The best thing about being the Pundit is that smart people from all around the world reach out to us. So we’ve been honored to feature the thoughtful perspective of Jack Bayles, an American who has long made Japan his home. You can read Jack’s comments in pieces such as these:
Americans Providing Assistance In Japan
China Scare ‘Off The Charts’ In Japan
So when the Trans-Pacific Partnership was announced, we thought we would reach out to Jack, with the hope of gaining an American’s perspective on doing business in Japan.
Japan is a mature market and its population is shrinking, not growing, as a result producers in the US have de-emphasized Japan and pursued faster growing markets, such as China. However, because we do not have a Free Trade Agreement with Japan, one of the big breakthroughs for America is that the TPP would result in more liberal access to the Japanese market.
But how does one translate this theoretical gain into an actual gain? We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more:
John Bayles
Owner
Alishan Organic Center
Komahongo, Japan
Q: We’re so eager to garner your insights in person at the Global Trade Symposium. You’ve contributed important information to many articles in our online publication over the years, from revealing concerns over organic certification in China, to pioneering development of food banking in Japan.
I was first taken aback by your compassionate and influential role in relief efforts after the earthquake and tsunami in Japan in 2011, during my riveting interview with Charles McJilton, CEO/Executive Director of Second Harvest Japan.
As a U.S.-born citizen spending your last 35 years in Asia, you bring attendees A View from the East: What to look for and look out for as you try to do business in Japan. How a love of logistics and an acceptance of extreme demands for product information and safety data lead to a successful business.
Could you start by sharing your diverse background and what led you to launch Alishan Organic Center?
A:The simple background history… I’m from New England, I studied animal and veterinary sciences at the University of Maine, planning on becoming a veterinarian, took a break and went to Africa to think about things, came back and decided to pursue a new direction.
I went to Harvard Public School of Health in the department of physiology and toxicology study, working on early sulfur dioxide and ozone studies, left that and became a stock broker at Merrill Lynch, and by the end of the 70’s, I had decided to travel around the world, and after a few years ended up in Japan.
In Japan, I was involved in the restoration of Japanese art and ceramics, and exports and sales around the world. That’s where I basically developed a love of logistics, and moving things globally, including two leading spots, Tokyo and New York. By now I’m a 35-year-old man. I was hungry for logistics and shipping things. We started to ship different food items back in the empty containers we used — garbanzo beans, oatmeal, peanut butter, classic Western-style foods, and out of that grew a mail order home delivery system I founded with my wife, Fay Chen, from Taiwan in the late 80’s.
That has grown over the years to a vertically integrated farm to retail consumer importer of organic foods from 20 countries and five continents; maybe 300 items, frozen, chilled, dry, bulk and branded. We sell to all levels of the distribution chain — re-packers, wholesalers, retailers. We also operate a home delivery service, a retail store and a restaurant.
Q: Could you run down the main points of your talk, and then perhaps share a few memorable vignettes from the bevy of stories you’ve accumulated over the years?
A: There are some stories I’ll only tell when I’m in an intimate group of people, so I’ll wait until the Global Trade Symposium for those.
Q: That’s one of the major advantages of coming to the Global Trade Symposium.
A: Jim Prevor had remarked that meeting and mingling is an important part of the experience. I can schmooze till the cows come home.
Q: You’ll find you’re in good company, bridging cultures and forming new relationships and business opportunities. This seems a good segue to learn more on the themes you’ll be addressing in your presentation…
A: There is what I call the ‘punch points.’ One of the things I want to emphasize when discussing the food industry in Japan… it’s not about the size and the price. They are both important, but ultimately on these TV shows, where you see a $100 or $200 cantaloupe, no one is buying that for food. You buy that for someone as a gift. It sits on a person’s mantel piece. It does get eaten but it’s not a food item; it’s a gift item.
Q: What is important to the Japanese when discussing food?
A: The Japanese as a people are convinced the world is trying to poison them. They’re like Woody Allen. They’re convinced their stomach is where the problem is. They have a higher rate of stomach cancer here, and just all the negative and positive emotions of their body go to their stomach.
In the West, I think we’d say emotions go to our heart. We’d say that person has a bad heart. That could mean emotionally, physically, mentally. Here in Japan, we talk bad stomach.
Q: Why is that?
A: There are probably other countries that have other things. I’ll mention a stomach issue at lunch today, and they don’t look at me and ask, ‘What are you talking about?’ They respond, ‘Doesn’t everybody have that problem?’
