                      processing, and distributing-to    work together to sell New Zealand meat
                      in Japan. Janmark, the company marketing lamb, is in the early stages
                      of a major marketing development program with the goal of establishing
                      a solid, medium-sized market for New Zealand lamb.

                      The Meat Board’s Asia Director said that there had been resistance
                      among Japanese importers and traders to the Board’s independent
                      approach. However, the Meat Board’s Asia Director stated that the Meat
                      Board had hired outstanding local people and, through them, is patiently
                      developing contacts throughout the industry. He believes the approach
                      has been successful so far in gaining a larger share of the sheep meat
                      market. The Meat Board’s Director in Japan suggested that some U.S.
                      companies are large and powerful enough to establish independent com-
                      mercial operations effectively.




                      Page 24                                    GAO/NSIAD90134   International   Trade
                           Appendix II
                           Foreign Marketing Organizations’   Efforts   to
                           Gain Market Share




Independent Beef           Australian and New Zealand marketing organization officials believe the
Distribution Once Quotas   upcoming lifting of beef import quotas may lead to the formation of
                           additional, independent commercial distributors in Japan. At present,
Are Lifted                 beef importation and distribution in Japan are strictly controlled
                           through quotas and restrictions imposed by the *Japanese government.
                           Representatives from several organizations believe the latent demand
                           for beef is large, and they expect beef consumption to rise considerably
                           when the quotas are lifted-offering    profitable opportunities for for-
                           eign beef producers. The Director of the New Zealand Meat Producers
                           Board believes some U.S. meat companies are large and powerful
                           enough to establish independent commercial operations in Japan. In so
                           doing, they could circumvent the traditional distribution system, saving
                           middleman costs and expanding as much as the market will allow-sim-
                           ilar to what the New Zealand Meat Producers Board did in the sheep
                           meat market. The Director noted that establishing independent opera-
                           tions may be difficult due to resistance from Japanese traders and
                           importers, especially because of the potentially large market-and     prof-
                           its-involved.


Marketing Wine             The SociCtC pour 1’Expansion des Ventes des Produits Agricoles et Ali-
                           mentaires (SOPEXA), the French marketing organization, and Wine Aus-
                           tralia are two marketing organizations taking different approaches to
                           promoting wine in the Japanese market. France is the top wine exporter
                           to Japan, followed by West Germany, the United States, Italy, and Aus-
                           tralia. According to SOPEXA, Japanese wine consumption is low-about
                           one liter of French wine per person per year, compared with 80 liters
                           per person in Italy. Both SOPEXA and Wine Australia recognize Japan as
                           a promising market for wine and are, therefore, gearing their promo-
                           tional efforts toward increasing sales to Japan.

                           According to the SOPEXA representative, SoPEx.4 is developing a campaign
                           to make French wines more available to the Japanese consumer. While
                           French wine enjoys a good reputation and is well known in <Japan,in the
                           past most French wine sold there was the more expensive, premium
                           wine sold through only a few channels such as hotels, restaurants, and
                           department stores. It was not stocked in the smaller liquor shops that
                           sell moderately priced wine and, therefore, was not available to a large
                           portion of the Japanese public. SoPExA’s current campaign emphasizes
                           moderately priced wines and entails promoting them through the
                           smaller liquor shops in order to capture the consumer market.




                           Page 22                                           GAO/NSIAIWO-134   International   Trade
                        Appendix II
                        Foreign Marketing Organizations’   Efforts   to
                        Gain Market Share




                        Marketing organizations also participate in smaller, regional food exhibi-
                        tions. For example, the Netherlands Embassy participated in the Nishi
                        Nippon fair in Kitakyushu and in other fairs in Sapporo and Osaka.

In-Store Promotions     Japanese supermarket officials and foreign marketing officials believe
                        in-store promotions are an effective way to introduce products to con-
                        sumers. They noted that Japan’s supermarket business is extremely
                        competitive, and most consumers shop daily. A typical in-store promo-
                        tion will include free samples, possibly a special sale of a particular
                        product, and some promotional literature. We observed several in-store
                        promotions occurring simultaneously in the food section of Mitsukoshi, a
                        leading Japanese department store. Products featured included German
                        sausage, U.S. beef, and Danish cheese.

                        Because competition for limited shelf space in supermarkets is keen,
                        some officials stressed the importance of obtaining shelf-space commit-
                        ments from supermarket managers so as not to lose the effects from in-
                        store promotions. For example, the German marketing organization
                        Director said that he obtains agreements for continued shelf space from
                        supermarket officials prior to participating in a store’s promotion.

Restaurant Promotions   Several marketing organizations use restaurant promotions to introduce
                        consumers to particular products. For instance, a promotion that we
                        observed for New Zealand beef was in a restaurant located in a Tokyo
                        office building. A large sign outside the restaurant, and a prominent dis-
                        play on the luncheon menu, pictured the special at what appeared to be
                        a reasonable price (about $8). The Japan Director of the Australian
                        Meat and Live-Stock Corporation told us that he considers restaurant
                        promotions for lamb important because introducing consumers to a
                        product that is correctly prepared is more likely to result in a positive
                        impression of the product and, therefore, to encourage sales for home
                        consumption. According to the Director, one problem with increasing
                        consumers’ acceptance of lamb is that most consumers do not know how
                        to prepare it properly; a restaurant is helpful in promoting overall con-
                        sumer knowledge of the product. As part of its restaurant promotion
                        program, the corporation sponsors prizes, such as trips to Australia, and
                        consumers also receive information on ordering lamb directly from sup-
                        pliers. The Director also said that he obtains commitments from the res-
                        taurants to maintain some Australian dishes as permanent features of
                        the regular menu.




                         Page 20                                          GAO/NSIAJS9O-134   International   Trade
                         Appendix II
                         Foreign Marketing Orgmizations’   Efforts   to
                         Gain Market Share




Trade Missions           Many foreign marketing organizations sponsor Japanese trade missions
                         to their countries for Japanese importers in an effort to encourage agri-
                         cultural exports. Marketing organization officials told us that these mis-
                         sions can be an effective means of linking exporters and importers. In
                         addition, they hope the missions will generate favorable publicity in
                         Japan on the country’s products and familiarize Japanese importers
                         with the range of products available. Some include journalists as mission
                         participants with the expectation that they will write positive articles in
                         Japanese publications from their experiences and, according to the
                         Scotch Whisky representative, this response does occur. In addition, a
                         Danish Embassy official said that he tries to schedule trade missions
                         around large Danish agricultural fairs in order to maximize the mission’s
                         exposure to Danish products and exporters.

                         A Canadian Embassy official said that he devotes considerable time
                         ensuring that trade mission participants receive a favorable impression
                         of Canada on their trip; that all arrangements proceed smoothly; and
                         that the participants meet as many potential exporters as possible.


Evaluation of Market     Most of the marketing organizations evaluate the results of their market
Development Activities   development and promotion activities either formally or informally, and
                         they sometimes alter activities as a result. Some stated that resources
                         limit the type and extent of evaluation they can perform.

                         Among the formal evaluation methods some marketing organizations we
                         visited use are consumer surveys, sales reports, and other evaluations
                         following food fairs and in-store promotions. They also conduct follow-
                         up discussions with participants of trade missions and with those who
                         have received trade services. For example, the Australian Meat and
                         Live-Stock Corporation contracts with local firms to conduct consumer
                         awareness surveys before and after advertising campaigns. Also, Cana-
                         dian Embassy staff talk with importers and exporters after helping to
                         link them, and they require Foodex participants to complete evaluation
                         forms. The German marketing organization requires sales data from
                         store managers following in-store promotions.