It’s not that they’ve been poisoned by other people. It’s because their emotions are centered in the middle; they’re not centered in the heart. That’s just the way the country evolved a long time ago. It’s not a contemporary thing. It’s not related to a food poisoning incident. They’re just concerned. The rates of heartburn and all sorts of stomach-related problems are massive here.
I feel like I’m in a Woody Allen movie sometimes when I hear the stories; the way he would go on and on about his ailments. So safety, stability and trust are important traits, but I’ll come back to that later.
My next punch point… now we’re talking business-to-business, and business-to-government when making an application. There is a total focus that Americans will be OK if they have the documentation. To go to meetings and find out your numbers are slightly wrong, you made a math error, is embarrassing. To have your spec sheet keep bouncing around doesn’t work.
We have very easy customs activity. We do our own customs brokering. We’ve been working with people a long time, and they know our spread sheet is rock solid; there are no mistakes anywhere. Once in a blue moon they’ll check it. There is a total focus on getting documentation correct. The 99.9 percent list of ingredients, they will push back and say it doesn’t add up. For 3.1, Americans will just put down 3. That is not acceptable here. They just say make it equal to 100.
Q: This weaves back to the critical role trust plays in business transactions. Could you provide more insight on that front?
A: One of my punch points, or areas I’m going to talk about, is never underestimate that trust factor. It is important to develop relationships with companies approximately the same size as you. If you happen to be an extraordinary avocado exporter, you should be dealing with an extraordinary food importer of about the same size, for instance, 50 to 100 employees, $10 million in sales.
You don’t want to be with a Mitsubishi. Mitsubishi should be with a Kroger or a comparable mega company. U.S. traders should find people in companies of around the same size. The relationship you have with your supplier or your customer will be essential because we all know there are going to be problems. It’s not that they will accept inferior activity from you, but they will sit there and listen to it if they know it will be a good deal.
There’s a saying in Japanese, ‘You have to sit on the stone for three years,’ meaning no business of note is going to happen for three years. It will take that amount of time for a project of value before you start to see true action.
They don’t like change here. My staff doesn’t like change here. Last year, the figs were deep black, and this year they’re light brown, and oh, no, there are going to be people calling, and asking what happened, did you change suppliers? So the punch point is no one likes change, and that covers all staffers, all employees, and all organizations.
If I were to advise someone coming to Japan, I would say never underestimate the fear of change, the avoidance of the unknown, the love of long relationships, and the responsibility everyone will feel if you do have a long relationship.
I think anybody who reads the news could say, oh you’re talking about the country being so reliable and everything else. What are we supposed to take away from the failed management of nuclear power, Toshiba totally cooking the books, and the Takata airbag cover up?
Q: These examples of mismanagement and scandal are directly counter to the cultural edicts you describe and to your own honorable, long-term business experiences…
A: Most Japanese of the middle level are appalled by those types of news reports. Certainly with the mid-size firms I deal with, except for a criminal rip off, everyone does exactly what they say they are going to do. And I know that sounds like a pat on the back to them, but it’s just very simple.
When a meeting starts at 1:00, it starts at 1:00, if you’re told your car will be ready on Friday at 5:00, it will be ready on Friday at 5:00. In fact, they probably planned on having it ready at 4:00 on Thursday. You have to make sure you mean what you say.
Talking excessively about how good your product is, is not important. The buyer will decide how good your product is. What’s happening in a meeting, they are deciding whether they can trust this person; are they reliable? Reliability… that’s the biggest thing. It connects back to food safety.
This country is hyper focused on food safety because of the fear of food. I know food safety is a serious issue in the US, and Jim Prevor talks extensively about food safety from how you manage your supply chain to what the buyer is willing to accept, but in this country the fear of food safety problem motivates everyone from the lowest level position in the food factory up. It is astonishing, and when there is a failure, no matter how minor or unscientific, it is in the national news for days and days on end.
In the US, there were 3,000 deaths from foodborne illnesses last year, according to the Centers for Disease Control (CDC). Japanese statistics used at an FAO (Food and Agriculture Organization of the United Nations) meeting showed number of deaths from foodborne illnesses is in the single to low annual double digits; that’s 3 to 20 versus 3,000 in America. In 2009 in Japan, there were zero reported deaths from foodborne illness.
Q: Statistics on foodborne illness are not always accurate. Oftentimes the illness is misdiagnosed or not reported. And the cause of death may be attributed to secondary factors, complicating findings. In addition, reporting procedures, data collection, and study methodologies differ between countries. Are you sure the Japanese stats are valid? Considering the Japanese stomach issues, maybe the foodborne illnesses were thought to be something else?