                         Marketing organizations informally evaluate the effectiveness of their
                         efforts in various ways. Several organization representatives stated that
                         they sometimes hear from companies following promotions or after
                         other services, and Italian Trade Commission newsletters even request
                         such feedback. Also, several organizations follow export statistics, mar-
                         ket shares, or sales trends of products from their countries as a way to


                         Page 18                                          GAO/NSIAD-W-134   International   Trade
                     Appendix II
                     Foreign Marketing Organizations’   Efforts   to
                     Gain Market Sham




                     business relationships. In other cases, however, the marketing organiza-
                     tion carries out the matching process to help find the best business com-
                     binations. For example, a Canadian Embassy representative stated that
                     he tries to connect exporters with importers that are not already han-
                     dling a similar product. This matching is done so that importers cannot
                     drive prices down by playing suppliers off against each other. Similarly,
                     the Wine Australia representative explained that he spends considerable
                     time matching exporters with “appropriate” Japanese agents because it
                     is especially important in the wine business that the exporter and agent
                     have compatible marketing strategies.

Liaison Activity     Many of the marketing organizations we reviewed provide assistance to
                     companies regarding compliance with Japanese import regulations. Gen-
                     erally this assistance takes the form of researching or interpreting regu-
                     lations that limit ingredients. For example, the German marketing
                     organization’s Director informed a German company that routinely uses
                     saccharine in its products that Japanese government regulations pro-
                     hibit saccharine. Also, an Italian Trade Commission official told us he
                     keeps wine industry officials informed of chemical t,esting requirements.
                     Similarly, Canadian Embassy officials stated that they often help par-
                     ticipants in the large annual food show-Foodex-clear       their products
                     through Japanese customs.

Trade Negotiations   Foreign embassy officials also negotiate with the Japanese government
                     to modify existing regulations that affect agricultural imports. For
                     example, officials from the Netherlands Embassy negotiated for nearly
                     5 years with the Japanese government to permit inspection of cut flow-
                     ers before the flowers leave Holland rather than once they arrive in
                     Japan. According to the Area Manager of the International Flowerbulb
                     Centre Holland, this pre-shipment inspection saves transportation costs’
                     and allows the flowers to be delivered faster and fresher-making     them
                     more competitive in .Japan.

                     Other officials noted that IJ.S. efforts in negotiating the modification or
                     removal of various trade barriers, such as those on dairy products, beef,
                     and other processed foods, have benefited the export community in gen-
                     eral. The Danish Agricultural Counsellor said he believes that the United
                     States has the power to influence the Japanese government, and this
                     helps smaller, less influential countries that subsequently benefit from
                     the 1J.S.’ efforts to reduce or eliminate trade barriers.

                     ‘Pre-shipment inspections rmable Dutch producers to avoid the costs associated with shipping flowen
                     which are rejected by Japanrw mspwtors.




                      Page 16                                                  GAO/NSIAD90-134       International   Trade
                       Appendix lI
                       Foreign Marketing Organdtions’   Efforts   to
                       Gain Market Share




                       At the other end of the spectrum, the Australian Meat and Live-Stock
                       Corporation’s budget for promoting Australian meat during the period
                       July 1, 1987, to June 30, 1988, was about $7.2 million, including a
                       recently launched television advertising campaign for Australian beef.
                       According to the Director, Australian beef producers are willing to
                       invest heavily in promoting beef because they believe that, with the
                       upcoming lifting of the Japanese beef quotas in 1991, Australian beef
                       producers have an opportunity to improve their share of the beef mar-
                       ket. Under the Cooperator and Targeted Export Assistance Programs,
                       U.S. 1988 market development expenditures in Japan totaled approxi-
                       mately $42.7 million (about six times the expenditures of its nearest
                       competitor, Australia).


                       Foreign marketing organizations in Japan conduct a wide variety of
Types of Market        market development activities, including market research, trade and
D&elopment and         technical assistance, and numerous types of promotional activities.
Promotional Services

Market Research        Most organizations we reviewed offer some research services; however,
                       there is a great variety among organizations in initiating and performing
                       the services and in the depth of the services performed. The following
                       examples illustrate research services that three foreign competitor mar-
                       keting organizations offer in Japan.

                       Canadian exports receive market research assistance from the Canadian
                       Embassy, which conducts some market research and contracts with
                       local firms for other research. The Embassy staff conduct limited mar-
                       ket research projects for exporters, but they generally contract for more
                       in-depth, industrywide surveys or consumer attitude surveys. For exam-
                       ple, the Embassy recently contracted for a profile of the Japanese retail
                       food and beverage sector, but it researched the Japanese market for bot-
                       tled water with its own staff, producing its own report on this potential
                       market. Embassy representatives told us they see market identification
                       as one of their roles, and they follow market trends with that role in
                       mind. They stated that the Embassy staff constitute the only marketing
                       group performing market research on behalf of Canadian exporters in
                       Japan.