A: I believe the numbers are correct, but I know this is related to the method of collecting statistics. Let’s say the statistics are totally skewed in Japan and resonate different things than they do in the US. Even though the US is three times the size of Japan and the statistics may be hard to calculate, the dramatic difference in those numbers between the US and Japan is still something of note.
I’m very interested to hear Brad Rickard’s talk at the New York Produce Show about shelf life labeling and usage of terms. In this country, all children from age seven onwards, when going to buy something, will look at the ‘best buy’ date.
My kids in elementary school and their friends would flip over the package and examine it for food safety. Of course, my kids are in the food business, but everyone here checks ‘best buy’ dates. Even if the bottle looks good, they’ll put it back, and say, I’m not going to buy that.
One of the things I’ll talk about is related to this focus on their stomach, for some consumers off-the-scale paranoia for food dangers and contamination. Worse than America, some food recalls have absolutely no basis in science. The product in tests could show totally acceptable fungus colonies per gram, but if there is a visible spot of mold in an unopened jar, it’s enough for the health department to say you should do a recall. I speak from experience.
Science is not essential for some decisions on food safety in this country.
Q: Alas, that is often the case in the US as well. This must be challenging for you as a company. What actions have you taken to alleviate this problem?
A: One of the reasons for our success is we have been here long enough and deal with a level of closeness and knowledge of our suppliers because we don’t jump around. I have suppliers I’ve been with for 20 to 25 years. These are our Central Valley fruit and almond producers. We deal with dried nuts and dried fruits. We don’t deal in any fresh produce.
Q: Do you think there would be major differences you would have to confront if you were dealing in fresh produce?
A: Australia and Chile are nice because they are counter-cyclical, their summers are Japan winters. I had some discussions with the American embassy specialists in produce. Their comment was America fills in the gaps. For instance, Japan grows a lot of onions. Onions are an important item here. Imports are just when supply has a hiccup here in Japan, so Japan turns to America. A deep onion supply chain coming from America will be a hard one to develop.
When I go to a supermarket in a middle class, middle income supermarket chain of maybe 50 to 100 branches, if you go beyond the papaya, avocado, and banana and the garlic from China, there’s not a lot of U.S. produce. When I go to Costco, there’s plenty of US produce here in Japan.
Produce doesn’t have to be labeled with country of origin. There are many stores that do labels naming the farmer in Japan. Japanese love that. Different states have different names for certain fruits and vegetables, and it’s followed closely.
People here are heavily into food. It costs a lot as a percentage of their income.
Right now the supermarket business is very rough. It’s a repeat of England. Margins are incredibly tight. People like small bags, they buy for the equivalent of a dollar a bag, single serve, but will still pay for perceived quality in a product. But some of that is old hat. Everyone knows the Japanese will pay for quality, and that the almonds have got to be the right size.
I think the punch points for me are size and price point are important, but really expensive things are related to gifts; the total focus on documentation; the acute failures at the high levels of business like the issues with Takata airbags just don’t happen at the level of businesses I deal with; recalls don’t have to have a basis in science; and the guiding light is to never underestimate the Japanese fear of change and voidance of the unknown. They want to have things figured out ahead of time.
Q: What are some ways Japanese business culture is markedly different than American business culture?
A: Figuring things out as you go is a very good trait. That’s why America became America. That’s inconceivable to the Japanese. If we think hard enough and long enough and have enough meetings, we can anticipate all possible outcomes and plan our responses to all of those outcomes. That is part of Japanese society.
The American ethos is you think through a product part way, you venture a rollout, you know you can’t figure it out completely so you’ll figure it out along the way. Silicon Valley is an extreme of this. They just barely have the software done, they put it out and will update it over time. We’ll do version one and version two and get feedback and improve it. The people who buy it will know it won’t be perfect, but it’s better than waiting. Nobody in Japan wants to think like that.
In Japan, we have a product or process we’re going to sell. Let’s think through every possible outcome, permutation, what could happen, and let’s develop an answer to that or improve the product to eliminate that problem. Things are very rarely released half-baked. Half-baked is just not acceptable as an option.
Q: Does this lead to bottleneck in getting things done?
A: The world is glacial over here. Why did Jack and Fay succeed? We started small, developing nutritional-needs products and supplying to five shops that wanted them. We succeeded because we were the first ones on the block with dozens and dozens of items.
A Japanese organization, in contrast to a Chinese or Taiwanese organization, is much, much slower to react. Adopting your idea is much slower here in Japan than it is elsewhere in Asia. That might be worth a million dollars to a businessman. I find Japan a noncompetitive environment because it doesn’t react quickly. It reacts slowly, and carefully. They think things through.
Q: Was it important you were doing organic as a means to your success?