                       Most market research for exports from the Netherlands is performed by
                       product-specific marketing organizations rather than by the Embassy.



                       Page 14                                         GAO/NSIALWO-134   International   Trade
                      Appendix I
                      H&h Value A@lcultwal   Products   and the
                      Japan Market




                      In response to perceptions that Japan is a difficult market to enter and
Japanese              to international criticism over increasing trade surpluses with trading
Government’s Import   partners, Japanese government officials told us that they are working to
Promotion Efforts     encourage and to promote imports. According to the Ministry of Interna-
                      tional Trade and Industry, as of January 1, 1986, the Japanese govern-
                      ment had reduced or abolished tariffs on nearly 2,000 items.
                      Additionally, on July 20, 1988, the United States and Japan completed
                      negotiations to end or reduce import restrictions on nine categories of
                      processed foods, such as dairy products and pasta. The Japanese gov-
                      ernment also agreed to reduce tariffs on other items, including cereals,
                      soups, and prepared or preserved pineapples, and to eliminate imported
                      beef quotas by April 1991.

                      The Japan External Trade Organization was established more than 30
                      years ago to promote exports from Japan to other countries. It currently
                      maintains 77 offices in 57 countries, including 9 offices in the United
                      States and Puerto Rico, and employs 600 personnel in Japan, 300 staff
                      overseas, and 300 foreign nationals. This organization is redirecting its
                      efforts toward promoting imports from other countries due to Japan’s
                      economic strength.




                      Page 12                                     GAO/NSIADSO-134   International   Trade
                         Appendix 1
                         H&h Value Agricultural   Products   and the
                         Japan Market




                         formulation-thus    increasing production costs-to suit the unique pref-
                         erences of Japanese consumers. As a result, marketing organizations
                         invest considerable t.imtt and money while developing the market in
                         Japan.


HVP Competitiveness      Foreign marketing officials and Japanese supermarket representatives
                         noted that because Japan is an affluent and developed country, IWP
                         exporters compete actively in Japan to expand market share. In addi-
                         tion, Japan’s numerous medium-sized supermarket chains compete
                         avidly for consumers. Chain officials closely monitor what is succeeding
                         in the marketplace and frequently change stock items in an effort to
                         attract customers. Because supermarkets are relatively small, producers
                         must also compete for limited shelf space. Several foreign officials told
                         us that uncertainty over obtaining commitments of long-term shelf
                         space from supermarket executives may discourage potential exporters.


A Complex Distribution   Several foreign marketing officials specifically mentioned that the com-
System                   plex, multilayered distribution system can limit a foreign company’s
                         growth potential. This distribution system includes large and powerful
                         Japanese trading companies, one or more levels of wholesalers, and
                         many large and small retailers. Several officials told us that the large
                         trading companies’ control over the distribution network can limit a for-
                         eign company’s access to the network. As a result, importers’ growth
                         potential is limited, and companies may, therefore, be reluctant to enter
                         the market.

                         The nature of the distribution system requires the development of per-
                         sonal relationships, which are considered vital in maintaining the links
                         between the system’s layers. Relationships between wholesalers and
                         retailers tend to be close in Japan, and retailers have a strong preference
                         for working with their traditional suppliers, whom they know to be
                         dependable. The New Zealand Meat Producers Board Director in Japan,
                         speaking from his experience in developing a market for New Zealand
                         lamb, stressed the difficulty of breaking into the Japanese market
                         quickly-the    Japanese emphasize personal contacts and trust, which
                         take time to cultivate.

                         Several officials told us that companies entering the Japanese market-
                         place must be prepared to invest considerable time, effort, and money in
                         cultivating the relationships needed to operate in the Japanese distribu-
                         tion system. For example, one Danish marketing representative stated


                         Page 10                                       GAO/NSIAD.90-134   International   Trade
High Value Agriculturail Products and the
Japan Market

                Agricultural products are commonly classified as either bulk commodi-
                ties or high value products. Bulk commodities include raw materials
                such as grains and cotton. High value agricultural products (HVPs) gener-
                ally include three groups: high value unprocessed foods such as eggs,
                fresh fruits, and nuts; semiprocessed products such as flour, oilseed
                products, and meats; and highly processed products such as prepared
                meats, dairy products, and soups. HVPs have accounted for about two-
                thirds of world agricultural trade since the 1960s.

                Japan is a large and potentially lucrative market for exported HVPS.
                According to the Foreign Agricultural Service (FAS), average per capita
                disposable income is higher in Japan than it is in the United States, and
                the average Japanese consumer spends about 25 percent of disposable
                income for food, compared to 12 percent for Americans. In 1987, Japa-
                nese consumers spent $398.2 billion on food and drink out of a total
                personal consumption bill of $1.4 trillion.

                According to the Japan External Trade Organization, in 1988 Japan
                imported agricultural products valued at about $27.4 billion, and
                according to FM, 51 countries competed with the United States for the
                Japanese agricultural import market. Agricultural imports from the nine
                countries in our review (New Zealand, Australia, Canada, France, West
                Germany, the United Kingdom, the Netherlands, Italy, and Denmark)
                plus the United States represented about 63 percent of all agricultural
                imports to Japan in 1988. The United States had the largest share of
                that market, with about $9.9 billion, or 36.1 percent, of the total agricul-
                tural import market in Japan. According to FAS, HVPS constituted about
                56 percent of this total,’ and bulk commodities represented about 44
                percent of all agricultural imports into Japan from the United States.
                (See table I. 1 for total agricultural imports into Japan from the United
                States and from the nine countries in our review. Also included in the
                table are their export promotion expenditures in 1988.)




                ‘Forest products, which are clarified as HVPs, represented    about 24 percent of all agricultural
                imports into Japan from the IJmted States.




                Page 8                                                       GAO/NSIABSO-134        International    Trade
Contents


Letter                                                                                                   1
                                           -
Appendix I                                                                                              8
High Value               Japan-A Difficult Export Market                                                9
                         Japanese Government’s Import Promotion Efforts                                12
Agricultural Products
and the Japan Market
Appendix II
Foreign Marketing        Types of Market Development and Promotional Services
                         Case Studies- Different Approaches to Marketing Beef
Organizations’ Efforts       and Wine
to Gain Market Share
Appendix III                                                                                           24
Nontraditional           Independent Commercial Operations-The     New Zealand                         24
                              Meat Producers Board Approach
Importation Methods      Joint Ventures-The   New Zealand Dairy Board Approach                         25
Can Facilitate Market    Japanese Companies’ Nontraditional Importing Methods                          26
Penetration
Appendix IV                                                                                            27
Major Contributors to    National Security and International Affairs Division,
                              Washington, D.C.
                                                                                                       27
This Report              Far East Office                                                               27

Table                    Table I. 1: Agricultural Imports and Export Promotion                           9
                             Expenditures in Japan for 10 Countries in 1988




                         Abbreviations

                         FM        Foreign Agricultural Service
                         GAO       General Accounting Office
                         HVP       High value agricultural product
                         SOPEXA    Soci&tC pour I’Expansion des Ventes des Produits Agricoles et
                                      Alimentaires (French food and beverage marketing
                                      organization)


                         Page 6                                     GAO/NSIAB9@134   International   Trade
                    B-226269




                    Foreign and Japanese companies alike are gaining greater access to the
Nontraditional      Japanese market by using nontraditional methods of importing or dis-
Methods Can         tributing goods in Japan, and one foreign marketing representative
Facilitate Market   stated that U.S. companies could use similar techniques to penetrate the
                    Japanese market. For example, two New Zealand organizations formed
Penetration         their own companies in Japan or entered into joint ventures with Japa-
                     nese firms to import and distribute their products, bypassing the tradi-
                     tional, but expensive and restrictive, distribution system. The New
                     Zealand Dairy Board’s representative in Japan stated that the move to
                    joint ventures has improved its market position in Japan by lessening its
                     dependence on large trading companies. The New Zealand Meat Produc-
                     ers Board Director in Japan suggested that some U.S. companies are
                     large and powerful enough to establish independent commercial opera-
                     tions effectively.