A: I think the fact we started importing food that had very definite super clean labels, Western-style foods that had clean labels or were organic nuts and fruits allowed us to be in the marketplace when it was incredibly small to develop a dominant position early on. I have a strong aversion to tooting my own horn.
Q: Just like a modest Japanese business man…
A: We were here before there was a market, and we were able to get incredible suppliers from America. Did organic matter, certainly.
Q: Is it hard for the consumer to get organic foods in Japan?
A: It’s not like Europe, where organic is in absolutely every store. The organic market in Japan is small in comparison to Germany, Denmark, or America, but for the size of our company 1 percent of $1 billion is still a lot of money. However, everybody knows that line so that’s not important.
Anyone who starts early and can maintain cash flow has the advantage. We were able to maintain cash flow because we started as a mail order home delivery service. That means we were buying at wholesale in America, importing it ourselves without using trading companies, and selling onward to individuals at retail at a staggering percentage.
Q: Could you talk more about being vertically integrated, avoiding the middleman and having more autonomy and control over the process?
A: The first step… we don’t find the Japanese government import procedures onerous or difficult, since it’s our staff down there on the docks dealing with customs. Our staff knows the product and can answer in real time. If it’s a bit too much, they call me and maybe I can answer right away or I can find out quickly. I say hold on, and call my supplier.
Most of our suppliers we have their home numbers. I don’t make a habit of this, but we have all the answers and can do the application all in one day. Rather than the typical process, where a middleman hires a customs broker, who doesn’t know the product from Adam and every question takes two to three day cycles to get answered.
Q: How does your distribution system work? Aren’t transportation logistics more streamlined and efficient in Japan?
A: The management of logistics in Japan is an art form; it is practiced. There is nowhere in the world that has a better delivery system than Japan. Amazon is fooling around with drones and making a push, but as a small company, you make a relationship with a trucking company and have guaranteed delivery over 80 percent of the nation.
You can say you want a delivery block between 9:00 and 11:00 or between 1:00 and 3:00 or between 3:00 and 5:00. And for less than $10, you can add on refrigerated or frozen surcharge for a 20 kilo box, and you can also collect the money if you want. The transportation system and its reliability has never been exceeded or matched by anyone in the world, and it is very competitive. There are a number of players out there. You can pick and choose and play one against the other.
Q: What advice do you have for people at the Global Trade Symposium wanting to enter the Japanese market? Where do you see the biggest opportunities?
A: Sell food, not a commodity, and stories sell. In this country, half the TV shows are about food, not necessarily cooking, recipes, or going to restaurants, but the story behind the food. That’s what it takes to get the attention of the buyer.
My short list: work with someone your own size, sell a food not a commodity; show an incredible level of documentation. They are not trying to steal the secret recipe. For anyone selling processed foods, you must list all ingredients. The government will require a complete and thorough list of ingredients in the import documentation. On the label, you can get away with saying spices, but the Government is extremely regulated on item documents, from Chili powder to peanut butter to corn.
In business meetings, listen, and don’t talk. You shouldn’t be there saying, I have great watermelons all times of the year. They’ll ask you those questions. When I talk to my friends and business partners here, and I’m not trying to be mean, but they say, he talks too much. You don’t need to blow your own horn excessively. Ask questions and listen and never promise what you can’t do. And if you can show how your food is safer than others, you’ve got people’s attention in spades.
Q: Can you discuss future business ventures, anything interesting in the pipeline?
A: We are taking some strategic steps because of the acute financial turn. Two years ago, the Japanese yen was incredibly strong against the dollar, unimaginably good. The yen has now collapsed. Things are 50 percent more expensive than two years ago.
Two years ago, we’d sit in our office and it was wonderful. At the retail level things were steady. I’m not in the carrot business where the price goes up and down each week. I’m in almonds, and most of us change our prices yearly.
Exchange rates are very different. Japan is a very reasonable place to do food manufacturing. Their production runs are smaller, their attention to how they make the product and doing what they say are exceptional. We as a company are looking at how we can manufacture products in Japan as much as possible, with ingredients we import.
That would be our pipeline; looking more and more to manufacturing in Japan items we would have purchased abroad. It will give us better quality and better shelf life. We’re adding value inside our native currency rather than adding value overseas.
Q: Could you update us on your work with Second Harvest Japan.
A: The second sentence in my one paragraph bio, says it all. I like being in the food business because I enjoy supplying good food to people. It’s nice to make a profit, but it’s even nicer to give food away to those in need. Doesn’t it feel great? Second Harvest Japan developed in the early 2000’s and became critical to relief efforts after the nuclear meltdown and tsunami, and it produces from 1,000 tons to over 3,000 tons on a yearly basis. We’re very happy a number of our suppliers in America generously contributed food and we didn’t even have to ask.