                    Some Japanese companies are also beginning to bypass the traditional
                    distribution system by importing directly from foreign producers and
                    using parallel importing and offshore production techniques to import
                    goods more cheaply. One Japanese trading company told us it imports
                    canned tuna from a Japanese-operated facility in Thailand because the
                    product can be produced from 20 percent to 30 percent cheaper than in
                    Japan.


                    We interviewed foreign embassy and marketing organization officials of
Scope and           the nine competitors which, according to U.S. Foreign Agricultural Ser-
Methodology         vice estimates, spent the most on high value product market promotion
                    in Japan during 1987. Four countries-France,     West Germany, Italy,
                    and Canada-each have only one marketing organization conducting
                    market research and promotion activities in Japan, and we spoke with a
                    representative from each. The others-New     Zealand, Australia, the
                    United Kingdom, the Netherlands, and Denmark-have         both govern-
                    ment and nongovernment marketing entities conducting research and
                    promotional activities in Japan. For these, we talked with a representa-
                    tive of each government organization and at least one nongovernment
                    organization.

                    In addition, we met with Japanese officials from government organiza-
                    tions who are working to promote agricultural imports, Japanese trad-
                    ing company officials, and Japanese wholesalers and retailers who
                    market imported agricultural products. We also visited Japanese super-
                    markets and department store food sections to observe market promo-
                    tion activities first hand. In addition, we interviewed representatives


                    Page 4                                     GAO/NSIADSO-134   International   Trade
                    B-226269




                    agricultural trade, and Far East markets offer excellent opportunities
                    for exporters of these products.

                    Japan is a large and potentially lucrative market for exported high
                    value agricultural products. According to the Foreign Agricultural Ser-
                    vice, Japanese average per capita disposable income is higher than it is
                    in the IJnited States, and the average Japanese spends about 25 percent
                    of disposable income for food, compared to 12 percent per American. In
                     1987, *Japanese consumers spent $398.2 billion on food and drink out of
                    a total personal consumption bill of $1.4 trillion. The value of its market
                    for all agricultural products in 1988 was $27.4 billion, according to the
                    Japan External Trade Organization.

                    According to Foreign Agricultural Service estimates, 1988 market devel-
                    opment expenditures by foreign governments in the Japanese market
                    ranged from $900,000 (Italy and the Netherlands) to $7.0 million (Aus-
                    tralia), while the linited States spent $42.6 million under its Targeted
                    Export Assistance and Cooperator market development programs.’

                               -~~-~                -~~
                    Japan is thought to be a difficult market for companies to penetrate due
Japan-A Difficult   to the competition for shelf space in supermarkets for HVP products; the
Export Market       complexity of Japan’s product distribution system; quotas and tariffs
                    that either restrict trade or make products more expensive and there-
                    fore less competitive; and the need to adapt product size, packaging, or
                    formulation to suit the preferences of Japanese consumers.

                    Foreign companies must be willing to invest considerable time and
                    money to develop markets for their products in Japan. According to one
                    estimate, large companies should allow at least 5 to 7 years for products
                    to become profitable. They should also expect to spend between $2 mil-
                    lion and $2. 5 million for the first 1 or 2 years to develop the market for
                    their product(s) and about $1 million for follow-up surveys, additional
                    market research, and evaluation.

                     The New Zealand Meat Producers                Board Director in Japan, speaking
                     from his experience in developing              a market for New Zealand lamb,
                     stressed the difficulty of breaking            into the Japanese market quickly-
                     the Japanese emphasize personal               contacts and trust, which take time to

                     ‘For a general discussion of forqn market development for high value agricultural products, see
                     International Trade: Foreign Market Development for High Value Agricultural Products, (GAO/
                     NSIAD-90.47. Jan 17, 1990)




                     Page 2                                                   GAO/NSIAD-SO-134     International   Trade