Here’s an interesting story: Organic Valley donated a container of organic, shelf-stable, long life milk. We brought it over and customs was absolutely easy going. A few months later, we said maybe we could sell organic long life milk here in Japan. We had already gone through the Ministry of Health for donations. So we imported a small bit.
When they realized this was a long life product, the approval office of food imports said, this has to be produced at a licensed facility by a Japanese inspection organization company. They said, actually, there’s no one who’s ever been approved oversees, so there’s no way you’re going to be able to import it, unless you maintain it in a chilled state.
If someone imports milk from America and they air-cargo it chilled, that’s fine. So the only way to import shelf-stable milk to Japan — the kind you don’t need to refrigerate and you can put in your cupboard — is in refrigerated air cargo. That’s an example of the unscientific decision-making I’m talking about.
Our biggest problem is that Japan has a poverty rate where 16 percent of the population lives below the poverty line; many are single mothers, single parents and old people. In food banking, first you need to raise money to run it; you have to organize food manufacturers to support it, and find people to give to.
The hardest part in Japan is organizing the battle line of distribution even though there is a massive need. We have 700 companies that have gone through the registration process for donating food. The hardest part is ramping up that distribution.
Q: Why? Isn’t that ironic, since Japan has such an efficient transportation/logistics distribution system?
A: I forgot one point when we talk about the fear of change and the unknown. Japanese society feels strongly everyone should be treated the same. Examples of that not being true would be during World War II. This would mean in an office, when a salesman drops off a dozen donuts, and there are 13 people, the donuts will be divided so everyone gets their fair share. In America it is first come, first serve.
There are numerous agencies we work with distributing food. If we bring in 47 bottles of spaghetti sauce, and there are 50 families at the shelter, they say that won’t work for us. How can we accept something if we can’t share it equally with everyone? This is talking about a Japanese trait; this is not just about food banking.
Evacuation centers would refuse food if there weren’t enough packages to go around for each person. No one likes to stand up and take charge here. They like to stand up as a group. I don’t want to make this a sociology talk, but mention these cultural aspects in understanding ways to do business in Japan.
John and Fay’s 30th anniversary party
We’re 45 people in our company. The revenue in our company comes from importing distribution, but the image of our company comes from our restaurant and shop and activities for organic healthy eating.
I’m just an old hippie. I traveled the world and ended up in Japan. I’m excited to tell my story at the Global Trade Symposium and to hear more about Jim Prevor’s story and of those in the audience. When the invitation came in from Jim, there was a fair amount of moving schedules around because I so wanted to do this and figure out a way to get to the New York Produce Show.
Jim and I have known each other for many years through correspondence, but we’ve never met in person, although we’ve come close on several occasions. It seems the perfect moment in time.
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Japan is a difficult market for Americans, because although we are among the most closely aligned countries in the world, the culture is so different. Japan is an island nation, mostly homogeneous and, to this day, keeps itself apart. Little things separate us…. for example, bank ATMS do not generally accept non-Japanese cards (although Japanese convenience store ATMs usually do).
The time frame that Jack talks about – three years for anything to happen — is just so different from an American entrepreneur’s mindset. Many decades ago, our family business was selling all over the world, but very little to Japan. We sent Mark Mayrsohn, now of Mayrsohn International Trading Co. in Miami, to develop the market. After following elaborate protocols with letters of introduction and whatnot, we pulled him out because we lacked the patience to wait around three years for things to happen. We sent Mark to Miami, and things happened in three weeks exporting to the Caribbean.
And there is this notion of shame that is so foreign from the American experience. When the Germans surrendered in World War II, there was a submarine, German Submarine U-234, which was in the middle of the North Atlantic when the war ended. On the submarine were both Nazi military and scientific envoys headed for Tokyo and two Japanese naval attachés that had been in Germany for several years.
The submarine also contained a half-ton of uranium that Hitler had ordered delivered to the Japanese.
The submarine made its way to the US to surrender, but the two Japanese on board committed suicide rather than face the dishonor and shame associated, in their mind, with being a prisoner of war. It is not likely they thought they would be tortured or mistreated… indeed the submarine’s commander made for the US coast because he wanted to surrender to the Americans, expecting the best treatment.nd death was preferable to dishonor for these Japanese.
How to interface with this culture, what crossing the thresholds of doors opened by the TPP will require, relooking at Japan as an opportunity market — all this will be discussed at Jack’s talk.
Come to the Global Trade Symposium, learn and engage.
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